One blogger ZeroHedge has published the opinion of Dan Steinhart from Casey Research. Now in the possession of American corporations is more money than any other period since the Second World war. Not counting, of banks, of course. It comes to non-financial corporations, i.e., those that sell goods and services. These companies keep the 1.4 trillion. dollars. In absolute terms, it’s a record.
As investors, we can conclude that the inability (or unwillingness) of the corporations to use their money. This can only mean one thing – the business took a defensive position.
Cash, of course, are a kind of protection against uncertainty, which leads to slower business for any reason. Management wants to maintain a healthy reserve of cash with which it can pay the bills and stay afloat, if suddenly there will be something unexpected. I think many will agree with me, because it is reasonable and good business practice.
But it is about 1.4 trillion dollars. It seems that the company is not just worried about the future. They are preparing for the Apocalypse.
Think about it. If these enterprises want to obtain just a paltry 1% return, they can earn $ 14 billion in profits. Instead, they are sitting on bags of money and don’t earn anything, or rather, even losing to inflation.
That’s too bad, because the management is ready to refuse from 14 billion dollars a year (at all, of course). Apparently, they assume that the risk of investing in new projects exceeds the potential profit, but for healthy economic growth this position is a killer.
Thus, revenue and profit margin companies look very healthy, and stocks are behaving very well. For example, S&P 500 gained 15% since the beginning of the year.
Why is this happening? Well, the yields and is easy to explain: the Corporation has reduced costs over the past few years, becoming more compact and efficient. This also partially explains the higher share price.
But I think there’s another factor is the rise in stock prices and a completely terrible prospect of the bonds. Our analysis of stocks compared with bonds indicates that stocks today are the best investment. The reason is simple: at near zero interest rates, bonds and so too expensive, and stocks are still growing.
Let’s go back to talking about corporate money. There is no doubt that today they can be spent for nothing. But today’s costs may tomorrow develop into income. Corporations are not going to “sit” on their money always. In the end, the external conditions are such that they either want, or be forced to invest in new projects.
Maybe inflation will be a catalyst, because corporations will be able to lose 1.7% per year. But if inflation will rise, say to 4%, I bet that corporations will begin to think about the investment of available funds for any projects that will help generate income.
“And when that happens, the $ 1.4 trillion of cash will be put into operation. Businesses will not need loans. They have what they need”. Thus, companies are willing to invest and develop. They are simply waiting for the economic and political conditions for it.