Un optimista en el infierno

It was still pitch black at 5:45 a.m. on Monday morning and the stock market was 45 minutes from opening as I got out of my car at the local ferry terminal on San Francisco Bay and saw an entire mountain on fire.

A fast-moving blaze on Angel Island, the jewel of the bay, had engulfed more than half of the 700-acre island and created a wall of flame up to the peak of the 780-foot Mount Livermore at its center. From a mile away, I stood with friends from the boat and watched as the flames silently lit the night sky.

"Looks like your portfolio," I said to one buddy, an investor who like everybody else has been scorched by the inferno raging through the global financial system in the last six weeks. The small group of commuters, mostly workers in the financial district, nodded and laughed knowingly, and then headed to the boat for the ride to work and what was expected to be another pummeling in the markets.

Yet that day turned out to be one of the best days ever for the stock market, as the Dow Jones Industrial Average (INDU:

, , ) soared 937 points, or the equivalent of its gains for the first 69 years of its existence, between 1896 and 1965.

At times like these, where new records are set daily and five hundred and six hundred point-days in either direction are regarded as more of the same, it's easy to suspend reality and indulge in talk of new eras, ends of Wall Street and capitalism, and collapsing of empires. So it was in the aftermath of 9/11, when experts predicted a severe global depression.

But a quick look at history shows that very often these grand statements and feelings are nothing but just that -- statements and feelings. In reality, not much really changes.

As I check the headlines on the news sites and listen to the talking heads on TV, there is this week an overwhelming rush to describe where we're going in the worst possible terms, with hundreds of thousands of job losses, industries in ruin, and frightened investors hoarding cash in safes, mattresses and lockboxes.

Sure, we're in a recession. But will it really be as bad as everybody is predicting?

At the same time, I look at the price of oil today closing under $75 a barrel Wednesday and I notice how far we've come in just three months, when the price was at almost $150 a barrel and everyone from the pundits to the analysts to OPEC was predicting $200 oil, or $300 oil in the near future.

In the wake of such colossal and universal misjudgment about oil prices and runaway economic growth from India to China, might we now be overshooting in our dire predictions of where the global economy is heading? Sure, we're in a recession now. And we'll be in one when the Obama administration takes over in January. But will it really be as bad as everybody is now collectively predicting?

After all, when's the last time anybody remembers the world's central banks pumping $2 trillion into the global economy and the financial system? We don't know what the impact of that financial equivalent of the "surge" will be because we've never seen it before. We do know that third-quarter earnings didn't fall off the face of the earth. Some companies in the consumer sector and even in technology are still reporting pretty good numbers, albeit with vague warnings about the fourth quarter.

Maybe, just maybe, this market rout is more tied to vicious hedge fund unwinding than a broad economic calamity, and perhaps it will bottom in coming days, with the tough period ahead of layoffs and closings and failures far shorter than we now expect. Like the market itself over the last few years, the economy has been revved up to hyper-speed and is now capable of changing months and years more quickly than we are used to.

When oil was a sure thing to hit $200, some people made money betting the other way. Where are those bets now that a depression is the new sure thing?

As I traveled home Monday evening before sunset, and witnessed the charred remains of more than half of Angel Island, I wondered how many years or decades it might take for the island to be what it once was. Yet the next day's paper quoted experts saying that the grass will begin growing with the rains this winter and that by the spring it should be largely back to normal. One guy said it will look like a golf course before the end of the year.

And just as growth will return to Angel Island much sooner than its smoldering ruins suggest today, our economy and way of life will rebound long before we can possibly imagine right now as we stand before the flames. 

David Callaway is editor-in-chief of MarketWatch.