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.
All Hail the Obama Recovery!
Hamburger meat is $5/Lb., and pork and chicken are going up almost as fast, devastating grocery budgets for families across the fruited plain.
By November even the most clueless voters will be catching onto the fact that the wheels have come off this phony “recovery” that never happened.
All Hail the Obama WRecKovery!
Highest tax hike in history (Obamacare) during worst recession in my lifetime. Shouldn’t one expect a sluggish economy?
Oh by the way, there’s no inflation....
/ sarc
The privately owned for profit corporation known as the Federal Reserve, which is as federal as Federal Express, is flooding the economy with ever devaluing currency. The increasing worthless paper is becoming decoupled from the real economy of real jobs, real goods and real services.
I don’t know how much of that 4 to 5 trillion is held overseas. However, I do know that there is roughly 2 trillion dollars cash held overseas by companies, because the penalties for bringing it back to the US and redeploying it are heavy.
This is shortsighted, greedy, and counterproductive. These companies made the money fair and mostly square (there are transfer pricing games that can be played to shift profits from one jurisdiction to another), and paid their taxes in the countries where they earned it. “Repatriation” taxes are locking that money up abroad.
It never was alive.
Agreed. Couple the cost of food going up with the cost of fuel and you have a vicious, repetative cycle.
” 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.”
Course not. Because it’s designed to be a “Zero Growth Economy” as per Agenda 21, ‘cause we be consuming waaaaay too much resources, eatin waaaay too much meat, using waaay too much A/C, That’s not very fair so we must continue to de-industralize and re-distribute the American wealth to the rest of the world.
Recovery, my patootie.
Any ‘recession’ that lasts over 5 years now... I’d call that DEPRESSION.
And yet these money-grubbing socialists INSIST on slapping MORE and MORE hardship upon us - after all, we DESERVE it, right? Time to bring justice to America, hmmm?
But of course, it’s all just CORPORATE America, holding back ALL their money - JUST to make obama look bad. After all, that’s what racists do!
I’m so tired of hearing libs tell me, “yeah, but it (the economy) would have been SO much worse if it hadn’t been for obama!”
It amazes me. WHY are we still paying high gas prices constantly? And, as mentioned in the article - food prices going through the roof. I haven’t had to be so picky at the grocery store since I first moved out of my parent’s house and started living on my own back in the 80’s.
Businesses are literally sitting on mountains of cash which they have been hoarding for five years now. They are spring-loaded, wanting to spend to grow and expand, but they will not because of the failed and destructive policies of Obama and the Democrats. However, most of the executives from these very same companies continue to funnel buckets of cash into Democrat campaign coffers and Democrat PACs and Democrat shadow organizations. Even the US Chamber of Commerce is pouring money into immigration policies that will seriously undermine economic growth and recovery.
Why is it that all these “smart people” continue to lament a weak economy and bad policies coming out of Washington, yet at the same time, actively provide the funding that advances these same destructive policies?
Companies, like people, start to re-evaluate what they want to do when government adds a major new level of oppression. Taxes went up and everyone knows they are going to continue to go up over the next decade or so because government refuses to control spending. Not only can’t the president and Congress cut spending, but they are still adding burden after burden after burden in the form of expanded spending and entitlements. If you know you are going to be hit with these obligations, you have to hold money in reserve.
I disagree. 40% are far too into progressive populism. It will be the deadlock caused by evil Republicans, it will be the evil corporations, it will be the bankers. What it won't be is Herr Leader.
My BIL says that things would be much better if the Pubblies quit hindering all the plans of Dear Leader. The irony there is of course that the stupid Republicans have done almost nothing to obstruct Obama and the Dems.
We should give up the notion that if things get bad enough, these low info numbnuts will figure it out. Not going to happen.
Two factors, not even considered by government when deciding what the inflation increase is for S.S. cost of living raises. Inflation was 1.56% last year, according to the S.S. Administration.
Food and fuel are major factors in many people's budget.
“I don’t want to ruin your evening after such a pleasant dinner. But if you wish to know who is at fault for hollowing out the welfare of middle-income workers and the American economy, kindly do not look at me or my colleagues at the Fed. When you go home tonight look at yourself in the mirror. We at the Fed are providing more than enough monetary accommodation. You elect our fiscal and regulatory policymakers. It is time for them to do their job, to ally themselves with us to achieve a fully employed, prosperous America. Only you, as voters, have the power to insist that they craft policies that are needed to restore American prosperity. Please do so.
Have a most pleasant evening!”
~ Dallas Fed Chairman Richard Fisher, February 11, 2014
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