Since August 2007, the market has logged four bear market rallies and all of them ended badly.

From its lows earlier in October the S&P 500 Index has gained 5% and the Dow is up about 3%. The MSCI World Index has gained less than 1% from those same lows, constricted in great part by a surging American dollar.

But are stocks really cheap?

Global equities are now trading at their lowest trailing price-to-earnings multiple since the 1970s at just 10.3 times earnings. The majority of global markets have been mauled lately and virtually all of them sell at less than 12 times earnings and some below ten. Europe, the Pacific and Latin America all trade at compelling levels.

Yet U.S. stocks don't necessarily appear that cheap when compared to international equities or when priced in relation to their 12-month earnings and dividend payments.

The S&P 500 Index trades at 21.3 times trailing 12-month earnings and yields 3.2% in dividends.

According to Wigmore (data from 1985), U.S. stocks peaked in 1929 trading at 30 times earnings and harboring a 3% dividend yield. But by 1932, U.S. equities traded at just 10 times earnings and yielded a fat 12.5% dividend yield.

Stocks thereafter embarked on a big rally of 67% in 1933 and another 38% in 1935. This followed the incredibly painful crash from October 1929 until late 1932 when the Dow collapsed a cumulative 87%.

Historical data therefore suggests that U.S. stocks are still not huge bargains. It also suggests that we're still in the throes of a bear market rally.

But as the credit crisis continues to relax, the damage has already largely been done to the real economy. Credit is still hard to secure, consumers aren't spending, retail sales are grim and layoffs are now widespread. Mortgage rates remain elevated. Consumers will eventually start saving again, and that is only bearish for corporate earnings. If consumers save, they don't spend.

We're now transitioning from one crisis to another, or going from the tail-end of a credit squeeze to a deep global recession that affects broad consumption. I highly doubt the market has discounted all the bad news. I also find it hard to believe that the Panic of 2008 and its horrific trail of damage, namely the destruction of wealth, will keep the market above water for very long. The Dow will at least re-test its 2002 levels at 7,200. Stay defensive.

ERIC ROSEMAN, Investment Director

P.S. Just because the broad markets are still expensive doesn't mean that there aren't some great investment opportunities in global commodities. All the babies were thrown out with the bathwater in the stock market's panicked collapse, and we're already picking up some cash-rich high-dividend companies in my Commodity Trend Alert service. For more information on how to join, click here.