Enjoy the rally while it lasts - but expect to take a sucker punch

Here's how we intro'd some of Ambrose Evans-Pritchard's stories:

Creditanstalt Redux?: Failure to save East Europe will lead to worldwide meltdown

I've been feeling far too chipper so I decided to check in with Ambrose Evans-Pritchard. Yikes.

Metal prices fall further than during Great Depression

A visit from our terminally depressed pal*, Ambrose Evans-Pritchard.

Phase III (or is it IV?): Europe on the brink of currency crisis meltdown

Ambrose Evans-Pritchard makes Nouriel Roubini look like a Chamber of Commerce booster. Here are some of our previous links to his writings. With the U.S. markets looking to trade up 4%, a lot of folks may be tempted to start a chorus of "Happy Days are Here Again". Not our A. E-P.

We like the Telegraph's International Business Editor, a lot (some of his market calls* in 2008 looked like inside information). Here's the latest:

Our delicious spring rally is nearing the limits. The 40pc rise on global bourses since March assumes that central banks have conjured away the debt overhang by slashing rates to zero and printing money. Nothing of the sort has occurred. Two thirds of the world economy will be in deflation by July.

Bear market rallies can be explosive. Japan had four violent spikes during its Lost Decade (33pc, 55pc, 44pc, and 79pc). Wall Street had seven during the Great Depression, lasting 40 days on average. The spring of 1931 was a corker.

James Montier at Société Générale said that even hard-bitten bears are starting to throw in the towel, suspecting that we really are on the cusp of new boom. That is a tell-tale sign.

"Prolonged suckers' rallies tend to be especially vicious as they force everyone back into the market before cruelly dashing them on the rocks of despair yet again," he said. Genuine bottoms tend to be "quiet affairs", carved slowly in a fog of investor gloom.

Another sign of fakery – apart from the implausible 'V' shape – is the "dash for trash" in this rally. The mostly heavily shorted stocks are up 70pc: the least shorted are up 21pc. Stocks with bad fundamentals in SocGen's model (Anheuser-Busch, Cairn Energy, Ericsson) are up 60pc: the best are up 30pc.

Teun Draaisma, Morgan Stanley's stock guru, expects another shake-out. "We think the bear market rally will end sooner rather than later. None of our signposts of the next bull market has flashed green yet. We're not convinced the banking system has been fully fixed," he said....MORE

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