Pollyanna Is (Usually) Right

I switched on CNBC just now and saw “analysts” “arguing” over the course of the economy, yet what I heard, as always, was mostly happy talk.

England and Australia had benign housing corrections. There will be no crash. The stock market is doing fine. Inflation is higher, but modest. Don't worry, be happy.

So it always goes on the financial channel. The reason is that such people are usually right.

Most of the time the economy is OK.

The last recession, in 2001, lasted just six months, just like the previous one in 1991. By the numbers, recessions are short, sharp, and quickly corrected.

Market bears have to lean uphill against history. But when they are right, in market terms, they are very right indeed. The 2000 Internet Bomb was an explosive and terrible market crash. The East Asian Contagion in 1998 will not soon be forgotten by those who went through it. Neither will the 1987 crash, when the Dow fell over 500 points in one day.

Housing collapses and outright Depressions are even rarer. The last recession in American housing was in the 1970s, fueled by high inflation and interest rates. I was in college then. Most think me an old reporter now. For the last real economic collapse, you have to go back to the 1930s, and the Greatest Generation which survived it as children is now at death's d0or.

But market crashes do happen. Generational cycles do occur. Sometimes the bears are right.

And then, watch out.

It is a lot more fun being a bull than a bear. Optimism can make for a happy life, especially if that optimism is usually borne-out by events. Yet those who put their money in Internet stocks in the late 1990s mostly went broke. Those who invested heavily in Japanese real estate in the mid-1980s are just now being made whole.

And so it will be for many of today's investors. Nouriel Roubini is predicting the worst housing slump in generations.  A mortgage banker on Marketwatch is predicting doom. Goldseek sees danger ahead. The sudden bursting of the housing bubble spells disaster, according to Dean Baker.

No, bears, for the bad news. Good times have always risen up a wall of worry. You cannot find a time in the visible past when there were not some stock market mavens seeing the next recession just around the corner. They were always in the minority, and they were usually wrong.

What's different this time? Pollyanna, I think. A willful suspension of belief in reality on many levels -- politically, in terms of the war, in terms of the environment. When there are so many negative facts staring at people and they refuse to look at any of them, you better bundle up against the storm.

Eventually, the storm does come. In the end Goldilocks gets eaten.