Bears, Bulls, Chickens and Pigs: wOw’s Wall Street Weekly with Liz Peek (Week of 8/4)

Editor’s Note: Liz Peek is a financial columnist.

You know the economy is soft when even porn (oops — I mean "adult entertainment") isn’t selling. Among the many companies reporting disappointing results this quarter was Playboy, which posted a loss on a revenue drop of 14%. CEO Christie Hefner chalked up the unexpectedly poor showing to the Internet’s ravaging of traditional print media, but still. What’s next? A collapse in Viagra shipments? (Hefner’s game plan includes "outsourcing," but since this is a family publication, I won’t even go there.)

The consumer is under scrutiny, again. Wal-Mart’s sales in July were a tad weak, up only 3%, and management cautioned that most of the rebate checks have been spent, raising concerns about retail sales over the next several months. At the same time, Oppenheimer analyst Meredith Whitney reported that American Express is worried about high-end consumers, who rarely cut back spending, no matter what. After attending the company’s investor day, Whitney reminded readers that the top 20% of wealthiest Americans account for fully 40% of spending. A tightening of these Gucci belts, caused evidently by declining home prices and deteriorating personal balance sheets, has implications for the entire economy.

I can actually see this in Nantucket, normally host to affluent visitors and summer people. Restaurants are reporting a 30% fall-off in sales (you can actually get reservations before 10 PM!) and the number of people streaming across on the ferries is down markedly.

Certainly some of this downdraft is because everyone is worried about the value of their real estate. It is also because the media consistently plays up the bad news while ignoring any positive items that might come along.

For instance, what happened to $200 oil prices? Crude is priced this morning are around $118, and dropping. Wasn’t that the big headwind that was supposed to keep the consumer under stress and add to inflation woes? Oil prices have fallen because people are driving less and growth rates around the world have come down. The price drop is good news, since rising inflation over the past six months has been troubling.

Some strengthening of the dollar is also holding back cost-of-living increases in the U.S. After sliding for five years against the euro, and selling at $1.59 in July, the dollar seems to have found a floor at around $1.50. Similarly, the dollar is gaining against the English pound, which was trading north of $2.06 in January, and today is quoted at $1.92. Since the cost of imported goods has pumped up inflation fears, the turnaround is extremely welcome.

The strengthening of the dollar reflects slowing economies around the world, and the likelihood that foreign central banks may have to lower rates to stimulate their own economies, as the U.S. has done aggressively over the past year. Europeans take a much harder line on inflation, having suffered bouts of crippling price increases in the past, so they resist easing rates. However, even these tough guys ultimately have to answer to voters. As jobs are threatened they will likely drop rates to shore up growth.

Our own Federal Reserve held rates constant at their latest open market meeting this week, as expected. They reflected equal concerns about inflation and slowdown. This is where we are right now, teetering on the edge of recession, with prices creeping up a little faster than in the past few years. Since it is unclear how extensive the slowdown will be, and how this tug of war will develop, the market is extremely volatile. We’ve had six triple-point Dow swings in the past two weeks – that’s probably close to a record.

And yet, the VIX, a measure of volatility that trades on the CBOE, is hovering about 21, which I would describe as neutral territory. It has traded above 30 three times in the past year, when things got really messy. The VIX is just a measure of sentiment, but it does suggest that investors are a little calmer about the outlook than the news reports would suggest. And, in my view, rightly so.