Indeed, the economic recovery is “100 percent fake,” he says. “It’s built on Fed money-printing and government borrowing. Both are at record levels. That’s absolutely crucial to this market rally.”

The Fed has added more than $2 trillion to its balance sheet over the past five years through quantitative easing and has pushed short-term interest rates down to near-record lows.

Still, the economy expanded only 0.1 percent in the fourth quarter. “And more important for companies reporting earnings, much of the world is in recession, and that’s affecting a lot of S&P 500 earnings,” says Wiedemer, a regular contributor to Financial Intelligence Report, the flagship investment newsletter of Newsmax Media.

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To be sure, that doesn’t mean the rally won’t continue, he says.

“It would be a little silly to say we’ve topped today; it certainly can go higher,” Wiedemer explains. But “some sort of correction is likely,” he maintains.

“We have gone quite a ways in a short period of time. Whenever the market has a large run-up it’s likely to have some kind of pullback. So a correction is certainly plausible. Whether it’s in the next few days or a week or two, I don’t know.”

So is this a good time for individual investors to dive into the market?

“There are some values, some high dividend stocks that are good to hold, [though] I’m not sure they’re great values,” says Wiedemer, a managing director of Absolute Investment Management, an investment-advisory firm for individuals with more than $300 million under management.

“Keep in mind that this isn’t being driven by economic fundamentals. Always be careful in playing in markets like this. It may be acting like 2007, but this isn’t the economy of 2007.”

Also realize that even at record highs, the stock market is up only about 10 percent from its 2000 zenith, and the Nasdaq is still down almost 30 percent, Wiedemer says.

“And let’s not assume all stock gains are permanent either. They can go back.”

As for the Fed’s quantitative easing (QE), Wiedemer doesn’t think it will end any time soon.

“The only exit strategy for [Fed Chairman] Ben Bernanke is to retire, which I think he will do in January. We have been through four [rounds of QE]. It will continue through this year, and quite possibly longer.”

When it comes to the automatic spending cuts (sequester), Wiedemer doesn’t see them having much effect this quarter. But economists say that overall, they’ll take 0.5 to 1 percentage point off GDP, he notes.

[Robert Wiedemer is a managing director of Absolute Investment Management, an investment-advisory firm for individuals with more than $300 million under management. He is a regular contributor to the Financial Intelligence Report, the flagship investment newsletter of Newsmax Media. Click Here to read more of his articles.]

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