Ecomomists Confusing Bull and the Bear Market

Although the Dow dropped below the 9,000 mark today amidst a round of profit-taking, last week's mini-rally still has economic experts optimistic about the new year. But is this a self-fulfilling prophesy perpetrated by Wall Street?

Optimism in the financial world is part-and-parcel to the whole idea of investing, isn't it? If the outlook were bleak, who would participate?

Last week's impressive rally, which lifted the Dow over 9,000 for the first time in two months, may have had the fortune of arriving in tandem with numerous articles on the 2009 outlook for the economy. Of course, most were bullish and those that were not, were eagerly anticipating good times near the middle of the year.

Though Jim Cramer writing at thestreet.com has a headline foreseeing a return to the Wall Street of old, he only predicts the Dow rising to near 10,000 – hardly something to celebrate. Cramer based his projections of the possibility of the housing market rebounding with new buyers and – like many other economists – wondering how high unemployment will rise.

A recent article in USA Today does a good job of laying out various scenarios occurring during the next year. Some optimistic, some pessimistic, and others ominously following the current downward trends.

In a nod to the suspicion that nobody knows where the economy is heading, the USA Today article contributes this:

A recent Citigroup survey of institutional investors reflects the wide disparity of potential performance outcomes for stocks next year. More than 20 percent expect the S&P 500 to rise 11 percent to 22 percent in 2009. But more extreme predictions — both pessimistic and optimistic — were also evident. About 15 percent think stocks could fall as little as 12 percent or as much as 39 percent. And about 15 percent said stocks could post gains ranging from 44 percent to 55 percent.

So, what does all this optimism portend for the economy?

Niall Ferguson at the Financial Times wrote a far more honest and hardly satisfactory outlook on the economy with a clever look back on 2009. In the article he refers to not the second-coming of the Great Depression but what he coins as the "Great Repression," where the entire economy is in denial about its current state.

So, while Ford's reported 32-percent drop in sales looks rosy next to Chrysler's announced 53-percent tumble, unemployment looks more and more grim and banks teeter near insolvency, many experts on the market still say don't worry. An unsympathetic observer might conclude that this sort of denial would make the former Iraqi Minister of Information Mohammed Saeed al-Sahaf – also known as the man who pleaded with reporters that American troops were not in Baghdad when they were – quite proud.