The Dow has been, if not roaring, than issuing a mighty growl. The MSM is claiming that we’re seeing a light at the end of the tunnel but what exactly is driving this positivity?

Is it unemployment numbers? Reuters has a headline that says U.S. Sheds Fewest Jobs in Six months. Sounds good, right? Except that it goes on to report that we “only” lost 539,000 jobs. This means that while layoffs slowed down, the unemployment rate has risen to almost European levels, right now at 8.9%

Unemployment at this rate, despite what Obama is claiming in press conferences, will negatively effect not only our economy, but spending on imports will go down. China will not be happy.

Because the U.S. Census is hiring, the actual unemployment number should technically be estimated at +50,000 or so. Remember, the census is a temporary job that will end next year and not hire again for a decade. It is simple luck that kept these people from the unemployment line.

Doesn’t sound like much to base a rally on does it?

The Democrats have already admitted that they are waging a propaganda campaign based on their reading of a hack pseudo-Marxist tome Animal Spirits: How Human Emotion Drives the Economy and Why it Matters to Global Capitalism. The White House is basing policy on a book that claims outrageous nonsense like if we had no Social Security people would undersave for retirement.Think about that for a second. Akerloff and Shiller claim that Social Security encourages people to save money, and absent that entitlement program they wouldn’t feel the need to save money at all. How does this fit with the reality on the ground of the Boomers you know?

Banks are rallying even though the government has unprecedented control over them. What kind of sucker do you have to be to invest your private capital into a company basically on the hook to the Obama administration after seeing the deal they created that screws investors to GM? Banks seeking to repay TARP funds are being told there are new restrictions on the payback. And now Obama is threatening to bankrupt California at the behest of petulant unions who won’t take wage cuts even though California is literally weeks away from running out of money.

Financial like J.P. Morgan are leading today’s rally on the “good” news of the stress test. But the credibility of these tests is suspect to say the least. Peter Schiff explains that the economy getting better is an illusion created by America printing trillions of dollars:

Once again, the facts do not support the euphoria. Over the past few months, the government has literally blasted the economy with trillions of new dollars conjured from the ether. The fact that this “stimulus” has blown some air back into our deflating consumer-based bubble economy, and given a boost to an oversold stock market, is hardly evidence that the problems have been solved. It is simply an illusion, and not a very good one at that. By throwing money at the problem, all the government is creating is inflation. Although this can often look like growth, it is no more capable of creating wealth than a hall of mirrors is capable of creating people.

We are currently suffering from an overdose of past stimulus. A larger dose now will only worsen the condition. The Greenspan/Bush stimulus of 2001 prevented a much needed recession and bought us seven years of artificial growth. The multi-trillion dollar tab for that episode of federally-engineered economic bullet-dodging came due in 2008. The 2001 stimulus had kicked off a debt-fueled consumption binge that resulted in economic weakness, not strength. So now, even though the recent stimulus administered a much larger dose, we will likely experience a much smaller bounce. One can only speculate as to how much time this stimulus will buy and what it will cost when the bill arrives.

My guess is that, at most, the Bernanke/Obama stimulus will buy two years before the hangover sets in. However, since this dose is so massive, the comedown will be equally horrific. My fear is that when the drug wears off, we will reach for that monetary syringe one last time. At that point, the dosage may be lethal, and the economy will die of hyperinflation.

As always, the bulls fail to understand that investors can lose wealth even as nominal stock prices rise. As a corollary, the bearish case is not discredited by rising stock prices. While there are some bears that mistakenly cling to the idea that deflation will cause the dollar to rise, those of us in the inflation camp understand that the opposite will occur.

In the meantime, stocks are not rising because the long-term fundamentals of our economy are improving. If anything, the rise in global stock prices is due to investors realizing that cash is even riskier then stocks. The massive inflation that is the source of the stimulus is essentially punishment for those holding cash. To preserve purchasing power, investors must seek alternative stores of value, such as common stock.

Doom and gloom? No just realism. Stocks may seem safer than cash but frankly none of the investments (including the much lauded gold, where the demand has far outstripped the supply) are safe in this new era of American socialism. Gold and silver may be good investments but only if you can take physical delivery of the metals. Gold certificates are being printed as fast as dollars by some shady businesses.

So where’s my money? In preparations. Gardening, long storing food and items that will retain value if Schiff’s worst case scenario happens (guns & ammunition, medical supplies etc) and we move to a pawn shop/flea market economy. Where my money won’t be is in any industry where Democrats can dictate business practices. I guarantee you that people investing in the new government backed banks will regret their investment within 2-3 years.

Don’t be a sucker.