A Tale Of Two Economies

[Joanne98]

It simply continues, and as we see it is THE key tension in investment decision making of the moment. It's the tension of the macro versus the micro. After all, isn't this very tension exactly what has been playing out as 2Q earnings season has unfolded? Again, the key question being, what will be more important to investor decision making ahead, the macro domestic and global economic and credit cycle backdrop or company specific earnings and forward guidance? We'll move through this little look at life as we know it at the moment relatively quickly as basically it only continues to validate the "tale of two economies" theme we have been discussing for well more than a year now. But we do believe there are some very valid conclusions that can be drawn from one of the most noticeable economic divergences we have seen in many a cycle.

To the point, in recent weeks we have been treated to the quarterly Conference Board CEO business confidence survey as well as the NFIB (small business) survey for July (data through June). As with so many business conditions surveys, the CEO confidence survey is a diffusion index. Any reading above 50 tells us the preponderance of responses were positive, and vice versa. Quarter over quarter the CEO survey was unchanged in the recent report and remains consistent with headline economic expansion based on historical precedent. At least over the recent past, survey levels at 50 or above have been consistent with at least 3% year over year real growth in GDP. Over 70% of the CEO's surveyed expect profit growth over the next twelve months and half of the respondents expect an increase in demand to drive profitability. Alternatively for the small business crowd, demand and poor sales is their number one concern. In terms of the US corporate sector, large and small business conditions have been and continue to remain worlds apart. The chart below is a look at the history of the CEO survey and the bottom clip aligns the historical CEO responses with the rhythm of year over year change in nominal GDP. In terms of the confidence survey versus GDP relationship, the CEO survey has been a very important historical leading indicator valid at both cycle peaks and troughs. It's why we always check in.

http://www.zerohedge.com/article/guest-post-tale-two-economies

[westerebus]

1. Back to de leveraging the future.

As simply as I can put this: Can you live on half of what you currently have?

Survey says: CEO's - Yes. As long as the government prints and pumps, we're good.

Small businesses - If you don't eat, I don't eat.