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Boardroom Diverges Further From Trading Floor - Aaron Krowne

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  • Boardroom Diverges Further From Trading Floor - Aaron Krowne

    Boardroom Diverges Further From Trading Floor

    by Aaron Krowne

    Today while perusing the AJC, I was shocked to find this little bearish piece:
    Global outplacement firm Challenger, Gray and Christmas said that the number of technology job cuts announced in the third quarter rose 74 percent from the previous quarter, reaching the highest number since early 2005.

    "These numbers are a clear indication that tech companies see a slowdown on the horizon," Challenger CEO John Challenger said in releasing the report.
    Although the economy might seem stable, Challenger said, corporate leaders are apparently less optimistic about the outlook in 2007. As a result, they are expected to curtail spending on computers and other tech equipment.

    But wait a minute. Haven't these so-called "corporate leaders" heard? The Dow is at an all-time high! Energy costs are way down! Stock buybacks are soaring! The Fed's going to keep interest rates low -- or even lower them! What more evidence do these idiots need that they'll be fighting back unprecedented levels of business soon, and be begging for capital expenditures to disburse the veritable gobs of cash profits they'll be making!?

    [Note: I found this edition of the AJC severely lacking in the "pessimist browbeating" department -- must I do all the work?!]

    But seriously, the answer perhaps lies in this recent insight on CEO confidence:
    Chief executive officers are more pessimistic now than they have been in five years, according to the Conference Board. For the first time in half a decade, the organization's CEO Confidence Measure has dipped below 50, falling to 44 in the third quarter. That approaches the nadir hit in the final quarter of 2001, when the measure clocked in at 40.

    This gloominess of chief executives mirror that of CFOs -- a pessimism that's at a five-year high, according to the most recent Duke University/CFO Business Outlook Survey.
    "The lack of confidence expressed by CEOs is a result of the recent slowdown in economic growth, combined with expectations that this lackluster pace of growth will carry over into the beginning months of 2007," said Lynn Franco, director of The Conference Board Consumer Research Center.
    Interesting. So we're now at executive confidence levels last seen in the last recession (and in fact, from a time when that recession is now known to have been already well underway). We have two separate studies just in the above saying the same thing, plus the Challenger studies showing that these calls on the economy are translating into increased planned job cuts. As of yet, these cuts are not even worse than last year... but they are markedly up from earlier this year.

    As for that point about "early 2007", that interestingly coincides with the approximate time that a high percentage of ARM mortgages begin resetting and some people have called for a full-on recession.

    How can anyone possibly think this is a setup for a "soft landing"?

    Perhaps a more interesting question would be: how exactly do the record earnings-growth projections, apparently being flogged to equities analysts, jibe with the above plans and economic calls–apparently originating from the same population of businesscritters!

    Fighting... off... cynicism... unsuccessfully... d'oh!

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    Aaron Krowne, M.S., is a computer scientist working at Emory University's Woodruff Library as Head of Digital Library Research. Here he leads the technical development of digital library grant projects, and works for the integration of new technology into library systems. He is the founder and president of, a collaborative digital library and virtual community for mathematics.

    One of his core areas of practical and theoretical interest is in the economic aspects of commons-based peer production, a ``third mode of production'' that has recently been recognized alongside markets and firms. He has written a number of articles in this area and has demonstrated practical results via PlanetMath. He is also interested in the relationship of mathematics to the market (especially its limitations). Krowne frequently comments on economics on major blogs and his own web site. He has no formal economic training, and is damn proud of it.
    Last edited by FRED; 10-23-06, 10:16 AM.

  • #2
    Re: Boardroom Diverges Further From Trading Floor - Aaron Krowne


    Right on. Take a look inside the heads of the insiders and you'll get the real story. I guarantee Ken Lay was not saying, 'Enron never looked better,' to his wife and close friends. On those rare occasions when you do see trends among the hoi polloi of the business world (running away from real estate, expressing pessimism about the market) that is not speculation, that is inside information. They guys run these companies! They know the deal. Many of them also know a thing or two about fraud and creative accounting to defer the inevitable (making it that much worse). In America, we usually don't do things half way, we fully delude ourselves, fully invest ourselves, fully get suckered, and then fully pay the consequences. The great conceit being circulated around is that we can all be like the top guys, able to use our imaginary authority, wealth, connections, and inside information (subscribing to "insider" newsletters and signing up for real estate seminars) to avoid consequences. Nope, you're still another consumer, this time of a myth that you are above it all, and it's somone else who will suffer. First it came for Enron and no one else listened. Then they came for New Orleans, and no one else gave a crap. Does it have to be the entire U.S. economy they come for before anyone will listen. Unfortunately, it appears so.

    Citizen Zeus
    Citizen Zeus