You don't have to look very far to find things to worry about.

Yet, after largely going quiet since February, stocks and other risky assets -- including junk bonds, copper and precious metals -- have started perking up like wildflowers. This is despite sour investment sentiment and building evidence of a new slowdown in the global economy.

What gives? And can this new strength continue in the face of such dire threats?

It all depends on what the Federal Reserve announces at its June policy meeting. Wall Street is betting that in less than two months, Fed Chairman Ben Bernanke will unveil a third round of quantitative easing or "QE3" -- essentially pumping cheap, newly printed cash into the financial system -- to follow up on the "QE1" effort started in late 2008 and the "QE2" effort teased in the summer of 2010.

You can see this in the way the U.S. dollar is being eviscerated, dropping below its multimonth trading range. That's pushing traders into assets helped by a weak dollar, like gold and silver and the related mining stocks -- areas that have largely been ignored since early 2011, when the dollar stabilized. The catalyst for that was renewed confidence in America's vigor after Osama bin Laden's date with destiny. Nothing like a righteous kill to boost confidence.

In the twisted reasoning that passes for logic in the markets these days, as long as the dollar stays weak -- ostensibly through additional Fed stimulus -- stocks and metals should march higher. And as long as that happens, you shouldn't be scared out of the market despite the storm clouds on the horizon.

Once that changes -- say, due to a Greek exit from the eurozone, a deepening of the problems Spain faces or a nasty new debt-ceiling debate here at home -- there'll be hell to pay as the dollar strengthens.

Image: Anthony Mirhaydari

Anthony Mirhaydari

But right now, despite the economic mess, we're due for a brief upswing. Here's why.

Liquidity or nothing

As all this is happening, some serious, scary fundamental problems are being shrugged off -- problems that will be obvious once the short-term sugar rush the Fed's stimulus fades. Each iteration of QE only strengthens the nasty side effects of those efforts -- rising inflationary pressures, weaker real wages and higher prices at the pump -- while the benefit diminishes.

Europe is a mess, as the likes of Spain and Britain have fallen back into recession while its fragile banking system edges toward the precipice. The Spanish sovereign credit rating was recently cut to "junk" by analysts at Egan Jones. Food and fuel prices remain troublingly high. Social unrest is heating up again as winter's chill fades -- in Europe, in Asia and here at home.

China is suffering from a drop in exports, to Europe and elsewhere, as it tries to manage the end of a housing and debt bubble.

In the United States, various leading indicators of growth -- from industrial production activity to recent labor market data to the drawdown in the personal savings rate -- suggest trouble. And we have to contend with the "fiscal cliff" Washington is speeding toward like a drunken driver toward a Jersey barrier. (See "U.S. barrels toward a fiscal cliff.")

This week, both the Chicago and Dallas Fed manufacturing reports came in under expectations. The Chicago PMI fell to its weakest level since November 2009 on a drop in orders and production. The Dallas report fell to its weakest level since last September on a drop in factory utilization, orders, employment and production.

With the economy puttering along at just 2.2% growth, tax hikes and spending cuts worth nearly 4% of the gross domestic product await in early 2013. That could tip us back into recession.

There are other, deeper problems, too. Such as the drop-off in the labor participation rate to early 1980s levels as people give up looking for work. Or how Washington has failed to address the looming demographic problem facing Social Security and Medicare as more and more seniors are supported by fewer and fewer young taxpayers. Or how the corporate sector is hoarding cash and withholding investment -- causing labor productivity to stall and threatening future economic growth, according to JPMorgan economists. This will have long-term consequences.

These are serious problems with no easy answers. The root of the problem, as I've said before, is too much debt in the West combined with aggressive trade mercantilism and fierce competition for new jobs from the East.

Until these issues are resolved, the "recovery" will continue to disappoint, with lots of corporate profits but languid job growth and salary gains. Earnings multiples will likely contract, according to Morgan Stanley strategists -- which means lower stock prices as earnings volatility and subdued growth take a toll on investor confidence. While the market is trading near its long-term average price-to-earnings ratio, history shows it doesn't trade near this level for long, as the pendulum of sentiment swings from greed to fear and back again.

Inflation will also become a bigger and bigger problem as the Fed's stimulus efforts mix with structural impediments to faster GDP growth, from a higher "natural" unemployment rate to weak labor productivity and minimal capital investment by businesses.

Continued on the next page. Stocks and funds mentioned include Apple (AAPL), PowerShares DB Commodity Index Tracking (DBC), iShares FTSE China25 (FXI), iShares MSCI Emerging Markets (EEM) and iShares MSCI Hong Kong (EWH).