Relax, It's a Soft Patch

[Updated June 15th]

The headlines these days have an uncomfortably familiar feel, don't they? Houses won't sell, employers won't hire, banks won't lend, Greeks won't pay their debt, and stocks have been falling. The Dow has dropped six weeks in a row, with a few triple digit belly flops thrown in for extra drama. And you're starting to get that old 2008 sensation in the pit of your stomach.

You and a lot of other people. Voters put the President's economic performance at an all time low. And in a remarkable post by colleague Carla Fried, we learn that 44% of American investors say they'll never buy stocks again. Over 60% believe that the traditional rules of investing--diversification and asset allocation--no longer apply. That is a serious case of "2008 on the brain," as newsletter honcho Jim Grant calls it.

So, time to get a grip. Repeat after me: The 2008 monster has not come back. It's just a soft patch.

Think about it:

Stocks do not crash when 44% of people have sworn off stocks. They crash when 80% of people are convinced they're stock market geniuses and can't wait for the next IPO. (Yes, IPOs are returning, but the companies going public, like Pandora, have real businesses, if not always real profits.)

Likewise, real estate markets don't crash after the recession has already vaporized over $12 trillion in housing value and housing is almost twice as affordable as it was in 2005, as just reported by Harvard's State of the Nation's Housing report. Home prices crash when people are convinced that prices can never go down. Nothing shocks us now about the real estate market, which is why, actually, now is the time to buy a home.

Need more reassurance? How about the recent skid in the manufacturing index (manufacturing being the economy's best success story)? No 2008 there: While the index has retreated from its highs, points out economist Ed Yardeni, the index is still above 50, a sign of a sector that's still expanding.

In just about every way, it's nothing like 2008 again. Banks are healthier, not collapsing (thank two years of zero percent on your savings account for that); jobs are being created (albeit slower than we'd like), not destroyed; and oil prices are falling, not rising. For the whole sunny economic point of view, check out the latest analysis from the always upbeat Wells Capital market strategist Jim Paulsen. Or for a measured, but still cautiously optimistic take, check out CBS MoneyWatch's own Mark Thoma.

So breathe in. Let it out. Economies don't rise in a straight line, and stock markets never go straight up. The financial crisis left the economy with quite a few unresolved problems, and working them through won't be easy or quick. But the crisis itself is over. Relax.

More on MoneyWatch:

Seven Reasons Now Is the Time to Buy a House

The Biggest Mistakes Investors Make

Bernanke Predicts Rebound from "Frustratingly Slow" Economy

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