Wednesday, October 6, 2010


The quarterly Duke CFO survey was released and what can we say, CFOs just aren't as excited as they were.  Somehow the kool-aid has not made it to the interior offices of the corporate towers where the bean counters are usually nestled. 

Here are the highlights......


Optimism about the overall economy fell at 53 percent of U.S. firms and increased at only 14 percent. The optimism rate of 49 is a level not seen since the first quarter of 2009, when CFOs rated the economy at 40.

“The CFO optimism index has proven to be an accurate predictor of future economic performance,” said Julia Homer, executive vice president for content at CFO Publishing LLC. “Therefore, this dramatic drop in optimism bodes poorly for the economic outlook. Half of CFOs say there is only a six-month window -- and another one-fourth believe it’s a 12-month window -- during which they can maintain current levels of business activity without improvement in the overall economy.”
“The math is simple. A) Banks are sitting on cash because of their poor health and general uncertainty. B) Small and medium-sized firms have employment-generating projects that they cannot get financed because banks will not extend credit. C) In usual circumstances, small and medium-sized businesses account for the majority of employment growth. A+B+C implies we are stuck at 9 or 10 percent unemployment,” Harvey said.

Harvey added that “recent regulatory reform has not helped. Only 5 percent of CFOs consider the Dodd-Frank legislation as a positive -- and that number excludes all firms in the finance industry. The main concerns about the recent reform are that it will lead to increased compliance costs and make borrowing more difficult. CFOs also expect higher banking fees. Some of these increased costs and fees will be passed on to customers, and others will hurt the bottom line.”
The CFO's are telling you that all is not fixed.  What made their outlook change from just a few months ago?

Reports like these continue to give me pause on joining in the full blown bullish party.  We've positioned ourselves well since Fed President Bullard's speech in the first week of August, but this type of data continues to reinforce exactly why the FED is continuing its drum beat and repetition of the mantra that they will continue to provide liquidity and will continue to step on the gas.  Clearly they are not going to stop the beating of the dollar either!  The Fed sees this type of stuff way before we do and this is a great data point to remind us that all is not really better.  All stock markets may be heading higher, although it isn't because there is growth or real value, it is because the dollar is being debased. 

One last comment on the dollar.  Remember how I allude to the dollars decline as a well choreographed dance to the bottom?  Well, that is exactly how I see it.  We've tumbled very far very fast and now it seems about like it is time to make a measured move higher just to give all the other central bankers some relief.  That of course means that we may see a pause in the gains in shiny things like gold and silver.  Personally I would not add to my metal and commodity positions here and I would not be short the dollar.  Just a warning.



Everyday I am amazed at how prescient authors like George Orwell and Ray Bradbury were in picturing the odd reality we'd face here in 2010. 

Geithner warns in a Bloomberg report that currency devaluation is dangerous and damaging.  This is pretty funny given that the powers in charge have managed to crush the value of the dollar some 7% JUST IN SEPTEMBER! 

Obviously other countries are not going to sit idly by as we essentially put a tax on their currency and make their goods more expensive (meaning less purchases by us).  China, Brazil, Europe, and others cannot stand to have us continue our policies lest we damage their exporting economies.  Japan has tried like crazy to stop the trend as the Yen is at a 15 year high relative to the USD.  Imagine the heads that are rolling in the currency management department in China where they have lost almost 7% on their treasury holdings this month simply due to the currency moves!  A $100,000,000 loss in a month sort of hurts I would guess.

This is funny to watch as we are seeing a full measure of double speak, but this is the stuff that trade wars and essentially currency wars are made of.  Our actions to devalue have very real consequences for other countries and it is now a situation where it is every country for themselves.  Expect tariffs on manufacturing producers like Boeing and Caterpillar as this heats up.