Montreal, Canada.

Nobody said global investing was a rational discipline. And judging by the massive rallies we’ve seen for most assets since the March 9 lows, an investor could be forgiven for forgetting we just suffered the worst crash in more than 75 years last fall.

As trading gets underway in New York this morning the MSCI World Index has surged more than 45% since March 9 while the S&P 500 Index has gained 34%. More impressively, the MSCI Emerging Markets Index has skyrocketed 58% since March 9 while gaining 72% since hitting a bottom on October 27.

The party expands beyond just equities. With the exception of government bond markets in the industrialized world, asset classes ranging from commodities to hedge funds to distressed debt have exploded higher over the last three months. And, as risk has returned, the U.S. dollar has resumed its status as “Dog” currency of the world as traders sell the currency for foreign securities and hard assets like oil and gold.

In many ways this broad-based rally smells just like pre-August 2007. The same assets that ran wild from 2003 until mid-2007 are the same ones appreciating the most since March; the only missing ingredients are high leverage, sustainable earnings and a lack of credit to consumers and businesses.

Over the last four weeks the financial press has laced business headlines with “green shoots” or signs of a budding economic recovery developing worldwide. Traders and investors apparently subscribe to this view and markets are off to the races again.

This is not a bull market. Although similarities between the 1930s Great Depression and this credit crisis are indeed shockingly similar there are some differences; still, the fact that we are living in a period of unprecedented credit destruction, bank insolvencies and the massive socialization of the economy is enough to warrant extreme caution. This will not be a v-shaped recovery like previous post-recessions but instead a long Japanese-style u-turn heavily dependent of government fiscal spending and intervention.

In my view, this is the Mother of bear market rallies. As the market eventually sniffs a false dawn and begins to discount the end of government fiscal spending for this round and the lack of organic domestic consumption amid rising layoffs, stocks, commodities and foreign currencies will hit the floor again. And the dollar will recover as deflation fears return. I also expect short and intermediate-term Treasury bonds and German bunds to recover smartly – despite supply concerns weighing on prices. Deflation is still very much alive; inflation is inevitable but this transition is still a few years away at best.

Once again, I’ve included a table depicting the big rallies and crashes in the 1930s (see above table). I think it’s instructive to analyze what happened during this period because this is a credit bear market – the first such economic phenomenon in the post-WW II era.

In the post-1929 period, the Dow mustered bear market rallies averaging 10.1 weeks with an average gain of 31.7% before collapsing again until a final bottom was achieved in the summer of 1932. Thus far, we’re into the 12th week of the post-March 9 rally with stocks up 34%.

If history is any guide – and I believe it is – then we’re not far from the cliff. I’m not sure what will trigger the next sell-off, nor am I sure we’ll re-test the March 9 lows in 2009; yet it seems quite probable to me that investors are living in a Fantasyland as they depend on government to successfully rescue the economy. Sorry, but that’s not the right way to invest. Government efforts in some cases have been noble, if not necessary; but the history of government intervention is a sad story accompanied by a sequence of botched efforts ultimately leading to more hardship. I highly doubt this crisis will be any different.

Have a good weekend. See you on Monday.