Yesterday was one of those days.

To all intents and purposes it appears that the US consumer has given up the ghost. US confidence just crashed in January, falling to a five-year low – and presumably, in the process, quashing the more-optimistic projections for the US economy that had based their assumptions on the apparent resilience of the US consumer.

Yesterday also saw the release of the latest set of data on US producer prices – and here the news was awful – producer prices shot up by a full percentage point in just one month from December, pushing the annual rate to an alarming 7.4 per cent.

The bad news spread too, with yet more evidence to suggest the US housing market is in freefall, while even in Blighty the Bank of England’s deputy governor Rachel Lomax started talking about the “largest ever peacetime liquidity crisis” and warned that demand could plummet while inflation could rise simultaneously.

And while all that was going on, the price of oil gradually climbed, and this morning, when we took our daily reading, it stood at $101.8, a full $2½ above the highest level we had previously recorded.

Yet markets soared. It was another example of that perverse logic that says “the economic news is so bad that the Fed must cut the rate of interest, so let’s buy.“ So convinced are the markets that more rate cuts will follow, the dollar dropped to a new all-time low against the euro.

So, before we examine what appears to be a US policy with a somewhat kamikaze attitude to the medium-term outlook, let’s take a closer look at that string of awful economic news.

The US consumer confidence index, published by the Conference Board, fell to 75, the lowest level in five years. What makes this especially significant is that many of the more optimistic projections for the US economy have been built on data which, until recently, suggested the US consumer was remaining resilient. For example, in January, the National Institute of Economics and Social Research predicted US growth this year would be around 2.2 per cent, and cited strong US consumer spending in growth last October and November to illustrate this.

Well, consumer confidence gives an indication of where consumer spending will be in the months ahead. Last July, the Conference Board Index hit 111.9, its highest level in many years – which could perhaps explain the strength of consumer spending in the autumn. But a quick gander at the chart below will show that it is as if the index has fallen off the edge of a cliff.

 For years, US consumers have provided the main impetus for global economic growth – but it appears that for the next few months at least, but probably much longer, the men and women who used to spend with so much enthusiasm, will be staying at home, pulling a blanket up over their legs, and preparing to sit it out.

And while consumer confidence fell like a rock falling from the northern sky, more evidence emerged to show how anaemic the US housing market is.

The closely-watched Standard Poor’s Case-Shiller index recorded a 5 per cent fall in US house prices in the final quarter of 2007 alone. For the year, it has prices down by 9 per cent, by far the biggest fall ever recorded by the index – which, by the way, goes back to 1987.

Robert J. Shiller, Professor at Yale University and Chief Economist at MacroMarkets LLC, said, “Wherever you look things look bleak, with 17 of the 20 metro areas reporting annual declines and the remaining three reporting flat or moderate growth rates.

Miami was the worst-hit area, seeing a decline of 17.5 per cent, Las Vegas and Phoenix both suffered a 15.3 per cent fall and even San Francisco was not immune, with an annual fall of 10.8 per cent.

Now we all know that a good medicine for dealing with such a decline is a nice big cut in the rate of interest. No doubt the Fed will oblige.

But with US inflation recently hitting 4.2 per cent, the cuts we have already seen do seem to suggest the Fed is playing footloose and fancy free with future prices. Yesterday, more data emerged to show just how bad the inflationary pressures are.

In fact, producer prices jumped 7.4 per cent over the last 12 months, and you would have to go all the way back to 1981 to find the last time they rose by so much.

A part of the reason for the rise in producer inflation is the soaring cost of energy and food. Yesterday, we revealed how the price of wheat has hit new records, and this morning oil hit a new all-time high, so it seems pressures from this quarter will remain for some time.

But actually, even if you strip out food and energy, and just look at core producer prices, they still rose by 0.4 per cent in just one month.

Amazingly, though, the Dow jumped by 114 points on the news. It is now 250 points up on the week, and 580 points upon the year low, set near the end of January.

There is a theory that markets are perfectly rational, so you can’t profit from investing in them because share prices have been discounted for all the information that is available. This week’s rises on the back of such appalling news, coupled with such short-termism from the Fed, just go to show how wrong that theory is.