Legendary Israeli general Moshe Dayan was as well known for his pithy aphorisms as he was for his iconic eye patch and military acumen.
Once when queried about a seemingly hopeless strategic position held by his chronically outnumbered troops, he characteristically shrugged his shoulders and responded, “If I cover one eye, it don’t look so bad.”
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Much of the same can be said about Wall Street’s response to the spate of negative economic news released during the past week.
Unemployment is at record highs. Housing starts and values have continued to fall. Mounting economic evidence has shown that the global recession may persist through at least the middle of 2010.
This week, the Treasury Dept. announced that it has completed its “stress tests” of the nation’s 19 largest banks. Although the tests were rigged so that none of the examinees could fail, the preliminary results were ghastly.
Tabulating the Losses
On average, bad assets at the country’s biggest lenders tripled during the past year.
Pittsburgh-based PNC Financial Services Group Inc. saw non-performing assets — those no longer accruing interest — jump more than five-fold in the first quarter from a year earlier. They more than quadrupled at U.S. Bancorp in Minneapolis. At 13 of the largest U.S. banks, bad assets increased 169 percent on average from a year ago.
According to some of the most optimistic projections, bad asset write-downs at U.S. banks could top more than $2.5 trillion. To put that in perspective, these predicted losses are nearly a trillion dollars greater than the gross national product of Britain.
Ford Motor Co., the only carmaker not to take a government handout, reported a $1.4 billion net loss for the first quarter. Sales at the venerated company fell 43 percent from a year earlier.
Revenue at Ford fell to $24.8 billion from $39.2 billion, excluding special items, as the automaker slashed North American production by half. Ford reports, however, that it will end the year with $14.5 billion in cash, enough to remain viable.
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On the other side of Motown, the news is dismal. Over the past several weeks, Chrysler and G.M. have been working feverishly to meet the federal government- imposed deadlines to repair their balance sheets. Despite their best efforts, both appear headed for a date with the bankruptcy court.
Earnings at several marquee firms in a variety of sectors have ranged from dreary to dreadful. For example, profits at energy giants such as Conoco-Phillips and Occidental Petroleum were off nearly 80 percent. American Express, the biggest credit-card company by purchases, has been downgraded again by Moody’s Investor Service. In the coming week, the earnings by several Wall Street standouts, including Intel, IBM and Microsoft, are expected to be bleak.
In the midst of this rash of mostly negative news, Wall Street has been downright giddy.
Maybe it’s a form of post-delay stress syndrome. It’s conceivable that investors simply are tired of being battered by the pessimism that has gripped the economy. The more plausible explanation may be that investors and money managers have concluded it be worse, and that it’s time to get back in the game.
As Gen. Dayan once quipped to his impatient superiors during the heat of battle, “I have only one eye. Do you want me to look at the road or at the speedometer?”
Apparently, this week, Wall Street has its good eye fixed on the road ahead.
John Cohn is a senior partner in the Globe West Financial Group, based in West Los Angeles. He may be contacted at www.globewestfinancial.com
