Karabell: Where is the Optimism?

August 16th, 2011

The Daily Beast
Aug 16, 2011
By Zachary Karabell

In the past three trading days, U.S. markets recovered everything they lost last week. In the wake of S&P’s disastrous and ludicrous downgrade, the major indexes lost about 8 percent; since then they’ve gained that entire amount back and then some.

Click here to find out more!The rapid moves down last week led to a wave of analysis, portending a market-predicted double-dip recession, a waning of corporate profits, a worsening of funding crises in Italy, Greece, Portugal, and the entire European Union, and perhaps a collapse of fiat currencies ranging from the euro to the dollar. The moves the past three days, therefore, should have occasioned a wave of analysis heralding the stability of the U.S. economy, the health of the EU, the resurgence of Japan post-tsunami, the continued strength of China, and the ongoing commodity and industrial boom throughout the world formerly known as emerging.

But no. The fears of last week and the hand-wringing occasioned by the downgrade have not been magically replaced by a surge of hope and optimism. This is illogical—if, that is, you accept the logic that the markets are economic-forecasting mechanisms. After all, if they are accurately forecasting turbulent economic times on the way down, they ought to be forecasting rosy days on the way up. But two things prevent three good market days from inverting the pyramid of doom.

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