Montreal, Canada

Visions are creeping in about the dark days of 2008 and early 2009 when the global financial system seemed to be at the brink of total collapse. The usual suspects worked profitably again last month in the worst May for the S&P 500 Index since 1962 and 1960 for the Dow.

May was virtually an identical replay of the carnage that unfolded in late 2008 with Treasury bonds, the Japanese yen, German bunds, gold and short-selling scoring the biggest gains. The U.S. Dollar Index also rallied.

The MSCI World Index of major market stocks plunged 9.9% last month and the MSCI Emerging Markets Index fell 9.2%. The MSCI EAFE Index, which excludes American stocks, declined 12% last month. Not one bourse in the major or emerging markets posted a gain. May was the worst month for stock investors since February 2009 – just ahead of the market low on March 9th.

As credit spreads continue to widen over the last two weeks investors have grown anxious. Of course, credit wags the markets' tail as we soberly witnessed in the massacre that unfolded in 2008. That holds true once more since early May.

Overnight swap rates indicate inter-bank lending stress has resurfaced in Europe as LIBOR rates rise sharply since April. Banks are hoarding cash again as the ECB has been jammed with more than €300 billion EUR of cash from eurozone banks lately. Once again, European banks aren't lending to each other.

The ECB has promised the markets that it will "sterilize" its eurozone government bond purchases so as to calm inflation fears at the German Bundesbank. The Germans don't like what's going on in Brussels. Many in the German press, including the widely read Bild newspaper, are calling for the return of the deutschemark.

At some point in the not too distant future, the world will embrace a new global exchange-rate regime, which, I imagine, will result following a tremendous monetary blowup. The seeds have already been sown with all sorts of fiscal imbalances worldwide, devaluations gaining momentum and the dollar floating rate system totally unreliable and destructive to businesses, individuals, governments and, worst of all, retirement plans. This, more than any other single variable, explains why gold prices remain in a secular bull market.

I highly doubt the ECB will be able to successfully avoid the "quantitative easing" road map and, instead, will be forced to purchase deadbeat bonds from the Greek government and, eventually, other weaker eurozone credits. A Greek default might be imminent. Others might follow.

As June progresses and we shortly complete the second quarter of 2010, it would seem that not all is well in this bull market – if you call it that. I've been bearish throughout this phony rally and, despite an improvement in corporate earnings off the Q4 2008 lows, stocks aren't especially cheap. European equities, however, are looking more like bargains with every passing day – cheapened even more because they're mostly denominated in a ransacked EUR.