What can we tell you about the US stock market that you don’t already know deep in your belly? This is a stimulus rally, pure and simple. It’s one big bet that the government’s funny money will lift up stocks out of mire of the recession… and send them to the moon!

You want to know the really funny thing? Traders and investors don’t care! All they care about is that Washington has Wall Street’s back. And that the Fed and the Treasury can keep on producing dollar bills like Willy Wonka produced Everlasting Gobstoppers.

In our eyes it’s no different to Bernie Madoff’s little scam. Big Wall Street players shoved money into Bernie’s Ponzi scheme knowing that the profits were ginned up somehow. But they didn’t care. They knew it didn’t really matter how Madoff was producing his profits; it just mattered that he was producing them. They knew that some poor schmuck down the road would get clobbered.

And that’s how it’ll be with this rally. When it seems like stocks are going up and will never come down… and the networks, giddy with excitement, can do nothing but praise God for the coming V-shaped recovery… and when every last mom and pop investor is sucked in… it will all come crashing down.

It may not be quite as spectacular as the end of the 48% 1930 bear market rally… But it will be ugly…

Of course, there are always pundits willing to give sensible reasons why stocks are defying gravity. Right now, there are three eminently sensible reasons being splashed around the mainstream press (hat tip, David Rosenberg):

Eminently sensible reason #1: Bernanke reappointedWe really fail to see how it could possibly be that the same central bank official, who, over a span of a decade, presided over two massive bubbles and their busts, can be viewed as being a positive force for the markets. Perhaps there is some solace in knowing that the same person who created this awesome and complex $2 trillion Fed balance sheet will be around to dismantle the largesse since he’s probably the only one that knows how.

Eminently sensible reason #2: The first monthly increase in the Case-Shiller home price index

As for the second point, there is a difference between a trendline and the noise around that trendline. Home prices are down a massive 31% from their peak and have been in a vertical-down pattern for nearly three years. Perhaps a respite is in order, but with the true underlying unsold inventory near 12 months’ supply, which is double what would typify a balanced housing market, it would seem like wishful thinking that we have suddenly achieved a fundamental low in residential real estate values (especially at the high end).

Eminently sensible reason #3: The seven-point jump in consumer confidence in August

With regard to point number three, we welcome any rise in consumer confidence but an honest appraisal of the data would show that 54.1 is still a very depressed level. In fact, the average index level during recessions is 73.0 – August’s reading was nearly 20 points below that. So, if the recession is indeed over and done, somebody forgot to tell this 70% chunk of GDP otherwise known as the consumer.