Bears, Bulls, Chickens and Pigs: wOw’s Wall Street Weekly with Liz Peek (Week of 4/27) 

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

Good grief, what’s next? On top of all the other disasters creating misery around the world, now we have swine flu – or the H1N1 virus as it’s known to those sympathetic to pork. (I’ll resist any reference to politicians here but please chalk one up in the “self-control” column.)

You simply have to weep for Mexico. The country’s economy was already in freefall — estimated to be down close to 10% in real terms in the first quarter. Mexicans are reeling from massive drug-related violence, and now it’s adios to their tourist trade. These jolts are sure to heighten border tensions with the U.S., and make immigration reform even more remote.

Despite the recent emergence of a veritable garden full of “green shoots,” it’s been a weepy kind of week. Who doesn’t mourn the loss of the Pontiac, the latest casualty of Detroit’s demolition derby? The great muscle-car maker bites the dust. Along with Ronny and the Daytonas, whose hit “My GTO” in the ’60s immortalized the brand, I am sad at the demise.

Will Jeep be next? Chrysler has declared bankruptcy, and though the administration is optimistic that the court-driven remake of the automaker will be speedy, survival is still uncertain. President Obama chided Chrysler’s debt holders – whom he denounced as “speculators” – for throwing the company into bankruptcy by balking at his proposed deal.

I don’t have comparable figures for Chrysler, but here’s some insight into why those pesky lenders may not have swallowed Obama’s terms. Sydney Williams of Moness, Crespi, Hardt reported earlier this week that the government’s proposal for GM was that the government, with $16.2 billion in loans, should receive an ownership interest of 50% of the restructured company, the UAW’s health-care benefit trust would receive 40% in exchange for a $20 billion obligation and those holding $27.2 billion of unsecured debt would receive 10%. Does that seem appropriate? Apparently the company’s bondholders decided to take their chances with the courts.

It is possible that this Detroit drama is taking place just as demand for autos begins to pick up. Sales rose to an annual rate of 9.8 million in March from 9.1 million in February, and indications are that April’s figures may be even better. This is not the only positive indicator we’ve seen recently. This morning’s release of the ISM manufacturing index showed a better-than-expected gain in April compared to March, and follows on the heels of a number of other “green shoots.” Nomura’s economic team reports that export demand, especially from China, has boosted U.S. manufacturing activity. In reporting their most recent results, the management of Caterpillar tractor said that demand for their excavators in China was at an all-time high. 

China is not the only foreign country experiencing some improvement. Home sales in Great Britain, manufacturing activity in the Eurozone, business confidence in France – in all, the ISI Group counts 85 “green shoots” around the world, including the U.S.

These happy signs stem from an unprecedented 593 policy initiatives worldwide, according to ISI Group. These include easing interest rates, increasing government stimulus spending, reducing taxes in some countries and even a lower VAT on restaurant meals in France – from 19.6% to 5.5%. Only the French would target dining out for major stimulus.

These numerous measures have boosted the stock market, which of course further lifts consumer confidence. Still, even as there are tentative signs of a turnaround, there remains plenty to worry about.

For instance, there is still the beleaguered consumer. Nearly everyone is poorer. (A neighbor of mine recently said: “There are two kinds of people – those down 50% and the liars.”) The collapse in home prices doesn’t just impact the psychology of the consumer, it has also cut off the opportunity to withdraw equity from our homes to fund retirement or other needs.