Bears, Bulls, Chickens and Pigs: Your Check Is in the Mail, Literally

EDITOR’S NOTE: Liz Peek is a financial columnist.

The checks are in the mail. You’ve heard that one before, right? Well, this time it’s true. The government has begun to send out more than $100 billion in tax rebate checks in hopes of pumping some life into our fizzling economy. Will it work?

History says yes. My friends at International Strategy & Investment say that, in the past, consumers on average have spent 65% of their rebates, some right away and the balance over the next three months. Their guess? The economy gets a boost of 1.8% in the current quarter and a 3.2% pop in the third quarter. Will the handouts offset still-falling real estate prices? No one knows. Not even the Fed, apparently. Their much-dissected statement accompanying the quarter-point cut in rates on Wednesday may, or may not, have signaled the end of such reductions. Confused? So was the stock market, which went up after the announcement, then down, then up again with gusto on Thursday. Fed Chairman Bernanke is becoming almost as Sphinx-like as his predecessor Alan Greenspan.

My take is that the Fed wants to see how the stimulus measures already enacted work out. In particular, they will be studying the jobs data; a report due out this morning is expected to show unemployment inching up. The Fed will look to see what consumers do with their rebates, and whether the credit markets loosen up. By their next meeting in June, the Fed will have more data points to guide them.

Notwithstanding the muddled message, by Thursday investors had concluded that a pause in further rate cuts is likely, which boosted the dollar, thank heavens, and slammed oil prices. The Dow closed above 13000 for the first time since January; the S&P 500 is now up 12% from the March low. It was a really fun day.

The financial stocks led the rally. Worry about further losses from the banks and investment banks is still the big negative overhanging the market, so any upward move really has to start there. I mentioned last week that we were likely to see another (and final) round of financing for a lot of these companies. On Wednesday, the granddaddy of them all – Citigroup – sold $4.5 billion of stock. It is certainly heartening that investors are snapping up these issues. As the banks’ balance sheets become healthier, the ongoing lending logjam should break up.

And not a moment too soon. I spoke to a leading private equity player who said that there still isn’t much financing available – even for investment-grade credits and very solid deals. His view is that the banks are still nervous about their exposures to CDOs and the like, and they are only willing to go to bat for their very largest and best clients. Smaller firms are being left out in the cold.

You can see this in the few deals that have been announced; most involve top companies. One announced earlier this week is the $23 billion purchase of chewing gum giant Wm. Wrigley Jr. by M&M maker Mars. Not only is this a sweet deal (sorry, couldn’t resist) in terms of both companies being large and profitable, but the prestige of the brands has enticed none other than Warren Buffett in as a funder and investor. A couple of weeks ago I quoted a fund manager who recommended buying top brands in uncertain times. I continue to think that’s a great strategy. Apparently, so does Warren Buffett.

Another mogul, Kirk Kerkorian, was in the headlines this week, announcing that he had bought 100 million shares in Ford, and was planning to buy more. This brave soul has made millions on earlier investments in beleaguered Chrysler and in GM, and now hopes to work his magic on Ford. A challenge, for sure! The bad news for auto makers is that consumers are going for less profitable smaller cars to save on gas. AP quoted Ford’s top sales analyst as saying that, in the past month, retail sales of passenger cars exceeded trucks and SUVs for the first time in at least 20 years.

This is why I’m optimistic that oil prices will eventually come down. Consumption patterns are changing. For the first time since 1980, miles driven in the U.S. are beginning to drop. People are switching to more fuel-efficient cars, energy-efficient light bulbs, and making dozens of other choices to save money. Cumulatively, this will have an impact.

I have to share one more story with you, because it simply astounds me. John Meriwether, who infamously founded Long-Term Capital Management, the hedge fund that almost single-handedly brought down the financial system in 1998 (and that is not an exaggeration), was in the news this week. He has – guess what – another hedge fund and – guess what else – it is down precipitously, so investors are pulling their money out.

Really. Wouldn’t you love to know who put their money in?