NEIL CAVUTO, HOST: My next guest says that the surging stock market is always good news, but worries about irrational exuberance, a modern-day version.

With us now is former SEC Chairman Harvey Pitt.

So, Harvey, what is your biggest concern?

HARVEY PITT, FORMER SECURITIES AND EXCHANGE COMMISSION CHAIRMAN: Well, my biggest concern is that people get complacent.

I think we are seeing, business has gotten its act together. And I think a lot of the reforms are taking effect. And this is generally enormously good news for people. But I think investors can assume that the stock market will always keep going up. They have to do their own due diligence, and make their own careful analysis, before they put their money down.

CAVUTO: All right.

So, what would be the biggest thing we are guilty of right now? Everything -- when everything gets heady, you hear a lot of individual say, all right, I`m going to jump into these funds. I`m going to jump into the market.

You worry that it gets too frothy?

PITT: Well, I`m worried that people sort of assume that there is only one direction that the market will go. And we have known and seen this time and time again that it goes both up and down.

Unfortunately, the only thing that goes up is my age. Everything else has a negative element to it.

(LAUGHTER)

PITT: But I do believe that, if investors are prudent, if they seek out competent advice, if they do a little bit of research before they put money into a particular company`s stock or a mutual fund, there are great rewards still to be reaped from this market.

CAVUTO: Well, let me ask you a little bit about that, Harvey, because, you know, you`re right. The time perspective is everything. This is a remarkable achievement, getting over 12000. I don`t think we can minimize that.

But let`s say you had bought an index fund in 2001. You have treaded water to this point, essentially. So, what do you tell people now who are looking at what is going on, and saying, gee, I want in?

What do you tell them? How do you remind them? What do you say?

PITT: Well, the first thing you have to do is look at what the components of the portfolio are, because there are all sorts of indexed funds. And some of them are...

(CROSSTALK)

CAVUTO: Let`s say I want a proxy for the S&P or the Dow.

PITT: Right.

CAVUTO: Would you recommend my getting in right now?

PITT: Yes, I would you recommend that you get in now. I think that there is still more growth that will come from the Dow, in particular, and, I think, from the S&P.

CAVUTO: All right.

As a former SEC chairman, you know we`re looking into what is apparently -- apparently a growing options scandal. It has claimed a lot of CEOs already today -- a lot of companies dragged into this, those that might have backdated the price of their options in order to richly reward executives.

Many argue, Harvey, that that is sort of the like ticking time bomb for a rally that could be short-lived as a result. Do you buy that?

PITT: I don`t.

I think that I have very little sympathy for the executives who engage in this kind of conduct. If you look at the SEC`s allegations and the Justice Department`s allegations, they are pretty raw.

But my own view is that they are limited in events. And most companies are smart enough now to be going back in time, looking at what they did, and, if they had a problem, fixing it now, before the government comes knocking at their door.

CAVUTO: All right.

Harvey Pitt, we will see what happens. Thank you very much. Good seeing you again.

PITT: Good to see you, Neil.

CAVUTO: The former chairman of the Securities and Exchange Commission, Harvey Pitt.

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