A couple days before the stock market took off in march, Art Cashin, NYSE floor director from UBS, made an interesting remark on CNBC, the timing of which was especially of note. Citi shares, deemed “shi*ty”, were ready to adorn the shelves of 99 cents store, and Bank of America was trading near $2. Another bank failure seemed imminent. Fear and hopelessness had seized the financial markets. As “experts” were busy tossing around projections for the Dow to reach 4000, Art Cashin calmly shared his optimism with the viewers of Squawk Box, “You know, when there is too much fear, and all hope seems lost, hope is usually hiding right around the corner.”

Indeed, two days later, Vikram Pandit announced Citigroup was profitable for the first half of the quarter and then a quick series of similar announcements from other financial firms sent the stock market exploding and never really looking back.

It’s hard to disagree with Cashin’s comment. After all, the markets proved him right. But I can’t help but ponder the results of fearlessness and excessive hope we see now. The more I think, the more convinced I become of the conclusion that conversely to Cashin’s comment, I can say that excess of hope marks the beginning of despair; that when there is no fear and trouble in sight, trouble is usually brewing right around the corner.

There, I said it. I’m no Art Cashin, but for me, this blog is the closest thing to being on CNBC. So allow me a few moments of fame.

Yeah, you’ve heard the bearish arguments. People say the markets went up too much too fast. Earnings were a joke. Banks had one-time gains and they can’t repeat it. I-Banks model has failed, how will they make money? Dramatic cuts in leverage across the spectrum will cripple profits. If financial sector is not profitable, economy can’t recover. On and on. These people were short and kept shorting.

And you’ve also heard the bullish agruments: Stocks were oversold, banks said they are profitable. Change in accounting rule will provide great relief to their books. Stress test results showed banks are fairly well capitalized (my personal favorite :) ). On and on. Well, these people got long and kept buying.

As shorts started second guessing their judgment, apparently institutions (mutual funds etc.), which had stayed on the sidelines with heaps of cash, piled in on the long side, fearing they would miss the rally. They had lost a lot of clients to the crisis and certainly didn’t want to disappoint whatever few they had remaining. With more buying came more short covering, adding more and more fuel to propel the stock market even higher.

The rally shrugged off just about any bad news, financial or geopolitical. China had some surprisingly good news on economic recovery that caught more bears off guard. One after another, US economic numbers came “better than expected”, leading to lengthy discussions about “green shoots” in the economy. Larry Kudlow got bold again. Jim Cramer got bolder. Of all people, Meredith Whitney, who had been bearish all along and said she wouldn’t be a buyer of Goldman at $100, turned around and recommended buying Goldman at $150. And so the buying frenzy continued. It continues to this day.

To be clear, the market’s rally was justifiable. The numbers, while not stellar, did show improvements and stabilization in the housing market, the root of the crisis, and across other sectors. Manufacturing, home sales, GDP, comsumer credit and confidence etc. did show improved readings to support the buying thesis. But the extent to which the market has rallied seems to require a reexamination of sorts, of where we are now and how much longer we can continue this way.

To begin, earnings weren’t that great. Following their earnings reports, stocks have remained strong mostly on beaten estimates. But given the ongoing crisis, these estimates were very conservative in the first place. And much of the better than expected results seem to have stemmed from either aggressive layoffs and cost-cutting or risky investments and unrepeatable asset sale, certainly not from operations as solid revenue results have been very few and far between. Generally, they appear to be in decline. Additionally, the job market is still sour and a 9.4% unemployment rate remains an ongoing threat to a sustainable recovery. Consumers are still strapped for credit. Instead of jobs and earnings, what’s really growing are tighter regulations, taxes and budget deficit.

The bulls, however, are not listening because it is undeniable that on many fronts, things seem to be improving, and perhaps that theme will continue to carry the markets even higher. But it is also impossible to ignore in the current conditions the prevalence of sheer optimism, the fearlessness of investors (ironically called “panic buying”), and the excess of hope that usually mark a capitulation and a subsequent reversal.

The market is so strong, there may be only a handful of catalysts capable of pulling it lower. Bad news from unemployment data, problems in China, rise in US deficit and state failure could potentially be one of those catalysts. Interestingly, the next big thing to bring down this economy may not necessarily be a bank failure; it may well be a state failure. Everyone’s counting on a recovery, discounting all the IOUs they have received. Pun intended.

I am just bearish because a correction has long been overdue.

Or may be I am just bitter because I missed the rally.