CFO Optimism Spirals Downward

1206bizwebchiefDuke University/CFO Magazine year-end 2007 survey is out, and the results are not encouraging.

According to John Graham, director of the survey and a finance professor at Duke’s Fuqua School of Business, CFO optimism is dramatically spiraling downward.

This is particularly worrisome, because CFOs — unlike the more naturally opptimistic CEOs — have a track record of accurately predicting future economic activity, often several months ahead of traditional indicators.

The details from Duke /CFO Magazine:

"Optimism reached its lowest point since the optimism index was launched six years ago. Pessimists outnumber optimists by an eight-to-one margin, with 72 percent of CFOs more pessimistic and only 9 percent more optimistic about the U.S. economy than they were last quarter. 

— Weak consumer demand, high labor and fuel costs, and credit market turmoil are the top concerns of CFOs.

— Credit conditions have directly hurt one-third of companies, most through decreased availability of credit. 

— Year-end bonuses will fall by 10 percent relative to last year.

— Among firms with greater than one-fourth of sales in foreign locations, more than 60 percent have taken actions in response to the depreciated dollar by increasing hedging (expanding the range of investments to reduce risk) or changing location of investments and outsourced employment.

— Capital spending is expected to increase only 4.1 percent, and domestic employment will increase only 0.5 percent, though outsourced employment should rise 5.6 percent.

The survey is only 6 years old, so we don’t have a long history of its track record over many business cycles.

It should be interesting to see how this one plays out . . .


Survey: CFO Optimism Hits Another Record Low
John Graham (Duke),  Kate O’Sullivan (CFO magazine)
Wednesday, December 5, 2007

Pessimism Is Growing in Executive Suites
NYT, December 6, 2007

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  1. justin commented on Dec 8

    Oh! why all the negative stuff? Everything is just peachy! Just listen to your buddy Larry talk. Is he really that one-sided, or is that just a front he displays for the public?

  2. justin commented on Dec 8

    Kudlow 101 is a scream! My goodness why don’t we just forget about what takes precedence over what at certain times in the economic cylcle. Dream on, Larry!

  3. gunthestops commented on Dec 8

    Speaking of Larry K—Not sure if anyone noticed, but his blog has shut off the “Post a Comment” section. LOL–I got a feeling he was losing his following and gaining a lot of people who think he is a little delusional.

  4. Philippe commented on Dec 8

    May be interesting to peruse through this thread to notice that objectivity and its representation, necessity, motivation are in the journalist world still subject of a debate, should you brew it with political content you end up in an other planeT.
    CFO deal with facts and numbers.

    Source Wikepedia
    The term objectivity was not applied to journalistic work until the 20th century, but it had fully emerged as a guiding principle by the 1890s. A number of communication scholars and historians agree that the idea of “objectivity” has prevailed as a dominant discourse among journalists in the United States since the appearance of modern newspapers in the Jacksonian Era of the 1830s. The rise of objectivity in journalistic method is also rooted in the scientific positivism of the 19th century, as professional journalism of the late 19th century borrowed parts of its worldview from various scientific disciplines of the day.
    « Some historians, like Gerald Baldasty, have observed that “objectivity” went hand in hand with the need to make profits in the newspaper business by selling advertising. Publishers did not want to offend any potential advertising customers and therefore encouraged news editors and reporters to strive to present all sides of an issue. In a similar vein, the rise of wire services and other cooperative arrangements forced journalists to produce more “middle of the road” stories that would be acceptable to newspapers of a variety of political persuasions »

  5. Winston Munn commented on Dec 8

    When an economy – and thus corporate profitability – is based on credit creation and availability of debt, I would think that the opinion of a Chief F-i-n-a-n-c-i-a-l Officer would be of real value.

  6. Paul Jones commented on Dec 8

    I’ve never used drugs, but I gather that an addict is always at a cross roads where he can face the pain of withdrawal, but hopefully come out the other side healed, or he can take another hit of the junk.

    The Federal Reserve has already signaled what they are going to do.

  7. Werner Merthens commented on Dec 8

    What’s next?

    First we had the inverted yield curve. Then came the credit crunch.
    Yet, the markets and the economy were moving along just fine.
    Now we are enlisting the bean counters to support the bearish case? This definitely looks like the low point. No pun intended…

  8. Mike G. commented on Dec 8

    Why is this survey surprising? We’re in an incredibly long bull run. If you were watching a stock market and it went up 30 days in a row and took a survey of “Who thinks we eventually have down days soon?” would you not expect a fairly high number of people thinking the down days are just around the corner?

    I think even Kudlow admits things are slowing down, but why is it that some people want to automatically label the next slowdown (or recession for that matter) as the Great Depression II? Welcome to the business cycle folks. The economy expands, it contracts. The market goes up, it goes down, slightly out of phase with the expanding/contracting economy.

    Why is anyone looking for an axe murder here in Bernanke or anyone else?

  9. ALAN ABELSON commented on Dec 8

    Optimism among the CFOs is at the lowest point in the six years that Duke and CFO have been measuring it. The bears outnumbered bulls by an astounding 8-to-1 margin, with 72% of the CFOs queried more downbeat than they were only a quarter ago and a mere 9% feeling better about things.

    They cited weak consumer demand, high labor and fuel costs and, of course, the woes in the credit markets as the biggest depressants. On this last score, a full third of the companies reported feeling a credit pinch, and roughly 20% reported employees stepping up withdrawals from their 401(k) accounts, a good many of them to come up with the dough to pay their mortgages or ward off personal bankruptcy.

    Looking ahead, the CFOs see capital spending edging up a meager 4% and barely adding to their payrolls at all (but they do expect to increase outsourcing slots at a fair pace, which doesn’t hold out much hope for what we still think is a pretty glum jobs picture).

    As John Graham, director of the survey and a finance professor at Duke’s Fuqua School of Business, comments, CFO optimism spiraling down in such dramatic fashion is plenty worrisome because CFOs have a track record of accurately predicting future economic activity, and their predictions run one or two months ahead of other common economic indicators.

  10. harlynman commented on Dec 8

    Did the President and the Treasury Secretary know that the rate freeze would allow servicers to modify loans for profit without contacting borrowers or requiring their authorization?
    Did the President and the Treasury Secretary know the servicers are members of the American Securitization Forum which wrote the framework?

    Source: American Securitization Forum, Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans, Executive Summary, December 6, 2007, page 13, third paragraph from bottom of page
    How much are they going to charge?

    Have the Secretary of the Treasury, the President or the servicers acknowledged the conflict of interest?

  11. Tom C commented on Dec 8

    Alan Abelson is a perma bear. It’s good for the paper and good for investors to hear the bear case. Thanks Mike G, for your good, agenda-free common sense.

  12. peter from oz commented on Dec 8

    alan abelson as a commenter?
    makes us journey men a bit heady!
    similar concerned attitude here among senior cfos and we have the opposite problem with full capacity economy and strong currency
    but we are heavily export oriented (Japan,China,Euro,SEA and you) and our commodities are usdlr denominated so only the gamblers (wait for their 31/12s) with adlr costs are unhedged
    our central bank is torn between internal inflation and global slowing (austere bankers don’t use the R word)and are focussing on inflation but your, Japan’s and Euro slowing (yes and even China is slowing like a Ferrari)is impeding them when considering raising rates
    the real indicator of the outside world’s concern for US economic health was the Canadians lowering rates in their strong economy because 30% of their GDP depends on the US!!
    However for those bulls out there I think there is at least Q1 and half Q2 left in this interim bull market which is clearly dislocated from the real world
    rgds pcm

  13. dblwyo commented on Dec 8

    Cycles are what cycles are – trying to avoid them creates worse trouble. That said you can and should mitigate the worst aspects as well as stay away from unhealthy regimes (that’s depression or hyper-inflation for the rest of us). So let me associate myself with MikeG. Interesting if you watch the Wallstrip interview with our boy Barry that’s pretty much his position. But speaking of pessimisms this week Feldstein had a WSJ ed on the liklihood, Dave Wessel had a great column and Mark Zandi – that pillar of conservative staidness and data-driven caution – has a Bloomberg interview where he first uses the R word and then explains in detail why he think it’s likely despite the apparently benign numbers. You can look it up on the sight perhaps but I posted a link here as well as a riff plus a much longer riff on Wessel’s piece that takes the numbers apart.

    The last piece might be worth kicking apart because it looks at the piece of the GDP – the major contribution the headline was not Consumption nor Investment. In other words the CFO’s outlooks are confirmed.
    We’ll see how the risk factors play out that Zandi and Wessel (& Feldstein and Prof. Summers) all list out [the scary part it’s the same list]. The 2nd really interesting thing is that more and more of the MSM get it as it’s been talked about here for a long time.

  14. DavidB commented on Dec 8


    Objectvity was the dominant theme in the media for about three days in the early 1900’s. Once editors realized how much power they were sacrificing it quickly disappeared.


  15. ken h commented on Dec 9


    You seem disconnected. Certainly you have read about what caused the great depression, No?

    The similarities to today’s situation are scary. That’s why some mention a depression. As far as haggling over whether we are in a recession, well I think that’s a joke. I don’t see how we can continue to have GDP growth for 2 quarters? Unless of course you fiddle with the numbers.

    In my opinion, J6P Supermodel, Housing is in a depression, period. Question is if it spills into the broader economy leading to massive layoffs from decreased consumption.

    Combine that with all time highs in energy and food(what inflation),the credit crunch, and deflating assets (cars, houses, 401k’s) , what do you have Mike? You tell me, what’s going to save us.

    I think BR summed it up well in his piece with Wallstrip (nice job!). the night day comment was sweet!

  16. ken h commented on Dec 9

    Sorry, something I forgot, Wiki has a great summary of the great depression and I think…? I have Ben’s depression paper in PDF somewhere? Can try to dig it out if wanted?

    I think Ben is the man for the job if he doesn’t become a puppet?

    At any rate,…why all the hub bub….as you say down cycles are needed much like fires in the forest. I think the main problem especially for the financially responsible savers is that the string pullers continue to try and prolong the up cycle which in the end makes the down turn much worse. ie….just pull the frickin band off quick already!

  17. Mike G. commented on Dec 9

    Ken H.

    First, sorry for the long post! :o

    I, like most people, am not certain what caused the Great Depression. My own theory is that it was a bad situation made worse by bad monetary policy. You may feel otherwise. But what I am certain of is that screaming “GREAT DEPRESSION!!!!” every time the normal slump in the business cycle comes along is absolutely useless.

    We have had 4-5 years of absolutely meteoric increase in all business related to housing. Of course housing is in a recession! Money was way too cheap, loans way too easy to come by, both of which artificially inflated housing costs – temporarily! Now that the proverbial sh*t is hitting the fan, the world seems all panicked that the next Great Depression is around the corner. Is it not logical to expect a fairly good pullback in housing after such a run? Especially after the finance related scam that was the engine (sub prime loans magically collateralized into ‘AAA’ rated debt instruments) is exposed.

    As for some of your arguments, my 401(k) is just fine thanks, up a little over 10% and probably going higher for the rest of the month. Did very well last year too as I recall. My taxable account is doing even better. What’s the point and how does that tie into inflation and depression? (Well, I would suffer another kind of depression if my fund were hit hard I guess!)

    As for cars, when the hell has a car been anything but a rapidly depreciating asset? If you mean the decline in sales of US autos, well, talk to the UAW. These are their chickens coming home to roost. Go figure that if you bend a company over and stick it to them for 95% pay when they close the plant for the winter or making them the largest purchaser of Vi*gra on the planet that this would be a drain on the company actually being profitable. Go figure!

    As far as your other concerns, well, we don’t control a lot of them and the ones we do we are screwing up. Food is high partly because of an absolutely asinine self prostitution by politicians for Iowa votes. Even if you like alternative energy, ethanol is not the way for us. Using a basic food stuff like corn as your source for that ethanol is just ridiculous beyond belief! Do you have any idea how many things use some form of corn, corn starch, or corn sweetener in them? This move was just dumb on all fronts. D-U-M-B Stupid.

    Other energy, we don’t control, sadly. Talk to our buds the Saudis for all the good that will do you. Now, we could have built more nukes, we could have drilled ANWR and other places, we could have invested in clean coal or coal gassification, we could have jacked up the CAFE standard and done it all years ago but we didn’t and we’re literally paying the price. But that’s a global supply/demand issue as well, so if that’s the reason we’re headed for a Great Depression II then it was in the cards.

    My point is not that things are now slowing down. They are for at least a quarter, maybe two. But earnings are still strong. ( Leading indicators saying otherwise are just that, indicators. Let me see the real historic data before you make me swear either way).

    I happen to believe the actual risk from housing is overblown. The actual dollar amounts in question are FAR less than what was lost in the tech bubble bursting. FAR less. But I think certain areas like banking are talking themselves into a panic and refusing to make even overnight loans and that is a real problem, justified or not. The Fed will hopefully do a lot to fix that with a 75 basis point cut in the Fed Funds rate Tues. We’ll see.

  18. Mike G. commented on Dec 9

    Ironically, I am a bit more concerned with the affects of the coming UK housing slump than the current US one. How successfully did the UK lenders copy the US CDO scam? Who bought that junk? How much of it is there? Trichet seems to want high interest rates and their inflation is at the high end of the EU comfort zone (3%). Do they hold rates while the UK slashes? How does that work? Could be bad.

  19. Winston Munn commented on Dec 9

    Mike G. wrote, “I happen to believe the actual risk from housing is overblown. The actual dollar amounts in question are FAR less than what was lost in the tech bubble bursting. FAR less.” (End Quote)

    I think you may be overlooking the contagion spurred by the housing market.

    This was not a “housing bubble” – this is a “credit bubble”, and its tentacles extend into virtually all areas of economics. To properly identify the amounts in question, it is necessary to look at commercial real estate, leveraged buyouts, stock repurchases, equties, bonds, and consumerism. All the gains of the past few years have been based on expansion of debt.

    The problem in housing is simply a symptom of a greater ill – the over-reliance on spending future productivity to sustain present growth.

    Debt as a vehicle of growth has a built-in limitation named productivity; when all present productivity is required to service present debt, debt can no longer expand; when debt can no longer expand, growth becomes an impossibility.

    The end result is a deflationary recession, a contraction of debt until a point is reached where the process can start again – it is the madness and circularity of the business cycle, all caused by artificial attempts to avoid, by central planning, there very thing that central planning creates.

    What I ruefully term “The Law of Diminishing Returns from Increasing Debt” is hard at work – we are closing in on that point where zero growth is the only possible outcome.

    The Fed will pump and pump hard, and continue to pump, but it will do no good until the debt contration is sufficient to once again sustain growth.

    At which point we do it all over again.

  20. Mike G. commented on Dec 9

    Winston Munn:

    I agree, it is a credit problem. I agree that the CDO’s were just the part that exposed a really seedy uner-belly that is the entire “mark to model” world. I personally feel the thing that is holding everything back is the lack of faith in those that rate that sort of thing (Moody’s etc.)

    I don’t think for the most part the Fed Funds rate is the answer to this problem. The discount rate may be. Getting this crap declared on the books once and for all should be. I think the gov’t is just trying to expose the junk gradually. It took a few years to get as bad as it got, it’ll take some time to ease out of it. We could in fact go into global depression, but only if people panic and commercial paper totally dries up. IMHO, I think cooler heads will prevail.

  21. boris chikvashvili commented on Dec 10

    Dear Readers,
    Perhpas CEO’s know very well, what others are missing or want to forget. Much of their profits come from “earnings” coming from forieng operations where the depreciated Dollar ( stolen from savers of USA, especially SENIORS) inflates their earnings and bonuses and options and parachutes of all kind…

    Perhaps Kudlow knows that too that only be stealong on the grand scale from savers in USA does Wall Street( WELFARE STATE) succeeds.

    So, perhaps they all know what I forecast… the turnaround in $US before the end of Jane 2008…

    GOod Trading

  22. ken h commented on Dec 10

    Agreed, I don’t think you need to go get shotguns and pit bulls, no screaming depression here.

    The great depression from my understanding was a combination of deflation and a credit squeeze much like what we have today. eerily similiar to the problem we face now with housing.

    A liquidity squeeze. Basically a situation where everything owned was financed and some stocks were even bought on credit. Once these items lost value or deflated the banks became insolvent, over 900 I think?

    Banks don’t want to lend in this situation no matter what the fed does. A credit crunch. consumption slows so coporations slow and the lay offs come starting a spiral downwards. Ben has stated that he will cut rates to zero bound to fight deflation. He even feels that he can still fight deflation after he has reached zero bound by several means such as using the discoount window and currency manipulation. The thing that scares me about Benny is that he is an academic and not a seasoned business guru. I say ths because in my field (medicine) academics are considered individuals who struggle in the real world and are unable to adapt to confounding variables. The human condition. we will see.

    Big ticket item such as cars, houewares, big screen TVs do lose value. Remeber many of these were rolled into HELOC’s and they could lose it at an exponential rate making ALL loans underwater. This would decreas layoffs etc. I think this is the first time since the depresion that will see such a decline in housing prices plus how many of this are ALREADY underwater? How much of our GDP has been related to housing?

    I think your point is correct. Can you get banks lending money again? Does anyone want to borrow? Many think Banny is already pushing on a string. To steal one of the great quotes from Rick Santelli, “You can grease the gears all you want but it doesn’t matter if the motor isn’t running.”.

    At any rate, I’m no expert. we will just have to wait and see. I think BR Summed it up well. Better that soe think and worse than most think.

  23. boris chikvashvili commented on Dec 10

    Dear Readers,
    Ben Bernanke, can not prevent depression, but by again killing one set of population to save the other. Fasterst growin part of population at this point is group of SENIORS entering Social Security Eligiblity state. If he continues to destry their ability to exist outside of subhuman existance, he and other BLOSHEVIKS ( CONFISCATORS) may face a difficulty with SAVERS. It is very nice some of very gentle friends to say “reduce interest rates”, which is an euphemism of “confiscate the SOCIAL SECURITY” after all SENIORS have no control over TRILLIONS of Dollars.

    With all due respect, let us start using the correct language and then we may have a way to solve problems we face. Instead of knowingly or unknowingly protecting “SOPITALISTS”. Oh Yeah, you can find this in the Vocabulary at And while there look at the YELLOW BRICK ROADmap(YBR) that has predicted Stock Market Since May to Dec with 85% correlation in the form of a chart of the future.
    Oh yeah, we give it free, cause we do not believe anybody either has anything like it or wants to give it away. We do… Cause “YOU FIND WHAT YOU GIVE, ALL ELSE IS LOST”. Shota Rustavely
    Good Trading

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