Bears, Bulls, Chickens and Pigs: wOw’s Wall Street Weekly with Liz Peek (Week of 7/13) 

Editor’s Note: Liz Peek is a financial columnist and the author of wOw’s SHEconomics.

The economy is like a drunk stumbling out the door after closing hour. He lurches, misses a step, picks himself up and calls on all his resources to put one foot in front of the other. Pals wonder, will he make it home safely or spend the night in the gutter?

This week the betting was on a safe recovery, as investors celebrated higher than expected profit reports from Intel, Goldman Sachs and IBM by bidding the market up 8% through Thursday – the best multiday string in weeks. Adding to the fun was a more positive note from celebrity bank stock analyst (I just love that description) Meredith Whitney, the primero bear on the financial sector, successfully sniffing out toxic assets like a pig finding truffles. Ms. Whitney slapped a "buy" recommendation on Goldman, just in time for its astonishing profit report. At the same time, economist Nouriel Roubini, aka Dr. Doom, who has made his reputation by being relentlessly negative, suggested the recession would be over by year’s end.

I hate to be a party pooper, but a reading of the actual comments from Ms. Whitney and Mr. Roubini are not exactly uplifting. Ms. Whitney writes, "Our more bullish outlook on Goldman Sachs shares is deeply rooted in our sustained bearish stance on the U.S. economy and the state of U.S. financials at large. Specifically, we expect a tsunami of debt issuance from federal/sovereign, state and local governments to fund woefully underfunded budget gaps." In effect, Goldman will mainly benefit from helping our desperate government raise money.

Meanwhile, so offended was Mr. Roubini that someone might interpret his remarks as positive, he quickly put out a clarifying message saying that he had always projected that the recession would last two years; since we are 19 months into the gloom, he is consistent in saying the recession might end by December. He added that "the recovery would be weak and at risk of a double dip."

While the enthusiasm of investors for even such pale glimmerings of progress is good news – i.e., the market wants to go up – recent earnings releases leave much to be desired, and are inconclusive. Most companies that have reported better-than-expected results have depended on cost-cutting for their gains. With few exceptions, revenues are weak. A good example is Mattel, which reported a 19% drop in sales, but managed an 82% jump in profits thanks to reining in expenses. Google, similarly, reported record profits, but the stock got pummeled by slowing sales. Intel, which provided not only pleasantly surprising results but also buoyant guidance for the balance of the year, seems to have prospered largely because of a 21% quarter-to-quarter gain in sales in the Asia-Pacific region. The Americas constitute a mere 21% of revenues for the company.

In effect, the U.S. still labors under a cloud of consumer cutbacks, which are unlikely to disappear anytime soon. Job losses are declining as activity flattens, thank heavens, but the urge to trim expenses for businesses hoping to hold onto profits argues against any sudden upturn in hiring. We will see output begin to pick up in the second half as inventories reach unsustainably low levels, but consumption will remain weak. Going forward, in my opinion, the economy will be at the mercy of Congress and China. Heaven help us.

Spurning the lessons of history, Congress is just dying to raise taxes. The administration has made it clear that a recovery in the economy is secondary to pushing through its grandiose plans for health-care upheaval (I refuse to call it reform). Health-care bills are flying out of the House and the Senate, each more horrifying than the next. Don’t take my word for it – check out the testimony of Douglas Elmendorf, head of the Congressional Budget Office. He embarrassed legislators by his stark assessment that the bills emerging from the health committees of the House and Senate were unlikely to rein in spiraling health-care costs, and that in fact "the curve is being raised." Ouch.