Guest Post: A View From The Corner Office(s)

Tyler Durden's picture

Submitted by The Contrary Investor

A View From The Corner Office(s)

We are all quite aware of the fact that heightened volatility has become a short term norm in the financial markets as of late.  Not surprisingly, we’re seeing the same thing in a number of recent economic surveys.  The most current poster child example being the Philly Fed survey that has shown us historic month over month whipsaw movement over the last few months.  Movement measured in standard deviation parameters has been breathtaking.  All part of a “new normal” in volatility?  For now, yes.

But over the very short term economic surveys and stats have been taking a back seat in driving investor behavior and decision making in deference to the “promise” of ever more money printing.  Of course this time the central bank wizardry will happen across the pond, although the US Fed is also now back to carrying out it’s own modest permanent open market operations (money printing) relatively quietly, but consistently, as of late.  Although over the short term “money makes the world go ‘round”, we need to remember that historic money printing in the US in recent years only acted to offset asset value contraction in the financial sector and did not lead to macro credit cycle acceleration engendering meaningful aggregate demand and GDP expansion.  And we should expect a Euro money printing experience to be different?  Seriously?

We forgot where we originally saw this important quote we believe attributable to Ned Davis.  The markets trend on fundamentals, but trade on technicals.  Personally, we believe this is clearly applicable and very important to our current circumstances.  Equity markets over the recent past have both anticipated and discounted meaningful intervention by the Euro powers that be, yet as of this writing with no explicit or detailed plan for debt reconciliation.  As of the week ended the 20th, we’ve blown past key Fibonnacci levels to the upside like a hot knife through butter.  The rally has produced the first trip above the 50 day moving average for the S&P since late July.  Relative strength and MACD formations are looking much more positive on both the daily and longer term charts.  Technically, life is looking a whole lot better than it did three short weeks ago.  Got it.  So what about trend?

First, the glaring divergence of the moment is that credit markets have not followed the equity market lead at all.  The last time we saw a divergence such as this was in late 2007 and into 2008.  Not a fun time, but certainly not a guarantor of current period darkness to come.  Rather, a key point of divergence to monitor.  We need to remember that in the land of global credit markets there are no “freqs” (high frequency traders) running the show and gunning for quarter and half pennies throughout the day.  The credit markets represent human decision making.  Short term equity market movement much more reflects computerized algorithmic rhythm.

Secondly, the movement of leading economic indicators using the ECRI numbers continues south for now.  Will the decline in price pressures as transmitted by the contraction in a number of real world commodity prices in recent months arrest this deterioration?  Yet another key watch point for the world that lies directly in front of us.

To the point of this discussion, two sets of data never captured in economic stats, but we believe very important in terms of our trying to assemble the mosaic of leading fundamental tendencies are the two quarterly CEO and CFO surveys brought to us by the Conference Board and the Fuqua school/CFO magazine.  Yes, we know they are “surveys” and not quantitative fact, so to speak.  Yet as you look at the charts below, it’s clear that listening in to what “the corner office” has to say about life has been quite important to forward decision making over various market/economic cycles.        

Below is the longer term history of the quarterly CEO survey.  Important right now in that CEO confidence in the recent quarter has experienced quite the meaningful drop.  In the top clip of the chart below we’re looking at the history of the survey with the red bars indicating prior period official US recessions.  Important issue being this survey has dropped very sharply in front of each recession of the last three decades.  We’ve never dropped below the 40 level on this survey without a subsequent and near term US recession occurring.  We’re darn close right now.
The bottom clip of the chart is again the history of the CEO survey alongside the year over year change in real US GDP.  You can see that similarity in historical rhythm is more than striking.  But what is important is that key cycle turning point change in CEO optimism has preceded directional change in the real economy.  There simply is no argument with consistency in leading tendency over the entire period shown.  Message of the moment?  As is self evident, the CEOs see softening.

Very quickly, look at how CEO optimism shot skyward with US money printing events (the Fed’s quantitative easing programs) in early 2009 and in the second half of 2010.  So why aren’t they just as excited over a Euro area potential money blast?  Have they learned the “real economy” lessons of monetary ease of the last three years?  Have they learned that money printing so far has only offset financial sector asset contraction?  It sure looks that way, doesn’t it?  We’d suggest next quarter’s survey numbers will be a key tell.

Walking down the hallowed hall to the next “corner office”, how about thoughts from the CFO outpost?  The chart below encompasses the history of the Duke Fuqua CFO optimism survey.  The blue bars represent the percentage of CFOs more optimistic about the US economy compared to the prior quarter.  In the current survey that number stood at 12%.  Alternatively, those CFOs less optimistic about the US economy rose to 65%.  As the top clip of the chart shows us, this is a very low level of optimism, only seen during the 2007-early 2009 period.  At that time the CFOs were spot on.  As the old market saw goes, “the CFO always knows”.  And that’s exactly why we integrate this into our macro view of life.

Very quickly, the bottom clip of the chart above is a simple mathematical calculation.  It’s the percentage of CFOs more optimistic about economic outcomes less the percentage less optimistic.  “Net” optimism, if you will.  Is the message of the present clear enough?  Again, this is not about negativity, but rather listening to the message of those closest to the actual pulse of the real business environment.  The message seems very consistent with their CEO compatriots down the hall – money printing is fun, but it will not necessarily translate into guaranteed real world economic expansion outcomes.  Much bigger macro message?  Don’t be fooled by the illusion that can be created by printed money.

A few final charts that very much speak for themselves.  Important to our decision making is that the CFO contingent for now expects earnings growth to hold up in the high single digits.  Not even close to the deterioration we saw in late 2008.  But remember, as we look back we saw CFO earnings growth optimism shoot much higher as the Fed’s first quantitative easing program was announced in early 2009 and again in the third quarter of 2010.  Not this time as we ponder a Euro sponsored money blast.  The law of diminishing (money printing) returns?  Sure could be.

As we have contended for years, nothing expresses confidence like actually opening one’s wallet and spending one’s precious financial resources.  The bottom clip captures current period expected corporate capital spending plans from the vantage point of the CFO bird’s nest.  Not total darkness, but less confident is the message de jour.  And like the credit market message of the moment, it stands in contrast to recently newfound and short term equity market optimism.

Are two of the most senior corporate corner offices expressing to us doom and gloom?  Not at all.  They are expressing realism about fundamentals.  They are expressing realism about actual fundamental “trend”.  They are expressing to us that money printing is for show, but real world corporate and economic fundamentals are for dough.  After investors and “freqs” are finished anticipating and digesting yet ever more money printing follies, trend will come into focus perhaps a bit more meaningfully than short term technicals.  It’s all in the ebb and flow of perceptual focus and the dynamic of human decision making behavior.

One additional comment again driven by recent survey data.  Throughout the current 2009 to present economic and financial market cycle, we have suggested that dividends within the context of total return investing would be a very important theme.  Let’s end with some good news from the corner office(s).  CFOs expect meaningful dividend increases ahead.  As we see it, this clearly represents balance sheet and cash flow confidence.  We’ll reiterate this one more time.  Consistency and a focus on absolute rates of return is a key in the current environment.  And that has little to nothing to do with central bank monetary machinations.

Summing all of this up, just what does this mean to our very near term investing activities?  First, put the money printing “noise” and financial market volatility it creates into bigger picture context.  Do not let it play havoc with your emotions.  Keep focused on fundamental “trend” and look for opportunities in companies with strong balance sheets and consistency in cash flow that will allow them to create shareholder value within this challenging environment via wide moat franchises capable of delivering sustainable dividend growth, share repurchases and sensible and opportunistically financed global expansion activities.

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Careless Whisper's picture

The Careless Whisper Afternoon Update


VIDEO: Jin Liqun, Chairman, China's Sovereign Wealth Fund -- Shocker: It's Capitalism Stupid!: "Any Investment In The EuroZone Will Be Made Based On Economic Considerations Only" (@4:20); (@12:45): "Eurozone Laws Induce Sloth. Retire At 55 And Languish On The Beach? Society Should Not Induce People Not To Work Hard."

VIDEO: Welcome To East Oakland, Where Videotaping The Police Gets You Shot With A Rubber Bullet

Guatemala Elects New President

CBS News VIDEO: Man Dangles From Tappan Zee Bridge In NY To Protest Something

Robert De Niro Cast To Play Bernie Madoff In Major Movie


Mark123's picture

Guatemala sounds like a nice place to raise a family.  Still, house prices are cheaper in hard to decide.

Black Forest's picture

I don't want those CDOs but my bank owns them.


Larry Darrell's picture

Something causing another spike in gold and siver paper price?


JPM Hater001's picture

Nope same old same old. 

Global collapse.

Larry Darrell's picture


Was wondering if there was a more specific "headline" driver?


TeamDepends's picture

Sometimes we like to spread our traditional barbaric relics out on the table and stare at them for a while.

trav7777's picture

it's manipulation, surely

vintageyz's picture

So, they are going to film DeNiro's dick for the first part of the film and his ass for the seond half?

JPM Hater001's picture

I hope we get to see the part where Madoff meets his new room mate Bubba.

Bubba enjoys pina coladas, taking walks in the rain and forced sodomy.

Mark123's picture

First, the glaring divergence of the moment is that credit markets have not followed the equity market lead at all.  The last time we saw a divergence such as this was in late 2007 and into 2008.  Not a fun time, but certainly not a guarantor of current period darkness to come.  Rather, a key point of divergence to monitor.


Yup....that has to get you thinking....the 10 year is under 2% today. 

topcallingtroll's picture

If you want yield as part of a total return investment strategy recommended by the writer it is hard to beat EWZ

midgetrannyporn's picture

CEOs are optimistic that they can loot public companies and get away with it.

YesWeKahn's picture

Central banks have to print, because they don't know anything else they can do. Printing is the demonstration of power. Bernanke said it well, if he didn't print, we would have seen another grear depression, but we will probably see Zinbawe + great depression very soon.

rlouis's picture

Pretty soon the Collectivist Leadership will decide it isn't necessary to keep any financial books.  It will no longer be necessary to go to the effort of creating blatantly misleading and false reports, no longer necessary to record liabilities or ...  assets(?) - well maybe just do away with liabilities.  That way, when Jamie Dimon finds the money to bailout the Fed no one will be surprised or need to question it at all.  

SoNH80's picture

This is a good, informative, plain-English article that surveys some interesting data.  The predictions of the CFOs of the Procter & Gambles or Alcoas carry 10,000% more weight with me than the latest utterance of Skippy Geithner, Larry Summers or some other Rubinite geek....

ArkansasAngie's picture

When money is being thrown down a rat hole ... aka ... insolvency (vs. liquidity) it really isn't hard to understand why the money isn't getting circulated.

Backfilling paper losses doesn't generate economic activity ... just money to the money changers.

Oswald Spengler's picture

As many of you know, the world's banking and monetary system is coming to an end but is being artificially propped up by the international banking cartel which owns the central banks and politicians. Notwithstanding the incredible resourses at their disposal, the cartel, which includes Saudi Arabia by the way, cannot stop the flight to precious metals and is desperately attempting to control both sides of the trade through paper derivatives. It is obvious to the cartel that it cannot hold the system together much longer and it is engaged in a sci fi like project to manufacture heavy metals such as gold and platinum using the Large Hadron Collider at CERN. This is what the recent experiment to shoot particles faster than the speed of light was all about. All heavy metals are created by super nova. The experiments at CERN are trying to replicate the creation of particles that coalesce into heavy metals. The best estimate is that the scientists are ten years away from producing measuable quantities. Once theses metals are no longer rare, the cartel can continue its dominance through the issuance of fiat currencies unabated.

SoNH80's picture

I visited CERN recently, they gave me a neat tin-foil hat made out of special anti-matter tin foil.  It enables me to cook my breakfast using my brain waves, and to communicate with my neighbor's dog that barks incessantly, "Rowr!  Roll that beautiful bean footage!"  CERN will also be used to cure the common cold using irradiated throat drops, and jet travel to parallel universes.

Oswald Spengler's picture

Don't ridicule that which you do not understand.

SoNH80's picture

It is much easier, and less energy-intensive, for the Boyz to just dig precious metals out of the ground, or to steal them somehow, than to zap them into existence with a supercollider, dude.

Oswald Spengler's picture

Ever heard of Archimedes? Every physicist worth his bosons would bust a quark to get neutrinos to align into AU.

Hacked Economy's picture

I busted a move at last weekend's Halloween party.  I think I drank a couple of bosons at the bar, too.  And when the music got really loud, I super-collided with a few girls by accident.  Oops.  I CERNtainly had a good time.

Just don't push the red button.

kevinearick's picture

"US wealth gap between young and old is widest ever”

PTSD: The Valley of Death

Funny, the white man poisoned the Indian with alcohol, and the latter returned the favor with casinos for club members…

So, from the hash table, you allocate a string, which is a multiplexer, which is a stepping stone, with choice bandwidths of anxiety/excited states forming the event horizon pathways, which return to the root. Perception of the root depends upon the location of the lead pointer relative to the frame of reference of the perceiver, and the primary difference between stepping stones are the facades added by the corporations.

The administrators simply cannot comprehend the dynamic nature of the root, watch as they might from the ivory tower. They may control, but they cannot create. The architect may create at any level, depending upon adaptive skill, and the root may be relocated at will.

The Bank watches, looking for replication of order within chaos. As the old event horizon stepping stones are removed, Wyle E Coyote, accustomed to falling back on previous stones, finds none.

For the purpose of timing the economic gravity: once you activate the new event horizon, the corporation programs it, end to root, with consumption symptoms, anxiety emotions, voice/word triggers, double-minded misdirection, and greed. Greed is a choice that becomes a habit, which the corporation employs as a lure to increasingly bypass the conscious, to breed psychographic robots. Civil contracts are designed to be broken accordingly.

Applying static statistics to present symptoms with the hope of predicting the future, to the end of devising a plan and issuing orders to the robots, is all make-work. The future is a function of choice, filtered by the natural algebraic reduction of the resulting homogeneous event horizon filters. The planet presents variability, the plan fails, and the anxiety black hole is ignited.

Real marriage pioneers the outer-most event horizon because it is the most patient investor, due to its inherent adaptive skill at building up the NPV window. Everyone else follows, or gets liquidated into insolvency, including the leaders of the parade. Choose accordingly.

Accounting is all about avoiding the truth table, with the objective of altering it over time. Real marriage creates time more effectively than any other organization, leaving the others lost in the chaos of symptoms, attempting to establish order out of the false anxiety corporation produces.

The nuclear family holds the system together, not by control, but by adaptive practice. Intelligent children, across generations, balance the event horizon fulcrums, independently and without direction from the social establishment, following the example, but not necessarily the process. When necessary, they re-string the hash table and move the root.

Like turtles with no shells, the majority “speeds” here and there, looking for cover, which JP Morgan is more than happy to provide, at ever increasing losses to the participants, and the currency. They don’t call it the Lions Club by accident. You will find what you need at the churn pool. Just assemble the pieces to meet local environmental demand.

So, I give the old man $200 rent and halfway through he tells me I have to work for him or get out, forfeiting belongings. Now that he has played his first card, he must play them all due to groupthink, and he has no idea what kind of trump I am holding. First goes the hot water, then the electricity, then the sewage…and then comes the police friend and then the judge friend…

Dead real estate and no real cash flow. Good luck with that. It’s very simple; it doesn’t take 20 years of rocket science to correct. There is always a choice, greed or fairness. If you choose greed, you must be the greediest person in the room, because that person is going to end up with all the money, and it will be worthless due to the legacy cost of nonperforming make-work misdirection. Greed cannot get out of its own way.

I suspect that the point of the sweat lodge is to correct the anxiety short and return to the path of natural fight or flight balance, providing a pathway to alternative “orders” in the process. The ponzi market produces a positive feedback loop out of the natural denial to ecstasy wave, increasing frequency and amplitude, loading the spring.

The path out of death valley is the churn pool. Learn to swim in the current before you must swim out of it to save your life. If a Vietnam Vet with one arm and no legs can learn to have fun playing pool, don’t expect the lifeguard to hesitate when cutting the rope.

Something doesn't add up with all the volatility indexes, hmmm....

Piranhanoia's picture

A nice roadmap as to our condition. A brilliant explanation that the one important thing is how are the corpses doing?  If they feel bad, the world suffers. If they feel good, the world gets raped.  If the whim of a few ceo's is your guidebook and very likely a good roadmap, we must look to new authors for the future, for we as a people have falied one another. If someone wrote this with the idea of explaining plutocracy and that mental illness is a driving force for investing, and how nothing else matters, our thanks.  If it is a request to be placed in line for the guillotine, also, well done, and certainly accepted.

But if a human were to step back for a moment and look at what you are saying, they would realize a sickness so profound, that it might be considered a plague.  Plagues have ended before. Some quietly, some with much carnage.  Some have not yet ended.

Everyone please, check out the clinical definitions of sociopathic behavior and the statements of people diagnosed as such, including their motivations. They do not understand suffering, compassion, balance or order. Life is a game, win cheat or win.  They are riding high on the plague.



ivars's picture

I have been mentioning the full USA default in end of 2015-beginning of 2016 here:

However, in initial post about this issue, I was speaking about US debt correction, that is distributed haircut of around 3 trillion USD in 2013-2014:

Here is the chart that supports that initial view. Its a fit of certain pre-crash behaviour model. How it is produced, is explained here:

So its earlier than I was saying lately. Lately I was talking of a full scale default, but it looks like it will be gradual, and the first one will happen very soon. To be honest, I forgot about my first idea-but usually they are the most accurate. So some assumptions following it will have to be reworked.

The approximate visual fit with Sornette Johansen log-periodic process with critical time tc = September 30 2013-January 1st, 2014:


1) The distribution of haircuts of such partial US default (who will forgive 3-4-5 trillion USA debt in few months?)
2) consequences for USD rate to currencies
3) consequences for USD rate to commodities
4) consequences for USD rate to gold, silver ( i will dig into my charts on this)

SRVDisciple's picture

I need new glasses. I originally read this post title as "View from the Coroner's Offices". I noticed my mistake then I read through it. Now I think maybe I was correct the first time.