By Ambrose Evans-Pritchard
Last Updated: 6:43AM BST 11 May 2009

Bear market rallies can be explosive. Japan had four violent spikes during its Lost Decade (33pc, 55pc, 44pc, and 79pc). Wall Street had seven during the Great Depression, lasting 40 days on average. The spring of 1931 was a corker.

James Montier at Société Générale said that even hard-bitten bears are starting to throw in the towel, suspecting that we really are on the cusp of new boom. That is a tell-tale sign.

"Prolonged suckers' rallies tend to be especially vicious as they force everyone back into the market before cruelly dashing them on the rocks of despair yet again," he said. Genuine bottoms tend to be "quiet affairs", carved slowly in a fog of investor gloom.

By Andy Xie, guest economist to Caijing and board member of Rosetta Stone Advisors

(Caijing Magazine) At the beginning of 2009, I wrote that the global economy would stabilize in the second half, and a bear market rally could start in the second quarter of 2009. I thought that stagflation would be the dominant trend for the next few years. I am still sticking to my story. The bear market rally began earlier than I expected. The reason was that major governments have been introducing subsidies for speculation. They believe that the main problems are liquidity and confidence. Hence, if investors or speculators are brought back in the game, the world economy could return to a virtuous cycle again. I think that this type of approach could lead to a second dip in 2010.

On the credit front, the TED spread (i.e. three-month dollar LIBOR less three-month Treasury Bills - a measure of perceived credit risk in the economy) narrowed by 10 basis points during the past week. Since the TED spread’s peak of 4.65% on October 10 the measure has eased to an 11-month low of 0.76% - still well above the 38-point spread it averaged in the 12 months prior to the start of the crisis, but nevertheless a strong move in the right direction.