Bears, Bulls, Chickens and Pigs: wOw’s Wall Street Weekly with Liz Peek (Week of 10/19)
Green shoots – economic or otherwise – need tender loving care to become young saplings. For the fragile sprouts that appeared last spring to bloom into a full-blown recovery, we need capital, demand and encouragement. While we have made some progress on funding and consumption, we are woefully lacking positive leadership. Instead, we have an administration that sows discord on every front, prompting Lamar Alexander – that most mild-mannered of senators – to liken President Obama to Richard Nixon, and not in a good way.
The Paulson-Geithner-Bernanke tag team did an admirable job fending off the collapse of the capital markets that loomed a year ago. (Remember when Treasury yields turned negative?) Sound companies are able to raise money and the steep yield curve promises a slow but steady recovery of banking profitability. The stock market has staged a convincing rally off the March lows with corporate profits beating the most pessimistic forecasts forged during last spring’s meltdown. Businesses, faced with an unprecedented slide in demand, slashed inventories and headcounts, effectively protecting their bottom line.
This is where we stand, and it is shaky ground. An enduring upturn in consumer confidence (which surprisingly slipped in October) and spending remains elusive. While business confidence is on the rise in Germany, France, China and elsewhere, expectations in the United States are wavering. Private equity managers tell me that only 30% or so of their companies are seeing any top-line growth, which is consistent with still-depressed consumer spending. Most are comfortable that the economy will grow at around 3% in the fourth quarter, as businesses stop running down inventories. Next year, though, growth may again falter if Americans can’t find jobs.
Unemployment is a threat not only to renewed spending, but to our country’s stability. Americans are angry – angry at Wall Street, angry at China, angry at Congress and anyone else thought responsible for the millions of jobs and homes lost. The most recent tally puts some 26 million people looking for full-time work, unemployment among teens is 26%, and among African American teens it’s 41%. How long before all that anger erupts?
We need soothing and encouraging leadership. Instead, we have an administration that has proven itself thin-skinned and vindictive, reminding many (including Mr. Alexander) of the paranoia of Richard Nixon. The attacks on insurers, on the Chamber of Commerce, on Fox News, on drug companies, on greedy bankers, on the poor schlub at the CBO whose estimates set back health-care legislation – on anyone and everyone who opposes Obama’s policies – are shocking and unsettling. Where is Obama the campaigner, who promised to bring the country together?
The administration has decided that it is politically expedient to fan the populist rage against Wall Street. To score points with Main Street, they have proposed to slash bankers’ pay, rather than undertake more meaningful but less splashy measures. Pay Czar Ken Feinberg’s draconian cuts in compensation for workers at the seven largest TARP recipients make for good headlines, but are of questionable value. Does anyone really think that preventing Bank of America from paying its top people competitively will strengthen the firm’s prospects? Instead of weathering the outcry that would have greeted paying Andrew Hall an agreed-upon bonus of $100 million, the administration pressed Citicorp to sell the extremely profitable trading operation that Hall worked for. Does lopping off a stellar unit benefit taxpayers, who now own 34% of Citigroup? Feinberg knows better; word on the Street is that Rahm Emanuel is directing this play, and it’s all about politics. Unfortunately, taxpayers will be the losers.