Monthly Archives: March 2011

CEO & CFO Surveys 1Q 2011

On March 30 the Business Roundtable’s CEO Economic Outlook Survey was released for the 1st quarter.  The March Duke/CFO Magazine Global Business Outlook Survey was released on March 9.  Both contain a variety of statistics regarding how executives view business and economic conditions.

In the CEO survey, of particular interest is the CEO Economic Outlook Index, which increased to 113 from 101 in the 4th quarter.  Also stated in the report, “In terms of the overall U.S. economy, member CEOs estimate real GDP will grow by 2.9 percent in 2011, an increase from the 2.5 percent expected in the fourth quarter of 2010.”

As well, “With today’s survey results, the last three quarters have shown steady improvement in the CEO economic outlook. Our CEOs see momentum in the economy over the next six months, with increased demand fueling greater investment and job creation,” said Ivan G. Seidenberg, Chairman of Business Roundtable and Chairman and CEO of Verizon Communications. “This shift continues a trend as reflected in recent employment data, with the private sector leading the way in creating more jobs.”

In the CFO Survey, “CFO optimism has increased, rising to the highest level since early 2007.”  Also, “Chief financial officers in the U.S. have a more optimistic outlook about the economy, with robust growth expected in earnings and capital spending. Overall employment is expected to grow slowly, though some job categories are in strong demand. However, an uptick in inflation would pose notable risks for many firms.”

The CFO survey contains the Optimism Index chart, as seen below:

It should be interesting to see how well the CEOs and CFOs predict business and economic conditions going forward.   I discussed various aspects of this, and the importance of these predictions, in the July 9 post.

(past posts on CEO and CFO Surveys can be found under the “CFO and CEO Confidence” tag)


I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not agree with many of the consensus estimates and much of the commentary in these forecast surveys.


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1328.26 as this post is written

MacroMarkets March 2011 Home Price Expectations Survey

On March 22 MacroMarkets released its March Home Price Expectations Survey results.

Here is the Press Release (pdf); the accompanying chart is seen below:

(click on chart image to enlarge)

As one can see from the above chart, the average expectation is that not only has the residential real estate market (nearly) hit a “bottom” as far as pricing; but that steady yet mild appreciation will occur through 2015.

The survey detail (pdf) is interesting.  Of the 111 survey respondents, only 9 (of the displayed responses) foresee a cumulative price decrease through 2015; and of those 9, only two, Gary Shilling and Mark Hanson, foresee a double-digit percentage cumulative price drop.  Gary Shilling remains the most “bearish” of the survey participants with a forecast of a 19.68% cumulative price decline through 2015.

The Median Cumulative Home Price Appreciation for years 2011-2015 is seen as -.5%, .98%, 4.03%, 7.14%, and 11.15% respectively.

For a variety of reasons, I continue to believe that even the most “bearish” of forecasts (seen in Gary Shilling’s above-referenced forecast)  will prove too optimistic in hindsight.  Although a 19.68% decline is substantial, from a longer-term historical perspective such a decline is rather tame in light of the wild excesses that occurred over the “bubble” years.

I have written extensively about the residential real estate situation.  For a variety of reasons, it is exceedingly complex.  While at this time many people have an optimistic view regarding future residential real estate prices, in my opinion such a view is unsupported on an “all things considered” basis.  Furthermore, there exists outsized potential for a price decline of severe magnitude, unfortunately.  I discussed this downside, based upon historical price activity, in the October 24, 2010 post.


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1310.19 as this post is written


One doesn’t hear much about the STLFSI (St. Louis Fed’s Financial Stress Index) with regard to measuring stress in the financial system.

Here is a document (pdf) that explains the construction of this index.

My thoughts on this index are varied and complex.  For now, I am simply posting it as a reference, as I find it interesting.  One might note that at present levels of .155, the reading of the STLFSI is very close to the levels that immediately preceded the two recessionary periods indicated in gray.

This chart was last updated on March 24, incorporating data from 12-31-93 to 3-18-11 on a weekly basis:


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1319.05 as this post is written

The Stock Market And Its “Wealth Effect”

On February 18 I wrote a post concerning Alan Greenspan’s comments regarding the stock market “as a stimulus.”

In this post, I would like to highlight comments made by Federal Reserve officials (Bernanke and Sack) as well as another made by Greenspan, as I believe that these official comments regarding the stock market’s “wealth effect” and related themes deserve recognition and scrutiny.

From Bernanke’s November 4 Washington Post Op-ed “What the Fed Did and Why…”, in which he is commenting upon the Fed’s plans to buy $600 Billion in long-term Treasuries (i.e. QE2):

“This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”

From Brian Sack of the New York Fed, in an October 4 speech titled “Managing The Federal Reserve’s Balance Sheet” :

“Nevertheless, balance sheet policy can still lower longer-term borrowing costs for many households and businesses, and it adds to household wealth by keeping asset prices higher than they otherwise would be.”

From Alan Greenspan’s “Activism.” (pdf) :

“Equity values, in my experience, have been an underappreciated force driving market economies. Only in recent years has their impact been recognized in terms of ‘wealth effects’. This is one form of stimulus that does not require increased debt to fund it. I suspect that equity prices, whether they go up or down from here, will be a major component, along with the degree of activist government, in shaping the U.S. and world economy in the years immediately ahead.”


My comments:

I could write extensively about this collection of comments.  For now, I will say that until recently, the idea of prominent Federal Reserve officials publicly talking of the stock market as an instrument for creating a “wealth effect” would have seemed rather foreign.  I see considerable peril, for a variety of reasons, in having officials make these types of comments.

Can an asset class such as the stock market be reliably counted upon as a means unto itself to create sustainable, broad-based wealth?  Especially if, as I believe, the stock market is currently a bubble?  I think we should reflect upon our (national) experience in housing before answering this question.


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1313.80 as this post is written


U.S. Currency Weakness – A Few Thoughts

I have written many posts concerning the vulnerability of the U.S. Dollar to a substantial decline, and the ill-effects such a decline would have on the U.S. economy and markets.

The U.S. Dollar is now at 75.65, and is exhibiting weak “price action” and weak technicals.  As one can see from the following chart, the Dollar is nearing the bottom of its long-term range:

(click on chart to enlarge image)(chart courtesy of; annotations by the author)

I would like to reiterate a few thoughts from past posts regarding the U.S. Dollar:

from the January 13, 2010 post:

Many people, especially those of the “hard money” and “Austrian” philosophies, have long held that many of the actions we (as a nation) have been taking to combat our current period of economic weakness would unduly pressure the dollar.  These actions have included very low interest rates, truly outsized interventions (including “money printing”) and deficit spending.

from the July 30, 2010 post:

For many reasons I doubt that the 70.7 level reached in 2008 will serve as any type of significant technical support.  Below the 70.7 level is obviously a “new frontier” with no obvious strong technical support.  In essence, from a technical perspective the downside would appear rather open-ended.

from a February 3, 2011 post on a different site:

I have heard the widespread arguments that conclude a lower dollar as positive and beneficial to the U.S. economy. However, I think these arguments are largely based on the assumption that such a dollar decline would be “reasonable” (i.e. not a sudden decline of unexpected magnitude). However, in my (admittedly very unique) opinion, various technical and fundamental analyses support a substantial dollar decline. My analysis indicates that once the U.S. dollar (currently at 77.07) falls below the 70-area it would likely usher in a new trading environment that would not be supportive.


Should a substantial U.S. dollar decline occur, as my analysis indicates, I think it will prove very detrimental to the U.S. economy and financial markets. Furthermore, it will prove very difficult to reverse.


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1309.66 as this post is written

Milton Friedman On The Fed’s Ability To Control Interest Rates

On February 14 I wrote a post highlighting Milton Friedman’s “Free to Choose” television series of 1980.

From time to time I plan on commenting on various material contained therein as much of it is highly relevant to issues we are currently encountering.

His following comments are particularly noteworthy given today’s economic environment and intervention activities such as QE2:

First, in his “Free to Choose” book, Chapter 9, p. 266:

“…the Fed has given its heart not to controlling the quantity of money but to controlling interest rates, something that it does not have the power to do.”

In Volume 9 of his “Free to Choose” television series, Friedman makes a variety of interesting comments from roughly the 37:22 mark to 38:13.  At roughly 37:45 he makes a comment about ideas to “finance the deficit by printing money” and then at 37:57 makes this comment:

“The Federal Reserve’s activities in trying to hold down interest rates have put us in a position where we have the highest interest rates in history.  It’s another example of how – of the difference – between the announced intentions of a policy and the actual result.”


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1297.54 as this post is written

71% Worry About Economy “A Great Deal”

On March 21, Gallup released results from an annual survey in which they gathered information on American’s concerns about 14 major national issues.

The survey responses indicated that the economy was the top-ranking concern, with 71% indicating they worry about the economy “a great deal.”

Here is an excerpt from the Press Release that I find particularly notable:

“Americans’ economic anxiety has not abated over the past year, as 7 in 10 Americans continue to tell Gallup they personally worry a great deal about the economy. This has ranked as Americans’ top concern on this measure since 2008. Healthcare led the list from 2002 through 2007 and remains among the top five today.

This year’s additions reveal that federal spending and the budget deficit worry Americans nearly as much as the economy. The interesting distinction is that all three party groups worry about the economy, while the deficit concerns far more Republicans and independents than Democrats.”


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1288.71 as this post is written

Updates On Economic Indicators March 2011

Here is an update on various indicators that are supposed to predict and/or depict economic activity.  (Past updates of these indicators, as well as previous posts discussing the individual indicators, can be found under “Economic Indicators“) :

The March Chicago Fed National Activity Index (CFNAI)(pdf) updated as of March 21, 2011:

The Consumer Metrics Institute Contraction Watch:

The USA TODAY/IHS Global Insight Economic Outlook Index:

An excerpt from the February 25 Press Release, titled “Economic index forecasts stronger growth” :

“The February update of the USA TODAY/IHS Global Insight Economic Outlook Index shows real GDP growth, at a six-month annualized growth rate, increasing to 3.6% in March through June and then slowing slightly to 3.4% in July. Improved consumer and business confidence and the new tax legislation are expected to help fuel growth. But continued high unemployment, a still-weak housing sector and tight credit conditions will keep growth below 4% this year.”

The ECRI WLI (Weekly Leading Index):

As of 3/11/11 the WLI was at 130.4 and the WLI, Gr. was at 7.1%.  A chart of the growth rates of the Weekly Leading and Weekly Coincident Indexes:

The Dow Jones ESI (Economic Sentiment Indicator):

The Indicator as of February 28 was at 46.5, as seen below:

The Aruoba-Diebold-Scotti Business Conditions (ADS) Index:

Here is the latest chart, depicting 3-12-09 to 3-12-11:

The Conference Board Leading (LEI) and Coincident (CEI) Economic Indexes:

As per the March 17 release, the LEI was at 113.4 and the CEI was at 102.5 in February.

An excerpt from the March 17, 2011 Press Release:

Says Ataman Ozyildirim, economist at The Conference Board: “With February’s large gain, the U.S. LEI returned to the strengthening upward trend that began last September. The LEI is pointing to an economic expansion that should gain more momentum in the coming months. In February, improvements in labor markets, financial components, and consumer expectations more than offset falling housing permits.”


I post various indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not necessarily agree with what they depict or imply.

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1298.38 as this post is written

Stiglitz Interview – Notable Excerpt

Today’s Barron’s has an interview with Joseph Stiglitz.  I found his answer to the following question to be an interesting perspective:

Before we talk about all that, what are the most surprising developments since you won your Nobel Prize?

Surprising to whom? The bubble episode surprised so much of the world—Greenspan and Bernanke believed that markets knew how to handle risk, self-regulation was adequate and the banks had incentives to manage risk and so forth and so on. We saw that it isn’t true—in a very dramatic way. That wasn’t surprising to me because my Nobel Prize was about the economics of information and this notion of agency theory, that the people who are making decisions do not necessarily reflect the interests of those who they are supposed to be serving.

The kind of incentive schemes that were being employed by firms, banks and financial institutions weren’t consistent with any model of rational behavior other than exploitation. If you believe incentives matter, something untoward was going to happen. At the level of markets, securitization had some fundamental flaws, because you didn’t have the incentives to monitor or manage them and created a moral hazard. To our leaders and erstwhile gurus, it came as a very big surprise. You have a market economy where incentives do matter, but in which they aren’t always aligned.


The Special Note summarizes my overall thoughts on our economic situation

SPX at 1273.72 as this post is written

The Indelible Mark Of The Great Depression

On February 14 I wrote a post highlighting Milton Friedman’s “Free to Choose” television series of 1980.

From time to time I plan on commenting on various material contained therein as much of it is highly relevant to issues we are currently encountering.

In Volume 9 there are a couple of comments made, at roughly the 40:36 mark and 42:40 mark, by Congressman Clarence J. Brown and moderator Robert McKenzie, respectively.  In essence, they are commenting upon how the experience of The Great Depression has had a great psychological impact upon the country, and as such drives many of our economic fears and actions.  This commentary is especially notable as the series was filmed in 1980.

This mindfulness of The Great Depression seems highly elevated in current times as well.  This is seen in numerous ways.

For example, Ben Bernanke’s background includes being considered a foremost scholar of The Great Depression.

Furthermore, during and after “The Financial Crisis” there were innumerable mentions and comparisons to The Great Depression, many by policy makers.  I have highlighted many of these instances in past posts.

A Special Note concerning our economic situation is found here

SPX at 1273.72 as this post is written