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The Hong King market was up more than 10% Wednesday morning, while Japan and China bounced back two and three percent, respectively. As washouts go, this one has been remarkably short - if you believe it’s over, that is.

There was almost a jingoistic component to Tuesday’s TV media coverage, that is not dissimilar to the way people reacted to the first day of the stock market opening post September 11th. Remember the “buy a share in America” concept? If every American bought just $100 of stock, the Dow would open higher on that first trading day after the extended close that had taken place. “Don’t let the terrorists win.” Folks who bought stock that day may have felt proud, but paper losses were their reward.

When the U.S. Federal Reserve announced its 0.75% rate cut on Tuesday at 8:30 a.m. EST, the U.S. markets turned around almost immediately. You all saw that. What was to be a 500-point down day turned into a mild 128 point drop. Over the course of the trading day, one talking head after another was interviewed on CNBC, serving to be a fabulous group therapy session:

The markets look out 6 to 9 months, and things don’t look so bad that far out.

People will start looking at the retailers at these levels.

The financials have driven this correction, so it is great to see them lead this recovery.

CNBC’s myth #1 on Tuesday was that the “markets look out 6 to 9 months.” That “9-month” idea is a new one to me, as the cliche, or truism, has always been that the markets try to look out “6 months” at things such as the economy and future earnings power of key listed companies. It seemed to me that the commentator who through the nine month concept out there just wasn’t all that sure about how the world will look in 6 months, and seemed to be buying himself some time. Or perhaps he lacked conviction, something that one needs to have to go headfirst back into the market (See my prior post “Just sit tight - unless you’ve got the chance to raise capital” January 22-08.)

If the reason why the Asian, European and Canadian markets were being crushed was due to near term concerns about the U.S. economy, who believes that a deep rate cut at this stage is going to avert a U.S. recession, if one was on track to happen/is already happening?

The Fed’s move was brilliant in as much as it avoided the risk of a huge selloff, with all the confidence-shattering impact that could have had. But the idea that U.S. retailing stocks are suddenly a good investment is a bit far-fetched.

But that’s what Jim Cramer was calling for, and many of them, such as Saks (NYSE:SKS) traded well Tuesday. But over the past 12 months, firms such as American Eagle (NYSE:AEO), Ann Taylor (NYSE:ANN) and Collective Brands (NYSE:PSS) are down more than 40%. Calling Tuesday “the bottom” takes a unique ability to read an economy, particularly one that still suffers from a remarkably untransparent banking system.

The data I’m paying attention to is this:

The Philadelphia Fed reported Tuesday (pdf) that the economy shrunk in 23 states last month, including Ohio, Missouri and Arizona, and was stagnant in seven others. California and Florida, with their plunging home values, may soon join the recession list.

If key U.S. economic states have just started to weaken, will Tuesday’s rate cut be enough to turn that around, and fix the housing slowdown in one fell swoop, avoiding a recession?

I doubt it, but what do I know? The Fed Chairman himself has had a hard time guessing correctly. In the meantime, entrepreneurs shouldn’t be laying out their 2008 business plan on the basis that fears about the economy are behind us. As for the stock market, investment bankers need to be honest with their prospective clients that the equity markets are shut right now, and there’s no predicting when they’ll open again for small capitalization stories.

If you have the chance to raise capital, and you need it to grow your business, then pull the trigger.

If the recession never comes, you’ll have the growth capital you need to take advantage of the opportunities that may present themselves. If the recession does come, whether it is meek or not, you’ll be delighted that you are not trying to stitch a deal together in the teeth of a weak economy, where every 2009 business forecast will be doubted.

The “telecom winter” took over four years to thaw before carriers started spending again in earnest. The NASDAQ took years to bounce back from 1300 to 2000. How can this all be over so soon, before we even know if the recession isn’t going to come to pass?

Even the world’s largest funds are having a hard time getting this right: The Abu Dhabi Investment Authority put $7.5 billion into Citigroup (NYSE:C) using a structure that coverts at $31.83/share, albeit with a handsome 11% yield. At the time the deal closed in December, Citi was trading at $33, and on Tuesday, Citigroup shares closed at $24.41.

If people who invest billions into companies can see paper losses that fast, imagine how the VC and merchant banking market will treat financial forecasts over the next few quarters - recession or no recession.

Source: Selling Over? I'm Just Not Buying It.