Posted on 04/17/2014 5:45:26 AM PDT by Kaslin
There’s a damning number regarding our economy that Obama doesn’t want to talk about. It’s a number, but for him, would be lower. And, lower, in this case would be a good thing for the economy.
“Although estimates vary,” says Joel Kurtzman, a senior fellow at the Milliken Institute, “American companies have between $4 and $5 trillion in liquid assets, a sum greater than the size of the German economy.”
How is it that companies can now have more cash than anytime in history, while unemployment remains so high, inflation in many goods so low, and national income grows so anemically?
Oh, yeah. Democrats at work. Shhhh.
If all that was needed to bring us a juggernaut economy was more money, we’d be in boom times boys.
But alas, while more money is the Democrat recipe for success in everything-- and generally good in the corporate sense-- in this case it’s a telltale sign that something is wrong with policies coming out of Washington.
Because those high cash balance sheets are telling us a few things.
They are telling us that hiring isn’t an investment that companies want to make right now: Too much risk and too little reward they fear to bring people on the payrolls.
They are saying that companies would rather keep cash on the balance sheet than make investments in new plants and equipment and even sales.
Again, this is a matter of balancing against risk and reward.
Many corporate types are more concerned that they have enough cash for the next downturn, versus concern with putting liquid assets to use to generate return on investment the old fashioned way, by growing their base business.
Instead companies have been doing things like buying back their own stock and passing out dividends to shareholders, which the site ZeroHedge calls balance sheet arbitrage.
ZeroHedge observed last year: “Curious why there is a sense that [there] is no real corporate growth in the US? Because companies are simply not investing in growth, and are instead all engaging in cheap balance sheet arbitrage, which makes corporate equities appear richer. The problem is that the debt remains, and once rates finally do go up...”
But this year, thing won’t be so easy says ZH.
The site says that in 2013 stock buybacks in the S&P 500 equaled about half the money that the Fed injected via quantitative easing. But now that easing is tapering, companies won’t be able to manipulate earnings upward by taking stock off the street.
Fewer shares means higher earnings per share. It looks good at earnings season, but it’s not the best way to use capital.
A better way would be for companies to buy other companies.
“The cash accumulation among five giant tech stock,” says YCharts, “Apple (AAPL), Google (GOOG), Microsoft (MSFT), Oracle (ORCL) and Cisco (CSCO) – continues, with their combined positions now totaling about $400 billion.”
But despite Wall Street continuing to pitch tech giants about the advisability of putting that cash to use in merger and acquisition activity, mergers are sluggish.
“By number of deals, year-to-date M&A is down 8% compared to 2012 levels,” says Thompson Reutersnof 2013, “and is the slowest year-to-date period for deal making, by number of deals, since 2005.”
In 2014 so far there have been some high profile deals: Comcast has proposed a merger with Time Warner, which faces significant regulatory hurdles; Facebook has purchased WhatsApp for $19 billion by over paying for a company that has 450 million subscribers, yet only $20 million in revenue for 2013.
Both deals cry desperation in looking for ways to put capital to work.
But even M&A activity is not the best way to put capital to work.
Or at least M&A activity is not a sign of robust economic health.
“The anticipated M&A boom could begin,” writes Bob Doll, chief equity strategist at Nuveen Asset Management. “Favorable signals include recession-like nominal GDP, vast cash reserves on corporate balance sheets and a growing activist investor base.”
Agitated investors, overblown cash balances and sluggish GDP growth are not signs that a recovery is under way.
In fact, they are each signs that perhaps the best of the so-called recovery is over.
The best way to put capital to work is by hiring, we can all agree.
But until the politics changes in Washington, D.C. that’s not going to happen.
And we won't get another recovery until 2017.
Likewise the millions of jobs "saved" by obama policies.
With the documented capricious waivers, outright flaunting and selective enforcement of ObamaCare's requirements, what company would want to increase their potential burden in payments for healthcare? Name one that is willing to gamble on a decision like that which could affect them for decades?
The truth is Obama only wants to get through November 2014, and maybe - MAYBE - 2016 for the next Democrat demagogue to be elected President.
No wonder they're hoarding cash, and it is likely no wonder they're hoarding it offshore.
...and gas at the pump going up again
The recovery never got born; it was aborted in the first trimester via stimulus.
What you had in the 2010-2011 period...was a phony party over a marginal improvement in numbers. Jobs were not improving....banks were still failing (which is still true in April of 2014)....small companies are NOT expanding...the short price on the dollar makes US products look great but it’s a fake number, and CD rates are lousy (haven’t looked good in a decade now).
There’s never been a recovery....just a fake party when everyone sipping beer and pretending they were all better but couldn’t explain how they were better. Gaze over at the young punks graduating this fall with $75,000 in college debt and ask them when they “think” they might have it paid off (2035?). Housing markets won’t be affected by them...nor will they be traveling to Aruba much...or putting any money much into IRA’s.
Bingo! I have not seen any signs of recovery since bammy took office. In fact, just the opposite. bammy and his cohorts in crime have made a practice of twisting numbers (eg. unemployment rate) and pouncing on any dissociated uptick number they can find or make or easily lie about. The MSM has been their lapdog and accomplice in this - crowing any number or "indicator" they can dredge up or manufacture.
But in the real world, there just isn't any recovery, never has been. A recovery would be a sustained, broad-based positive move. Hasn't happened. Only minor ticks here and there and made-up fantasies.
I think the article is right. The company I work for has been accumulating cash reserves and has used them to selectively acquire technologies where it made sense. But actual workforce numbers have shrunk through both attrition and even a few layoffs. (workforce re-alignments) If (Deity help us, make it so) the 'rats lose the Senate this election cycle and the White House in '16 then look for a recovery starting in '17 the likes of which no-one currently alive has ever seen. Mrs. ThunderSleeps and I are talking about relocating. Trying to make that move before the coming boom is a serious consideration. The trick will be getting where we want to go before their economy takes off and housing prices go up, but hopefully after our home has recovered a little of its lost value...
I also like how they magically found the word inherited. When Reagan and Bush43 won the presidency, they got instant blame for the economy by the libs.
This “recovery” never was.
Honestly, I don’t believe there has been any ‘real’ economic growth since the early to mid-90s.
/s
(That's what my lib friends fervently believe, or used to believe. Some of them seem to be reassessing that belief.)
I seem to have COMPLETELY missed “the recovery”. When did that happen?
When was it alive?
There was a recovery?
Who knew?
What has been going on is an artificial “pumping up” of numbers, both by injections of cash into big investors that support stock prices on the major exchanges, in the face of anemic price-to-earnings ratios, and also artificially depressed interest rates, because of very low loan activity, the real injection of the lifeblood of expansion. Other numbers that are “cooked” include the actual employment rate in this country, and the benefits actually extended to individuals through various government-supported or government-mandated programs.
Through a combination of taxation and some extremely restrictive regulation, those who have cash are sitting on it, rather than getting it out there to circulate. Most of the value of money in a capitalist economy lies in its velocity, the speed at which it is passed from consumer to producer, and reinvested by the producer to further expand the pie. Thus the familiar refrain, “the rich get richer and the poor get poorer”.
It doesn’t have to be that way. What has been happening is that some entity or oligarchy of consultants has come to the conclusion that there has to be “equality” in compensation, and their first instinct is to pull down those at the very top.
This is inherently destructive and totally counterproductive. This tactic cannot succeed, because those who have cash, or other valuables that are quickly converted to some liquid form, will take it beyond the reach of those who would expropriate it (”steal from the rich”, for those of you in Rio Linda, as Rush would say). No kinds of blandishments, threats or even direct physical confrontation will succeed in jarring loose any more than crumbs, and even those few crumbs are soon exhausted. Meanwhile, the sparrows grow hungrier and hungrier, as the horses disappear from the stable, or break out of the corrals for greener pastures elsewhere.
The complaints that capital and its concomitant employment are fleeing to other countries is easily enough countered - just make things more attractive in this country for them to return. Drop the overregulation, most of which is totally pointless and does not even address the problems it claims to, and make the process of taxation sufficiently transparent so people realize that a goodly portion of the price of a product, any product, is a hidden tax on consumption, Manufacturers and processors do not pay these taxes, the consumer does. The manufacturer or processor that is NOT making a profit is soon out of business, employing nobody and producing nothing.
But since the Current Regime, unlike the placeholders during the Bush Interregnum, have absolutely no flexibility in regards to either reducing the tax load or rationalizing the schemes of regulation, we are stuck with dealing with the badly broken and rubble-strewn landscape that passes for a playing field, at least for the moment.
Before the rats took control in January 2007
Demagoguery aimed at GRRRREEEEEEDY UNPATRIOTIC CORPORATIONS who are HOARDING their money commencing in 3....2....1....
Just follow the Baltic Dry Index.
Companies are holding on to their money because if they move it the government is there to snatch as much of it as they can.
In order for something to “die”, doesn’t it have to be “alive” first? The only reason the unemployment rate is going “down” is because there are far less jobs to lose.
“Hamburger meat is $5/Lb., and pork and chicken are going up almost as fast, devastating grocery budgets for families across the fruited plain.”
Prices are through the roof and I can hear the media wailing from here if a Republican were in office. In the Carter days, they reported the bad economy, but didn’t attribute it to Democrats. Now they just claim everything is rosey and report about something else.
Protection money.
For 15+ years now, there has been no recovery, only some markets were manipulated and hoodwinked by insider bankers, who were bailed about to the tune of hundreds of billions...Starting with Bush and his wealthy dynasty associates.
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