When Good Economic News Goes Bad

Remember Bizarro World? That was the comic book land where bad was good, lies were truth, and ugly was beautiful.

At first glance, it appeared we were spending some time in Bizarro Market last week, with traders' universally negative reaction to the release of a handful of positive economic indicators that pointed to a healthier 2007. The reason, of course, is the widespread assumption that the Federal Reserve will look at the numbers and either raise interest rates -- or at the very least, refuse to cut them -- as a hedge against inflation.

There's a lot wrong with that thinking. To begin with, one set of indicators, or even two, is not enough evidence for the Fed to act. Indeed, a Fed vice president issued a warning on Friday against jumping to conclusions based on preliminary data.

But even more wrongheaded is the negative reaction to the news that sales of previously owned homes rose in November for the second straight month and that new home sales turned positive as well. These two data points, plus indications that mortgage activity is slowly strengthening, shows that the dangerous slump in housing may well have bottomed out.

And given the overwhelming importance of housing and homeownership to the overall economy, any news that the so-called bubble is not going to collapse should be cause for rejoicing. Worrying that more housing sales will spook the Fed into raising rates is, well, bizarre.