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9:00 AM EDT, Friday, October 9, 2009: Stocks are in a bubble. This cannot last. It's been pretty well straight up, since the March low.

But, say the bulls, it's only recovered 45%, compared to a "normal" 72% recovery from previous stockmarket bottoms. We have still a long way to go.

Aren't charts wonderful? The first one was a daily chart. The second one was weekly.

The BIG fear is that the stockmarket is disconnected from the realities of the world. The economy is doing awfully. The stockmarket is doing great. This confuses people.

Sadly, it's not that simple.

For one, the econmy is doing surprisingly well in several areas: retail sales, technology, much corporate earnings, and this morning, a narrowing of the U.S. trade gap. Also, mortgage interest rates have fallen, making it cheaper to refinance your old house or buy a new one.

There remain two huge overhangs: Jobs. We've lost 7 million since December 2007. To get back to some semblance of a normal economy, we'll need to create 12 to 15 million jobs over the next five years. That will be a hard job.

Second, commercial real estate . It's way in the toilet. At least $1.5 trillion of loans by banks and others are under water. The banks are afflicted with The Egypt Syndrome -- denial, denial, denial. They're keeping the loans on their books. They're not selling them, not dealing with them. Their fear is if some loans are written down to their real value, all loans will be forced to be written down. And their balance sheets will then violate fed capital requirements and they'll be closed down. The reality is they will be written down. And several hundred banks will be closed in the next two years. (Just under 100 have been closed this year.)

Many people also believe the declining U.S. dollar is a problem. I is and it isn't. You have to factor it into your investment decisions. Companies that export will do better. Some overseas countries will do well, viz Australia, Brazil. Canada and -- of all places -- Poland. The Australian dollar is now at 90 U.S. cents. A few months ago, it was under 60 cents.

But sentiment, not logic, is what drives the stockmarket.

And right now there are many, many people from Jim Cramer to Byron Wien pounding the table for equities.

Which brings me to the importance of cycles. In January, Howard Marks, the brilliant head of Oaktree Capital ($60 billion under management) wrote about the inevitability of boom and bust business cycles. He concluded we're stuck with them forever. He wrote:

Of all the investment adages I use, this one remains the most important: “What the wise man does in the beginning, the fool does in the end.” Practices and innovations often move from exotic to mainstream to overdone, especially if they’re initially successful. What early investors did safely, the latecomers tried in 2003-07 with excessive leverage applied to overpriced and often inappropriate assets.

Under the heading of "the Importance of Cycles," he wrote:

In my opinion, there are two key concepts that investors must master: value and cycles. For each asset you’re considering, you must have a strongly held view of its intrinsic value. When its price is below that value, it’s generally a buy. When its price is higher, it’s a sell. In a nutshell, that’s value investing.

But values aren’t fixed; they move in response to changes in the economic environment. Thus, cyclical considerations influence an asset’s current value. Value depends on earnings, for example, and earnings are shaped by the economic cycle and the price being charged for liquidity.

Further, security prices are greatly affected by investor behavior; thus we can be aided in investing safely by understanding where we stand in terms of the market cycle. What’s going on in terms of investor psychology, and how does it tell us to act in the short run?

We want to buy when prices seem attractive. But if investors are giddy and optimism is rampant, we have to consider whether a better buying opportunity mightn’t come along later.

You can read his entire paper on the Oaktree Capital web site. Click here.

n short, we are in a bubble. But there remain interesting equities -- like Amazon, Apple, Google, Australia (EWA) and Brazil (EWZ). And gold (GLD) continues to shine, Just remember, you have to pull the plug fast. We are in a bubble. I'm getting repititous.

How fat are you? Figure your body mass index. Click here.

Three favorite New Yorker cartoons.

I've spent a lot of time this week meeting with business people and investors. There is fear -- especially among real estate entrepreneurs and owners. But the big sentiment is uncertainty. My rule is simple: Have sufficient cash to allow for two years' of living expenses.

Also, have some fun this weekend. Recognized everyone else is as frightened and confused as you are. Try to get some rest.

This column is about my personal search for the perfect investment. I don't give investment advice. For that you have to be registered with regulatory authorities, which I am not. I am a reporter and an investor. I make my daily column -- Monday through Friday -- freely available for three reasons: Writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I encourage my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam. I have no role in choosing the Google ads on this site. Thus I cannot endorse, though some look interesting. If you click on a link, Google may send me money. Please note I'm not suggesting you do. That money, if there is any, may help pay Michael's business school tuition. Read more about Google AdSense, click here and here.