Is the sky falling or what?

You simply can’t get away from all the recession chatter. Are we in one? Are we not? How bad? How long? How hopeless? Dow Chemical CEO Andrew Liveris tells CNBC that people inevitably start to believe the worst, which of course feeds on itself and leads to empty shopping malls. Thing is, the economy is neither a basket case nor the picture of health. A significant slowdown - perhaps even a downturn - is inevitable for at least the first two or three quarters of the year. The big debate is whether we can expect a relatively swift turnaround (a la 2001) or a deep and protracted slump (think the 70s). Barron's writer Michael Santoli lays out the confusing scenarios:

--Every time the U.S. unemployment rate has risen by at least 0.3% in a month, as it did in December, a recession has occurred. So a recession is a sure thing.

--Prior to the onset of recession, there's typically at least a 25% one-year rise in weekly unemployment claims. The increase in claims in December was less than 7%. So a recession is not imminent.

--But, then: The average decline in the S&P 500 from a pre-recession peak to a trough since 1945 has been 25%, just a few percent more than the index had lost from its 2007 peak to its intraday low Wednesday of last week. So, maybe the market has mostly discounted a typical recession scenario?

--Hold on, because a bearishly inclined forecaster suggests that in recessions, 70% of the prior bull market's upside is undone, implying another 20% or so downside risk from today's levels. Scared yet?

--Not so fast, because every one of the 23 times since 1987 that the ratio of bears to bulls in the weekly American Association of Individual Investors poll has exceeded two (as now), the market was up 12 months later, by an average of 21%.

By the way, Barron's stock market writer Andrew Barry mentions Disney as one of 10 stocks that appear to be oversold. Here's his take:

It's ironic that Wall Street loves Disney CEO Bob Iger, but not his stock, which is down 10% this year, to 29. Disney shares are no higher than they were a decade ago despite steadily rising profits in recent years. Disney's price/earnings ratio is near a 10-year low, with the stock trading for 14 times projected 2008 profits of $2.13 a share. Disney, unlike CBS, is still a growth story, given its attractive cable properties, notably an 80% stake in ESPN, arguably the best property in the cable universe.