Once again, global governments are trying to tamper with capital markets in an attempt to deter speculators and restore order to the battered financial sector.

Bear markets tend to rear the government’s ugly head. In my book, the less government intervenes, the better. Markets should be allowed to function freely provided participants are regulated and transparent in their reporting.

Global stocks posted their first weekly rally since early June for the week ending July 18th. Last week, the Dow gained 3.6%. Normally, a strong equity market rally would be confirmed by gains for credit indices, as investors raise their risk parameters and buy high-yield bonds and other risky fixed-income securities.

As expected, stocks are charging higher since Wednesday following weeks of protracted selling. That’s not a surprise. My blog yesterday detailed why a big rally was imminent as the VIX was heavily overbought.

A dose of good news finally arrived yesterday following Wells Fargo’s (NYSE-WFC) Q2 earnings report. A day earlier, State Street Bank (NYSE-STT) also delivered better than expected numbers.

A broad array of market indicators now strongly suggests global equities will stage a massive counter-cyclical rally shortly. If this occurs, use intermittent market strength to reduce your equity exposure as the market eventually hits even newer lows this summer.

IndyMac Bancorp (NYSE-IMB) became the latest mortgage casualty in the United States this month, officially triggering the first attempted run on a U.S. bank since the 1970s.

On Monday, U.S. bank stocks suffered their worst single day of performance in years, dropping 8.5%. Some banks, including Washington Mutual (NYSE-WM), tanked 35% on the session.

As part of my ongoing series on the seemingly never-ending credit squeeze, it’s time to briefly review the big picture as it pertains to credit markets, lending and credit spreads.

The credit picture has been worsening since late May.

Following the rescue of Bear Stearns in mid-March, which marked a temporary lull in the credit crisis, credit spreads narrowed for most securities. But since late May, credit markets have reversed violently and, in fact, now exceed the previous depths of early March when credit spreads were soaring.