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Surveys: CEOs Are Binging on False Hope
Wolf Richter www.testosteronepit.com
We finally have statistical proof that CEOs are ... a confusing bunch. The just released survey by PWC International shows that CEOs in 60 countries are exhibiting signs of gloom about the economy but not their own companies. German CEOs, who are facing the Eurozone debt crisis on a daily basis, aren’t feeling the pain, according to Ifo’s indices. The New York Fed’s Empire State Manufacturing Survey points at spiking optimism. And all three show patterns of false hope.
PricewaterhouseCoopers International asked 1,258 CEOs in 60 countries during the fourth quarter last year about their outlook on the global economy. The results weren’t pretty: 48% expected it to decline, 34% expected it to stagnate, and only 15% expected it to grow.
But when asked about revenue at their own company, they were much more optimistic: 40% were "very confident," that they could achieve revenue growth. The graph, which compares all CEOs to CEOs in Germany and the US, illustrates just how much of their revenue-growth optimism German CEOs have surrendered in 2011. And how much of it still remains.
Source of data: PWC
The dilemma: only 15% of all CEOs believed the economy would grow. Yet 40% were "very confident," that their own companies would grow—on the principle that the economy might go to hell in a hand basket, but “my” company is going to do just fine. A case of false hope.
And these CEOs are lagging indicators. Their forward-looking confidence bottomed out for the year 2009, though the low point of the crisis was late 2008 and early 2009, after which sales began to recover on a global basis. And German CEOs lived in a fantasy world in late 2007. On the cusp of the worst two quarters in the history of the Federal Republic—while the US economy was already slithering into a financial crisis of historic proportions—German CEOs were brimming with optimism. The logic: it was a US subprime problem, and Europe would “decouple.”
The Ifo Business Climate index also shows how optimistic German CEOs were in early 2008, as the financial crisis was spreading—though they'd come down some from their euphoric levels in 2006. The forward-looking expectation index bottomed out in December 2008, in the middle of two horrible quarters. Then it recovered along with the astounding export boom Germany experienced after that. However, it does lead the business climate index by a few months.
Maximum euphoria: the expectation index hit 110.7 in December 2010, and the business climate index hit 115.2 in February 2011, the highest levels in the history of the index—despite the debt crisis raging in the Eurozone. Germany’s economy grew nicely during the first three quarters of 2011 but turned south in the fourth quarter. Yet, for those three months, the expectation and climate indices actually increased—the small hook at the bottom. Remains to be seen if the Ifo correctly predicted an upturn or once again printed out false hope on the cusp of a major downturn—and there is a pile of evidence that it’s going to be the latter. Read.... Germany’s Export Debacle.
The Empire State Manufacturing Survey also dives into CEO optimism. It measures changes in current business conditions (reality) and the likely direction of the same conditions in six months (expectation). The graph below overlays both trend lines.
Data goes back to July 2001. During the entire time, only once, in September 2001, did expectations drop below current conditions, but only for the briefest period, and only because of a horrid terrorist attack.
Since then, expectations have always been rosier than reality. The gap between them is false hope. Regardless of how bad reality is at the time for these executives and their industries, or how steep the decline, they have a rosier outlook for the future. Most of the time, reality never gets as good as their outlook assumed, and often, as the graph shows, it gets a lot worse.
Now optimism for this summer spiked. But much of it will once again turn out to be false hope. Or is it different this time? Supercar enthusiasts went into a tizzy when Honda announced that it would bring its Acura NSX back to life. Design and manufacturing would be shifted to the US. And much of the production would be exported. It would be a technology showcase. And possibly a precursor of something big. Read.... Manufacturing Supercars in America.
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The Germans now have to adapt to Japan and US style debt creation because of the flakes they got in bed with - and even if they jump out of the Euro the same problem is there - they have to weaken their currency against the rest to export - like Japan and the US have..
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I remember the CEO of my company at our holiday dinner (with no bonuses or no booze....fun!) and what he said:
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I wouldn't bet on it either...read my volkswagon deals lips, the EU WILL NOT ALLOW GREECE TO DEFAULT UNDER ANY CIRCUMSTANCES UNTIL GERMANY AND FRANCE ECONOMIES ARE BACK TO HUMMING...which of course won't happen and therefore the EU will continue to play the game of giving Greece their money so that the music continues...Now the the Germans have rolled over on the ECB backdoor printing, the ECB has officially joined Japan and the US in the bond can kicking exercise which should allow the world another 3-5 years to ignore debt issues..
Soon afterwards they accept been downgraded in aboriginal August, US federal government bonds acquired Bugatti appliancesadvancement drive and yields fell beneath two% for the ten-year T-note.
The TBTF banks are too big to make money the old fashioned way, on the spreads between their leveraged borrowing cost and lending rates.
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Zero Hedge Relies way to much on charts.
Humanity is hardwired to be optomistic... even in the face of incredible disaster.
In the end... it's never as bad as they say it's going to be... or quite as good.... if it is... somebody's lying.
Should'nt the i be an o in binging...? Hopium anyone...?
I remember the CEO of my company at our holiday dinner (with no bonuses or no booze....fun!) and what he said:
"The economy has created challenges in the last few years.....it is slowly improving as some parts of the company are doing well, some are not. Thankfully, people still need spoons and forks (what we make.....scratch that.....what our Chinese wage slaves make). Well, whatever, everyone let's eat!"
Of course CEOs are confident....their multi-million dollar houses are OK, they still are getting a wage that keeps up with the money supply, and they can even aquire companies and assets that fall during these tough times. And their off-shore holdings are not taxed.
20% of us are living in glass houses; the rest are living in cardboard. And you know when a glass house breaks because you hear it. When a cardboard house flies away....well.....
If the gubment was only taking 7-15% of what I make, I'd be pretty fuckin confident, too!
http://blogs.hbr.org/fox/2010/11/the-real-story-behind-those-re.html
It is not actually confusing if you think your way through it:
We finally have statistical proof that CEOs are ... a confusing bunch. The just released survey by PWC International shows that CEOs in 60 countries are exhibiting signs of gloom about the economy but not their own companies"
What this means is they (CEOs) are still going to make a shit load of money regardless of their companys' performance or the markets...
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exactly. socio-psychopaths frame "your company" as "me" or "my money", they will still make money.
"your company" is a conceptual metaphor for them that doesnt mean the same thing to you, me or the employees.
We have certainly had the same bosses.
And all of our children are above average;)
OT/// But relevant to Contributors here on ZH.
I am waiting for RM to give us the latest on his take on Apple pie.
The companies who expect to do "better" and are " optimistic" are likely in the illegal drug or gun running business.
You forgot the LEGAL drug business and the TBTF crowd.
So...let me get this straight...
CEO's have a propensity to embellish the current and future performance of their organizations?
Why would they do that?
seriously, i mean it's not like their paychecks depend on outright mass murder, fraud, lying and theft.
cognitive bias (selective/normalcy/confirmation) is a bitch, as is mean reversion when you get off hopium.
I think I read in here that excessive optimism is actually a neurological disorder.
"for those subjects who scored highly optimistic, the part of their prefrontal cortex that is involved in updating information was less active when confronted with pessimistic information."
(by the way, the same area of the brain that is less active to pessimistic information, that is, the area of the brain that warns an individual to danger, is the same prefrontal cortex area that does not respond in a normal manner in serial killers and wall street traders; the research is out there and now maybe we can add a good % of surveyed CEOs to that distinguished list)
here's the link:
http://www.ncbi.nlm.nih.gov/pubmed/21983684
and here's a paper on how to overcome it.
Overcoming default categorical bias in spatial memory.http://www.ncbi.nlm.nih.gov/pubmed/21156868
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It's what I always called the Whistling Past The Graveyard, At Midnight mentality. It's the illusion of safety without the support of evidence to support that expectation. They all play the same debt game, are caught in thew same conditions, and none of them sees the end of the road coming.
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the snake eating itself never sees the end, always feels full, right up until the end.
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