Economic Outlook

I don't think so.

Many on Wall Street, the epicenter of the credit mess, seem to think that the worst is over. For the first time in months, analysts and executives sound upbeat again. Many of them see a broad, sustained recovery in both the economy and the financial markets coming in the second half of this year, a prediction some market strategists call hopeful at best.

For now, policy makers are echoing the mood on Wall Street. Treasury Secretary Henry M. Paulson Jr. said in an interview with Bloomberg Television on Thursday that “we are closer to the end of this problem than we are to the beginning.”

Sure, we'll trust the perennial optimists to tell us when the market has bottom. Look at this chart of the S&P 500 from 4Q07 to date. First they told us there was no crisis, then they told us it was contained, now they're telling us it's already passed.

It is, of course, not uncommon for Wall Street to run ahead of the broader economy. Investors, after all, make money by anticipating the future. The job market, by contrast, improves more slowly than other aspects of the economy.

But specialists say the two sides will eventually converge. Either the markets will give up their recent gains or, if the optimists are right, the broader economy will show greater strength as tax rebate checks and lower interest rates stimulate the economy.

That first sentence sums it up really well. Look at the logic on which the optimists - let's call them ponyboys - are banking their recovery on: tax rebate checks - $600 is enough to solve every negative homeowner equity and bad commercial/real estate loan ever! - and lower interest rates - $4 gas! That stimulates somebody's pockets - will save the world.

Ride on ponyboys, ride on into the sunset.