Redstate

Posted at 1:51am on May 3, 2008 The Return Of Optimism?

By Pejman Yousefzadeh

Since so much of the recent economic news has been poor, it is easy to make too much of anything that might slightly resemble good news. But perhaps, at long last, we finally have some good news to cheer us.

First, there is the fact that Wall Street is feeling more confident these days:

Despite a drumbeat of bad economic news, the stock market is up -- almost 11 percent in the last few weeks. Junk bonds, those risky corporate IOUs, are rallying. The value of financial shares, bank loans, tricky credit derivatives -- up, up, up. Many on Wall Street, the epicenter of the credit mess, seems to think that the worst is over. For the first time in months, analysts and executives sound upbeat again. Many of them see a broad, sustained recovery in both the economy and the financial markets coming in second half of this year, a prediction some market strategists call hopeful at best.

For now, policy makers are echoing the mood on Wall Street. Treasury Secretary Henry Paulson Jr. said in an interview with Bloomberg Television on Thursday that "we are closer to the end of this problem than we are to the beginning." A report from the Bank of England, meantime, concluded that mortgage securities, which have been at the heart of the financial troubles, probably have fallen too far. The central bank said prices of such securities should "improve gradually in the coming months."

Financial stocks and the broader market surged on Thursday as the dollar strengthened and oil prices fell for the third day in a row. The Standard & Poor's 500 index closed up 1.7 percent, to 1,409.34; the Dow Jones industrial average notched a 89.87-point gain, to 13,010; and the Nasdaq composite jumped 2.8 percent. Another day or two like that, and those market benchmarks will be in the black for the year.

It is a remarkable reversal in attitudes from just a few months ago, when the broader economy seemed relatively healthy but Wall Street was traumatized by billions of dollars in mortgage-related losses. Now, bankers and investors appear ready to look past the crisis to more profitable times, while consumers find themselves in a more precarious position as the job market weakens and banks make it harder to borrow money.

Read on . . .

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