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So everything’s alright again eh? This week saw the FTSE 100 bounce back over 6,000 thanks to renewed takeover talk, a calming in commodity markets and a rally in banking stocks. According to news agency Reuters, bank shares are among Europe’s best performing as confidence grows over a supposed pick up in risk appetite and hopes that finance chiefs from some of the world’s biggest economies will continue to prop up the global banking system, helping to stabilise financial markets.

Even many of the City’s number crunchers seem to be catching the optimism bug, with strategists at Dresdner Kleinwort hinting that analyst opinion is gaining ground for a ‘V-shaped’ recovery, where any shortfall in corporate profits this year flows through in 2009. ‘Generally the thinking is that this is the worst and it’s going to get better from here. H1 was bad and H2 is when you start to recover, that is where the markets are at the moment,’ argues Dresdner Kleinwort strategist Philip Isherwood in a note to clients.

Time to sit back and prepare for the next bull market binge then. Only a fool would do that.

What if, for example, the credit crunch isn’t over. What if input price inflation continues to squeeze profit margins, or sterling drops sharply against the dollar? What if household bills continue to rise, or unemployment jumps sharply sparking a collapse in the housing market? According to research from Swiss investment banking giant UBS, this is a potential doomsday scenario that needs serious consideration.

So who should we believe when experts from two of the world’s biggest financial institutions are at loggerheads? I suspect it should be both, and neither. Among the difficulties with economics is that, while experts can predict that an event is likely to happen given the various related facts and figures, what they cannot do is forecast the date and time when it will actually happen, certainly not to the degree that would make it useful. Economists are not, after all, astrologers, rune-readers or soothsayers, and economics is not a perfect science.

So while investors have endured the gyrations of the FTSE 100, slumping below 6,000 and now struggling back up again, this is as it should be. The financial economy is fast moving and global, and those that choose to play know that volatility is the name of the game. Vast fortunes have been made by people staying one step ahead of volatility, if you make losses by the same token that’s just too bad. As President Truman said in the context of politics, ‘if you can’t stand the heat, get out of the kitchen,’ the same can be said of stock markets too.