Has Doom and Gloom Jumped the Shark?
Turn on Comedy Central's "The Daily Show" and you may see a cameo of Dr. Doom Nouriel Roubini sitting in a supply closet. Check out the New York Times' Tuesday edition and you'll see a big feature on the new credence - and cache - that markets are giving to dire predictions.
But along with the usual bull vs. bear debate, it may be time to add the shark to the market menagerie.
"Jumping the Shark" was originally a term for TV shows that were hits, but then headed downhill at a specific moment (the original example was "Happy Days" when Fonzie water skis over a shark tank at a beach.)
And the persistent popularity of the doom mongering begs many questions. What happens when contrarians become mainstream? Will Armageddon cease to be cool, allowing the bulls to take over?
And critically, are we coming to the end of three years of crisis or just getting started?
"The market is currently on a very critical juncture," Philippe Gijsels, the head of research at BNP Paribas Fortis Global Markets, told CNBC in an e-mail. "I expect quite a bit of volatility today and over the next couple of days and weeks.”
“When we look back on the performance of the markets this year, we have been all over the place, there has quite a bit of volatility but overall the market is pretty much flat both in the US and Europe," Gijsels said. "The reason for this is that the tug of war between the top down and bottom is still raging and is still undecided."
"We have just had a very strong earnings season for which 77 percent or so of the companies beat estimates," he said. "This is not as impressive as some people want us to believe as companies and the analyst community typically lowball the estimates and make the hurdles easy to pass. However, even the bears will have to admit that the earnings this quarter were not only about cost cutting but also about revenue growth."
Danger and Perverse Logic
The real danger remains the question of double-dip recession or no double dip, Gijsels said.
“It is clear that this positive corporate story will not continue if the world economy were to slow down materially in the second half or would experience a double dip," he said.
Over the short term the market looks vulnerable to a correction, he added.
“The last couple of weeks of bad economic news have been neglected because the bulls are hoping that Ben Bernanke will very soon set the market afire with a new batch of quantitative easing," he said.
“We have entered a mind set of perverse logic," Gijsels wrote in the email. "The weaker the economic figures the better, for they increase the chance that liquidity will once again flow abundantly. It is important to see the historical pattern here. A lot of the problems of too much debt in the system we are having today are due to the Greenspan put, now we have the Bernanke put (if the economy remains weak I will buy more assets.)"