On Tuesday, the Dow Jones Industrial Average rose 889 points. I did not note it, or try to explain it in the immediate aftermath, because, honestly, I find it utterly baffling. The economic news from just about everywhere is grim. The promise of another rate cut, likely to arrive today, would seem to be yet another de facto acknowledgment of more hard times to come.
Then there's this summing up from the Financial Times' Martin Wolf, pointed to by Brad Setser.
Wolf notes that JPMorgan Chase analysts are forecasting a global contraction of gross domestic product "at a near 1 per cent annual rate in the fourth quarter of 2008 and the first quarter of 2009."
Given the near-disintegration of the western world's banking system, the flight to safe assets, the tightening of credit to the real economy, collapsing equity prices, turmoil on currency markets, continued steep declines in house prices, rapid withdrawal of funds from hedge funds and ongoing collapse of the so-called "shadow banking system," these forecasts even look quite optimistic. The outcome next year could be far worse.
And yet investors in the U.S. saw fit to push the Dow to its sixth best day, (in percentage terms) ever.