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Guest Post: Are Businesses Quietly Preparing For A Financial Apocalypse?

Tyler Durden's picture




 

Submitted by Dan Steinhart of Casey Research,

Are Businesses Quietly Preparing for a Financial Apocalypse?

By Dan Steinhart, Casey Research

 

US corporations are sitting on more cash than at any point since World War 2.

That's without including banks. I'm only talking about nonfinancial corporations – the ones that sell goods and services and make the economy go.

Those businesses hold $1.4 trillion. In absolute terms, that's the most ever. In relative terms, it's the most since World War II.

 

As investors, we can infer quite a bit from corporations' inability (or unwillingness) to deploy their cash.

For one, it indicates that business have assumed a very defensive stance.

Cash, of course, is a buffer against uncertainty - the uncertainty that business slows for any reason. Management wants a healthy cash reserve with which to pay the bills and remain liquid should anything unexpected happen. I think we can all agree that this is prudent, and a good business practice.

But $1.4 trillion? That tells me that businesses are not just a little jittery about the future. They're prepared for an apocalypse.

Think about this, it’s important;

  • If these businesses could conjure up even the most marginal of projects to earn a meager 1% return, they would generate $14 billion profit. Instead, they're sitting on the cash and earning near zero for a guaranteed after-inflation loss.

It's a bad omen that corporate management would forego a collective $14b per year. Clearly, by their judgment, the risk of investing in new projects outweighs the reward – the exact opposite of the conditions needed to produce healthy economic growth.

That's the bad news. But here's the good, if paradoxical, news:

Even with all of this corporate slack, earnings and profit margins are very healthy, and stocks have performed quite well. Case in point, the S&P 500 is up 15% YTD.

Why the disconnect?  

Well, the rising margins and earnings are easy to explain: corporations have cut costs over the past few years, becoming leaner and more efficient. This also partially explains higher stock prices.

But I think there's another contributing factor to rising stock prices: the downright terrible outlook for bonds. Our analysis of stocks vs. bonds indicates that stocks are by far the better investment today.

“The overriding reason is simple: at near zero interest rates, bonds offer almost no upside and catastrophic downside”

Simply by virtue of not being bonds, stocks have done well.

Back to that pile of corporate cash. There's no question that it's a waste today. But today's waste is tomorrow's potential. 

Corporations aren't going to sit on that cash forever. Eventually conditions will be such that they'll either want to or have to invest in new projects.

Perhaps inflation will be the catalyst – corporations can tolerate losing 1.7% per year today. But if the inflation rate heats up to, say, 4%, you can bet that corps will be scrambling to deploy that now idle cash into whatever mediocre projects they can rustle up.

“When that happens, they have $1.4 trillion in cash ready to go. No need to negotiate a loan. No need to issue equity to raise funds. They have all the fuel they need. The gas tank is full.

So while the economy has plenty of problems, and stocks are a far better bet than bonds, lack of cash is not one of them.

Companies are ready to invest and grow. They just need an economic and political environment conducive to doing so.

 

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Tue, 10/09/2012 - 20:28 | 2873084 zerozam
zerozam's picture

HFT, bitchez!

Tue, 10/09/2012 - 20:34 | 2873095 ACP
ACP's picture

Or the civilian, non-business version, which is called the "Street Sweeper."

Tue, 10/09/2012 - 21:20 | 2873184 flacon
flacon's picture

I just (Charlie) MUNGERED in my pants.

Tue, 10/09/2012 - 21:33 | 2873211 krispkritter
krispkritter's picture

I'm all in physical: inventory, land, PM's, etc.  To me, 'investments' other than something I can touch are a recipe for disaster. Kudos to you guys that still trade. I exited 2-11; they froze trading that exact AM and cost me more than I should have spent.

http://www.youtube.com/watch?v=4TlPo0yCSa4

I barely trust the credit union I transact with...

Tue, 10/09/2012 - 22:41 | 2873365 Slightly Insane
Slightly Insane's picture

You are prudent, now that you have been "educated" (a.k.a. "burned").  I am in similar position, and have froze hiring.  It is "hunker down" and wait to see what the "idiots" deliver.  At one end of the spectrum, I am "John Galt", at the other, I'm ready to deploy Capital, but it certainly will not be if Obama get's re-elected.  At that point, I'm going to say "adios amigos" ..... "voy con dios", if the Marxist in chief gets a second round to punish the slaves.

Tue, 10/09/2012 - 23:00 | 2873396 DoChenRollingBearing
DoChenRollingBearing's picture

Things in Peru have been going very well for us, but we do see China's slowdown coming, and that WILL affect Peru (raw material exporter to China -- BIG TIME).  So, our cash levels are higher and we have been paying down debt (actually, the debt is only to me).

I have either started or been one of the founders of four businesses over the years.  The first three failed (all US-based).  ONLY our business in Peru has succeeded.  After 21 years, we are doing just fine.

If Obama gets re-elected, it will affect our business down there marginally, if at all.  Here?  NO WAY I will ever start a US business ever again.

Tue, 10/09/2012 - 23:07 | 2873414 Jreb
Jreb's picture

Try Canukistan...

Wed, 10/10/2012 - 02:08 | 2873766 prains
prains's picture

i hear washingistan is the place for start ups just bring enough seed money to cut a lot of grass

Wed, 10/10/2012 - 02:16 | 2873780 mick68
mick68's picture

 

 Yep, go get your hyper inflated stocks backed by worthless fiat paper boys!!

 

No thanks, I'll sit this one out with my own little stash of physical precious metals and when the SHTF I'll have more "money" than these corporations and their worthless fiat.

Wed, 10/10/2012 - 04:31 | 2873871 jeff montanye
jeff montanye's picture

thanks jesse

Sun, 12/23/2012 - 17:37 | 3091797 Kumara
Kumara's picture

I agree, krispkritter, I don't trust investments either. The last thing I was forced to invest in which was actually a success was in a Ricoh aficio sp c431dn, because I needed it for school. It was tangible and it still works. Other than that, like Dali used to say, "I don't trust anything I can't taste".

Wed, 10/10/2012 - 02:32 | 2873803 Tommy Gunner
Tommy Gunner's picture

Same.  I made that move in 07.  I don't even keep 100k in a bank account - what cash I have I stick in bank boxes with gold. 

In asia we have guarantees like in the US but good luck with getting your cash out before it is confetti if there is a collapse. 

Oh - and I am travelling a lot these days - always business class and no expense spared - I figure fuck it - I have enough gold to be good when this all hits and we are living in a hellhole of a world - so might as well enjoy the last months/year - just back from a few weeks in italy - off to thailand for 17 days end of the month - probably do argentina in the new year. 

Wed, 10/10/2012 - 07:26 | 2873985 max2205
max2205's picture

They are concerned about payroll. They want to endure the next ten years of THE LONGEST EMERGENCY.

I am no English major, but this is the worst worded post on ZH

Wed, 10/10/2012 - 09:45 | 2874585 Temporis
Temporis's picture

I cant tell if your bragging, lying, or just completly delusional.

Im guessing delusional...

Tue, 10/09/2012 - 21:33 | 2873210 philipat
philipat's picture

Most of that cash is sitting in accounts in tax havens, into which is was "Transfer-priced" to avoid taxes. IMHO, the greater reason it sits there is that the Corporatocracy is just biding its time until things get so desperate that their part-time employees in Congress have enough cover to engineer yet another "One time" tax free repatriation.

Tue, 10/09/2012 - 22:49 | 2873378 Slightly Insane
Slightly Insane's picture

Not exactly correct.  Not a  tax haven, that's for fucking sure.  It's called "fucking capital preservation" ... nothing else.  In a "statist economy" ... cash is still the best alternative for a business.  Businesses are definitely looking at several things; a) shit going off the cliff, b) being able to pay the bills, c) capital deployment (unlikely as to the six ways to sunday that shit can go wrong).  Cash is a "tax haven" that does NOT PAY SHIT!  (i am a small business owner who has taken it up the poop shoot).

Tue, 10/09/2012 - 23:16 | 2873379 Slightly Insane
Slightly Insane's picture

double post "con permiso"

Tue, 10/09/2012 - 23:02 | 2873401 SafelyGraze
SafelyGraze's picture

back in the day, that "money" would have been metal.

where did the corporations keep it? 

safes, on site?

banks?

at least the current system alleviates these concerns about securing physical metal.

libor-benchmarked short-term repurchase agreements between insolvent entities-calling-themselves-banks are a lot more secure than physial metal.

 

Tue, 10/09/2012 - 23:24 | 2873449 RockyRacoon
RockyRacoon's picture

Actually, there is an answer to your question.  The preserved capital was kept in banks, and in most cases in the form of physical gold.   That is why the gold "confiscation" worked so well.  It wasn't the intention to gain much from regular citizens digging up their gold in the back yard and turning it in because that gold as well was kept in bank vaults.  Easy stuff!   A bank that went belly-up meant more than losing your deposit in the form of currency; it meant you lost your gold.   Remember when bank robbers would be met by armed citizens?  They weren't waiting around for the cops because the money the robbers were taking was THEIR money, not gov't guaranteed fiat.

Wed, 10/10/2012 - 01:36 | 2873725 zhandax
zhandax's picture

This may be stretching the question a bit, but 'back in the day' corporations were owned by Rockefellers, Carnegies, Mellons, etc and a lot of their personal gold was on deposit at Swiss banks.  I wouldn't be surprised to hear that a nice chunk of their corporate booty was there as well.  That's where today's tradeable supply of St Gauden's double eagles came from, Swiss bank vaults.  Ever wonder how there are enough in mint condition to only sell for a hundred or two over spot?

Wed, 10/10/2012 - 18:49 | 2876385 RockyRacoon
RockyRacoon's picture

You are 100% correct.  Gold coinage left the U. S. by the boatload.  Those "old gold coin hoards" that were touted as "just discovered" when gold was legal to own came from those European old-money stashes.

Tue, 10/09/2012 - 23:22 | 2873403 SafelyGraze
SafelyGraze's picture

[this space formerly occupied by triple post]

Wed, 10/10/2012 - 05:24 | 2873903 OldPhart
OldPhart's picture

Corporate Controller for 34 private companies here, in mining, ready mix, steel, steel fabrication, real estate, and concrete recycling.

We have been on austerity measures since 2007.  No one has had a wage or salary increase, we cut hourly administrative workers to 35 hour work weeks, and we reduced positions.  We felt the tremor in the force and were proactive in our response.

In 2005/2006 we purchased over 100 new trucks, Ready Mix and Haulers, and financed them five years, about 7.5%, at about 1.2 million.  We had other notes for plant improvements, etc.  We focused on getting those paid off quickly and managed to eliminate them in 2010.

Since 2007 we went from roughly $90 million combined down to about $25 million this year.  Our employee count dwindled from roughly 500 to less than 300.  We had some extemely severe cash crunches that were only relieved by the owners ponying up over $5 million, and some windfalls from Workers Compensation Refunds.  (We haven't had an accident in ten years.  We've been phenomenally safe.)

We have a line of credit for up to $2.5 million, however we've maintain a balance of about $700k after we paid it down.

We turned the corner in 2011 in beginning to see increasing cash returns.  And this year, those 'shovel ready jobs' apparently started to kick in and we've seen a substantial increase in government work at the federal, state and county level.

In April the owners, and they are active in the private, family, company as President and CEO, announced that they would begin to issue bonuses based on profitability and that the quarterly bonuses would be for all levels down to the over-stressed hourly workers.  If all bonuses meet the profit schedule then all employees would see a 1/3 boost in earnings.

Our cash is not in a tax haven, nor is it off-shore.  It is maintained at the local bank down the street.  I would say that most of the survivors of the last four years are companies like the one I work for.  We're not Wall Street, we're not on an exchange, nor do we plan to be. 

We remain the mom and pop outfits that are ignored by the press, the government, the financial elite and every day assholes that conglomerate some claim that businesses are all a bunch of cheats.  We don't cheat at anything.  We pay our vendors, with 2% discount, within 10 days and the rest within 45.  We purchase 99% retail and pay full Sales Tax, Fuel Tax, and any other tax up front and we are predominantly in the failed State of California (we have operations in Arizona and Nevada). 

We/I don't cheat.  If we're owed a refund, we claim it (though the State of California has sat on two years of fuel tax refunds due to us).

We are letting our cash accumulate for a couple of reasons.  We expect that, regardless who wins the election, we are going to see costs from the government, at all levels, to increase in the form of taxes and inflation.  We expect that there will be competitors and other businesses that will ultimately fail in survival and we may be able to make a cash purchase (no financing, no interest, no payments).  We think we may pick up two companies in the coming carnage.

I expect that, even if an economic miracle occurs, and there's some weird sort of change in our national economic collapse, we will continue our austerity for at least another five years.

This Depression isn't going to fade away, my projection is we have a minimum of ten more years of misery.  We building a hoard to get us fifteen years without using a fucking bank.

 

Wed, 10/10/2012 - 02:04 | 2873761 Middle_Finger_Market
Middle_Finger_Market's picture

Mexican silver and spanish prostitutes bitchez. 

Tue, 10/09/2012 - 20:30 | 2873088 lolmao500
lolmao500's picture

Don't worry, Romney is gonna be elected and everything will be solved.. mwahahahahahaha

Tue, 10/09/2012 - 20:31 | 2873089 Al Gorerhythm
Al Gorerhythm's picture

If they don't hold it, they don't own it. It's the law.

Tue, 10/09/2012 - 20:45 | 2873119 The Shootist
The Shootist's picture

Thunderdome. Five disputed owners of PM's enter, only one leaves with the physical.

Tue, 10/09/2012 - 21:10 | 2873162 Piranhanoia
Piranhanoia's picture

105 owners. And that numbered bar belongs to them.

Tue, 10/09/2012 - 22:21 | 2873323 Eternal Complainer
Eternal Complainer's picture

...and it's not any of the five but rather some crooked JPM

Wed, 10/10/2012 - 01:52 | 2873748 SilverRhino
SilverRhino's picture

And the one leaving with the phys tests it and finds it's 75% tungsten.  

Tue, 10/09/2012 - 20:47 | 2873120 JPM Hater001
JPM Hater001's picture

Amen brother that's exactly what I was thinking the whole way through.

Some quick math for the publicly educated amongst us...
1.4 trillion in US dollars is undoubtably a lot to paper

But that's about it...

Wed, 10/10/2012 - 03:51 | 2873782 zhandax
zhandax's picture

Since, according to  the fed, only $1.09 trillion is in FRN, 1090 tonnes, if all in Franklins.

Wed, 10/10/2012 - 02:41 | 2873812 Buck O Five
Buck O Five's picture

You didn't hold that, someone else held that for you

Tue, 10/09/2012 - 22:58 | 2873394 Slightly Insane
Slightly Insane's picture

Dude, or dudess, I certainly hope you are correct.  If you have ever lived under a Marxist regime, you would know what I know.  Sure as shit things will get solved, and then again I doubt it.  The folks that do not know what a good Marxist will do to an economy, have yet to learn about extinction of property rights (already happening), and confiscation of wealth (soon to arrive at your door step).  Yeah, Romney may not appear much different then Obama, but you have not come to an understanding between a Capitalist and a Marxist.  If it goes  to Obama, then I bet that capital destruction will continue un-abated like a  two dollar whore with stds aboard a battleship.

Tue, 10/09/2012 - 20:32 | 2873090 DeadFred
DeadFred's picture

Most people who run businesses aren't stupid

Tue, 10/09/2012 - 21:27 | 2873201 Harbanger
Harbanger's picture

It depends, that's why sheep need to be cornered, some are benefiting from Govt candy.  I personally know farmers who are voting for Obama only because they're being paid not to produce.  They're bitches, I know they would sell their souls, eventually I will own their ass and their posterity.

Tue, 10/09/2012 - 23:06 | 2873409 Slightly Insane
Slightly Insane's picture

No, actually you won't own their asses.  They will have become property of the Government, and will be affectionately known as "Democrats".  (Your farmer associates, will effectively be called "Komrades" after the election).  In my area, we do identify these "parasites".  We have ways of dealing with them.  We know who they are.

Tue, 10/09/2012 - 23:32 | 2873492 Coke and Hookers
Coke and Hookers's picture

They will become a part of the dependent class like those folks who got free sail fones from Obama. The primary goal of any 'autonomous' government is to increase the dependent class to a majority, thereby ensuring its eternal existence. The middle class will become an eternal minority suffering eternal slavery to feed the government, its owners and its dependent class. It's a neat system.

Wed, 10/10/2012 - 00:25 | 2873613 Harbanger
Harbanger's picture

eventually I will own their ass and their posterity.

Harbanger.

Tue, 10/09/2012 - 20:33 | 2873093 flash338
flash338's picture

If me and a few million others had a job, they might have reason to invest that money

Tue, 10/09/2012 - 20:52 | 2873130 LetThemEatRand
LetThemEatRand's picture

If they were paying workers instead of hoarding cash to ensure their future bonuses while the ship sinks, there would be no impending implosion and you would be able to find a job.  When we talk about companies become "lean," it means primarily that they have cut workers, workers' salaries, benefits, etc.  I wonder why the middle class is shrinking and the economy is steadily going down the toilet.

Tue, 10/09/2012 - 21:07 | 2873155 TrulyBelieving
TrulyBelieving's picture

You, lter, say that as if you believe businesses owe their workers more than what was contracted for. If you had any idea of why someone would go into business then you might understand why these businesses hold onto their earnings just now. They would gladly start some project for profit if the market were willing, but because of uncertain new laws, more taxes and possible downturn in the economy, it makes more business sense just to wait this one out. 

Tue, 10/09/2012 - 21:32 | 2873214 hannah
hannah's picture

tru - yada yada yada....these business's that 'owe us workers nothing' borrowed all this cash for FUCKING ZIRP...! they do owe society something. their 'profit' is a loan that the taxpayer will end up paying because they will use it for executive pay and cocoon til they run out.

Wed, 10/10/2012 - 00:32 | 2873624 NidStyles
NidStyles's picture

When are you going to learn? No one owes you anything.

Wed, 10/10/2012 - 02:31 | 2873801 walküre
walküre's picture

there's nowhere to run, nowhere to hide

doesn't matter how many millions or billions someone sits on

Tue, 10/09/2012 - 21:14 | 2873172 Winston of Oceania
Winston of Oceania's picture

Paying workers to do exactly what? Sweep floors until orders start to roll in the door? Collectivists would just love that, then Old Uncle Joe, er Sam can come in and nationalize it for them huh? hump...

Tue, 10/09/2012 - 21:16 | 2873177 nmewn
nmewn's picture

"Free" mandated shit will fix it...no doubt...lol.

Tue, 10/09/2012 - 21:46 | 2873245 Meesohaawnee
Meesohaawnee's picture

bravo. a voice of common sense..what i read trasnlated into a grand wealth transformation

Tue, 10/09/2012 - 21:53 | 2873262 Pants McPants
Pants McPants's picture

If it's really that simple, why aren't you putting your money where your mouth is?  Set an example for other companies to follow.

Otherwise STFU.

Tue, 10/09/2012 - 22:54 | 2873387 Totentänzerlied
Totentänzerlied's picture

"I wonder why the middle class is shrinking and the economy is steadily going down the toilet."

Oh do you now? How unsurprising! Thanks for the candid admission!

Tue, 10/09/2012 - 23:12 | 2873418 Slightly Insane
Slightly Insane's picture

You are ignorant.  One needs work to "pay workers".  In the absence of work, then workers are "unemployed".  If one has a government that is regulating the "shit out of it", then that business has to spend money adressing that regulation.  It gets passed on to the customer.  The sole motivation for hiring wokers is "profit".  Outlaw profit, and there is no "small business".  DO you get it, or do I need to hit you with a shileigliegh?

Tue, 10/09/2012 - 23:55 | 2873549 lasvegaspersona
lasvegaspersona's picture

you are just a show off...who the fuck else knows how to spell   shileigliegh

but for all you ESL folks remember it is " i after e except before c except in words like"....o fuck all...spelling will be the end of the English language

Wed, 10/10/2012 - 11:51 | 2875046 jerry_theking_lawler
jerry_theking_lawler's picture

Who is John Galt??

Wed, 10/10/2012 - 05:35 | 2873911 OldPhart
OldPhart's picture

LetThemEatRand, I would say you're full of shit, instead I'd say you're over-generalizing.  See My comment above.

Wed, 10/10/2012 - 06:59 | 2873959 overmedicatedun...
overmedicatedundersexed's picture

the posts here from those who are in business tells anyone who has half a brain we are heading for a cliff. those who prepare will pick at the bones of those who still eat hopium and change.

prepare.

Wed, 10/10/2012 - 09:14 | 2874505 Vendetta
Vendetta's picture

if those people actually have a 'business' besides posting on ZH

Wed, 10/10/2012 - 02:54 | 2873821 Al Gorerhythm
Al Gorerhythm's picture

If I had a job I'd be livin the life in Deetroit City. Housing is cheap there.

Tue, 10/09/2012 - 20:34 | 2873094 fonzannoon
fonzannoon's picture

the first company to deploy that cash to buy bullion wins

Tue, 10/09/2012 - 20:36 | 2873105 UnpatrioticHoarder
UnpatrioticHoarder's picture

Why build a business to earn a risky, say, 5% when you can buy bullion and speculate in commodities.... yeah so, all that cash is "good" news.

Tue, 10/09/2012 - 20:49 | 2873126 The Shootist
The Shootist's picture

What was that College in Texas that bough a lot of gold? They all should.

Tue, 10/09/2012 - 21:27 | 2873200 sun tzu
sun tzu's picture

Where is this risk-free 5% you speak of?

Tue, 10/09/2012 - 22:27 | 2873335 A Lunatic
A Lunatic's picture

Please send  $19.95 and a self addressed stamped envelope for your info packet.......

Tue, 10/09/2012 - 20:34 | 2873097 duo
duo's picture

The cash is being saved up for:

1.  Severance packages for employees they can no longer afford due to Obamacare

2.  Lobbyists to try to get an Obamacare exemption

3.  Paying the "penalty" for not providing health insurance for key employees

4.  Executive bonuses.

Maybe business understand what the Bernank doesn't.  Rising house prices, and the consumer spending that went along with it, will not return until WAGES increase and debt levels are reduced.  Raising wages won't turn into higher spending for a year or two or three, and that is WAY too long of a time horizon for the GEs, Monsantos, and GMs of the world.

 

Tue, 10/09/2012 - 20:34 | 2873098 WhiteNight123129
WhiteNight123129's picture

Taxes those companies to the bone unless they spend it in the circulation. The Fed is doing that by making interest so negative that they will have to spend or watch it melt. Go Benny, wack them.

 

Tue, 10/09/2012 - 20:50 | 2873127 MsCreant
MsCreant's picture

I saw the tounge in your cheek, I just had to junk that because it is what is up and it makes me mad.

Tue, 10/09/2012 - 23:30 | 2873479 RockyRacoon
RockyRacoon's picture

Is it just me, or did I read someplace that most of this corporate loot is borrowed money anyhow?  How is that helpful for them if it's all just debt?   They're borrowing on the cheap and keeping it as dry powder -- just in case.  What if things don't work out so well as they expect?  That's gotta get paid back, and then what?

Wed, 10/10/2012 - 06:45 | 2873949 Bobbyrib
Bobbyrib's picture

They'll probably just have the laws changed and pay back less than they owe (if deflation were to hit). If inflation hits, it's borrowed money for 2-5% interest. Inflation will probably be greater than that.

Wed, 10/10/2012 - 12:25 | 2875172 WhiteNight123129
WhiteNight123129's picture

Credit or money does not make a difference in increasing the circulation, as long as the total net debt to circulation diminishes. People will sell their gov bonds to eat and the Fed will accomodate that by buying the bonds sold and giving their money.

Problem solved.

Wages up 80% in 10 years nominally, cost of living up 120%, debt on mortages and credit card .... vanished.

There are things that money can´t buy... for everything else there is the Fed (inflating away). Priceless.

 

Wed, 10/10/2012 - 11:09 | 2874853 Just Ice
Just Ice's picture

If you read more than a couple of his posts, you'll realize he was not posting that tongue in cheek.  He favors referring to savers as "cash hoarders" among other inanity.

Tue, 10/09/2012 - 21:28 | 2873204 sun tzu
sun tzu's picture

Yes, hyperinflation will save the working class

Wed, 10/10/2012 - 08:57 | 2874464 WhiteNight123129
WhiteNight123129's picture

5% inflation for 10 years would make the ones deep in debt able to repay their debt easily. How is the most deep in debt right now? Corporations, Government, Consumers?  The Answer is Consumers and Government, too bad corporations you nice dollars are going to melt soon unless you spend them. Go Benny fucking evil genious that you are, wack them all.

Wed, 10/10/2012 - 09:19 | 2874523 Vendetta
Vendetta's picture

"make the ones deep in debt able to pay ... ".  If those people cannot pay they debts with the money they have, or earn, now .... how in the hell are they going to "more easily" pay 10 years down the road?  How does that work exactly?  I mean unless you are a banker closest to the printing press paying off bad leveraged bets in the billions. ..

Wed, 10/10/2012 - 09:55 | 2874608 Chump
Chump's picture

Either this guy is being sarcastic or he is such a dumb cunt that he thinks an increase in the monetary base automatically amounts to an increase in both velocity and in wages.

"Yay, we'll all be able to pay off our mortgages with a week's worth of wages!  Except only 40% of the population is actually working!  And their wages and work weeks are shrinking!"

All Econ majors should be forced to shovel coal for one year minimum upon graduation.

Tue, 10/09/2012 - 20:34 | 2873099 deez nutz
deez nutz's picture

Preparing for financial apocolypse ???  we're in it!! 

gub debt 7 trillion in less than 4 years?  FED bought 60% of gub debt last year and is now printing at will?  and we are waiting for .... sunnier days?  

7.8 unemployment rate: because sometimes when things get so bad, you just have to lie! 

Tue, 10/09/2012 - 22:18 | 2873318 cynicalskeptic
cynicalskeptic's picture

Right now it's dead money.  What happens when it all enters the system to buy SOMETHING - anything tangible - all at once..... If the velocity of all that cash goes from 0 to hyperdrive - all at once as everyone dies the same thing - the rate of inflation will skyrocket.

CASH loses value if you hold it - so you'll have a rush by everyone to the same hard assets..... 

Wed, 10/10/2012 - 08:39 | 2874419 WhiteNight123129
WhiteNight123129's picture

INflate the debt away, short the 30 years. Either the US defaults the hard way or inflates away, you can not lose in the long run, you borrow at less than 3% for 30 years and you can buy a plantation paying 5% dvd, Gold mines paying higher dvd or any other assets.

 

By the way this is how Hugo Stinnes bankrupted Germany during Weimar, borrowing Deutsche Mark and buying GOld back foreign currencies, the more he would do that the more he would make money the more the situation would become untenable...

 

Tue, 10/09/2012 - 20:36 | 2873102 Tango in the Blight
Tango in the Blight's picture

Most of that ca$h is probably owned by AAPL

Tue, 10/09/2012 - 22:33 | 2873352 Whiner
Whiner's picture

Naw. Only about 10% or less. APPL has more sloshing around off it's books. But see here now, their building up reserves to increase dividend. See? That's all.

Tue, 10/09/2012 - 20:38 | 2873104 Number 156
Number 156's picture

Problem:

Cash positions wont work in a financial apocalypse. They better be hoarding something else.

Tue, 10/09/2012 - 21:26 | 2873195 mendigo
mendigo's picture

The house will be on fire but they will be OK because they have been hoarding gasoline. I hope someone gets it on tape.

Tue, 10/09/2012 - 21:35 | 2873225 hannah
hannah's picture

156 - right on. when the electrons stop, their cash balances freezes and they get a voucher from the government.

 

its not like they have this money in cash in the basement...

Tue, 10/09/2012 - 20:37 | 2873106 davidsmith
davidsmith's picture

This article is drivel.  If Mitt doesn't get elected and rev up defense spending, these companies should dissolve and distribute the cash to shareholders.  The American economy is dead: we just live in it.

Tue, 10/09/2012 - 20:39 | 2873111 JuliaS
JuliaS's picture

Blaming negative cash flow debt-infested companies for not spending cash is like accusing a gun shot victim of hoarding lead.

Tue, 10/09/2012 - 20:54 | 2873137 MsCreant
MsCreant's picture

That took me a minute to get. Wonder if a printer has a lot of recoil or not. I can only hope.

Tue, 10/09/2012 - 21:38 | 2873232 hannah
hannah's picture

lprm -P<bensprinter> <ben_fuckMe>

Tue, 10/09/2012 - 21:25 | 2873193 nmewn
nmewn's picture

lol...comment of the night.

Tue, 10/09/2012 - 21:41 | 2873218 razorthin
razorthin's picture

BINGO

"Hoarding cash" my ass.  Let's check the actual balance sheet, shall we?

Wed, 10/10/2012 - 08:52 | 2874454 WhiteNight123129
WhiteNight123129's picture

I suggest to go on Bloomberg and type "ORCL Equity FA EV", and do the same thing for AAPL, MSFT, GOOG... Then we can talk.

 

Tue, 10/09/2012 - 20:41 | 2873113 TWSceptic
TWSceptic's picture

Who would invest with Obummer at the wheel? The uncertainty he created with regulation, future taxes etc. It's better to wait than to invest right now. Not that Romney will be the great savior, far from it, but I do believe he at least understands that uncertainty is bad for businesses and he would try to be more clear about future policy, good or bad.

Tue, 10/09/2012 - 20:59 | 2873144 Winston Churchill
Winston Churchill's picture

Their unfunded liabilaties on pensions probably exceed that $1.4 t.

Add gack in all the Mickey Mouse accounting tricks and they are probably broke.

Tue, 10/09/2012 - 21:46 | 2873248 razorthin
razorthin's picture

Fukk Obama, but fukk Bernanke more.  I like to get at the root of every problem.

Tue, 10/09/2012 - 20:46 | 2873118 Dr. Engali
Dr. Engali's picture

"But I think there's another contributing factor to rising stock prices:"

Yeah it's called the Bernank. His stated policy is rising asset prices. Where have you been?

Companies are not ready to invest and grow... The consumer is dead. Even if they did start deploying that cash the inflation would really start kicking in.

A ridiculous nonsensical post.

Tue, 10/09/2012 - 20:50 | 2873121 seek
seek's picture

My business is helping a small number of Fortune 1000s in a particular industry sector do short and long-term planning (in addition to some other services.)

I can say unequivocally, fuck yeah, they're planning for a financial apocalypse. (Or the vast majority, some are smoking hopium still.)

I can also say with certainty that for the companies I deal with, it explains why they're hoarding cash and not increasing (and some are even still decreasing) head count in spite of fairly high margins. None of them think the situation is sustainable and they're basically preparing a long-term survival strategy.

Oh, and a fair number of them are pissed about how unpredictable the legislative environment is as well. This is a factor in their capex/expansion/headcount planning, since they basically have to negatively weigh the options in the US to account for worst-case scenarios in health care costs, EPA compliance (which has gone nuts lately), etc.

Even if we weren't fucked, we'd still be fucked due to the gov't driving business away from the US. But as it stands, we're just double-fucked.

Tue, 10/09/2012 - 21:12 | 2873168 WillyGroper
WillyGroper's picture

The gubmnt driving business away. They own the gubmnt.

http://www.youtube.com/watch?v=HEIldtHgRJo

Tue, 10/09/2012 - 22:00 | 2873277 Pants McPants
Pants McPants's picture

Good insight, thanks for sharing this.  I'm with a very large retail company (food), and I often wonder how they're going to weather the storm given the unfortunate amount of long-term debt on their balance sheet.  They recently re-structured the debt, ostensibly to allow for more flexibility in terms of pricing, but I gotta believe a piece of that strategy was to allow for cash build up.

Tue, 10/09/2012 - 23:38 | 2873513 DoChenRollingBearing
DoChenRollingBearing's picture

Excellent, excellent comment seek.  There is no regulatory transparency.  Nothing being done by .gov to solve anything.

Prepare everyone.

Tue, 10/09/2012 - 20:49 | 2873123 barroter
barroter's picture

Stocks are better? Still trying to lure the retail back..they ain't coming back!

Tue, 10/09/2012 - 20:50 | 2873128 miker
miker's picture

This is one of the objectives of ZIRP; to strengthen corporate balance sheets with cheap debt.  They would be stupid to not load up.  They can always pay it off, assuming it isn't spent.

Some of this cash is going to buy up their stock, but I think the writer is correct that lately there has been a big rush to load up on cheap debt.  I think corporate execs like other knowledgeable people see big risks ahead. 

Tue, 10/09/2012 - 20:56 | 2873133 John Wilmot
John Wilmot's picture

Look at that chart; what do you notice? I notice that the enormous expansion in "corporate cash" began in the early 70s. What else happened in the early 70s? The US went off the gold standard, and the money supply has been increasing at a fantastic rate ever since. Is it the case that corporations are "hoarding" more of their cash today than ever before, or is it merely that there is more cash circulating today than ever before? I think the latter. That is, the absolute amount of cash held by corporations has increased dramatically, but I see no evidence that corporations are holding more of their wealth in cash than in other less liquid assets than before.

http://research.stlouisfed.org/fred2/series/M1/

Tue, 10/09/2012 - 21:00 | 2873146 Dusty
Dusty's picture

Everyone on CNBS and obviously the above author keep talking about the mountain of money just sitting there waiting to be re-invested and push the market higher.....As soon as they factor in the exponential mountain of money due to retired/retiring pensioners (i.e subtract it from that mole hill) I'll listen....Just more smoke and mirrors but mostly lies.....

Tue, 10/09/2012 - 21:03 | 2873148 Cabreado
Cabreado's picture

"Are Businesses Quietly Preparing for a Financial Apocalypse?"

Certainly some are, and some are not.
It would depend on realized stress, level of awareness, and level of hubris and self-absorption.
Throw in size-of-company, age of company/age of mgmt, govt involvement/dependence for more fun.
We need a chart, for sure.

"Companies are ready to invest and grow."

Can't say I agree.
In the current state, the aware small business is in the realm of suffering--protection,
and the big ones are in the realm of personal-wealth-and-reputation-protection.
Damn those organisms who lose touch with reality via self-absorption.

"They just need an economic and political environment conducive to doing so."

There's the ticket, but the sick part is where the self-absorbed-with-influence are conducive to destroying the host itself -- the host being the economic and political environment.

You've actually described the perfectly doomed-to-failure 'nother 'round 'til Reset.
Maladjusted, antisocial, self-absorbed... it just doesn't work forever.

Tue, 10/09/2012 - 21:04 | 2873154 eddiebe
eddiebe's picture

Sitting in cash doesn't seem all that brilliant to me either, not unless of course you really believe that the actual inflation rate is less than 2%.

Tue, 10/09/2012 - 21:08 | 2873156 Uber Vandal
Uber Vandal's picture

If I am reading that chart correctly, 3% of these holdings are in Money Market Mutual Funds.

Funny thing about those, they can lose value, or "break a buck"

Then again, if we are the back stop, what is to worry about?

 

Tue, 10/09/2012 - 21:08 | 2873157 New_Meat
New_Meat's picture

"US corporations are sitting on more cash than at any point since World War 2."

Happened in the so-called  "Great Depression" as well.  Then FDR did some shit to drive the cash back into the then extant economy.  Like in '36 or so.  Such as it was.  Caused a dead-cat bounce until the Fed then rolled in the now-called GDP in '38 and caused another crash.

- Ned

{It is because of the uncertainty!  bitchez!}

Tue, 10/09/2012 - 21:45 | 2873243 mendigo
mendigo's picture

I thing saying its because of uncertainty is only a euphemism for there is a high probability of collapse on the horizon - the current trajectory is unsustainable and yet there is no way to get off the ride.
I am thinking it is possible that obama would throw the election so that democrats will not have to take the blame for what's coming.

Wed, 10/10/2012 - 08:58 | 2874471 Umh
Umh's picture

How would computing the GDP cause a crash? It's just a statistic and it would have been a new statistic too.

Tue, 10/09/2012 - 21:08 | 2873158 Hulk
Hulk's picture

They may be hoarding a lot of cash, but they are holding a whole lot more debt...

Wed, 10/10/2012 - 01:29 | 2873713 bk1037
bk1037's picture

Good one I was waiting for someone to comment on this. Every time I see one of these posts on record amounts of cash, only short mention is usually given to the current liabilities or working capital in these companies. I have not see anywhere near the level of good analysis on this question, and plenty of allegation that working capital is nowhere near as rosy as this alleged hoard of cash.

Tue, 10/09/2012 - 21:13 | 2873165 Insideher Trading
Insideher Trading's picture

Wild and shamelessly off-topic. My most sincere apology in advance:

Big Bird makes $314,000 per year. 

Sesame Street Is the 1 Percent
By Katrina Trinko 
National Review Online
October 9, 2012 5:22 P.M.
President Obama, who has railed against the “fat-cat bankers on Wall Street” and the wealthy, has been an eager defender of Big Bird and public broadcasting this week in light of Mitt Romney’s comments that he would defund it in last week’s debate.

But it turns out that many of those behind Big Bird are actually members of the 1 percent themselves (anyone with a total income of $343,927 or more as of 2009), based on their salaries.

At Corporation for Public Broadcasting, according to the CPB’s 2011 tax forms:
Patricia De Stacy Harrison, president and CEO $361,895

At PBS, according to 2011 tax forms:
Paula Kerger, president and CEO $669,260
Michael Jones,  chief operating officer $477,296
Barbara Landes, chief financial officer, treasurer, and senior vice president $402,355
Katherine Lauderdale, senior vice president and general counsel,  $381,855.

At Sesame Workshop, according to 2011 tax forms:
Gary Knell, president and CEO of Sesame Workshop until October 2011, $988,456
H. Melvin Ming, current president and CEO, $584,572
Lewis Bernstein $406,387
Terry Fitzpatrick $439,741
Myung Kang-Huneke $389,005
Sherrie Westin $463,892
Susan Kolar $401,425
Miranda Barry $397,175
Maura Regan $379,733
Joseph Mazzarino $556,165
Caralynn Sandorf $354,476
Anita Stewart $455,369

And while the actor who plays Big Bird (Carroll Spinney) doesn’t have a salary that puts him in the 1 percent, he’s not far off: Spinney makes $314,072.
And who’s funding this? Well, in part, taxpayers: the federal government gave the CPB a grant of $444.1 million in 2012.

Tue, 10/09/2012 - 21:58 | 2873271 nmewn
nmewn's picture

(Gasp!!!)...Romney is going after government subsidized 1%'érs!!!

Is nothing sacred!!!

Tue, 10/09/2012 - 22:10 | 2873296 knukles
knukles's picture

The organ of NWO large gubamint needs be remunerated highly for their propaganda efforts.

 

Tue, 10/09/2012 - 23:39 | 2873520 DoChenRollingBearing
DoChenRollingBearing's picture

Is NOTHING sacred anymore?

Wed, 10/10/2012 - 00:02 | 2873569 Schmuck Raker
Schmuck Raker's picture

-1; For Whaaaaaah.

 

"Big Bird makes $314,000 per year."

What is that - the price of one Goldman Sacks entry-level flunky?

Who's benefiting, GS vs BB?

No, I don't care to see the Goobermint throwing money away. But this isn't the battle you're looking for.

 

"And who’s funding this? Well, in part, taxpayers:..."

Well, that's not very informative, is it? Does the USGov pick up half the tab? 90%? 10%?

 

"...the federal government gave the CPB a grant of $444.1 million in 2012."

Oh....golly gee-whiz...and how much did Raytheon git? (grant - contract - loan,   what..ever.

 

Go on. What ever balls Romney drops - you keep running with them. I don't give a rat's ass.

[I am not ODumber, and he did not approve this message.('Cause he's a twat too.)

Wed, 10/10/2012 - 00:10 | 2873586 lasvegaspersona
lasvegaspersona's picture

I used to contribute and run 'ads' on NPR. I finally realized they were little more than a mouth piece for the Dems and while I do like some of the programing I got tired of the in your face support of the politics of liberalism. So fuckem.If they ever promised to do no news or silly ass game shows that mock Republicans while throwing softball 'insults' at Dems I could toss in  a few bucks again. ..but not one penny while they do what they with taxpayer money.

Wed, 10/10/2012 - 00:38 | 2873635 Schmuck Raker
Schmuck Raker's picture

Fair enough. But here's my point: How much did the Federal Gov give Iowa farmers to NOT grow crops last year? I don't know, but flushing $ down the CPB toilet seems like a screaming deal to me, in comparison.

Or this: http://www.zerohedge.com/news/2012-10-09/uncle-sam-prepares-unleash-3000... - Well now, let's see - according to Wikifraudia:

Unit cost US$4.03 million (2010)[3 / Per muthaf__kin drone

$4 million X 30,000 drones = $120 BILLION = 272 X CPB grant for 2012 = Keep Big Bird paid for 382,166 MFkn Years

AND.....Big Bird WILL NOT KILL YOU! Even by accident![You are not collateral - until you are.]

 

Perspective Bitchezzz. PLEAZZZE.

Wed, 10/10/2012 - 01:21 | 2873691 James
James's picture

And we need to consider the major donors to CPB are all corporate welfare themselves-

Boeing

Raytheon

General Dynamics

Bechtel

Northrup Grumman

Archer Daniels Midland

Etcetera

So by extention, Most ALL of CPB is paid for by taxpayers one way or another.

 

Tue, 10/09/2012 - 21:11 | 2873167 Tedster
Tedster's picture

"Cash" is actual currency. Dead presidents, green ink, creosote. Whatever it is they are holding, bet it ain't cash but 0's and 1's on some server.

Tue, 10/09/2012 - 21:19 | 2873180 Captain Willard
Captain Willard's picture

A lot of this cash is locked up in countries where it cannot be repatriated to the US without a big "gateway" tax. A lot of it is unlikely to be re-invested where it is now.

Also, cash has to be viewed in context of the entire balance sheet. There is a lot of corporate debt too, so "net cash" is the proper measure. But "net cash" is also pretty high. So you can reasonably conclude that folks are nervous.

But this guy's analysis is too simplistic.

Tue, 10/09/2012 - 21:23 | 2873185 americanspirit
americanspirit's picture

Let's not forget that corporations don't pay 'cash' for anything - their cash reserves should be given a multiplier of about 10. This means that corporations are sitting on @ $14 trillion in market power, or roughly one year of US GDP. I'm not a smart economist but when I think about this I'm guessing that top corporate management believes that collectively ( but not necessarily conspiratorily) that they can not only survive the coming crash but can own everything worth owning afterwards.

Tue, 10/09/2012 - 21:35 | 2873226 Van Halen
Van Halen's picture

Interesting article. Why would any well-run business invest cash in much of anything right now? Not in an election year. Not in an economy like this. Not with the record of this administration. And not with the choices being an obvious disaster via Socialism shoud Obama win, or... who knows what if Romney should win?

Tue, 10/09/2012 - 21:44 | 2873240 backhandtopspin...
backhandtopspinslicer's picture

Crazy ass corporate preppers!!!!!! No gold, no silver, no food, no ammo -- lots and lots of fiat gov stink cheese. You need that mba to prep like that baby!!!!

Wed, 10/10/2012 - 01:25 | 2873704 James
James's picture

Here is a comprehensive list of GMO foods/products.

You'll be shocked!

EVERYTHING you're eating.

http://shiftfrequency.com/comprehensive-list-of-gmo-products/#more-15820...

Tue, 10/09/2012 - 21:46 | 2873249 tony bonn
tony bonn's picture

corporate cash is a recurring zh topic but i would like to know what percentage  of it is borrowed, and to what extent is it levitating stocks and why hasn't it been paid in dividends and why haven't these companies become takeover targets for their cash? and what is the distribution of cash - how much is owned by the djia 30 ; by the fortune 100; 500 etc? my guess is that it is concentrated with the 1% corps.

Tue, 10/09/2012 - 21:47 | 2873251 Surrealist
Surrealist's picture

Even just the words "financial apocalypse" makes me feel all good and giddy on the inside. :D

Wed, 10/10/2012 - 09:47 | 2873357 CoolBeans
CoolBeans's picture

In it.  The water is up to our ankles and rising.  We're not hoarding cash here -- we have even more client firms (than last year) that can't pay their bills on time and in turn its hurting us.  We are seriously worried and I can't see it getting any better in the near future.

Tue, 10/09/2012 - 22:42 | 2873366 Whiner
Whiner's picture

When Mittens wins all dat money gonna JUMP into de market on November 6. Mitt gonna git bit by inflation fleas! But Uncle Ben, he say he can suck all dat money back into da Treasury. Is dat so?

Tue, 10/09/2012 - 23:05 | 2873406 reader2010
reader2010's picture

Why don't they want to sit on Au & Ag? Are they stupid or you are stupid?

Tue, 10/09/2012 - 23:34 | 2873495 Schmuck Raker
Schmuck Raker's picture

I CALL BULLSHIT:

"....earnings and profit margins are very healthy..."

Really?!? Aside from the likes of Alcoa or Cummins, I suppose. (Don't Bogart that joint)

"Corporations aren't going to sit on that cash forever. Eventually conditions will be such that they'll either want to or have to invest in new projects."

BULLSHIT, AGAIN...maybe they'll need that cash to SURVIVE, just to pay wages/suppliers/congressmen when the shiite really starts to fly.

 

When did Casey Research hire Pollyanna? When is her contract up?

Wed, 10/10/2012 - 01:12 | 2873688 Lost Wages
Lost Wages's picture

They are preparing for the world's greatest court case: Everybody vs. Everybody.

Wed, 10/10/2012 - 02:13 | 2873776 Joe A
Joe A's picture

"US corporations are sitting on more cash than at any point since World War 2"

But they didn't 'build' that so therefore it belongs to the government. All your assests are belong to us.

Wed, 10/10/2012 - 03:24 | 2873840 RECISION
RECISION's picture

The time to buy is when blood is running in the streets.

They are waiting for all the foreclosures and bankruptcies.

Pick up assets for pennies on the dollar.

Wed, 10/10/2012 - 03:51 | 2873853 EconoIdiot
EconoIdiot's picture

Everything is fine!  As long as the Fed can QE,  all is is well!!!  And they just announced QE Infinity!!!  So calm the hell down!  The U.S. Dollar will rein supreme forever!!!

Wed, 10/10/2012 - 05:01 | 2873893 wildbad
wildbad's picture

howdy all..
for me as an amerkan doing business in germany it is all very simple. i'm too small to care about / have debt. instruments and since the bank oligarchs turned off the easy money faucet acouple of years ago i have had to become leaner (cut costs) and meaner (tougher terms to my customers). knowing that borrowing always comes at a cost (interest or foreclosure) and knowing further that your friendly neighborhood bank is just a lackey for goldman sachs' devilish plans, holding cash (or any liquid thingy) is the ONLY way to stay in business and not to be beholden to the wicked moneylenders.

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