Richard Bernstein, who predicted in 2012 that U.S. equities might be in the early stages of a great bull market that could exceed that of the 1980s and 1990s, believes this current bull market and global recovery are entering a distinctly different phase characterized by a return of inflation.

Our president may like to "brag" about the 8 percent gain in the Standard & Poor's 500 since Election Day, but many of the factors driving that gain fell into place last February and March, Bernstein told attendees at the Investment Management Consultants Association’s annual Investment Advisor conference in New York this morning. In reality, Trump's election just "accelerated" what was "a smoldering fire" set to spread throughout global markets. All the factors driving stocks for the last three months were there for "three and a half quarters before the election."

Personally, I'd give the president a little more credit, since the proposed cut in corporate taxes obviously is being factored into equity prices (and if it fails to materialize investors could express their disappointment and sell). But Bernstein's views carry more weight than all but a few forecasters. Before he left Merrill Lynch as chief investment strategist in 2009, he was named the best in his field ten times by Institutional Investor and he made their All-American research team 18 times.

Taking a page from President Trump, Bernstein displayed a few tweets in his inimitable style. The first was: "Investors still refuse to endorse bull market. … Sad." Another read: "Many people say bull market is over. … Wrong."

Everyone has focused on the weak GDP growth of the economic recovery that began in 2009 but Bernstein, who runs an advisory firm under his own name managing $3.8 billion, noted that corporate profits have soared to the highest proportion of GDP ever. The surge in profit growth has driven the bull market, and anemic GDP is mostly irrelevant—at least for stocks.

The profits recession that began in late 2014 ended in last year's first quarter without triggering an economic recession, and stocks have been climbing ever since. Global deflation expectations also saw a trough in last year's first half.

For most of this bull market in equities, the bellyachers hanging out in the bond market have ignored the historic surge in corporate profits, claiming that it was easy central bank monetary policy that was artificially inflating stocks. Bernstein said they have been "so wrong" for so long "it hurts." He is clearly correct about equities, but weak GDP growth has translated into slow wage gains, so the average American with $60,000 or $80,000 in their 401(k) plan understandably doesn't feel very upbeat about how things are going. That helps explain why this may be the most unloved bull market in a very long time.

While the bull market is far from over, no one "is geared for the unfolding economic paradigm." Bernstein admitted he wasn't sure of where the global economy is headed, though he sees a few major changes on the near horizon.

President Trump’s economic policies are generally positive, but they are unprecedented at this stage of the business cycle. "When was the last time" when the U.S. was this far into an expansion and "people in Washington are talking about tax cuts and deregulation?" Bernstein asked. "The answer is never." In the past, these policies have been discussed as prescriptions to escape recessions.

This past summer virtually everyone accepted the idea that the New Normal was almost permanent. So one shouldn't be surprised that seven months later, the new normal is history. And we are "not even close to a recession."

Coincidentally, last summer the aggregate bond market also sported the highest duration in its history. Tiny Hamilton College, Bernstein's alma mater, sold 100-year bonds.

Many issuers took advantage of record-low interest rates, and near-record amounts of cash flowed into bonds just when they were approaching one of the riskiest levels in history. The only major bond issuer that didn't extend the duration of its portfolio was the U.S. Treasury. Bernstein didn't say it, but former Treasury secretaries Tim Geithner and Jack Lew earned themselves D's or F's for failing to do so, particularly in light of the amount of debt they issued.

Another irony is that President Trump is talking up his pro-growth agenda at the time many Americans are talking about income investments. "That's not the bet" one wants to make with inflation rising in Europe and even Japan, Bernstein said. Maybe so, but with 3.5 million Americans turning 65 every year, it's hard to blame for expecting their assets to thrown some cash.

Something is changing around the globe as the economy in many countries is improving. "It's not the global economy of three or four years ago," Bernstein declared. U.S. stocks are up 8 percent since the election, but Russian equities are up 32 percent, thanks to surging commodity prices. Germany's DAX index also is up 30 percent from last year's lows.

Calling it re-inflation, not reflation, Bernstein postulated the notion that global investors, particularly in the bond market, could be in for major shocks. Could re-inflation be a secular trend that lasts five or 10 years, not the cyclical phenomenon everyone assumes? No one is even asking that question. After years of assuming demographics were destiny and the entire developed world was becoming one giant retirement community like Japan, is a global boom conceivable? No one is bothering to contemplate that outcome.

A longtime bear on emerging markets, Bernstein is changing his tune, albeit with many caveats. For five straight years, emerging markets led the world in negative earnings surprises.

Coming out of a profits recession, Bernstein tends to favor the junkiest of junky companies, noting history indicates they are the best performers in these environments. Still, he laughs when he hears portfolio managers say they like high-quality names in emerging markets.

That's an "oxymoron," he said. "There are about three."

Investors may need to reposition their portfolios if the trend to cyclical growth and low quality companies continues to gain momentum. Bernstein likes deep cyclicals and other industries like energy, materials, financials and low tech. Academic research reveals that great companies can make bad investments because the market has already priced the quality of their earnings into the stock price, while unloved, out-of-favor businesses often outperform because their stocks sell at bargain-basement prices. He suggested this phenomenon might be particularly salient in the next stage of the bull market.

High tech and social media could be victims of rising rates. "When the hurdle rate is zero, Elon Musk wants to go to Mars," and investors are willing to throw money at him. Now another competitor wants to go to Mars and Jersey Transit can "barely make it to Penn Station."

When the hurdle rate rises, companies are going to have to show cash flow. Still, there are some silly investments attracting investors. Bernstein cited a Bloomberg article on a new hedge fund raising money to invest in the junior debt of Icelandic fisheries. Apparently, the S&P 500 and the senior debt of Icelandic fisheries are too risky.

But it's the bond market where investors might get truly crushed. Bernstein's own fixed-income portfolios have a duration equal to a meager 32 percent of the benchmark. Enough said.