Bull market stocks — those whose businesses benefit from a strong stock and bond market &mdash...
Why CEOs Should Stop Talking
10/31/2012 7:00 am EST
The recent negative comments from CEOs regarding the US and global economies has MoneyShow's Jim Jubak concerned, as he fears it could push us into another recession.
It’s too early to say this is a trend to really worry about it, but it’s starting to become—well, not a trend, but let’s say a nagging fear in my mind.
What I’m seeing is a lot of CEOs and CFOs at US companies talking about lowered prospects for growth in China, saying things like, "Well, we don’t know what’s happening in Asia." Talking about, "Well, we don’t know what’s happening in the US," and really sort of talking down their own expectations. We had DuPont (DD) going out and saying it was going to cut workers to make sure that it took account of the slowing situation.
Recessions are psychological phenomena, at least business-cycle recessions. People decide that for one reason or another they’re so fearful or uncertain. When they stop spending, that of course then produces the recession that they were afraid of.
So what I’m worried about right now is not that growth is indeed so slow that we are headed to a recession—in fact, I think the signs are that the US economy is going to be growing faster than expected, at least in the fourth quarter and maybe in the third quarter, and that China is looking like we’re getting a growth bottom in September, and so China’s going to be stronger than expected.
But if we get enough CEOs believing and then saying that they've got to cut jobs because they don’t feel good about 2013, or are holding off on spending decisions, then indeed, all of that real world stuff takes a back seat to the psychology of recession and we could actually talk ourselves into it.
It’s not that CEOs are crazy. I mean, they are looking at a situation with big, big uncertainties in the US— the fiscal cliff, what the US budget is going to look like, who’s going to run the Fed if we wind up with a Romney victory instead of an Obama victory, who’s going to take over the Treasury even if Obama does win, because the current occupant of that seat has said that he’s going to leave after the election—so there’s a lot of uncertainty.
The stock market rally has been predicated on Bernanke’s promise that he’s going to keep rates low through 2014. But if you’re talking about that being really the end of his term, you’ve got a lot of businesses that are going well, would Fed policy change or not.
So there is real uncertainty out there. Whether it’s enough for companies to be saying, "We really need to cut jobs; we really need to see more evidence of stronger growth before we invest," that’s a different question. I understand why CEOs are nervous, but I really wish they’d stop talking this way.
Related Articles on MARKETS
High yield has fallen from favor. Because many high-yield stocks are low-growth companies with high ...
We are raising our rating on Booking Holdings Inc. (BKNG), formerly Priceline Group, to buy from hol...
NV5 Global (NVEE) is a provider of professional and technical engineering and consulting solutions t...