Geoff Cutmore - Morning Thoughts

What's in it for Shareholders?

"Overall, 52% of CEOs are 'very confident' and 40% 'somewhat confident” about revenue growth over the next year -- more than double the level of 2001."

This line is clipped from PWC’s latest survey of Global CEOs. It suggests over 90% of the 1100 CEOs they spoke to are upbeat about revenue growth over the next 12 months. Here’s another line, pointing out some differences in the regional answers -- probably reflecting the underlying cultural divergence in optimism/pessimism -- rather than any real difference in the prospects for their businesses:

"North American CEOs report the highest levels of long-term confidence, with 57% 'very confident;' this drops to 40% for their Western European counterparts, 42% for Latin America and 45% for Central and Eastern Europe."

Is this result useful to you? It is definitely handy for Sam DiPiazza. It gives PWC’s CEO some briefing materials to take to the World Economic Forum in Davos, Switzerland. Whenever a journalist negotiates the myriad layers of security in the Swiss resort to get an interview with Sam, he is ready with the fruits of the survey and the odd suggestion about how business people can 'make the most of global opportunities.'

Taking nothing away from the fine work that PWC has done, it is good to be an accountancy and business services company when all of your clients think their revenues are going to grow this year. The hard part for investors in markets is knowing whether that perceived growth is going to translate into higher share prices.

We are still in the early part of fourth-quarter earnings, and apart from some tech companies the numbers have been OK. The expectation is for EPS growth between 12%-15%. The analysts tell me the mild disappointment so far has been with the ratio of surprises to expectations -- the current tally is running behind last year's third-quarter figure.

Sequential quarterly comparisons are fraught with problems due to the seasonal nature of many businesses, but you can usually expect the fourth quarter to be good as companies try to make sure they hit full year targets. Given the Dow/S&P/Nasdaq/FTSE/CAC are almost flat for the year it would appear investors don't share the exuberance of the executives polled by PWC.

Rabbits that get fixated by the headlights of on-coming cars get squished. Equity investors locked on the machinations of central banks are concerned they aren’t going to be dealt the same fate by higher interest rates. It's one of many worries the market has started the year contemplating.

I am a fully paid-up member of the 'it's-probably-already-in-the-market' school of investing. The modest move on indices so far this year tells me there are good reasons not to base an investment decision on the 'very confident' assertions of CEO’s in surveys.