Market Analysts, Economists, or CFOs – Who to Trust?

Behind door number one are the market analysts. Behind door number two are the economists. And behind door number three are the CFOs. In a survey done about a month ago, they were all telling us very different things about the economy. Which group should we believe?

• The market analysts hail from Wall Street – which is one gigantic buying machine. The more clients buy, the more Wall Street makes. They thought earnings would balloon come the fourth quarter. These people are incorrigible optimists. Why believe them?

• The economists hail from the government, academia, and think tanks. They can be a dour bunch. They thought earnings would rise only 7 percent come the fourth quarter. They’re decent at seeing trends but not very good at recognizing big reverses and predicting crises. If banking, hedge funds, or housing doesn’t slip into crisis mode, they have a shot at being close. But if the financial sector continues to fall apart – and the government is doing its best to keep that from happening – they’ll look pretty dumb.

• The CFOs are from Main Street, USA. They have their pulse on the real economy. And, at the time of the survey, they were much more optimistic than they were in March. Perhaps they had taken note that input prices were easing, gas and oil prices were dropping, and the dollar was getting stronger. Yet, the more telling part of this survey says they expected to spend and hire less than they previously thought they would. Their message: “Things are looking up, but seeing is believing. We’re going to proceed very cautiously.”

In other words, even before the big government bailout, the CFOs didn’t quite believe their own slightly optimistic view. Unlike analysts and economists, companies aren’t just observers. They’re the key players in the economic game. If companies are sitting on the fence and waiting to see proof that a recovery is right around the corner, they may be sitting for a long time.

Not surprisingly, of the three groups, it’s the CFOs who always give us critical clues about the future of the economy. So keep an eye on what they’re doing when you’re making decisions about where and how to invest.

[Ed. Note: You’ll be seeing equal parts gloom-and-doom and optimistic predictions in the coming months. But keep looking toward the CFOs for your best glimpse of where the economy is headed. In the meantime, be on the lookout for one of the greatest investment opportunities of the 21st century. It’s happening right now.]