According to a Societe Generale research note, "financial shocks that occurred alongside strong corporate profitability [which is presumably the case now] were ultimately worked out without any major spillover effects into the real economy".
"The recent market turbulence is a confidence problem, not a fundamental problem. The distinction is important for the Fed and the markets. The economy is not yet in a position where companies need to restructure. Profit margins are strong and will encourage companies to invest and hire. Tighter credit is a modest negative for growth and will impair some businesses, but most generate sufficient cash flow to finance their investment plans.
The ultimate impact on the economy depends on how quickly the financial crisis is resolved. The key for the Fed is restoring confidence."
"If the Fed is ultimately pushed to cut rates, they would take on the risk that inflation runs away from them, a-la-1998. This could require a quick reversal once the situation is normalized."
I think the key here is "how quickly the financial crisis is resolved".
As bleak as the situation looked mid-day Thursday, look how fast things turned around. And for all the pronouncements that the Big Bear Market is upon us, who's to say that, come September, business as usual slowly starts taking over and this crazy summer becomes just a bad memory.
I am not saying that's what's in store for the market and I don't see it in the charts yet, but should it come to pass, the situation would fit right in with the analysis above.
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