Consider these excerpts from the FOMC Oct 28-29 minutes (emphasis mine):

In the forecast prepared for the meeting, the staff lowered its projection for economic activity in the second half of 2008 as well as in 2009 and 2010. Real GDP appeared to have declined in the third quarter, and the few available indicators that reflected conditions following the intensification of the financial market turmoil in mid-September pointed to another decline in the fourth quarter...The staff expected that real GDP would continue to contract somewhat in the first half of 2009 and then rise in the second half, with the result that real GDP would be about unchanged for the year.

...the Committee agreed that it would take whatever steps were necessary to support the recovery of the economy.

The Fed well recognizes that the economy is in a slowdown and will do whatever that’s necessary to mitigate the downturn. Thus we see the alphabet soup of rescue programs. When it has an important message to convey, Fed governors typically fan out across the country to spread the word, as Don Kohn did recently in a speech before the Cato Institute as he spoke about the perils of deflation.


Global stimulus
What's more, fiscal and stimulus is not isolated to the United States alone but global in nature. In early November, China announced a large stimulus package. Over in Europe, there seems to be room for Eurozone rates to fall as inflation rates decline. What's more, the ECB has signalled that it is ready to deviate from its inflation fighting mandate by becoming the lender of last resort in Eastern European countries such as Hungary.


It’s only a recession
The IMF released a study indicating that financial stress presages a severe downturn, but the length of the downturn doesn’t seem to be any different than other recessions. The FOMC minutes cited above indicates that the Fed expects the economy to bottom out at the end of 2Q 2009. To me, that seems to be a reasonable estimate.

As for the stock market, bear markets tend to end a few months before the economic trough. With equity valuations reasonable, insiders in a buying frenzy and long-term sentiment washed out, investors should be positioning in anticipation of the revival of the next bull and rise of the Phoenix.