As we prepare for the two-year anniversary of the March 9 lows for stock markets, investors are confronted with a number of worries that make it difficult to celebrate the near 100 percent jump in equities since then.
Oil prices are soaring off the back of unrest in the Middle East, there is talk of rate hikes from European Central Bank President Jean-Claude Trichet and unemployment remains stubbornly high despite some better news from the US on Friday.
On top of these, a mountain of debt is growing but because it is off governments' balance sheets it has been so far ignored, one man who worries perhaps more than most, Albert Edwards from the global strategy team at Societe Generale, said.
One of the world's most famous bears, Edwards is adamant the global economy and financial markets are not in a good place.
"The global economy is critically ill. The fact that it has just risen from its sick-bed to perform a frenetic Irish jig is more a function of the financial morphine and steroids that have been pumped into its emaciated body than any miracle cure," he wrote in a recent piece of research.
"You don't have to be Dr Doom to expect the patient to collapse back into a deep coma after the stimulus has worn off," Edwards added.
His biggest worry is government debt and unfunded liabilities and he is convinced that default is on the cards across the developed world.
It is not the on-balance sheet public debt of close to 100 percent of gross domestic product that makes governments insolvent but "the off-balance sheet liabilities of an additional 300-400 percent of GDP that are total impossible to fund," according to Edwards.
"Governments will have to default in some shape or form and part of that process will be inflation. But you cannot inflate away some of these liabilities. The US cannot inflate its way out of these ludicrously expensive, unfunded health care liabilities. It can only default. But how?" Edwards wrote.
Major Headache: Healthcare
Healthcare represents a major problem for the US and many other governments across the world, Edwards wrote.
"Now I don't want you to think that I am beating my nationalist man chest to tell you all that the UK's National Health Service system is the best in the world…what I do want to tell you is that it will also break the UK government," he warned.
The UK health service is thought to be the fourth-biggest employer on the planet after the Indian railways, the Chinese People's Liberation Army and Wal-Mart and, Edwards noted, it has "an unfunded pension system entirely paid out of taxes."
"Governments will have to default in some shape or form and part of that process will be inflation. But you cannot inflate away some of these liabilities. The US cannot inflate its way out of these ludicrously expensive, unfunded health care liabilities. It can only default.""
"Incredibly, not one penny, bean or cookie has been set aside for the future pensions of UK's doctors and nurses. But don't worry, they are in good company. I stand to be corrected but I believe the same to be true for Britain's teachers, civil servants and police officers," Edwards added.
"Try switching the UK public sector from a defined benefit to a defined contribution system, as most of the private sector has done already, and the UK will descend into Yugoslavian chaos," he said.
Inflation Eating Up Wages
Consumers are getting squeezed by higher prices with any rise in wages being eaten up by higher food prices alone, Edwards wrote.
The big question for the market in his view is when the morphine – as he calls the second round of quantitative easing - is turned off.
"This will really sort the sheep from the goats," he said. "Then we will see whether this patient can keep up its frenetic Irish jig in the absence of extreme stimulants. I am in the camp (tent) that believes that QE1 and QE2 have driven equity prices which have, in turn, fuelled the economic recovery."
"It is amazing though just how close the relationship between the S&P and the Fed's balance sheet is. You can clearly see due to the fact that QE2, in particular, was preannounced. Funny how the S&P seems to be closely correlated to the size of the Fed's balance sheet," Edwards added.