Newspaper article THE JOURNAL RECORD

Stock Market's Extreme Optimism Giving Way to Extreme Pessimism

Newspaper article THE JOURNAL RECORD

Stock Market's Extreme Optimism Giving Way to Extreme Pessimism

Article excerpt

What makes the current economic scene so strange is the reaction to news of a downturn. Extreme confidence seems now to have been replaced by unwarranted pessimism, with little else in between.

The most likely explanation, and it's only a guess, is that in a very big economy the good news and the bad news come in very big doses -- doses so large the public gags and cannot easily digest the significance.

Moreover, just as confidence promoted confidence and led to exaggerated hopes during the 116-month economic boom, bad news now tends to be overstressed and the worst scenario is foreseen.

You don't have to search for evidence that the economy is slowing. It is there in abundance, so obvious it can't be avoided.

Credit is tightening. Corporate losses are rising. Dot.coms are disappearing. Energy costs have risen. Stocks have fallen. Debts are onerous. The election is stalemated. The trade deficit is rising.

There's no end to the list, if you wish to extend it. Construction and manufacturing are weaker than they had been. Layoffs have begun to appear. Excess inventories are being reported, especially among carmakers.

Dramatic failures provide frightening illustrations. Bank of America reports that it has $1 billion in uncollectible debt. DaimlerChrysler's merger produced huge losses rather than big gains. Much-admired and much-feared Microsoft remains under a court's breakup order.

But, during the long, unique and not likely to be repeated economic boom, an awareness that economies evolve through regular up- down cycles may have been lost. Slowdowns do not necessarily become recessions.

Calmer economists are now rushing to reassure clients that this slowdown is, after all, simply what the Federal Reserve has been seeking for almost two years, during which it raised interest rates six times.

And there are some very positive aspects to it. …

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