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Yet like last September, this seems to be the kind of rally that allows insiders to sell and recoup some losses, while the public goes all in, wishing to be clever and call the bottom.

All successful lies come from an idea that the crowd latches on to. The French psychologist Gustave Le Bon, writing in 1895, said there are two types of ideas, the accidental and the fundamental. Accidental and passing ideas [are] created by the influences of the moment: infatuation for an individual or a doctrine, for instance.

The other class of ideas are, fundamental ideas, to which the environment, the laws of heredity and public opinion give a very great stability such ideas are the religious beliefs of the past and the social and democratic ideas of today.

Today's accidental idea is that the Fed's particular plan can undo the damage of ten years of mis allocated credit. It is a dangerous idea only if you allow yourself to believe it. The more dangerous idea is the fundamental idea behind the Fed. It is the big lie behind the entire modern financial system, the idea that a committee of men knows what the price of money should be all the time.

This is the fundamental lie at the heart of the current banking system. It's the lie that led Alan Greenspan to create the housing bubble in order to undo the damage of the Dot.Com bubble. It's the lie that led Wall Street to create entire industries to speculate with borrowed money...

It's the lie that led million of people to take out mortgages they can't repay and led to those mortgages being re sold to investors as triple A quality bonds.

Quite simply, it's the great financial lie of our times. And we wouldn't expect it to go down without a fight.

Formerly editor of Strategic Investment with Lord William Rees Mogg, Dan Denning is an independent investment analyst now based in Melbourne, from where he edits the Australian edition of The Daily Reckoning. He is also author of the best selling The Bull Hunter (Wiley Sons).

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