So, what do you believe? The largest ever quarterly fall in US house prices, plus another nasty fall in the month of March, or consumers who are apparently more confident than they have been for months?

Or, to ask another question: who do you trust? The folks buying shares and pushing the US and other major markets higher into what’s looking like a mini-bubble based on nothing but ‘green shoots’, or confirmation that the US Government, Federal Reserve and Congress has failed to halt the remorseless slide in values?

Trillions of dollars have been spent, promised or loaned by the Fed, US Treasury, Congress and two administrations trying to simultaneously stabilise the economy (which may be starting to have an impact) and halt the drop in house prices which in March were terrible, and in the March quarter a record.

Similarly, corporate profits (despite the concoctions served up in the March quarter) are terrible, unemployment is rising and will not go away for years, credit card debt is crippling banks and other providers (not to mention customers), Chrysler has gone bust and by next Sunday, General Motors will have followed, adding to the pool of jobless, and plunging sales, output and demand in the wider economy.

Still, the bubbleheads in the market think the US economy is turning up and will continue to improve. These ‘green shoots’ have a lot to answer for. Improved investor and consumer confidence is vital, but not at the expense of a realistic appreciation of how dire conditions remain for businesses and consumers in the US economy.

US households lost a total of $US11.2 trillion in net worth in 2008 from falling home prices, shares, land and other asset values. Some economists say that this year the plunge in house prices could wipeout another $US3 trillion or more, which would destroy whatever value is being rebuilt in the bubbling stockmarket.

At the same time, bond yields are spiking higher: up over 3.5% overnight (they ended around 3.55%, the highest in nine months) as the US Government got a good reception for a huge $US41 billion auction of short term notes. Another $US60 billion will be auctioned over the rest of this week. Normally the solid demand for the issue would have been good news. Nope. Bond prices fell, sending yields higher.

If anyone has noticed, Australian 10-year bonds are now trading well over 5.34% this morning, up more than 0.30% in the past five days.

Wall Street jumped by well over 2% on the news that US consumer confidence jumped from a revised 40.8 in April to 54.9. It was the biggest monthly gain since 2003 and much more than economists were expecting. Up went markets in late trading and around the world.

Everyone ignored what a reading of 54.9 means: it says deep recession: the previous reading indicated near freefall.

But the latest reading wasn’t even a measure of current sentiment; it was boosted by a sharp rise in future expectations. US consumers (all 5,000 in the survey) no longer fear the future more than the present.

However, some economists pointed out that confidence, while better than during the darkest days at the start of the year, remained at historically depressed levels.

And, then there was the continuing freefall in US house prices, down 18.7% in March from the same period last year and 30.1% since their peak in late 2006.

The S&P/Case-Shiller index of prices in 20 American cities fell by more than economists had forecast in March, driven lower by rising home foreclosures (which the Fed, the Administration and banks claim they are stabilising).

The Index fell 2.2% from February alone and that was after prices in February fell 2.2% as well from January.

“We see no evidence that a recovery in home prices has begun,” David Blitzer, chairman of the index committee at S&P, said in a statement accompanying the release.

As the Financial Times remarked this morning:

Three days of sun over the Memorial Day weekend in America has gone to investors’ heads. On Tuesday morning they were confronted with two nuggets of economic news. Firstly, house prices across the country are still plummeting. No ifs, no buts. The root cause of the financial and economic meltdown — and arguably the most crucial metric needing to improve before the world can emerge from its funk — remains unequivocally negative.

But equity markets rallied. Why? Because of later news that a sample of 5,000 households are more confident than they were last month. The Conference Board Consumer Confidence Index for May came in at 55, considerably above consensus and 14 points higher than April’s reading. Investors choosing to place their faith in this index at the expense of the house price data, however, may be making a grave mistake.

So investors are pinning their hopes on other people’s hopes that things will get better. These are probably the very same people who were confident about property prices two year’s ago. Sure it is important to identify turning points and markets are forward-looking. But the truth remains that the hard data — house prices, unemployment, trade and corporate profits and inflation — all remain dreadful. Consumers can dream all they want.