With the S&P 500 trading at 19 times all of 2009 earnings, investors have now priced in a recovery for the U.S. economy. And their perhaps premature celebratory mood continued today with the greeting investors gave the April Non-Farm Jobs Report.

The mantra from the perma-bulls is that the second derivative or rate of decline in job loss is falling. Like most other economic data, stock market cheerleaders interpret news that is less bad as the return of the bubble economy.

However, if you dig just below the surface of the minus 539k jobs loss you'll find another staggering 270k job loss in the good- producing sectors of the economy. In fact, since the beginning of this recession in December, 2007, the economy has lost 2.8 million jobs in the manufacturing, mining and construction sectors.

But instead of bemoaning the loss of jobs in the real economy, investors chose to be sanguine over the 66k census workers that were hired last month. That temporary increase in government jobs enabled the ostrich crowd to say the report was better than expected and, of course, stocks opened up over 100 points on the Dow. But those with a more realistic view of the world understand that productivity gains cannot make up for the tremendous job loss in the goods producing sector. Those realists instead are wondering what the drop in real wealth will will mean for inflation and our balance of trade in the near future.

I realize that I'm perceived by some to be a perma-bear. While for some time I have been— and remain—very displeased by the unhealthy underpinnings of our economy, that opinion doesn't always jibe with my stock market view. Indeed, I turned bullish on stocks near the turn of this year (See related CNBC Video below here )—a slightly early bullish call on the market which may surprise some folks.

VIDEO

Conversely, while I agree the economy may appear to be stabilizing, it seems too optimistic to interpret the cessation of the economy's decline as the beginning of rapid growth. And unless this recovery is “V” shaped, the market may need to pause before making a significant move higher from this level.

If this market is “melting-up” on the idea that massive inflationary stimulus will lift the prices of almost all asset classes, there might indeed be more left in this bear market rally. If it's trading up on faith in renewed economic growth, however, then that far-too-bullish economic view should lead to another down-draft, giving investors a chance to buy stocks much more cheaply than they can today.

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