With almost every passing day global markets continue to advance with a seemingly nonstop upward bias. No correction, no backing and filling and certainly barely any days of serious profit-taking since the intermittent lows occurred on March 9.

The S&P 500 Index is now up 36% since March 9. Riskier trades like the MSCI Emerging Markets Index has surged 57% since March 2 and have almost doubled since October. Oil prices have rocketed 26% higher this year and junk bonds soared more than 12% in April alone.

Anyone suspecting that investors are still sitting on the sidelines isn’t looking at global markets or indices covering a gamut of risk-based assets. Suddenly, risk is back en vogue again as investors dump Treasury bonds and dive into riskier investments.

Meanwhile, the government will announce the results of its phony “stress tests” today.

Wow, like we really expect bad news from an unbiased survey of America’s largely insolvent banking system! What a joke.

Until the government finally lets bad banks die, the reality of this crisis won’t end with ridiculous stress tests or other fabricated surveys designed to appease the public. Yet the markets are still climbing with bank shares leading this parade since March.

One of the best mutual fund managers in the United States, John Hussman, has turned net short in his Hussman Strategic Growth Fund.

Hussman is one of the few money-managers to post a profit this decade and is up about 8% in 2009. Hussman, in a recent market commentary, stressed that at every market bottom since 1940 the initial five-week rally tends to be supported by strong trading volume. For example, at the dawn of the 1982 bull market trading volume on the NYSE grew by 40%; but this rally since March has actually witnessed a contraction of volume. That’s not a bullish signal.

I suspect this rally is a fake, driven mostly from a severely oversold state in early March. Investors are celebrating the fact we’re not heading into a depression and have lunged after stocks. Final demand, however, will be disappointing. Governments are acting as the consumer of last resort and once this massive spending is exhausted we’ll need additional stimulus spending.

Since the banks triggered this historical bear market it’ll be the same sector that encourages the next sell-off. Banks are not lending and any economic recovery will not be vigorously supported by credit expansion – the first time credit will not grow ahead of a recovery in the post-WW II period. Just how we’re supposed to ride an expansion without credit growth is beyond me. Time will tell.

Finally, long-term interest rates have surged since April in the United States. This is perhaps the most bearish price action in the marketplace because it threatens to unravel all of the Fed’s hard work since last November. Even more disturbing is the fact long-term rates are climbing rapidly even as the Fed monetizes a portion of its own debt or accumulates Treasury securities.

The Fed is now struggling to contain rising long-term rates, which affects mortgage rates and other important consumer loans. A highly leveraged economy still in the process of unwinding cannot tolerate higher long-term rates. If this trend continues, a recovery that is in the process of being discounted by the market will violently reverse.