HERE in a nutshell, is the current sentiment when it comes to stock markets: most people hope the rise will continue - and while many brokers, economists and analysts publicly speak of a sharp, V-shaped recovery underpinning markets, they would also be privately pondering what might happen if central banks and governments run out of stimulus money.

The epicentre of all the world's euphoria is, of course, Wall Street, where the 'less bad is good' or second derivative theme has taken a firm grip on the market's senses. Yet notwithstanding official declarations that the recession is over, and the concurrent release of supposedly better-than-expected earnings (much of which has come via job cuts and comparisons with low bases), doubt still abounds - and in no small measure. In fact, you could say that the US is also a major epicentre of scepticism.

Last week, BCA Research's Emerging Markets Strategy department presented a plausible argument - counter to that of its main house view - namely that this economic cycle is different to any during the past 50-60 years.

'The key difference is that US household income is falling for the first time in more than half a century. Contracting income would not be a problem if consumer debt levels were not high. The combination of high debt levels and falling income is creating dangerous dynamics by making debt servicing problematic, as well as forcing deleveraging,' said BCA.

The main problem as seen by BCA is that although borrowing costs are low (i.e. interest rates are near zero), households are focusing more on paying off their debts rather than increasing borrowing as they always did in the past to consume more. This marks a radical departure from classic business cycle theory which assumes low interest rates should stimulate borrowing and consumption.

'The repayment of debt when interest rates are close to zero is reminiscent of the Japanese liquidity trap, when the corporate sector was cutting debt despite extremely low rates. Because of this, the effectiveness of the traditional monetary policy transmission mechanism was reduced,' said BCA.

Contrarians would find plenty to think about from this analysis, which incidentally concludes that Wall Street has gotten ahead of its fundamentals and because investor sentiment is highly elevated, makes the odds of a relapse considerable.

The bulls, of course, would not want to hear this and would point to better-than-expected earnings as evidence that all is well. Friday's shocking US$2.24 billion loss after preferred dividend payments reported by Bank of America would probably be dismissed as a temporary setback, an aberration that can easily be set right by the injection of more money from the US Federal Reserve.

There is a growing feeling however, that much of the good news - if it can be called that - has already been priced in. It's a well-known fact of market life that very often, prices overshoot their fundamentals, both on the upside and the downside, and it could be that after rising non-stop for seven months, reality will soon set in for a market that is anticipating stellar, double-digit economic growth that in all likelihood will not be forthcoming next year.

This has been reflected in daily movements over the past few sessions, where prices open firmer, then drift gradually weaker. Make no mistake - there is still plenty of liquidity support, but our guess is that much of this is temporary and illusory, generated by day traders who have no interest in holding on for longer than a few minutes at most.

The upshot of all this is perhaps that the short-term outlook has turned probably negative and it would make sense to take some money off the table. Beyond that, if the relentless money-pumping by the Fed does actually enable the US economy to gain traction, then the long-term prognosis could be positive. Investors would do well to remember John Maynard Keynes' famous saying; no, not the one about the long term but this: 'The market can stay irrational longer than you can stay solvent.'