Is it safe to buy stocks again?

Over the past few weeks, whilst a mood of holiday high spirits dominated, I've felt a bit like a naked loon covered only by a placard reading "The end is near."

It's been particularly nippy for me since the year began, with stocks perking up in a steady, low-volume, low-volatility advance. The Standard & Poor's 500 Index ($INX) poked its head above 1,300 on Tuesday for the first time since summer, thanks to some better-than-expected economic data and an emerging worldwide narrative that global central bankers will solve all problems -- the eurozone crisis, China's slowdown and the feeble U.S. housing market, to name three.

Many stocks have rallied big -- especially beaten-down, economically sensitive names -- on a surge of short covering by people who were betting against them. Some examples: Beleaguered Netflix (NFLX, news) is trading above $90 a share after starting the year near $70; Caterpillar (CAT, news) has added nearly 20% over the past month; and Bank of America (BAC, news), which dipped under $5 a share in December, jumped above $7 last week for a cool 40% gain.

Still, I wasn't hearing scary voices in my head. I had good reason to sound the alarm, and I'm still worried.

Big, complicated macroeconomic issues -- often intertwined -- are combining with a slowdown in corporate profit growth and the ongoing wind-down of the West's epic debt bubble ($8 trillion in excess leverage, according to Credit Suisse) to create a treacherous investment environment in 2012. And based on disappointing hedge fund performance, this market has stumped even the Wall Street hotshots.

We have government debt issues, fiscal austerity, rising trade protectionism, the debt-ceiling debate, the rise and fall and rise again of crude oil, a stalling of earnings growth, a whiff of inflation, moribund banks, a spate of elections and mixed economic reports with sentiment high but job growth and housing still anemic.

No wonder stocks have been mired in a trading range since late 2009 and are hovering near levels first reached way back in 1999.

Yes, we're seeing a rally now, which may make you ask: Is it safe to buy stocks again?

By that I mean: Is it safe to buy them and own them for the long haul? This is the basic buy-and-hold strategy espoused by an army of financial advisers and the mutual fund industry, and followed by the majority of individual American savers -- those who don't have the time or inclination to try to trade like the pros.

The answer, I'm afraid, is not quite yet. It's a false dawn not unlike the one seen in early 2008 before the meltdown started. The volatility behind all this is set to continue for at least a year. The good news is that we could see the return of a 1980s-1990s style secular uptrend for the stock market as soon as 2013. Here's why you should wait until the smoke clears.

It's been painful

While stocks have largely flat-lined for the past 13 years, we've had periods of dreadful panic, such as in August and in the summer of 2010. And we've had powerful, low-volatility gains spurred by hopes of activist intervention by policymakers, such as the current rally, fueled largely by hopes of more money printing from the Federal Reserve. (Even though the Fed's latest attempt at what's called quantitative easing didn't do much for the economy.)

These big shifts in sentiment alternate, it seems, with all the regularity of the tides and the moon. It's been a trading environment where you needed to buy and sell to catch the tide and make money. And for most investors, this has been terribly uncomfortable.

No wonder, then, that people have flocked to the only asset class that's performed consistently well over this time: the venerable U.S. Treasury bond, with 10-year notes paying a small but reliable annual yield of just 1.89%. That's not enough to meet the retirement dreams of American savers, as I explained last week in "Can you build a $2 million 401k?" Not when experts are calling for young workers to aim toward retirement savings of $2 million or more by age 65.

Instead, these folks are throwing up their arms in disgust and raiding their retirement savings to pay for holiday shopping and new cars, or to cover school tuition or mortgages. According to a survey by consulting firm Aon Hewitt, (.pdf file) nearly one-third of 401k holders have a loan against their savings, and loan originations jumped 20% last year from 2010. For lower earners, the jump was as much as 60%.

Whether by necessity or by choice, people are giving up on the idea of a comfortable retirement.

A survey by the Employee Benefit Research Institute (.pdf file) found that investor confidence hit a new low in 2011, as just 27% of workers said they're "not at all confident" they will have enough squirreled away for retirement. Almost 15% expect to still be working until age 70, up from 11% in 2006. Similar dynamics are hitting college savings as well.

In the short term, investors are casting a vote of no confidence in this economy as flows into money market funds -- essentially savings accounts -- have hit a 21-month high, returning to levels not seen since early 2009. In other words, people are acting as if we're back in a recession. I think they're right.