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Is the 'biggest bull market in history' ahead?

The latest news from the embattled outposts of Europe, more troublesome U.S. numbers and further signs of a slowdown in China and other emerging economies are helping to reignite talk of a double-dip on a global scale.

A large swath of Europe is already back in recession and unemployment has climbed to levels not seen in 15 years, underscoring the claims of prominent critics that the harsh German austerity regimen is quite likely to kill off seriously ill patients long before they can reap the undoubted long-term benefits of the medicine. The growing backlash against heavy budget-cutting has added large dollops of political risk and social instability to the region's worsening economic outlook.

Battered Spain may still be solvent, as the government insists. But foreign investors continue shedding Spanish debt and money is flying out of the country's banks, which are being propped up by the European Central Bank. ECB loans to Spanish banks shot up to €316.3-billion ($411.8-billion) in March, almost triple the total of last November.

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Here's how bleak the prognosis is: Norway's Government Pension Fund – Global, which invests the country's surplus oil bucks, has dumped all of its Irish and Portuguese government bonds, cut its Spanish and Italian debt holdings and generally reduced exposure to other European assets over the past two years. "Predictability is important for a long-term investor, and the euro area faces considerable structural and monetary challenges," declared Yngve Slyngstad, the head of Norges Bank Investment Management, the arm of the central bank that runs the oil fund. It's a fine thing when Mexico and Brazil now seem like safer investment bets than the country's most important trading partners, which, unlike Norway, happen to be members of the European Union.

As for the U.S. economy, it "may be going back to stall speed," perpetual pessimist Nouriel Roubini told a conference last week. "The optimists today are saying the U.S. is on the cusp of a self-sustaining recovery," he said. "The data suggest that we'll be lucky if this year we're going to grow barely 2 per cent."

But others of decidedly bearish bent – or realists, as they prefer to be called – may be growing tired of the steady diet of uncertainty and dread.

Take John Mauldin, the well-known global investment adviser and best-selling author, who takes a back seat to no one when it comes to dishing out the gloom and doom. "Sadly, I think we will have another global recession," he tells me, citing multiple triggers ranging from the European slump, rising interest rates and U.S. stumbles to the slowing Chinese economy and worsening problems in Japan, which he dismissively calls "just a bug in search of a windshield."

But at a panel discussion at the CFA Institute's annual conference in Chicago Monday morning on "endgame scenarios" for the global debt crisis, he will sketch a decidedly optimistic picture that includes a time frame for a sturdy and sustained recovery.

"This whole sovereign debt debacle in Europe, the U.S. and Japan will be solved in four to five years," he says confidently. "Either they collapse in crisis or they structure a new deal. They muddle through. One way or another, we'll have finality and certainty. Then we can start allocating capital to productive uses."

Mr. Mauldin coined the phrase "muddle-through economy" a decade ago to describe what happens when shallow recessions turn into anemic recoveries that drain appetites for spending and sap corporate profits. But when the world rights itself this time, we'll be way beyond muddling through, he insists. "I think the latter part of this decade and the '20s are going to be one of the really great growth periods that we'll see in the world."

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If he's right, that can only mean positive news for investors.

But Mr. Mauldin, who is president of Millennium Wave Advisors in Arlington, Tex., and publisher of a popular newsletter, goes even further out on that shaky tree limb. "The buying opportunity on the other side of this issue – whenever it happens – is going to be monstrous. It'll be the beginning of the biggest bull market in history, and there are going to be cheap assets everywhere."

To position themselves for this coming asset gold rush, he recommends staying in short-term investments for now that are well-hedged against risk. His preferences are shorter-duration corporate bonds and other dividend-paying assets. He has long advocated investing in hedge funds, managed futures, undervalued real estate, farm land and other alternative investments.

David Rosenberg of Gluskin Sheff, Canada's most notable bearish voice, will bring a more cautious outlook to the same panel. Global deleveraging is going to take a lot longer, the U.S. economy will remain fragile and investors will have to be patient, he says, recommending that they focus their attention and money on countries and corporations with strong balance sheets and high credit ratings.

"It's going to prove to be a real long workout period, in terms of getting back to sustainable economic growth and a sustainable bull market."

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