They're coming out of the woodwork.

"Nice call on that Nasdaq 500, Otter."

"Way to be the contrary indicator, Mann."

"Dude, do you have to think about which is right and which is left?"

We're speaking, of course, of my beautifully ill-timed Oct. 9 article, Nasdaq 500: Bank On It. I didn't pick a day near the low to release this article; I picked the bottom -- the absolute trough -- to say Nasdaq stocks were overvalued by as much as 50%, though they were nearly down 90% from their all-time highs.

What's happened since? Well, the Nasdaq closed at 1481 yesterday, meaning it has risen more than 34%.

Even Barron's got into the act with an article stating that since The Motley Fool called for stocks to drop, they must be ready to go back up. I sent a note chastising the author on such specious logic and got the response: "Well, you guys were mean to me back in 1999." Seems like a good enough reason to write a column to me. Of course, let's look at the scoreboard. Yep, I called the bottom, all right.

Big, fat, hairy deal. That doesn't change the gist of my argument: The biggest technology companies are seriously, dangerously overvalued. Now they're just 34% more overvalued than last month. That's all. If that's the kind of thing that gives you comfort, well, knock yourself out.

The stock market may have run the other way, but I don't have to answer to whether the valuations of the big-cap tech stocks are justified. With the exception of Nokia (NYSE: NOK), the Rule Maker Portfolio has sold its technology stocks and is looking for value elsewhere. Those buying Intel (Nasdaq: INTC) today should be able to argue that this behemoth is a value at 54 times earnings (though its free cash flow is substantially higher). This for a company that's not growing.

I don't mean to pick on Intel. Cisco (Nasdaq: CSCO) is nearly as bad, at 39 times earnings, and Microsoft (Nasdaq: MSFT) is at 34. Applied Materials (Nasdaq: AMAT), which has never been a Rule Maker company (though it did spend time as a Rule Breaker several years back), comes in at quadruple-digit multiples to earnings. Yowza!

By the way, these are reported earnings. Take out stock option expenses for each, which are considerable, and the multiples skyrocket. As I noted in August, if we use core earnings, as determined by Standard and Poor's, Intel's P/E is well over 300.

Let's make one thing clear. I'm incapable of prognosticating the short-term direction of the stock market. But I believe, as I did last month, that the biggest companies comprising the Nasdaq are atrociously overvalued. They're valued on the assumption that, as soon as we shake off our current economic doldrums, we'll return to the big tech boom. That's certainly possible. But would you bet on it? Not me.

Of course, we've been in this position before -- almost exactly one year ago, the stock market grew by more than 30% in a little over a month. At that time, I said, "...there is no margin of safety in a rising market that is not backed by business fundamentals. That's a place we've been. While it was fun for a while, the results were generally catastrophic."

It didn't last because it couldn't. Now is no different. This rally has just taken some eyes off the ball. Suddenly, you start getting that twitch: "Wow, (Nasdaq: AMZN) has tripled this year. Someone's getting rich!" Has anything changed in the past six weeks? Yes, people are suddenly really positive about stocks, especially some of the old darlings. Is that a good thing? No.

If you want to invest in companies on the theory that the economy is going to rebound, that's great. Eventually, it will, and such patience can yield rewards. I would caution that it's a mistake to assume such a recovery is imminent -- that it's underway. But I, like almost everyone else, don't really know. What I do know is that it makes no sense to invest in companies priced at levels that assume the recovery has already taken place.

I'm deathly afraid that the recent rally has caused some people to jump back in without thinking about whether there's a margin of safety in the companies they're buying. Don't expect Wall Street to give you a clue -- it's just ecstatic people are buying again.

Caution: more pain ahead
Two statistics this week indicate the economic pain we're enduring isn't ending anytime soon. For quite some time, we at the Fool have warned that the level of American consumer debt has skyrocketed, and yet the one factor that has kept the U.S. economy from collapsing is consumer spending. But I couldn't figure out where all the money was coming from. ran a chart recently with the answer: homes.

In the past decade, consumers have taken cash out of their homes through refinancing at a rate of about $25 billion per year. Then in 2000, the rate suddenly surged to over $100 billion. This year, thanks to low, low interest rates, the amount of cash taken out of U.S. homes for refinancing may exceed $300 billion. That's plenty of fuel, but it's going to run out sometime. Consumers have robbed tomorrow to spend today, and that game ends badly.

Couple that with this second statistic: The Mortgage Bankers Association of America states the number of U.S. home foreclosures is at its highest level in 30 years, more than 134,000 in the three months ending in June. Three times that number are in a backlog; the loans are non-performing, but lenders have not yet started foreclosure.

So, we have a market dependent on consumers -- consumers who have taken out half a trillion from their homes' equity in the last three years, and who are now increasingly unable to maintain their mortgages. We've got companies with capital spending accounts wired shut, and state and local governments looking at revenue crunches due to the fact that their budgets were written back when times were great. That doesn't sound like the recipe for a recovery any time soon.

So no, I'm not ready to circle the wagons, drink firewater, and lose myself in the confusion just yet. The Nasdaq Composite may not be priced at 500, but I suspect that's what it's worth. The best-case scenario, of course, is that stock prices will stay the same for an extended period of time and let businesses catch up. Given the continued mania among investors desperate to find the true bottom, I doubt this is a high-probability outcome, either.

Still, I love the fact that I was able to serve as someone's contrary indicator, just once.

Fool on!

Bill Mann, TMFOtter on the Fool Discussion Boards

Bill Mann can't tell what the stupid marshmallows in Lucky Charms are supposed to be anymore. He owns shares of Cisco and is the managing editor of The Motley Fool Select, where you can find his best Foolish stock ideas you won't find anywhere else. The Motley Fool has a disclosure policy.

The Rule Maker Portfolio has had a cumulative investment of $43,500. As of Nov. 26, 2002, its current value of all cash and equities is $30,893.33. This equals an internal rate of return of -11.7% since the launch of the portfolio in February 1998.