With global equities finally posting a winning week heading into Monday’s trading, it’s no surprise that pundits are calling another market bottom. I’m not so sure. This is probably another in a series of painful bear market rallies that will eventually see newer lows as the global economy continues to contract, corporate earnings decline and domestic consumption in the United States and abroad wanes. 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 15%, the Dow is up 18% and the S&P 600 Index of smaller stocks has risen 22%. The MSCI World Index has gained 7% from its lows, constricted in great part by a surging American dollar, which dilutes the gains from foreign currency-denominated stocks.

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.

In October 2002 the Dow bottomed at 7,286 before embarking on its historical run to 14,000 by October 2007. I have a hard time believing we can hold above 9,000; the global economy is much worse today compared to 2002 and U.S. stocks are likely to retest the lows of 7,286 on the Dow in this bear market only because the economic environment is far worse compared to just six years ago.

If you subscribe to this view, then stocks, especially U.S. equities, are not in the bargain zone yet. From peak-to-trough, U.S. stocks plunged about 45% before last week’s recovery. From 1929 to 1932, the Dow collapsed 87%. Though this bear market might not be as damaging as 1929, in many ways it’s much worse. Investors today have never lived through a full-blown credit crisis and we still don’t know to how to gauge the full impact of events since August 2007.

To be sure a host of indicators continue to improve lately. These include a falling VIX Index, a revival of the commercial-paper market (thanks to the Fed), narrowing credit spreads and an easing of three-month LIBOR, now at 3.03% from 3.51% a week earlier at 4.85% at the height of the panic about two weeks ago. This is all good news.

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. Also, 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. Dow 7,286 is coming. Stay defensive.

I'll be in-transit to the Sovereign Society Offshore Advantage conference on Tuesday. See you Wednesday.