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What Do CEOs Know That The Consumer Doesn't?

Tyler Durden's picture





 

Each and every day, a veritable smorgasbord of CEOs are trotted out before our very eyes to spew forth their company's vision and how it's all looking so rosy. Of course we hang on every word as gospel and react accordingly. Similarly, a rise in consumer sentiment is more ammunition for bulls to argue that animal spirits are here and we can go back to the old re-leveraging ways of spending-more-than-we-have (or ever will have). There's only one problem - when push comes to shove and real capital has to be put to work, its not happening! Expectations for capital expenditure (investment in growth and maintenance) has plunged in the last few months, while at the same time, consumer sentiment has surged (no doubt led by an ebullient equity market and inherent recency bias). As we wrote previously, in an environment of soaring liquidity and free money, the hurdle rate on new investments collapses, as does the requirement to invest in CapEx, both growth and maintenance. In fact, as we have shown over the past year, the age of the global asset base has hit a record high across the world, both in the developed and developing countries, leading to record low return on assets on record low assets (and record debt encumbrance, but that's a different story). And since companies are forced to dividend cash to shareholders at a record pace (in lieu of fixed income in a ZIRP environment), there is less and less cash left to support CapEx spending (or hiring!).

 

UMich Consumer Sentiment vs Philly Fed Capex Outlook

 

So what do CEOs see in the future that consumers do not? Everything

The consumer remains on a path of 'it must mean-revert' - unable to comprehend the new normal that CEOs are dealing with - and sooner rather than later, the personal cashflow will slow/cease (or become ever more encumbered to the state).

 

Chart: Bloomberg

 


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Wed, 10/24/2012 - 10:15 | Link to Comment deez nutz
deez nutz's picture

We have to be getting closer to the edge now: 

 

Comedy News Broadcasting Network just had ol’ Bob Pisanti on and he discussed 3 points: 

 

NOT to focus TOO MUCH on earnings but to look at guidance going forward as “some” larger companies are increasing their guidance.  This is GOOD!!

 

Several large companies have announced layoffs but we shouldn’t put too much FOCUS in it.

 

Even though markets trade at 60% of their volume YOU SHOULD NOT focus on low volumes as HFT trades increase, this is NORMAL!!!  

 

Wed, 10/24/2012 - 10:21 | Link to Comment CloseToTheEdge
CloseToTheEdge's picture

and round by the corner

Wed, 10/24/2012 - 14:26 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

What is NOT funny is regulatory uncertainty and liklihood of HUGE SPENDING as far as my eyes can see.  Does this give me any confidence to invest any money here?  NO!

Our investment in Peru, 21 years ago, looks better and better every day.  Growing market.  2nd freest economy in LatAm, 24th in the world.  Good demographics.  What opportunities...

And, no, Mr. President, you did NOT help us build that!  You were still a community organizer then...  While we started a business and have created nine full time jobs since.

Wed, 10/24/2012 - 10:24 | Link to Comment The Master
The Master's picture

Thanks for the update.  I'm glad you watch that joke of a channel so I don't have to.

Wed, 10/24/2012 - 10:36 | Link to Comment slackrabbit
slackrabbit's picture

 

lol,

Wen you want to leave work early just watch CNBC, the vomiting will come naturally.

 

“CNBC the most watched channel by bulimic's

 

 

Wed, 10/24/2012 - 11:14 | Link to Comment deez nutz
deez nutz's picture

Thanks for the update.  I'm glad you watch that joke of a channel so I don't have to.

unfortunately from my home CNBC is the only portal I can choose if want to observe the MATRIX.

Wed, 10/24/2012 - 10:28 | Link to Comment slackrabbit
slackrabbit's picture

So three points:

1 the CEO's have a see eye / guide dog

2. they're blind so cant focus

3. see 2 abouve ;-)

 

I vote this guide dog for president ...apple...or both http://www.lifewithdogs.tv/2012/04/seeing-eye-dog-fights-off-burglar-calls-police-to-save-owner-in-home-invasion/

 

Wed, 10/24/2012 - 10:28 | Link to Comment insanelysane
insanelysane's picture

Love it.  Look at the corporate guidance for the future but ignore any announcements for future layoffs.

Hopium at its best.

Wed, 10/24/2012 - 10:42 | Link to Comment azzhatter
azzhatter's picture

god, what a shitstain that Pisani is. Just an unmitigated piece of smoldering shit

Wed, 10/24/2012 - 10:15 | Link to Comment ebworthen
ebworthen's picture

Employment? 

Who needs employment?

Isn't there always more debt spending?

C'mon Ben!  Start that consumer bailout, send me my $1 million and I'll go shopping!

Wed, 10/24/2012 - 10:19 | Link to Comment malikai
malikai's picture

I don't think you'll be buying what he wants you to buy.

But the sheeple will..

Wed, 10/24/2012 - 10:17 | Link to Comment ziggy59
ziggy59's picture

Crap Nothing But Crap is govts propaganda release wetdream..

Wed, 10/24/2012 - 10:18 | Link to Comment Inthemix96
Inthemix96's picture

In six months they are out of a job?

Wed, 10/24/2012 - 10:18 | Link to Comment TeamDepends
TeamDepends's picture

That the consumer is @#$%ed.

Wed, 10/24/2012 - 10:18 | Link to Comment Robslob
Robslob's picture

IF everything is so great why aren't they (CORPORATIONS) putting their money to work rather than have it sitting on the sidelines????

 

Oh wait...it is the "you first" eCONomy...

Wed, 10/24/2012 - 10:26 | Link to Comment slackrabbit
slackrabbit's picture

Annnddd its gone! ;-)

Wed, 10/24/2012 - 10:20 | Link to Comment fonzannoon
fonzannoon's picture

CEO's are having their companies sit on tons of cash and are issuing debt at breakneck pace. they are closing down plants etc and laying off workers. they are bracing for the hit. i'm just waiting for the high yield credit market to freeze up and then watch the sparks fly.

Wed, 10/24/2012 - 10:27 | Link to Comment Dr. Engali
Dr. Engali's picture

CEOs see the same thing we see...we are fucked and there is a storm coming, along with that storm there will be wars. They are raising a lot of cash and doing what they need to do in order to preserve the company.

Wed, 10/24/2012 - 10:32 | Link to Comment insanelysane
insanelysane's picture

and the government villifies them for "hoarding" cash.  Notice how corporations and the "rich" are greedy for wanting to keep their cash but the government isn't greedy for wanting to have the same money.

Wed, 10/24/2012 - 10:33 | Link to Comment CloseToTheEdge
Wed, 10/24/2012 - 10:27 | Link to Comment ebworthen
ebworthen's picture

The divide continues.

Real people cut back spending as they scrape by.

Parasitic elites and professional mandarins keep spending.

More McMansions, more Coach handbags, more iSomethings!

What could possibly go wrong!?!?  Everything is fine!  Gray is the new black!

Wed, 10/24/2012 - 10:36 | Link to Comment azzhatter
azzhatter's picture

But I saw that asswipe Immelt on TV this morning saying everything is rosy. He must have meant his palm

Wed, 10/24/2012 - 10:37 | Link to Comment Diet Coke and F...
Diet Coke and Floozies's picture

Long inferior goods and services, particularly basic consumables.

Wed, 10/24/2012 - 10:42 | Link to Comment OutLookingIn
OutLookingIn's picture

How about the big earnings miss by GOOG?

Look under the hood.

We find that the CEO, CFO, COO and some bigwigs on the board, ALL sold a massive amount of shares BEFORE the report came out, at REALLY sweet high prices! Shares they got for essentially nothing!

Now, that's confidence in your company and the economy! NOT.

Wed, 10/24/2012 - 10:50 | Link to Comment Vince Clortho
Vince Clortho's picture

I am sure the Goog Bigwigs were acting in the best interest of the stockholders.  That IS there job, isn't it?

Wed, 10/24/2012 - 10:55 | Link to Comment poor fella
poor fella's picture

RE: "And since companies are forced to dividend cash to shareholders at a record pace (in lieu of fixed income in a ZIRP environment), there is less and less cash left to support CapEx spending (or hiring!)"

Buybacks are a complete cop-out to organic growth, but one thing we can say about them that's usually not touched upon - Boardrooms realize that the more shares they buy back, the less cash needed for dividends. You get a stock ramp, bonus ramp, and higher yield. We can expect them to continue for a long time along with layoffs as large corporations scurry for 'signs' of growth. We are ALL Chinese government accountants now.

Wed, 10/24/2012 - 10:59 | Link to Comment Village Smithy
Village Smithy's picture

Consumer sentiment is surging because people believe the lies (ie. new home sales at highest level in two years)they are told. It's wrong, very wrong. The shit storm of a generation is coming and the government is forecasting sunny days ahead.

Wed, 10/24/2012 - 11:25 | Link to Comment hannah
hannah's picture

consumer sentiment is up because the powers that be cherry pick good comments to make the index go higher...it is fake...manipulated. consumers dont feel better....

Wed, 10/24/2012 - 15:20 | Link to Comment negative rates
negative rates's picture

No, but the article was about CEO's, and their leverage over the big coke trade, and how they will never abandon it. Fuck the consumer, we make more money on the consumer side, they say to me. Pityful ceo's indeed.

Wed, 10/24/2012 - 13:06 | Link to Comment Youri Carma
Youri Carma's picture

Also see:

Low Rates Pummel Banks
22 October 2012
, by Dan Fitzpatrick (The Wall Street Journal)
http://online.wsj.com/article/SB10001424052970203400604578072803523271848.html

Borrowers Benefit, but Industry Lending Profits Hit Lowest Level in Three Years

Superlow U.S. interest rates are squeezing bank profits, complicating the industry's nascent recovery from the financial crisis.

Wed, 10/24/2012 - 14:37 | Link to Comment andyupnorth
andyupnorth's picture

Big corporations are cutting to the bone; bracing for the worse.

We get messages from upper management every once in a while to remind us of the bad economy, and their actions follow with freezing hiring, not replacing those who retire, and severely limiting pay increases.

The wave of soon-to-retire people are certainly giving chills to some.

Wed, 10/24/2012 - 17:47 | Link to Comment e-recep
e-recep's picture

class conflict. ceos and everyone else.

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