Despite the latest plunge, the market feels like it may be finding its legs now. Here are the early signs.

The last month to me feels like the way you feel when you are just knocked out by a flu or with a debilitatingly sore back. You realize how fragile everything is and how mortal we are. And then when you come through to the other side, you get a renewed perspective. The colors seem a little brighter, you savor your morning coffee a bit more, maybe take a few days off with the family.

THAT is how I feel about the market. Essentially we've gotten quite a crisp view of the market's mortality and have been able to understand, in a very visceral way, how the global economy could fall to pieces, practically overnight. And looking at overnight in Asia and the U.S. opening, we're certainly not out of the woods yet, and all signs point to a protracted economic slump. But it's not going to be the Second World Depression (à la the Great War being renamed the First World War). Here's why:

1. Credit spreads are coming in. As Matt details in his blog (which rehashed my blog of the day before which apparently Mr. Hougan hadn't read), LIBOR rates are coming down quickly and the TED spread is beginning to seriously come in. This is the fundamental constipation in our financial system that must heal before the economy recovers. And it is. Billions of dollars of government intervention appears to be doing the trick. Look at that TED Spread chart from today—it's dropped off a cliff.
2. The dollar is seriously on the rebound. The U.S. dollar has been stuck in prolonged doldrums as the current account and trade deficits for the U.S. soared. It's clear that the U.S. must lead the fight out of the recession, and the dollar's surge indicates that the market thinks it will, as it continues to see the U.S. as a safe haven.
3. Commodities continue to stall. While you can argue that the falling of commodity prices are a reflection of the coming recession (and probably be right), lower energy and commodity prices ultimately will also lead a recovery and some balance on supply and demand, which felt badly out of whack. Gold's stalling despite the economic downturn is odd, and feels like it indicates that the world does NOT believe we're heading for depression, but is in value-seeking mode for equities and other hard-hit asset classes.
4. Real estate is finding reality, while other asset classes are catching up with the bottom real estate has set. A dynamic of hard falling prices is necessary and healthy to get the economy back in line with its actual productivity. Prices coming down on real estate, and credit becoming first impossible to receive and then more realistically tied to the prospects of payback, are good trends for economic stability.
5. There is a ton of money looking for a place to go. Ultimately, the overall financial system is juiced to the gills with potential as money is looking for a place to find bargains, and it will pour into the system once it's clear that a bottom has been established.

I think that even while the wild volatility continues, the market is gradually moving from panic to resignation that we're entering a time more based in the reality of our actual economic productivity than a giddy fantasy greedfest, where it feels like money is growing on trees. Ultimately this is healthy for our economic stability and for the prospects of grounded future growth.