There's more than a little make-believe to the supposed evidence of a pick-up in the economy. Which, even if one credits it, has had what seems to us an absurdly exaggerated impact on investment sentiment and equity valuations. With an already stressed consumer beset by foreclosure, pay cuts and job worries now faced with the added pinch of sharply higher gasoline prices; with companies still heavily burdened by debt and leery of capital investment; with export markets withering; and the government spending itself into a deep, dark hole, it's hard to envision where the spark for a strong economic upturn - which is what the big rally is presumably discounting, will come from.

With a willful tenacity that we fear approaches obsession, we find ourselves clinging to the notion - in the face of mounting insistence from Wall Street, Washington and other seamy precincts that less bad is equivalent of good - that the impaired economy is still a long way from anything worthy of being called a recovery. And what's more, it will stay in that sorry state until housing, whose collapse triggered the chain reaction that threatened to all but demolish the economy, pulls itself up from the depths.

We still envisage unemployment hitting 10% early next year and the bum job market acting as a big drag on everything from housing (the bubble that broke the economy) to credit (whose 25-year spree came to an inglorious end) and to consumer spending (which is supposed to be the angel of recovery).

We face recession, a banking crisis, and mammoth government debts. We face either deflation or inflation, if not both, one after the other. Much of our recent prosperity was borrowed from the future. It must be paid back with economic growth.

"The economy has stopped falling off a cliff and is now merely rolling briskly downhill." - Albert Edwards, Societe General

"It's pretty clear the condition of the U.S. banking industry is continuing to deteriorate, and we are still several quarters away from the peak in realized losses for most banks." - Chris Whelan, Institutional Risk Analysis

The conclusion that the market's due for a retrenchment remains just as intact as it has been for the past two weeks - during which the market has resisted the urge to retrench.

(after four-day market rally): "The fundamentals remain pretty bleak. Jobs continue to vanish at an alarming rate. Consumers are under remorseless pressure, psychologically and financially. The collapse in housing is still very much in force, and so is everything bad that comes with it. None of this precludes a nice bounce. But it virtually preordains that a nice bounce will be followed by a not-so-nice break."

(some quotes): "Buying all the way down in a bear market is the surest way to lose money, and lots of it." - Bill King, the King Report.

"The extensive deleveraging, as the credit excess and asset bubble of the last cycle continues to unwind, is exerting a powerful negative influence on the real economy that is far beyond our collective professional and personal experience ... the worst has yet to be priced into this market." - David Rosenberg, Merrill Lynch

... nothing in the cruel hard data or the more ephemeral mood of the citizenry persuades us that we've seen even the beginnings of the end of the Not-So-Great-Depression. So do yourself a favor: in viewing the stock market, no matter how tempting the occassional upticks, stay skeptical.

... preparing for the worst still strikes us as the best advice... This rather churlish stance is grounded in our unwavering conviction that stimulus or no, this economy is not slated to crawl out of its hole anytime soon, but, if anything, is apt to sink deeper into it.

As we have said countless time, this is a recession like no other that most folks alive have seen. It is as venomous as ever, and likely to grow more so before there is any sign of a sustainable recovery

Other illusions are being disabused. Among them is that the economy isn't as bad as you think; it is decidedly worse.

referencing a report "The Aftermath of Financial Crises", by economists Kenneth Rogof (Harvard) and Carmen Reinhart (Maryland):

Three defining elements in the aftermaths of severe financial crises:

1 - Asset markets of just about every kind suffer a brusing and prolonged battering. On average, Real Estate prices plunge 35% and the agony stretches out over six years. Equity prices lose a whopping 55% over 3 1/2 years.

2 - Output and jobs decline. The unemployment rate shoots up, on average, 7 percentage points over four years. Meanwhile, gross domestic product suffer losses averaging more than 9% for around two years.

3 - The real value of government debt tends to explode, shooting up an average 86% in the major post-war slumps. The huge swelling not primarily due to bank bailouts and handouts, but the drastic shrinkage in tax revenues generated by the faultering economy and the 'often ambitious countercyclical fiscal policies aimed at mitigating the downturn'.

Expectations: housing market is in shambles, unemployment rate may shoot up a lot more, bear market is only a third of the way along the average length. The GDP has yet to depict the economic and financial collapse. Brace yourself for more pain.