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In our Brief two weeks ago we presented the possibility that the markets are sensing a comeback in the US economy. The Dow Jones Industrials are up 3.7% and the Nasdaq is up 4.7% from that point. Since their March lows the two indices are up 12.5% and 15.5% respectively. The bond markets and the currency markets are also moving in agreement as the dollar reached a five-week high yesterday and bond prices are trending down taking rates modestly higher.

For markets, the worst of the credit crisis may be over. Investors’ uncertainty over the size of financial institutions’ losses took stock prices below reasonable valuations as is typical when information is scarce. While the effects will last considerably longer for people directly impacted and for the economy as a whole, markets are indicating that knowledge is sufficiently filling the void. Citigroup, Merrill Lynch, JP Morgan, Washington Mutual, and Wachovia’s shares are all moving significantly higher after reporting huge losses due to credit write downs. The S&P is up 10% since its low on March 17th and the dollar rose the most against the euro in more than two weeks on Citigroup’s news. Perhaps investors are saying that the nearly $250 billion in financial losses reported so far represent the majority of the ultimate total.

Government to the rescue is becoming more widely accepted and even encouraged by Wall Street lately. The credit crisis hit another crescendo today as the nation’s fifth largest broker, Bear Stearns, obtained emergency funding from J.P. Morgan Chase and the New York Federal Reserve saying its cash position had “significantly deteriorated.” Traders in global currency markets are openly speculating that central banks will soon announce a concerted effort to support the value of the dollar. Earlier in the week central banks announced a concerted plan to buy troubled mortgages. On the heels of that news Ben Bernanke announced plans to lend up to $200 billion in Treasury securities in exchange for debt including private mortgage-backed securities that have slumped in value as homeowners defaulted on their payments.

It has been a tough week of news for the economy and business. US Consumer confidence dropped to the lowest level since the crash of ’87. GE reported disappointing quarterly and projected earnings sending their shares tumbling the most since 1987. Frontier Airlines, out ofDenver, was the fourthUSairline to declare bankruptcy in the past three weeks. Last, but not least, the US Congress has set a dangerous precedent on trade by halting cooperation with the Executive Branch and holding up a pact with Columbia. If the gambit is pushed it may affect numerous other negotiations and slow global commerce at a time when theUSis heavily dependant on exports.

“We are in a recession” according to Warren Buffett. “Across the board I am seeing a significant slowdown,” he said on CNBC television. Fed chair Ben Bernanke in his Senate testimony last week said that “the economic situation has become distinctly less favorable.''

Remember climbing a ladder for the first time and hearing the advice – don’t look down? Seems everybody looked down a couple of months ago and believed the worst. People seem to be frozen like deer in the headlights. In my conversations with friends and clients I hear that their businesses, some related to homebuilding and others completely unrelated, simply fell off the cliff a couple of months ago. While some can be explained by high fuel prices, poor exchange rates, and tight credit policies, the reasons are broader than the economic data. There seemed to be a psychological line that was crossed and people simply put on the brakes.

The economy’s momentum in the fourth quarter of last year came almost entirely from exports as domestic spending evaporated. Gross domestic product rose at a 0.6% annualized rate following a 4.9% gain in the third quarter according to the Commerce Department. The government reported today that consumer spending rose 0.4%. But that increase is mostly due to rising prices. The Federal Reserve's preferred measure of inflation climbed 0.3%, the most in four months.

Search for the bottom in the housing recession continues, leading indicators are falling, the auction market has dried up, Oil breaks $100, Gold is reaching new highs, and the job market is cooling. Unfortunately there is little evidence to support the thesis that we will miss a recession other than the continued strong momentum in Asia and theMiddle Eastmay pull us out of this dive with the help of lower rates and government stimuli.

In the star-studded 1970’s comedy war film Kelly’s Heroes, Donald Southerland’s character ‘Oddball’ constantly admonished the dreary nature of his tank driver, Moriarty, played by Gavin MacLeod with the phrase “always with the negative waves Moriarty.”  The steady pounding of dour economic reports continues with little positive relief in sight. The juggernaut US and global economies seem to have changed course almost overnight. The change in mood is due both to qualitative and quantitative forces.

Last week we posed the question as to whether recession had already begun. Today 62 economists polled by Bloomberg News make it an even bet that job losses and housing contraction will stall the longest-ever expansion in consumer spending. They predict that the economy will grow at .5% in the first quarter implying the slowest growth since the 2001 recession. A growing number of economists, bankers, and brokers are saying that recession may already be upon us.