Capital Management says the U.S. is starting to put together a "pretty convincing reacceleration story in the U.S. economy." He cites shrinking jobless claims, rising ISM, improving consumer confidence and spending and believes there's a large and growing disconnect between what we think may happen and what's right in front of our face.

The chief investment strategist says something has to give; either the long-awaited European "explosion" happens or bears need to accept the reality of a U.S. recovery. The genial Minnesotan compares the tension between the two views to "stretching the rubber band," suggesting either the bulls or bears are about to receive a painful jolt.

Comparing the current setup to that of the early 1990's when Japan began its three-decade and counting slide into economic oblivion, Paulsen says only a complete disaster in Europe would threaten the global recovery. A slowdown or recession across the pond, one we're likely already experiencing, isn't enough to take down the U.S. However, fullblown banking contagion would be a "game-ender."

Paulsen notes that stocks are higher, sort of, since Europe first began to acknowledge its debt issues two years ago. Obviously no EU solution has emerged, but neither has a fullscale collapse, regardless of how likely such a meltdown has seemed since at least 2008. Paulsen sees the risks in Europe but so does everyone else. In such an environment the dominant strategy has always been to "be invested while you're worrying."

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