FT Alphaville is skeptical of Morgan Stanley strategist Teun Draaisma’s bullish outlook. Looking at the arguments he makes in detail, I think he has a point, although I would be more worried about the downside.

The essence of his argument is that investors’ confidence is currently very low, so the market is unlikely to fall further on sentiment. Therefore, if we get through the current credit problems without serious damage, that will give a boost to the market sufficiently to give the current bull market one last leg.

This relies on Morgan Stanley’s economists being correct in their forecasts which limit the damage to a mild recession in the US and slower consumer spending, but no recession, in Europe.

The problem is that we do not yet know how bad the damage will be. That is why so many investors are waiting to see what happens. If they are reassured over the next few months, they we will see them buying, driving a further bull market.

He does suggest that we will once more hear people saying “this time its different”. Are people stupid enough to believe this so soon after the last bubble?

I think it very likely. It is all too easy to think up reasons why it should be different, For example, if we avoid recession the argument may be made that central banks now no to avoid recession, so there will be no trigger, in the real economy, for crashes in financial markets.

Of course, as Teun Draaisma says, it will all end it tears. In the meantime, as long as the great fools exist (all too likely), there is a good change that the bull will have once more run.