In his op-ed in today's Washington Post, Federal Reserve Chairman
Ben Bernanke maintains that the latest round of quantitative easing, which
involves central bank purchases of securities using money created out of thin
air, will work its magic by lifting stock prices and cutting borrowing costs.
Lower corporate bond rates will
encourage investment. And higher stock prices will boost consumer wealth and
help increase confidence, which can also spur spending. Increased spending
will lead to higher incomes and profits that, in a virtuous circle, will
further support economic expansion.
There's just one problem: the Fed tried
this approach before and it didn't work. Yes,equity and fixed-income
markets have rallied, but those moves haven't had the intended effect with
regard to the economy as a whole.
Indeed, if the following CFOZone.com
report, "Large Company CFOs Grow More
is anything to go buy, a cynic might say that the net result of previous
machinations has been anything but positive.
CFOs at large companies are much more
pessimistic than they were just three months ago.
According to yet another new survey of
chief financial officer sentiment, just 47 percent said they are more
optimistic about their company's prospects and 36 percent are less
optimistic. Last quarter, nearly two-thirds said they were more optimistic
and only 17 percent were less optimistic.
What's more, just one-quarter said they
are now more optimistic about their industries versus more than 50 percent
last quarter and 35 percent are more pessimistic versus 13 percent last
Keep in mind that the survey of 77
CFOs-- More than 70 percent are from companies with more than $1 billion in
annual revenue and 75 percent are from public companies--by Deloitte LLP was
conducted during the two weeks ending on August 31. Since then, the stock
market has been surging amid a mixed bag of economic news, the elections took
place and the Federal Reserve unveiled its long anticipated Quantitative
Easing II plan, which was initially well received by Wall Street.
CFOs in the manufacturing sector appear
to be the most pessimistic this quarter-a sharp turn from the prior period
when it was the sector with the most improved optimism. These days, only 30
percent of CFOs are more optimistic and 60 percent are less optimistic, according
In any case, Deloitte points out that
more than 85 percent of CFOs' pessimism is currently due to external factors,
such as the economy, industry and market trends. These are the kinds of
issues they have little or no control over, which can be especially
frustrating to this group.
The survey though found that roughly 45
percent of CFOs name top risks that revolve around the specter of stagnant or
deteriorating economic conditions and the threat of a double-dip
recession. More than a quarter of CFOs name worries about government
policy, regulation, and legislation that could harm their industries and
Michael J. Panzner is a
25-year veteran of the global stock, bond, and currency markets and the
author of Financial Armageddon: Protecting Your Future from Four Impending
Catastrophes, published by Kaplan Publishing.