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Falling up

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Check your in-box.

I’m sure you got the memo.

The Great Recession of 2008-2009 is over.

The economy is on the upswing. It’s time to pry open your wallet and start spending again.

Jobless claims are down. Global shares, led by the continued gains on the U.S. stock market, have continued to rally. The policy of cheap money combined with sustained fiscal stimulus by every G-20 nation seems to be working.

In a further sign of the raw material hunger generally associated with a return to economic growth, commodity prices are up across-the-boards. Copper prices have more than doubled so far this year on record first-half imports into China, the world’s biggest consumer of this key metal. Crude oil prices have continued to push higher, topping $79 a barrel.

Greasy Skids for the Dollar

While the stocks have been on a steady climb, the dollar has continued to slide and gold has reached new all-time highs, above $1,100 an ounce. The relatively dovish remarks from the Fed this past week and the projection that the central bank will hold down interest rates through the middle of 2010, have continued to weigh on the dollar. The Euro, among other key currencies has hit new highs against the greenback.

Psychologically, with the Dow over 10,000, investors seem to have fewer reasons to hold dollars. If the rise in the U.S. stock market is prolonged, the persistent downward trend of the dollar appears to be inexorable.

Although the stock market has seen its steepest advance since the 1930s, there is lingering evidence that the recovery may be running out of steam.

In a further sign that the worst may be over, the U.S. economy grew at a faster than expected rate, 3.5 percent, during the third quarter. Several reports released during the past few weeks, however, have heightened investor concern that the recovery will be uneven.

Americans cut spending for the first time in five months. Despite an $8,000 first-time buyer’s tax credit, new home sales fell in September. Consumer prices also declined in September, cutting into bottom-line profits of retailers from Wal-Mart to Macy’s and Target.

Historically, stocks almost always continue to rally ahead of interest rate increases. Moreover, with more than $12 trillion in stimulus spending by governments worldwide, many investors fear that they might miss out on the opportunity to recapture the equity they lost from 2008 through the first quarter of 2009.

Rates Like to Remain Firm

Like the housing market boom, cheap money has fueled the stock market rally over the past six-months. As long as the employment sector of the economy remains soft, policymakers at the Fed, including its Chairman Ben Bernanke, will be reluctant to take any rate actions to curb inflation.

Bernanke and company are clearly concerned that any tightening of the money supply through a rise in interest rates will stave off the oxygen that has fueled the recovery. Through their statements released last week following the FOMC (Federal Open Market Committee), the Fed has demonstrated that it is mindful of the economy overheating, but doesn’t want to make any moves at this time that would undermine the progress seen in the equities markets.

Universally, it almost always is a bad idea to buy into rallies, especially this late in the game. In this instance, given the interest rate signals coming from Bernanke and Fed, there may be a continued window of opportunity, albeit very narrow.

Under the current conditions, both equity and commodity markets probably will continue to improve, along with the steadily weakening dollar. But these advances may be very short-lived, and they will be indubitably sensitive to any hint of action by the Fed.

If you are going to buy into this rally, whether it is stocks, commodities or gold, don’t wait for the conditions to get much better. Its like musical chairs — you don’t want to be the last one standing when the music stops.

John Cohn is a senior partner in the Globe West Financial Group based in West Los Angeles. He may be contacted at www.globewestfinancial.com