Is the worst behind us?

It sure seems like folks are starting to feel that way.

So far today, I've read (1) that News Corp.'s (NASDAQ:NWS) Rupert Murdoch thinks that "the worst is over" for his company, (2) that the government's much-ballyhooed bank stress tests "prove" that things aren't as bad as many feared in that sector, and (3) that a Morgan Stanley (NYSE:MS) analyst thinks that oil's recent price rise means investors have a "sense that the worst has passed on the macroeconomic front."

And I haven't even had my second cup of coffee yet.

It certainly does seem like the economic world is letting out a big sigh of relief. The rate of increase in unemployment has slowed, the VIX "fear index" is way down, and the market … well, the market is flying.

It's hard to believe, but I just checked -- my portfolio is actually showing a nice net gain over the past 12 months. Other than taking a small gamble on Ford (NYSE:F) that has worked out nicely, I haven't done anything particularly fancy -- mostly I've been playing defense. I'm sure many of you are seeing even better results.

But how long can all this last? Things aren't really getting better yet, are they?

How real is this new reality?
There may be a bit more to this wild bull run than smoke and mirrors. Respected money manager Jeremy Grantham, whose commentary is always worth a careful read, recently argued that the massive stimulus put into play by the world's governments made a humongous global stock market rally -- one that goes "far in excess of anything justified by either long-term or short-term economic fundamentals" -- extremely likely.

As he put it, "My guess is that the S&P 500 is quite likely to run for a while, way beyond fair value … to the 1000-1100 level or so before the end of the year."

And what then?

His argument is nuanced, but in a nutshell, that's when he believes the effects of the stimulus will start to fade. As he sees it, we'll see another decline and then a long slow recovery, as still-overvalued assets like real estate and still too-high debt levels finally do the hard grinding work of catching up to reality.

Of course, as he acknowledges, this is just speculation. But Grantham's pretty good at this stuff.

Timing those realizations wisely
During last fall's crash, I kept reminding readers (and myself) that unrealized -- paper -- losses were just that, unrealized. Unless you had to cash out, I said, it was best to leave things alone -- or, if you felt the need, to realign things a bit to make sure you had the investments you really wanted for the long term.

Buy boring-but-sturdy dividend payers like Waste Management (NYSE:WMI) or France Telecom (NYSE:FTE), I said; buy oversold giants like eBay (NASDAQ:EBAY) or maybe Starbucks (NASDAQ:SBUX); or just sit on whatever you've got if you're happy with its long-term prospects.

But above all, I kept saying, remember that this is an opportunity, and that the one way to guarantee that you take a loss is to cash out.

Lately I've been thinking about the flip side of that argument.

How high is high enough?
My portfolio's bottom line is looking pretty good as of this moment. But right now, that bottom line is just ink on paper. Actually, it's pixels on a screen, this being the 21st century and all, but you get the idea. It's not money in my pocket, it's not a well-funded retirement, it's not a Ferrari in my garage. It's just a paper gain.

So do I sell and take those gains? Should you?

What if Grantham's wrong? He himself guesstimates that there's a 15% chance that he's off base, that this is really a new "lasting bull market destined to take us to new highs within three or four years." It would really stink to be sitting in bonds or cash while the stock market spent the next few years making up lost ground, wouldn't it?

Right now, I think I'm going to sit tight. I'm a long-term investor, I keep telling myself. I'll ride it out. But there's certainly a case to be made for cashing out -- whether right now, or the moment the S&P crosses the 1000 mark, or sometime soon after. What do you think? Leave a comment below and let me know what your plans are.

Even though the overall market has rocketed off its lows, there are still terrific values to be found -- if you know where to look. The Fool's Inside Value team has turned up a bunch of great ideas for new money right now, with eBay, Starbucks, and Waste Management among their recommendations. Want a peek at the rest of their picks? Help yourself to a free trial for 30 days of full access starting right now.

Fool contributor John Rosevear owns shares of France Telecom and of Ford preferred stock. You can see all of his stock holdings on his profile page. eBay and Starbucks are Motley Fool Stock Advisor recommendations. France Telecom and Waste Management are Motley Fool Income Investor recommendations. The Fool owns shares of Starbucks. You can try any of our Foolish newsletters free for 30 days, with no obligation. The Motley Fool has a rockin' disclosure policy.