The New Threat: Thrifty Americans

Betting on a quick global recovery? Think again. Yes, the Federal Reserve saw recent signs of organic economic growth in the U.S. economy—"tentative signs of improvement," as the Washington Post phrases it this morning—in deciding last month to hold off on dramatic interventionist measures. But the global picture looks much more bleak. As the Wall Street Journal reports, Germany, Japan, and Mexico—three of America's largest trading partners—have reported "steep declines" in economic output in recent days with Mexico reporting yesterday a staggering 21.5 percent first quarter GDP drop. You can add Singapore to that list, too; it reports this morning a whopping 15 percent plunge in GDP in Q1, the Associated Press says. These are some of the worst economic performances in generations. For Japan, a country that's experienced very little growth in the past decade, you have to go back to 1955 to match such a poor performance.

Simply put, America's main trading partners are tanking because Americans are cutting back on purchases of autos, software, and other goods made abroad. "For the first three months of 2009, U.S. merchandise imports declined about 30% to $352.5 billion compared with the same period a year earlier," the WSJ reports. And the boomerang effect will hurt here, too. "The decline in output overseas reduces the market for U.S. exports and opportunities for investment," the newspaper adds. Even the same Fed officials who were making hopeful remarks about "stabilization" at home have reason to think we're a long way from recovery, speaking of the global financial system as being still "vulnerable to further shocks," Bloomberg reports.

GMAC poised for bailout billions? It looks that way. The New York Times and WSJ report this morning that the Treasury Department will inject as much as $7.5 million into General Motors' (GM) former financing arm, GMAC. "The deal is expected to close on Thursday and comes two weeks after federal regulators concluded from a stress test on GMAC that it needed an additional $11.5 billion in capital to weather a severe downturn in the economy," the NYT writes. The WSJ calculates that when it's all done, GMAC may need to collect $14 billion. "As a result of the move, the government within months could end up owning both GMAC and General Motors," the newspaper writes. Staying in the auto sector, Chrysler named C. Robert Kidder its new chairman for when it emerges from bankruptcy proceedings. The Detroit Free Press describes Kidder as something of a "Renaissance man." "He's led chemical and manufacturing firms, consulted with Ford Motor Co. and even managed a winery in California’s Santa Ynez Valley," the newspaper writes. There is fresh opposition to Chrysler's government-brokered reconstruction plan. Indiana-based senior debt holders object to the plan, which would see "unsecured creditors ranking below them—namely the United Auto Workers union ... recover more," the WSJ reports. 

Has Bank of America (BAC) been holding out on us? Perhaps not, but it's still a little surprising to read in the Financial Times that the stressed banking giant and recent recipient of some $45 billion in government bailout funds hopes to repay all that money by the end of the year. Quoting "people familiar with the matter," the FT says that BofA has been successful in its aggressive attempts to raise new capital and is "on track to raise more than $35bn" by September. Negotiations are already under way to sell a slate of BofA’s noncore assets, and if those are successful, "the bank will be able to fulfil its stress-test obligations and pay back Tarp funds from its $173bn cash reserves." The one person rooting more than anyone for this gung-ho approach must be BofA CEO Kenneth Lewis. "Some powerful policymakers in Washington want to push out Lewis altogether" unless he can turn a profit quickly, reports Business Week.

Scientists might be celebrating the discovery of ancient fossil Ida, but Wall Street had its own rare finding to cheer this week in the form of SolarWinds' IPO, only the second tech company to go public this year. The software maker went out at $12.50 per share and later closed at $13.75, causing its CEO, Mike Bennett, to tell Business Week: "It's exciting to be a company that maybe helps break the logjam and creates excitement in new issues coming back." SolarWinds' initial success, coupled with an expected IPO from the online restaurant-reservation service OpenTable, isn't going to change the economic tides overnight. But, as "Breaking Views" in the NYT writes, "strong demand and robust pricing for riskier companies hints at a latent desire by investors to put money to work. That’s a critical component in any economic recovery."

And finally, is the Federal Trade Commission going after less-than-honest bloggers? Business Week writes that the FTC is looking to put together guidelines that would require bloggers who write glowing product reviews to disclose if they've been compensated for their endorsement. The possible crackdown on "blogola," as Business Week calls it, would be "the first revision of the FTC's guidelines for editorials and testimonials in ads since 1980, and regulators say it's needed in an era when consumers increasingly turn to blogs and other amateur Web sites for information about the goods and services they buy."