Friday, September 14, 2012


We received a "gift" from the Federal Reserve yesterday that included unending monthly mortgage bond purchases.  I have another post in the works to help examine the decision by the Fed and uncover what the impact will be on the economy and the market.  Before we delve in the Fed action, I wanted to highlight a new piece of information brought to us by the Fuqua School of Business at Duke University.

As usual, I present to you the quarterly release of the CFO Sentiment Survey.  The survey is important because it provides us a global and domestic examination of what CFOs think about the economy and also their own firm's growth outlook.  I like the CFO angle because these company leaders often have a more realistic assessment of true industry and market direction and how that will impact them financially and operationally.  I often suggest that CEOs can't help but spin and sell a positive outlook because they are wired to promote and push and therefore are often glass half-full (or sometimes glass all the way full) and CFOs tend to just look at what is in the glass.

Let's examine what the most recent survey stated.

CFOs admitted in this quarter's results that they are more negative than previous reporting periods.  The financial managers suggest that they have curtailed hiring plans and have reduced their spending budgets as well.  The executives also stated that their capital spending plans would not change even if interest rates fell another percent or two, which suggests that Fed policy to lower rates would have little impact on real companies.  CFOs also stated that they would not change any of their investment plans even if interest rates ROSE 1% which further underscores that the Fed's work is not really going to have a material impact in a traditional business environment.  Clearly the Fed is targeting housing and also attempting to provide banks with more liquidity.

I like the CFO Survey because it also asks the finance chiefs to list their major concerns.  This survey noted that profit margins, health care cost, maintaining employee morale, and finding qualified employees were their greatest worries.  Europe's recession is also an issue on their radar and very importantly we find that companies are concerned about governmental regulations.

I've cut and pasted an image here to examine the survey results.  You can see that this quarter's growth estimates have been reigned in significantly.  If you'd like to examine the pdf, simply click this link - PDF OF SURVEY RESULTS

Ultimately, companies are slowing their growth and that includes their capital spending and hiring.  While we keep hearing that the Federal Reserve is acting to support "full employment" it seems like that is a "fool's errand".  Company leaders are stating quite clearly that interest rates don't matter and lower or higher rates won't impact their decision to add more headcount!

Recessionary concerns are important as US firms look across the pond and worry about economic slowdowns visiting our shores.  While the Fed continues to try to work magic, domestic firms are trying to figure out how to balance the powerful impact of greater governmental regulations and cost requirements with the ability to actually run their businesses.  FIRMS ARE NOT HIRING BECAUSE THE REGULATORY OUTLOOK AND MANDATED COSTS ASSOCIATED WITH HIRING IS UNCERTAIN.  The Fed can buy mortgage bonds all they want, but until government gets out of the way, regulatory uncertainty will be a critical barrier to employment growth in the next year.


Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at