Features

Where slump stops, nobody knows

By John Cunniff AP Business Analyst
Thursday September 06, 2001

NEW YORK — The reality is that nobody really knows when the economic slump will end and the upturn begin. Not Alan Greenspan, nor corporate chiefs, nor those oft-quoted “experts.” 

It may disappoint to hear such a judgment, but it will do little to diminish the game or silence its participants because claiming to know when the upturn begins is now the biggest media game in town. 

And losing credibility day by day. 

While the Federal Reserve, of which Greenspan is chairman, declines to be specific, it is safe to assume its member-bank governors and executives are disappointed with their efforts, having hoped for a revival by now. 

For their part, the corporate CEOs have conceded their bafflement, having issued misleading forecasts too many times. An ever-growing number now admit they haven’t a clear view even for their own companies. 

You can sense frustration and modesty at the Fed and among CEOs, but the experts — well, they just go on forecasting, never apologizing. It’s what they get paid for doing, so they do it. But does anyone listen? 

The dwindling audience for the traditional good-times-ahead news provides an opportunity to view other aspects of the economy, such as the growing corporate trend of hiring coaches for their chief executives. 

John Budd, a former high-level officer at a multibillion-dollar public company, asks “By what tortured rationalizing do boards of directors choose someone who immediately needs coaching?” 

Calling the practice a “strange phenomenon,” Budd asks in his “plain talk” newsletter: “Is this faddism run amuck or are all the stories hokum that say the board’s most important decision is to pick the right CEO?” 

Budd, who can be acerbic in the cause of clear communications, also snaps at the “turkey neck” corporate chiefs who, seeking to be hip and “with it,” disdain ties and jackets, thus displaying their sagging flesh. 

“Dressing down is out; dressing up is in,” he says, adding that if you want to be serious about business, credibility is a suit and tie. 

David Hirshleifer offers a different sort of advice, but just as practical. Hirshleifer, who teaches finance at Ohio State University, has determined that a sunshiny morning brightens the returns on stocks. 

Sunshine tends to make people optimistic, he says, something most of the alleged Wall Street experts overlook in their pursuit of more complex, numerical answers, some of which are far less credible. 

Stock traders, he explains, may attribute their optimism to factors other than the weather, such as economic conditions or news about a company. As is well known, stock analysts can rationalize almost anything. 

But what if the weather is cloudy on Wall Street or Chicago or wherever trading takes place, but bright and clear at the investor’s house? The overhead conditions apply mainly to the stock exchange site. 

Hirshleifer offers at least a partial explanation for this behavior: Many of the large institutional investors that drive the markets are headquartered in the same cities as the stock exchanges. 

The effect is nothing to discount. Hirshleifer’s study, which encompassed 26 stock exchanges around the world, including the New York Stock Exchange, found the difference between a completely overcast day and a sunny day produced an excess return of 24.8 percent! 

John Samples, Christopher Yablonski and Ivan Osorio had another matter in mind when they studied the sources of funding for the ad hoc Fair Taxes for All Coalition, an advocacy group of non-profit organizations. 

In a paper for the Cato Institution, a Libertarian think tank, they describe the membership of the coalition as united in opposition to the original $1.6 trillion tax cut proposed by President George W. Bush. 

Their reason, according to the paper: It would jeopardize the nation’s ability to meet domestic and foreign responsibilities, threaten fiscal stability and security, and inequitably distribute benefits. 

But the Cato researchers say they found coalition members have a considerable interest in keeping money in the government’s hands — those non-profit groups received $618 million of taxpayer money in recent years.