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.

Christopher Buckley Won't Back Down

Christopher Buckley, the Republican apostate and conservative scion of the late William F. Buckley, is harboring little remorse after endorsing Sen. Barack Obama earlier this month.

In a humorous attempt to write Sen. John McCain’s concession speech in today’s Financial Times, Buckley continues to not back down from conservative critics who believed he shattered, as Ronald Reagan once said, the eleventh commandment, “Thou shalt not speak ill of any fellow Republicans.”

Buckley, who spoke at the Commonwealth Club, Sept. 18, uses the satirical essay to illustrate the possible talking points Republicans might use for why McCain lost the election.

Among them, his early decision to cozy up to the religious right, the role of the media, and concerns about his health

On age, Buckley writes: “Looking on the bright side, it looks like I’ll get to go to bed a little earlier than I’d hoped to tonight.”

Choosing Sarah Palin as his running mate: “So let me thank Governor Palin for ... all that she did to me. For me, I mean. Little Freudian thing, there.”

On the same day of his appearance at the Commonwealth Club last month, Buckley seemed to telegraph his intention to vote for Obama at the Hoover Institute at Stanford three weeks before his infamous column in The Daily Beast, wishing him good luck, while adding, “give me a call if I can help.”

Financial Lessons from 1929?

So what comes next? If the various national and global financial rescue initiatives have, as some argue, staved off collapse, what sort of economy are we looking at for the next year or two?

As noted in our previous blog posting on the financial crisis, even optimistic projections about what's coming up are not, well, optimistic. The Financial Times newspaper reports today that the current thinking of economists is that collapse of the system has been averted and we're not headed for another depression; nonetheless, says the FT, we could be in for the worst recession since 1982.

We won't try to predict what will happen here; that's for others to do. But we did take a look into the archives of The Commonwealth magazine and found one of the earliest Commonwealth Club speeches reacting to the stock market crash of 1929. Titled "The Panic of 1929," the December 6, 1929, speech by William C. Van Antwerp of E.F. Hutton, offered some initial reaction to the market panic and included some surprisingly thought-provoking ruminations on the human spirit.

Here are some excerpts from Mr. Van Antwerp's speech:

A panic is a state of mind in which fear supplants reason. It cannot be stopped by statute law or arrested by the police. The best that can be said of such a phenomenon is that it doesn't occur very often.

In the panic of 1907, there were fundamental conditions that were not sound -- in 1929, we merely suffered a case of nerves following a debauch. It is not to be expected that sound and conservative industry will be shaken this time.

This present panic had its roots back in 1917, when our masses found that they could invest money in bits of paper called Liberty Bonds. From investing to speculating was an easy step.

Whether it be public excess, saxaphones or modern art, the American public always goes too far. If we emerge from our excesses somewhat sadly, we are also somewhat wiser.

The stock market was running wide open and good judgment was forgotten. Most of the post-mortem warnings we now hear about were never given until after the panic occurred.

The recent rise had to stop in one way if it did not in another. Even a billion dollar pool would not have averted the panic.

We have for some time been "rotten rich" -- now for a short time we are to be merely "affluent."

President Hoover will bring into action the confidence reserves which everybody knows we possess. When we start forward again as we surely shall, trade and prosperity will go forward to heights not now imagined.

What do you think about Mr. Van Antwerp's ideas? How applicable are they to today? Leave a comment and let us know.