Execs, advisers pessimistic about recovery, survey says

While investors and pundits have regarded recent economic news with a hopeful eye, a survey of senior financial executives found most do not think the economy will improve over the next six months. Only 23% of 530 chief financial officers and senior comptrollers canvassed said they thought the economy would improve in six months. The survey was released today and was conducted by the Chicago-based Grant Thornton LLP. A full 77% said the economy would stay about the same or get worse, and 39% expected their company to reduce the number of employees. The majority of those surveyed, or 87%, reported that they believed the country would stay in recession for the rest of the year. Since the survey was taken, investors have been buoyed by some signs of stabilization in the economy this week, including an announcement by San Francisco-based Wells Fargo & Co. that it expects to post a profit for the first quarter. Also, the number of unemployment benefit filings fell in March, and consumer spending increased in both January and February. The survey was conducted by e-mail from March 23 through April 4. Advisers are cautious about saying the worst is behind us. “I would say the jury is still out,” said Joseph Alexopolous, principal of Aequitas Wealth Management LLC of Los Angeles, which has $26 million in assets under management. “I won’t believe it is until we see credit come back to the market and banks seriously lending again,” he said. Real estate prices are an important indicator, said Matthew Illian, wealth manager at Marotta Wealth Management of Richmond, Va., which has $120 million in assets under management. “Real estate prices are still coming down and banks are still going to have to write down the value of these investments,” he said. “Office buildings are empty and there are a lot of for-lease signs out there. The government kept saying all this money will help real estate prices but in reality there are no back-stops for real estate prices.” Another concern is the threat of inflation, Mr. Illian said. “We are reserved and cautious about the positive news we are seeing, he said, however, “There are a lot of buyers showing up in the markets. There is a warming sign.” But Scott Kays, president of Kays Financial Advisory Corp. of Atlanta, which has $120 million in assets under management, said he is bullish on the short-term. “The first step in the recovery is the economy getting worse at a slower rate,” he said. “And we are seeing signs of that now.” The third quarter will likely be the bottom and the turning point for the economy, Mr. Kays said. Investors are likely experiencing a “monster rally,” he said. “I think we are in the middle of a secular bear market, Historically when the market is down more than 50%, it is followed by a monster rally. I think it’s very possible that the market rally would reach 50% to 60% from the bottom.” Investors should use dollar cost averaging to get into the market, he said. “I would overweight small cap, growth [versus value], and emerging markets,” Mr. Kays said.