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Ending The "Cash On The Sidelines" Fallacy (Redux)
As Zero Hedge awaits patiently the conclusion of CapIQ's compilation of all Q2 earnings data before we complete our extended corporate cash model (we are confident this will be finalized within a week or two), we wanted to demonstrate one chart, via Nomura, that shows, as simplistically as possible, that even as corporate cash is at all time highs, corporate debt is just below all time records (and the recent decline in gross debt has only occurred courtesy of banks pushing up stock prices to artificially high levels, which has afforded many with equity refis opportunities to pay down existing debt, as well as asset dispositions). In other words, and this goes to shut up all those "cash on the sidelines" chatterboxes, net debt has barely declined from all time records. In a nutshell: total debt of over $7 trillion versus total cash of $2.6 trillion is still close to the highest net debt gearing in history. This simply means that firms are increasingly reducing their reliance on traditionally "safe" (but certainly not any longer now that the Fed is actively involved in centralized planning) ultrashort term credit funding markets such as ABCP and other evaporating shadow banking sources of liquidity, and are eliminating counterparty risk as they keep the required operating cash on their own books. Thus the cash on the sidelines is anything but: in practice what is happening is corporations are now their own banks and providers of their own near-zero maturity liquidity! All those who hope that this $2.6 trillion in cash will make it into the wider economy, absent a massive concurrent deleveraging (which won't happen absent stocks moving a new step higher) are in for a rude awakening.
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Cash stays on the sidelines bitchez!
this chart/story addresses the "repaired balance sheets" fallacy.
the "cash on the sidelines" fallacy has to do with the fact that the cash has already been "spent" -- it is in USTs and CP, not actually cash. to make it into 'cash' again, the USTs and CP needs to be sold, means that the same amount of cash is always on the "sidelines"... (until when/if the UST/CP itself is retired)
Breaking news: FASB just passed new accounting ruling allowing companies to mark debt as cash (or anything that can keep the rally going for that matter) so go back and buy again folks. Everything is great. Summer of recovery remains intact.
Oh shucks, stop it. You'll make my stocks go down. Cash is on the sidelines like a hungry black panther in the dead of night. Come here little stockies, come here. Buy quick before the black panther beats you to the feast. Not.
Cash isn't on the sidelines. It ain't even dressed for the game.
It's that phantom, has-been player to be named later.
Here is where all the "sideline cash" is parked..
LOL....
http://finviz.com/futures_charts.ashx?t=ZB&p=d1
I'm nominating short Treasuries for the all-time "Trades You Know Will Work Out Someday But Will Bankrupt You in the Meantime" award.
Seconded.
That's why we're longing that bitch until Taleb freaks out on CNBC and Liesman snickers in the background while jerking off to Amandas cleavage.
One of the guests on Bloomberg last week made a comment along the lines of "We are preparing for both the journey and the destination." So appropriate, as the road is seldom straight.
> "Trades You Know Will Work Out Someday"
right, because when US fucking Treasuries collapse, that pile of US FRN you shorted them against will certainly retain its full purchasing power
+ 1
Nice visuals, but you already know that........thx.
Bond holder searching for yield...
http://lh3.ggpht.com/_sAjrIDvcKBk/RucPafJqPKI/AAAAAAAAEf8/x-dPUrzF-S0/CO...
This is what I believed (high debt), but everything I read said otherwise. How could all of USA be drowning in debt but corpoland is not? Potemkin Villages.
Bitchez? You kiddies come up with any new words yet, or you just squak on like parrots?
Whooot, it's the official pepp-word for ZH bitchez!
Clever observation. Thanks
So corporate balance sheet cash now = fractional reserve "cash-on-hand" vs. their actual deployed capital as they now essentially bank for themselves - in part because of their aversion to commercial paper and related markets?
Perfect TD. Thank you. The corporates don't trust the banks so they are sitting on their cash "just in case".
isn't this how things are SUPPOSED to work? Like you use your own fkin cash instead of CREDIT all the time?
Now start paying dividends, bitchez, and I might buy your fuckin stock
Damn! Is that a sentence longer than 4-5 words + bitchez? Ps. You're my hero.
If you're not willing to invest in your own company - why should a bank loan you money? (Of course that statement assumes rational behavior which has gone missing for a decade, although maybe it is returning home?)
you mean businesses using bank loans as a source of financing has only started a decade ago?
I'm a small business owner, haven't put all my money in that business as I have found banks to lend me money. And you think that's not "rational" behaviour?
What is irrational with trying not to risk everything you've got?
A return to fundamentals.. hahahahaha
In other words, and this goes to shut up all those "cash on the sidelines" chatterboxes, - This is pretty funny stuff.
Great observation, but I'd like to see it broken out into investment grade vs. junk. In the last cycle, Greenspan's ultra-low rates let a lot of non-investment grade companies that should have perished stay alive through refi and debt issuance. I suspect a lot of this leverage shows up there.
I need one of these:
http://randomlyspecific.com/?page_id=43
During the housing crash, lots of folks made sure to max out their home equity line of credit just to have the cash on hand, knowing that the bank would likely cut their access to it as property values continued to decline. They could then use that cash a safety cushion in case of economic strife. Why wouldn't businesses do the same?
Is the cash really yours if it belongs to someone else?
Looks like a 3:1 debt/cash ratio in 1990 and about 4:1 in 2010.
So if managment is no less prudent than the 1990 predecessor, then there's no such "sitting on cash" today. They're thoretically sitting on less...
Looks like Corps piled it on and are "lying" in wait.
A similar argument could be made for banks' $1.2 trillion of cash.
It breaks down as follows (roughly): $500 billion in large domestically chartered banks, $300 billion in small domestically chartered banks, $400 billion in foreign-chartered banks.
But, roughly, large domestically chartered banks have $6.9 trillion of assets, small domestically chartered banks have $3.6 trillion, and foreign-chartered banks have only $1.5 trillion.
So the cash is very unevenly distributed towards the smaller banks, which suggests that every bank is keeping its own larger cushion of cash to avoid being pressed into having to suddenly raise funds (and lessen the risk of being taken over by the FDIC). Even in a super-optimistic scenario of complete rosy recovery, it would take a long time for 2008 to be forgotten and banks to go back to assuming they could raise money in the market in a hurry anytime they wanted.
The very large amount of cash held by foreign-chartered banks relative to their assets is curious. Not ready to guess what their motives are, or what it would take to change them.
http://keynesianfailure.wordpress.com/
If I was a bank that wasn't TBTF I would be stockpiling cash too, so that I don't get any unexpected visits from Sheila Bair over the next few years.
If you were a bank that WASN'T TBTF, you'd want to leverage insanely risky junk bonds to grow into a set of TBTF pants at the same time flowing money like crazy to your congressman/pair of senators to have them admire your new pants.
All banks are zombies--and only the ones with political connections will get brains to eat.
Now I like shorting this market as much as anyone, but this would indicate that stocks may have intrinsic value and, for example, that Nic Lenoir's call for 370 on SPX is not fundamentally viable.
We can get get very low if we see capitulation, but should we then be buying there? Now if stocks and treasuries both collapse, and companies have parked their cash in long bonds, then obviously their balance sheets are destroyed. However if they have liquid cash equivalents, different story as dollar value can be maintained.
As I said, am still deeply bearish, but really curious what anyone else thinks.
Good thoughts re where companies park their cash.
Indeed, i wouldnt doubt a CFO of a firm would present his quarterly or annual review with saying he's getting absolutely zero in returns from their cash positions (which have no doubt swelled to weather the storm). So, if they went long bonds, good for them theyre up. If they bought back some shares we'll assume the stock on their books didnt drop in value.
Now, all of a sudden, October rolls around..perhaps a repeat of '08. Yields start inching higher and the indices collapse. Is any single co going to be better off?
I suppose the thesis must be that firms allocated their money smartly. Lets hope they're utilizing the MM and the short term financing doesnt start bleeding them..
If companies have parked their cash in long bonds, it's not cash anymore.
To be counted as cash (or cash equivallents) those investments must mature in max. 3 months.
Last week I was casually listening to fox, and that country girl was talking to a stock pusher and he said that corps were sitting on tons of cash, and she ask him "yea but what about their debt"... 3 second pause... and he acted as if she said "nice tie" and continued to pump stocks. I about fell out of the recliner.
They actually pay people who analyze stocks but are unaware that there are two sides to the balance sheet? Where can I get work like that?
Resources like the one you mentioned here will be very useful for me! I like to share it with all my friends and hope they will definitely like it.
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