It is as if the Paulson bank bailout and Monday’s 11% run up in the market never happened.

The S&P closed today at 907.84, which is within three points of where it closed last Friday. In between, it got up to 1,042.75. For anyone still naive enough to look back with hope at how well things were going a year ago, the index’s 52-week high is 1,552,76. At this moment it feels like the market will never be back there again. Stranger things have never happened.

The puerile view would be that the recession simply trumped the Treasury’s plan to fix the credit system. The idea of putting $250 billion into banks, whether they needed it or not, makes sense. If the financial firms do not need it today, they may need it tomorrow. Mortgages are still defaulting at an intensifying rate. The write-offs of the last year may be modest compared to what is to come.

Earnings and company forecasts are supposed to be one of the most pure sets of indicators of whether a recession is coming, and, if so, how bad it will be. The government does not give out forecasts for unemployment or retail sales. Analysts may guess at them, but nothing beats hearing from the source.

Almost every company which announced its third quarter numbers today made ominous sounds about the fourth quarter and next year. Even Intel (INTC) and JP Morgan (JPM), which did particularly well, said that the future was cloudy at best and alarming at worst.

It would be surprising if earnings warnings do not continue and in most cases get even more grim. Monday was a dream day, perfect. The government had murdered capitalism, but in its place the Treasury had saved the world.

That only lasted 48 hours.

Douglas A. McIntyre

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