Such comments seem outrageous given the latest batch of scary headlines from UBS, Fannie Mae, Legg Mason, Lazard, et al. But hope springs eternal on Wall Street, and the reality is the crisis in the debt markets has eased since JPMorgan's Fed-engineered purchase of Bear Stearns, which Paulson called "an inflection point." (Critics have used similar terms, but with a far different meaning.)

Meanwhile, even Henry "Mr. Sunshine" Blodget is starting to come around to the idea that the housing market may be hitting bottom, thanks to an op-ed by Cyril Moulle-Berteaux, managing partner of Traxis Partners, in The Wall Street Journal.

In making the case for a housing-market bottom, Moulle-Berteaux notes house price affordability has improved dramatically and the inventory of new homes is falling. (The piece appeared prior to Wednesday's weak report on pending sales of existing homes for March.)

The fund manager makes a compelling case, but omits the key element of financing.

In his Saturday missive, Microsoft CEO Steve Ballmer cited Yahoo's proposed partnership with Google as a key reason for not going hostile. Ballmer said such an arrangement "would fundamentally undermine Yahoo's own strategy and long-term viability by encouraging advertisers to use Google as opposed to your Panama paid search system."

Yahoo President Sue Decker disputed that assertion in the second part of my interview with her Monday. Decker says the Yahoo-Google search test was "helpful" but that Yahoo will remain a "principal" in both search and display. (For part one of the interview, click here.) She didn't rule out a possible deal with AOL or a stand-alone strategy.

Decker acknowledged the anger and disappointment among some Yahoo employees who wanted the Microsoft deal. But, she added, there's a "greater sense of urgency" now at Yahoo, and "I think you'll find as many excited to show the world what they can do."

Monday was a rough day for Yahoo, with shares plunging 15% in the wake of the weekend collapse of merger talks with Microsoft. Yahoo’s President, Sue Decker, sat down with me in San Francisco and recounted her version of events during the 3-month takeover battle. She reiterated what looks to be a key Yahoo theme: Jerry Yang & Co. never received written confirmation of Microsoft’s $33 raised bid.

This is an echo of comments made by Yahoo sources over the weekend (including those to the Wall Street Journal and CNBC). In addition, when I asked Decker which shareholders support the Board’s decision to hold firm at $37, she referred back to the original formal bid: "The work our Board did was to go around and talk to shareholders at the price Microsoft offered in writing, which was $31 a share."

Decker said that the deal wouldn't necessarily have been done at $37 a share, either. "Price was not the only factor," said Decker. But she added that the two companies never were able to address important questions around culture and vision because they couldn't get past the price.

As for shareholders and employees themselves having trouble getting past the plunge in Yahoo shares Monday, Decker urges patience. "We will deliver much more value than what was on the table," she said.

The (apparent) demise of the Microsoft-Yahoo negotiations has also brought a lot of criticism down on Steve Ballmer, including reports in both Valley Wag and Tech Crunch that this episode could cost Ballmer his job.

Clearly, Ballmer made some tactical errors - most notably threatening to lower the bid for Yahoo and then shortly thereafter reversing course and letting it be known Microsoft would pay more than $31 per share for Tech Ticker's parent.

Also, The Wall Street Journal reports on a Microsoft offsite in March where Ballmer apparently confused some senior Microsoft executives about his true intentions with Yahoo.

Arguably pursuing Yahoo in the first place was a strategic error on Ballmer's part. Critics say Ballmer is obsessed with fighting Google over search, a war it has already lost, when the company should instead be focused on how to protect its core Office and Windows businesses given the shift to cloud computing.

Yes, the onus is on Ballmer now to come up with a viable Plan B for Microsoft's online effort. But if he was a fool for offering $31 a share for Yahoo, shouldn't Ballmer be praised, rather than skewered, for refusing to pay more and walking away?

From Silicon Alley Insider, May 3, 2008:

Microsoft is withdrawing its bid for Yahoo. It will not pursue a hostile proxy battle.

Microsoft raised its bid to $33. Yahoo's board wanted $37 (Jerry Yang and David Filo reportedly wanted $38.)

Microsoft's release and a gracious letter from Steve Ballmer hit the wires at 7:56 ET. Copy below.

We expect Yahoo's stock will drop to at least the low $20s on this news. Microsoft's should rise.

We think this is a smart move by Microsoft for four reasons:

• We think the combination as proposed would have been a disaster.

• We don't think Microsoft needs to be in Yahoo's business (Microsoft obviously disagrees)

• We think $37 a share would have been too much to pay.

• We think there is a reasonable chance that Microsoft might be able to buy Yahoo for less than $30 in six months to a year if Yahoo can't get its act together.

We think Yahoo is taking a big risk not accepting $33, especially if the offer was cash, and we imagine Yahoo shareholder frustration will be intense. We hope Yahoo continues to pursue its search outsourcing deal with Google, as well as its discussions with Time Warner over AOL. We suspect Microsoft might immediately emerge as a counter-bidder for AOL.

Release:

Microsoft Corp. today announced that it has withdrawn its proposal to acquire Yahoo! Inc.

"We continue to believe that our proposed acquisition made sense...» More

From All Things Digital, May 3, 2008:

After a months-long standoff, Microsoft has abandoned its bid for Yahoo, people involved in the discussions said today.

Microsoft confirmed to BoomTown that talks between the two companies, which have been taking place all week, collapsed Saturday when they could not agree on a price.

According to sources close to Microsoft, the talks broke down this afternoon after a face-to-face meeting in the Seattle area that included Microsoft CEO Steve Ballmer, Kevin Johnson, president of Microsoft's Platforms & Services Division and Yahoo Co-Founders Jerry Yang and David Filo.

According to sources, Microsoft offered $33 a share, and Yahoo countered with $37 a share. The talks went nowhere from there.

Microsoft was also concerned with the lack of friendly integration and other major strategic problems, including...» More

Thousands of Warren Buffett devotees will be in Omaha, Neb., this weekend for the Berkshire Hathaway annual meeting.

The annual confab, dubbed by some "the Woodstock of Capitalism," is a testament to Buffett, the world's richest man and one of the greatest investors in history. Momentum investors come and go, but Berkshire Hathaway shares are worth more than 7,400 times what they were when Buffett acquired control in 1965 and have risen at an annual rate of 19.5% in the past 20 years, far outperforming the S&P 500.

Buffett's genius is that beneath the homespun wisdom and self-effacing personality is an incredible intellect with an astute understanding of how to value stocks, which he learned from the legendary Benjamin Graham.

Buffett is far from infallible, but this is one investor who deserves the accolades.

Post updated 5:28 p.m. ET.

The widespread consensus is the Fed's two-day meeting will conclude tomorrow with a 25 basis point rate cut, accompanied by hints that the Fed is done with its rate-cutting campaign (for now).

To be sure, there is evidence for the Fed to declare "victory" over the credit crunch -- the financial markets have rebounded and many believe the Fed-engineered takeover of Bear Stearns marked the nadir of this crisis.

There's also more-than-ample evidence Ben Bernanke should focus more diligently on the inflation issue -- most notably soaring commodity prices.

If Bernanke is able to thread the needle -- stave off financial market distress and then quell inflationary pressures -- he will be hailed as the greatest Fed chairman since... well, Alan Greenspan.

But if the Fed finds itself later this year facing an economy that continues to slow while inflationary pressures continue to rise and its credibility to fight them damaged, Bernanke will be ridiculed as the worst Fed chairman since... well, Alan Greenspan.

Mackey, you may recall, frequently posted on Yahoo message boards under the pseudonym "Rahodeb", which by itself is a little unusual but not worthy of investigation. But Mackey often posted about Whole Foods' business and, more importantly, competitors such as Wild Oats.

"Would Whole Foods buy OATS? Almost surely not at current prices. What would they gain? OATS locations are too small," Mackey wrote as Rahodeb in January 2005. Whole Foods acquired Wild Oats two years later.

The SEC cleared Mackey of wrongdoing but Whole Foods shareholders should nevertheless be wondering about his judgment and time management.

While Mackey skates, the SEC did fine a former Schottenfeld Group trader for allegedly spreading false rumors, in a case that could have a chilling effect on Wall Street's main source of currency: rumor and innuendo.

Positive sentiment is on the rise on Wall Street as the market moves further away from the March lows and the S&P 500 hits the top end of its 1,270-1,400 trading range. This weekend brought bullish results from the "big money poll" in Barron's, but also some more sobering commentary from two Wall Street legends: Jeremy Grantham and Peter Bernstein.

In his latest quarterly letter, GMO founder Grantham predicts the U.S. market won't hit bottom until sometime in 2010, citing the painful experience of past post-bubble economies. "The unraveling of the 2000 bubble is a tale still being told," he writes.

Author, financial analyst, and market historian Bernstein, meanwhile, poured cold water over hopes for a V-shaped recovery in an interview with The Wall Street Journal. "You don't have a high-growth exit from this, as you've had from other kinds of crises," he says. "Here, the shape of the business cycle is like an L, where it goes down and doesn't turn up. Or like a U, a flat U."

Notably, Bernstein isn't as bearish on stock as Grantham, but the message from both market legends is that Wall Street's recent flirtation with optimism is misplaced.