Economic Optimism from a Perennial Pessimist

For those of you who may not know John Cassidy, he is a Contributing Editor at Condé Nast Portfolio and also a staff writer at The New Yorker. From his own self description: "when it comes to issuing gloomy warnings about the U.S. economy, I’ve established myself as something of an authority."

But Mr. Cassidy abruptly flip-flopped this past week. His new thesis: "It’s possible that this downturn could end quicker than anyone thinks" (see The Case for Optimism).

Say what? This is the same Cassidy that on Nov. 11 wrote The Worst of Times. In that gloomy piece his pessimistic verse proclaims that "most economists predict a recovery late next year. Don’t bet on it."

In less than 60 days, he has changed his mind.

Careful not to label himself a "heady optimist" (I guess that would be me), he goes on to make strong arguments for his quick about-face. He asserts, "As the economy goes down, we could be overemphasizing the negative just as we exaggerated the positive on the way up." He summarizes the significant and swift policy actions put in place in Q4 2008. There are now many signs that those swift actions are bearing fruit.

Additionally we have an energetic and hopeful new president-elect. An orator that can calm fearful spirits and re-instill confidence. After describing what went wrong last year and successfully making his case for stimulus, Obama may also begin to restore the appropriate psychologically trust needed to nudge consumers and businesses in positive economic directions again.

Because of all this appropriate policy action, Cassidy concludes:

"By the end of this year, if all goes well, there could be tentative signs of an upturn. How seriously do I take this rosy scenario? Recently, I moved some of my savings from cash into stocks. If the past two years have taught us anything, it’s that popular economic wisdom is often mistaken."

Sound familiar?

Comments

[morph366]

Has Cassidy expressed any view as to where the leadership is going to come from in the markets? Which sectors are going to pave the way to a recovery?
Oratory can provide some nice mood music and talk of animal spirits being uplifted is constructive but the psychology of deflation and risk aversion seems, at least at present, to be coming more entrenched.
Big problem, in my opinion, is that whenever the animal spirits become enlivened enough again to see a new bull market in equities we should also be looking at the mother of all bear markets in Treasuries. But I guess Mr. Bernanke has figured out how to deal with that.

2009 Jan 11 06:14 AM

[investor88]

Good luck to John Cassidy. He has good logic for being bullish but it does not mean everybody should jump in with both feet.

2009 Jan 11 07:48 AM

[axelrod608]

The economy and the stack market are two different things. Will stocks go up ? Some will. Some will go down. So a good stock picker is rewarded in all markets.

As for the economy, I sure would like to know what rosy tidbits he's looking at to fuel his optimism. I don't see 'em.

Finally, moving cash into stocks may signal greed, not optimism rearing its ugly head.

2009 Jan 11 09:15 AM

[t-bird]

The author quoted:

"By the end of this year, IF all goes well, there could be tentative signs of an upturn. "By the end of this year, if all goes well, there could be tentative signs of an upturn.

That sure is a big IF!!!

2009 Jan 11 10:29 AM

[jepittman]

Cassidy is not the only bear to change his opinion.

Bill Fleckenstein has closed his short fund.
Doug Kass, while trading both sides, sees upside in the averages.
Richard Rainwater is buying oil stocks again.
Marc Faber owns US equities for the first time in thirty years (Barrons)

There are others. Point is, a lot has been discounted in the last year. And some pretty astute bears have, temporarily at least, recognized it.

2009 Jan 11 04:46 PM

[The Good News Economist]

Axelrod,

Perhaps Cassidy is looking a leading indicators... 4 of 10 are now positive as reported by the conference board... the other data laid out here: mast-economy.blogspot.... shows that several other indicators are now trending positive as well... we'll see what the conference board reports later this month, but the reports they reference are now out to move at least 2 more of the 10 into the positive column...

GNE

2009 Jan 11 09:16 PM

[briacal]

I haven't seen catastrophic news about the market during the past few weeks;but I have seen some very cautious uptrends in some stocks.Could they be just teasers?maybe.In the meantime I need to enjoy this feeling of hope until the bad news come back again.

2009 Jan 11 10:21 PM

[Conan the Barbarian]

How about Bull Trap, Dead Cat Bounce. Calm in the eye of a hurricane.

You no longer need Catastrophic news, all you need is "new" bad news. Something that the markets haven't accounted for yet.

For instance, Inflation has been the Greater worry in the face of Deflationary forces. The USD is supposed to collapse.

Suppose the USD continues to move up and Gold drops. I would hazzard that the markets would take it negatively, since this scenario would mean a longer, deeper recession.

IMHO

2009 Jan 12 12:21 PM