I realize the market is a discounting machine -- with investors collectively trying to anticipate future events and price shares accordingly -- but let's face it: This rally is ridiculous.

Wall Street is on a bender (yet again), and the shiny, happy future it seems to be looking forward to overlooks the fierce grimness of now. It's a mirage, at least in the near term. Maybe the midterm, too.

You may be right; I may be crazy  
Still, it's worth pondering just how much longer this particular bout of irrational exuberance might last. If the market can make it here, after all, it can make it anywhere.

Unemployment is high and poised to climb higher, GDP remains mired in negative territory, and the much-ballyhooed news that consumer spending rose during the year's first quarter (hurrah!) evaporated on contact with even just casual analysis. January produced virtually all of the quarterly gains, February was flat, and March actually saw consumer spending decline. More recently, personal income has been mired in flattish territory, according to the most recently reported figures.

Yet the market has been on a tear, with the S&P 500 climbing by more than 40% from its March lows. Even the financial sector has joined the fun, by pacing the market over the past three months with double-digit gains.

This particular mirage is a mesmerizing doozy, with the likes of  Goldman Sachs  and Morgan Stanley  rocketing to massive gains on a year-to-date basis, even though the black hole at the center of our financial galaxy -- i.e., those pesky toxic assets -- remain, well, toxic. The fabled TARP-initiative that Treasury has floated to address the problem -- a public/private partnership that essentially subsidizes private-side investors at the public's expense -- has yet to get off the ground in a serious way.

History repeats?  
With that as a backdrop, it's worth asking whether additional financial-stock moon-shots can be far behind, even from the sector's currently inflated level. I don't believe such a rise would be warranted, at least not based on fundamentals. Indeed, I'm among those who believe that the financial sector should return to its former  lack of glory and become a comparatively much smaller slice of the market's pie chart, complete with permanently shrunken market caps for former big boys.

Between now and that smaller, shabbier future, though, there may be money to be made, largely by speculators betting that the financial sector will essentially become a government entitlement program -- albeit one that puts up with little of the pesky regulatory oversight that attends, say, Medicare or Social Security.

Bright like Buffett
For those who prefer to invest rather than speculate, there are far smarter ways to proceed -- and to align your portfolio with what a  sustained market recovery will probably look like. As shell-shocked investors return to equities, they'll probably do so judiciously, newly aware of the benefits of bonds, for example.

In this, they'll be following the lead of Warren Buffett, who has lately pared back his equity stakes. The Oracle of Omaha has trimmed his positions in CarMax (NYSE: KMX) and ConocoPhillips (NYSE: COP), and he sold a double-digit chunk of Berkshire Hathaway 's stake in ratings agency Moody' s (NYSE: MCO), too. These moves, moreover, come amid an increase in Berkshire's slugs of U.S. Treasuries and corporate bonds.

Sounds like a plan
For my money, savvy types should watch Warren with one eye while eyeing the cash-flow kings with tremendous long-haul track records of success with the other. Buffett dialed up his investment in health-care kingpin Johnson & Johnson (NYSE: JNJ), for example. And for those seeking growthier fare, Apple (Nasdaq: AAPL), Medtronic (NYSE: MDT), and Amgen (Nasdaq: AMGN) strike impressive profiles, too: They're financially healthy stalwarts that boast robust earnings-growth estimates.

Cheapskate that I am, though, all the above are on my watch list (rather than in my portfolio) because I think their valuation profiles will become even moreattractive when our dead cat finally touches down back here on planet Earth. Continued...