It all looks pink to me
Everyone these days seems to be convinced that the stock market can go nowhere but up in 2007. Rose-tinted glasses? Or eyes wide shut? Some of this week's news-related market action convinces me it's the latter.

Keep in mind, I'm generally disdainful of trying to attribute every market movement to a specific cause of one kind or another. Not only does that lead to madness, but it's impossible to know, in 99% of cases, why a stock or a market is doing anything. Investors just aren't that rational.

However, the abrupt Wednesday-afternoon barf seemed to be pretty firmly tied to a news event. When I left for the potty, the portfolio was green, green, green. Return to the office chair, and the red tide was in. What was up? Bomb? The Saudis decide to stop pumping oil? Nope, it seems the Fed's latest meeting minutes had hit the wire, and -- shockers -- Mr. Market was no longer convinced that rate cuts were on the way.

What's the surprise here?
I'm no economist, but -- perhaps unlike many of those masquerading as economists on the news these days -- I do remember my Econ 101. Given the current climate, in which "core" (a.k.a. "wishful thinking") inflation is already beyond the "comfort level" of the Fed, it seems pretty unlikely that the Fed would hand out yet another batch of free money. Even "Helicopter" Ben Bernanke knows he can't toss his leafy green wads on free-spending Americans forever without seeing prices pop.

So the only thing that surprised me this week is that Mr. Market was surprised at all. It's like Wile E. Coyote looking up at that still-floating anvil and thinking "Wait, you mean that thing can fall?"

Cue the pink parasol. You know how it ends.

Wisdom in the crowd?
But hey, Thursday was fine, right? Some retailers came in with some big comps and some earnings upgrades. (Luckily, a pair of them powered my portfolio.) But this morning we're in the red again. Maybe that drop in unemployment and uptick in wages is yet more proof that the free money's not coming back soon?

Who knows.

What I do know is that I'm not encouraged by all the optimism, nor even the good times. Profits and margins at record levels may seem to be a great thing, but remember that a giant portion of consumer spending has come from using home equity as an ATM, and those machines are turning out to be filled with little more than hot air, which is escaping quickly.

Signs of a top?
I'm always pretty wary when the daily 52-week low list is as thin as it seems to be these days. And when I turn to some specific stocks, I shudder, hoping they're not signs of a more general mania. But again, I'm not so sure. After all, we not only have the vast majority of BusinessWeek's ball-gazing gurus giving 2007 the unconditional thumbs-up, I'm seeing some of the market's worst dreck floating at insane levels.

Squinty-eyed, "screw the valuation" enthusiasm is the only logical reason I can find that anyone would buy, for instance, the maker of a jelly sandal -- Crocs (NASDAQ:CROX) -- at 36 times earnings, especially while insiders sell boatloads of shares. (By the way, watch your toes on escalators, folks.)

And unfortunately, it gets far worse than that. At least Crocs actually sells something.

A company like Raser Technologies (NYSE:RZ) on the other hand, still trades at more than 2,500 times revenues. This self-proclaimed developer and licensor of advanced motor technology shows a grand total of $440,000 in revenues across its five-year existence and has burned up millions in cash, staying afloat by issuing more shares.

Now it's riding on a (to my mind) nutty, headline-leeching, and doomed-to-failure initiative as an eco-energy play, having signed leases for geothermal resources that it claims it will develop as revenue sources. And there's a bonus: an as-yet-unexplained method by which Raser will "monetize" tax incentives owed its yet-to-be-started geothermal plant. Since these have been extended through 2008, I can only assume Raser will be setting a land speed record for geothermal power-plant construction.

Brave new (old) world
This is just one example of the way money is flowing into some of the market's worst junk, but it isn't the only pipe dream out there attracting cash like a pole dancer on payday. Next year, the biz magazines are buzzing, could be a banner year for tech IPOs. Seems the brainchildren of Silicon Valley are all planning to take another shot at becoming the next Google (NASDAQ:GOOG), News Corp.'s (NYSE:NWS) MySpace, or [insert hot-sounding Web 2.0 website here].

Me, I anticipate some interesting, old-school businesses-in-search-of-a-profit-model, not unlike the infamous Underpants Gnomes of South Park -- or YouTube. (Phase 1: Collect eyeballs by letting every yahoo with a computer upload all the copyright-infringing content he wants, and make taking it down a laborious, time-consuming, and ultimately futile nightmare for the copyright holders. Phase 3: Profit.)

Do we need more Gootubes, Vonages (NYSE:VG), and Shutterflys (NASDAQ:SFLY)? I doubt it, but hey, investment bankers need new Porsches and entrepreneurs need cheap money to keep flailing away on Phase 1. Phase 3, I imagine, will remain elusive, as always.

Foolish bottom line
Given the myriad signs of groupthink out there (which is to say, no-think), I'm having a pretty hard time finding places for new money as I cash fully valued stocks out of my portfolio. And for the time being, given the risks I see, I'd rather settle for bank interest on the harvest than hang on for more and risk the 20%-30% correction I suspect might be on the way.

It all comes back to a little thing called history. Boom times rarely last, especially when they're fueled by leverage. If consumer spending dries up and companies have to start battling for customers, those fat margins will melt quickly, and stocks that look fairly valued today will look downright expensive. I plan on holding only the real cheapies.

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At the time of publication, Seth Jayson had no positions in any company mentioned here. View his stock holdings and Fool profile here. Fool rules are here.