Montreal, Canada

Depending on your view of the global economy and the prospects for corporate earnings and interest rates in 2010, it's getting harder by the day to find an undervalued asset let alone an asset class that's cheap in absolute and relative terms.

A true short-seller – and I'm not one – would be net short right now with stocks and other risk-based assets skyrocketing since last March with barely a correction. We all know a Black Swan, or unknown event, is out there.

I continue to see this market recovery in the context of a powerful, government-fueled liquidity rush that will end badly, akin to market action in the 1930s. That decade, though certainly not as dreadful economically, is very similar to this environment in many ways, mainly the fracture of credit intermediation and busted housing. If not for full-fledged government intervention in late 2008-2009, we'd have bread lines. I'm convinced of that.

Meanwhile, speculation runs wild in many countries despite signs of government efforts to drain some liquidity (China, Norway, Australia, Israel) or impose quasi exchange controls (Brazil).

Bubbles are now underway in the emerging markets, with all segments of this sector expensive compared to their historical averages. This includes stocks, bonds and currencies. The basic premise here is that China can't lose; she's rich like hell and her economy will continue to grow at roughly 8% per annum forever. Yeah, okay, been there and seen that.

Remember the technology mania? Remember housing? There's no doubt big money was made and lost in these bull markets. The key is to ride these big trends until the music stops. That's something I've been reluctant to do since the credit crisis because I truly believe it's a casino out there. Every trend is juiced to the maximum until it is finally violently discredited.

The financial system has not fully healed. The big boys at the big banks work with government and that relationship is rigged to their benefit, not ours. I have completely lost confidence in regulation and market oversight.

Let's go back to China…

China "mania" now reminds me of the internet age. Despite continued substantial growth in the use of the internet, it went wrong because investors ended up paying far too much for what proved to be illusory profit growth. It's the same with China. Just how long can this growth cycle continue while commodities prices – critical to her input costs -- remain so elevated? Is China's growth cycle that resilient?

Meanwhile, bonds of most varieties aren't cheap anymore and Treasury debt is at the cusp of entering its first secular bear market since the 1970s, courtesy of never-ending supply. Commodities are still attractive but only the grains are dirt-cheap at this point. Currencies have gone to the Moon since 2002 and they're not cheap, either.

Quality residential real estate in the United States, however, though illiquid, is a buy. I would be a buyer in places like Southern California, Florida, Nevada and Arizona. I'd also be a buyer in Costa del Sol or Marbella, Spain.

The best bet remains volatility. Markets can continue to soar for the next several months without a correction. Anything is possible. But the higher this rally goes, the greater the bust. There's no way every major central bank will get away from this parade of fiscal priming without inviting inflation or some sort of bungled monetary outcome. The bubbles now evident are in global government monetary policy. How they'll exit these unorthodox arrangements without inviting another meteor into the financial system is truly fascinating – and dangerous.