Montreal, Canada.

The bear market rally since March 9 continues to gain momentum following a brief interruption since June 12. Asset inflation is back with a vengeance over the last five months as stocks and commodities surge following a collapse from October 2007 until March 9.

Indeed, as the global economy escaped the depths of near-depression earlier this year to stability, and now the perception of renewed economic expansion, stocks have powered ahead. Corporate earnings thus far have been much better than consensus estimates and fudged accounting (courtesy of FASB changes in May) have boosted big bank earnings. The perception now is that the United States and the rest of the world are growing again following the deepest contraction in output in Q1 since the early 1980s.

The bulls are rejoicing this week as the Dow Jones Industrials and S&P 500 Index breach fresh resistance levels; the Dow Jones Transportation Average, which has lagged the Dow in this rally, is now about to confirm Dow Theory and trigger a new “buy” signal. It’s the same story overseas with the German DAX flirting with important resistance of 5,180 this morning and, of course, the emerging markets off to the races; the MSCI Emerging Markets Index has almost doubled since hitting a low last October.

In credit markets, it’s almost like we never suffered a near wipe-out last year. Junk bonds – the most speculative segment of credit – have surged more than 40% this year as credit spreads hit new 52-week lows and investors lunge after yield. Everything with a risk bias, except T-bonds, has skyrocketed since March.

Commodities are also in the midst of major U-turn. Oil prices have doubled since February and copper is off to the races again as Chinese demand apparently booms following a stunning 7.9% Q2 GDP report last Friday.

But joining this parade is a bad idea – a dangerous proposition. It’s dangerous because it’s naïve to believe “good times” are here again after the worst destruction in credit and housing values in a generation. It’s a bad idea because the consumer is not spending, continues to fear rising unemployment and bank credit remains largely stagnant. It’s a game of Russian roulette because the big banks have reported strong results while regional banks are now facing an onslaught of rising loan losses tied to commercial real estate. Finally, relying on the government to grow the economy is not how capitalism is supposed to function; yet that’s exactly what’s happening.

As for the legitimacy of the bear market low back in March, I have serious doubts.

Every bull market in the post-WW II period was accompanied by rising trading volume on the NYSE. That’s NOT happening now. In fact, volume has been flat to anaemic on most days the stock market has rallied suggesting big money is still sitting on the sidelines.

But probably the most compelling reason why the bear didn’t die a painful death on March 9 was because of values or more precisely, the lack of values.

Prior bear market lows resulted in extremely attractive P/E multiples, bigger dividend yields and deeply discounted price-to-book-value ratios. That wasn’t the case in March.

So here I sit, a lonely bear among a growing crowd of bulls throwing money at the most dangerous market in history. If you missed this rally like I did then don’t worry; they’ll be better buying opportunities over the next 12-18 months or sooner as we hit another bear market thump and possibly re-test the March 9 lows. Forget stocks; sit tight in high quality bonds, foreign currencies, gold, silver, some oil, TIPS and convertibles.

This supposed economic recovery isn’t supported by credit expansion, job creation or organic domestic consumption. But don’t tell that to Wall Street and other crazies chasing stocks.