The Golden Age Of US Corporations Is Ending: S&P 500 Cash Has Peaked And Is Now Declining

Tyler Durden's picture

One of the biggest "givens" of the New Normal was that no matter what happens, US corporations would build their cash hoard come hell or high water. Whether this was a function of saving for a rainy day in a world in which external liquidity could evaporate overnight, whether it was to have dry powder for dividends and other shareholder friendly transactions, or to be able to engage in M&A and other business transformations (but not CapEx, anything but CapEx), corporate cash swelled to over $2 trillion (the bulk of it held in deposit accounts, or directly invested in "cash equivalents" i.e. risk assets, in banks in the US and abroad). Whatever the use of funds, the source was quite clear: ever declining interests rate which allowed corporate refinancings into ever lower cash rates, a "buyer's market" when it comes to employees, the bulk of which have been transformed into low paid geriatric (55 years and older), part-time workers: the only two categories that have seen a steady improvement in employment since the start of the second great depression, and low, low corporate taxes (for cash tax purposes; for GAAP purposes it is different story altogether). So some may be surprised that the great corporate cash hoard build appears to have finally tapered off. As the chart below from Goldman shows, after hitting an all time high of 11.2%, the ratio of S&P500 cash to total assets has once again started to decline.

The implications of this chart may be innocuous, or, more likely, they may be very profound.

Recall that it was about 2 quarters ago that corporate profit margins peaked and have since declined steadily. Add to that the decline in revenues and EPS, and one can see that the natural cash generation capacity of US companies is also declining in parallel. Of course, as this is a ratio, the question is what other assets are rising to compensate for it.

We know what assets are not rising: Net P,P&E for one has been flat at best if not declining, as the rate of Depreciation and Amortization has been far greater than CapEx investments in recent years. While this has been a benefit for cash flow creation (lower taxes), it has also meant that future revenues will continue contracting as absent reinvestment in a business, absent renewing the capital base of businesses, there can be no organic growth.

Which means the offset may be rising goodwill, which is possible with the recent increase in M&A, although as the H&P - Autonomy transaction showed, goodwill on balance sheets is one fraudulent reports away from being fully written down.

It could also be Net Working Capital, which however means that more and more corporate liquidity is locked up in Net-30/60/ or 90 terms, which while indicative of some easing in counterparty confidence, means that should companies need full access to their cash, they won't have it.

Finally, it may well be a pure and simply outflow of cash as more and more is dividended to shareholders, or as retained earnings are built up following stock repurchases, following urgent shareholder demands to boost returns.

We hope to have a far more detailed answer to the question what is offsetting the drop in Corporate cash after the earning season is over, when we can analyze the full S&P500 balance sheet on a sequential basis. 

But what is certain is that the days of the inexorable corporate cash growth are now over, and cash is now declining. What is also declining is the future growth of corporations, as well as their general profitability, even as their capex spending remains at near all time low depressed levels, while the asset base is aging faster and faster, generating lower and lower ROAs. One thing that will certainly be rising for US corporations, are cash tax rates, meaning even more cash outflows.

Which leads us to square one: now that corporate cash is once again declining, as it did in the period from the early 2000s until 2007 when the Great Depression 2.0 hit, only to soar afterward, does this mean that any hope of aggressive corporate EPS growth is now limited at best, and any future growth in the S&P is solely due to multiple expansion driven by the Fed's dilution of money in circulation. And since the answer is yes, the problem with the latter is that multiple expansion works, until it doesn't - i.e., until such time as the pace of input cost increase overwhelms the rise in revenues, and the only way for corporate profitability, and shareholders returns, is down.

That will be the time to get out of corporate Dodge.

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Flakmeister's picture

I was wondering how long this could go on...

Something tells me that they are not commiting this cash to new CAPEX....

DoChenRollingBearing's picture

Some companies in Peru with low debts are doing just fine...

Ying-Yang's picture

I believe corporations have been building up their cash to begin paying their employees living wages, healthcare and retirement plans. The corporations understand it is their workers who are important. Pay employees more and it will increase demand and give them a better quality of life.

Of course I believe in unicorns too.....

CPL's picture

Saddle up partner!

The skittle harvest doesn't happen by itself.

King_of_simpletons's picture

QE 6 should fix that. That is when Ben will hand over wads of cash to private corporations. It is not like we are following a script, we deviated from that a long while back, 5 years or may be more.

flacon's picture

Russell 2000 makes ALL TIME NEW HIGH TODAY! Ugh!

CPL's picture

Nope...they are getting ready for war.

Flakmeister's picture

It will be interesting to see which sides they choose...

TideFighter's picture

Gun law, check. Buy more gold, check. Inventories will decrease more...

when you can't buy a gun (store of value), you

LawsofPhysics's picture

makes you wonder what will be confiscated first.  Hhmm, better have both on hand.

Carl Spackler's picture

Or is some of the cash going to Maintenance CAPEX to deal with the spend put off over quite a few quarters.

Existing capital assets wear out and need upkeep to remain productive.

Doubt much, if any, is going to Growth or R&D CAPEX.

Sandmann's picture

What happens to KKR Portfolio businesses which are unquoted ? How far is Corporate Cash being sucked into black holes in Pension Fund Liabilities or to prop up some dubiously valued Bonds ?

Shizzmoney's picture

But wait, Maria Bartiromo told me that corporations are "lean and mean" and can handle volitility better since the crash of 2008?

Oh right, its all bullshit, I forgot.

The good news is that the executives for these corporations still are getting richer, somehow......bullish on houses, yachts, and jewelry.


Black Markets's picture


So is hyper inflation cancelled?



Black Markets's picture

So we will get hyper inflation but the S&P500 has peaked?

These are conflicting arguments.


In what scenario do we have both inflation taking off and the stock market declining?

What will corporate America do with cash reserves and CAPEX in a hyperinflationary sccenario?

LawsofPhysics's picture

When the "market" goes "bidless", unless of course you really think that the BRICs will tolerate The Fed being the sole buyer of sovereign debt in the western world.

The whole "flation" argument is pointless when there is no fucking true price discovery.

Stop wasting your time thinking about it.  This is all about CONfidence when you are living in a fiat world.  Tell me, what is the "price" of something that I refuse to sell?  You would think that someone with the moniker "black markets" would understand this.

Tyler Durden's picture

Hyperinflation, which is a loss of faith in money phenomenon, has something to do with S&P 500 earnings? Actually yes: S&P earnings are largely driven by endless Fed liquidity. Which means that with corporate profits and cash now declining, the Fed will pump:

a) more

b) less

LawsofPhysics's picture

I pick "A", what did I win?  The south was very reluctant to give up their slaves because of the competitive advantage it gave the owners.


LeisureSmith's picture

A Fed-brand penis pump. Autographed by Loopy Lew and Ben Shalom.

Black Markets's picture

I accept that the Fed will inject further liquidity, and I also accept that we are due much higher inflation than we currently have (monotary exit policy is too difficult to avoid it, never been done before).

I don't really buy into the hyper inflation argument though. And even if I did, I don't buy that hyperinflation leads to a mad max outcome.

Some folk should get passports and venture out into the real world.

Plenty of countries have been though hyperinflation recently (last 25 years) and they are all fine now, their trains still run, their hospitals perform operations, they collect taxes, their banks make home loans, people eat three square meals a day and have pensions.

People are resilient. Empirical evidence shows it.


I just can't accept any argument that involves quickening inflation and falling asset prices. It's an opinion at deep conflict with itself.

I think it's rooted in a desire for destruction and has somehow come to cherry pick from both extreme ends of the spectrum (deflation and inflation) and created some kind of impossible super doom scenario.

ZH needs to take a position, you can't have hyperinflation and stockmarkets at zero.


Talk about hedging your argument!!

LawsofPhysics's picture

"Plenty of countries have been though hyperinflation recently (last 25 years) and they are all fine now, their trains still run, their hospitals perform operations, they collect taxes, their banks make home loans, people eat three square meals a day and have pensions."


Yes, and up until now the world's output of energy has been increasing.  Available energy (which you need to do anything) has flatlined since 2008. Go do your own research if you don't believe someone who has been in agriculture for 20+ years.  My brother has worked for BP for 15 years, dealing with major problems in accessing new oil/natural gas wells as well as keep exsiting fields producing.  Yes, we still have large numbers of the stuff available, but then there is the exponential demand for energy.  Barring some fusion reactors coming online quickly, living standards will continue to decline for the growing population of the earth.

By the way, I have seen the quality of those "meals" and "services" in numerous countries (inclduing russia throughout the 90's).  If you consider that "winning", good luck.  Moreover, in many of the cases of hyperinflation, other countries were doing well and were willing to help out (i.e. countries doing well help out their neigbors).  In other words, having one or two countries in trouble at a time is fine.  How will this work out when it's the earth that is awash in fiat?  Are you saying that mars will come to our rescue.  Again, good luck.  Not saying you get "Mad Max", but barring those fusion reactors, shit is gonna change quicker than you might think.

Panafrican Funktron Robot's picture

"I just can't accept any argument that involves quickening inflation and falling asset prices."

Millions of underwater homeowners are suffering from a similar mental block.  

BlueCheeseBandit's picture

Did you ever think that market could crash, and THEN hyper inflation could happen?

Neoclassical economists never really understood time.

DoChenRollingBearing's picture

@ Tyler, comment 3154241

I can hardly wait for the Fed "Total" number to finally cross $3 trillion, they sure have been trying hard to keep from crossing THAT number, but it gets closer each week now.  Perhaps some other news item will "come up" the week the Fed loads its truck to over the $3 trillion...

Tyler Durden's picture

It is well over $3 trillion now when one factors that MBS (which the Fed has been buying since September) have a 2-3 month settlement period.

DoChenRollingBearing's picture

Yes, but a simple-minded Bearing uses numbers that are simple to get ("Federal Reserve Data Bank") in Barron's each weekend.  The "party line" if you will.

I hope to see a nice prominent article here once the public Fed Total crosses the $3 trillion mark.  Yet another topic that would open eyes that are willing to see.


ZH breaking that story (at least before I saw it anywhere else) re the Bundesbank wanting Germany's gold back was a real Coup d'Etat!  Well done.  It will be of great interest to gold fans like me what happens to Germany's gold (and what may happen next).

yogibear's picture

The Fed is playing accounting games. As they get closer to critical amounts all of a sudden it lowers.

Bernanke and the rest of the Federal Reserve ponzi masters will move around the debt so it won't appear on the balance sheet.


Inthemix96's picture

Been speaking to my mate, his name is Jack Reacher, he rekons he can sort this whole under-funded, nation wrecking, debt crippling, life wrecking, shit show out with a 9mm and a belt buckle.

Now the only problem is I havent got the money for the buckle, any one here help me out?  You know, to stop these fuckers putting us all in grinding poverty?

ChanceIs's picture

Petition the Obama administration to audit the US gold!!!!!!

I believe that this was started by a GATA member - very legitimate.  There are currently some 5K signatures already of a required 25K by February 8th.  The petition has been up since Jan 9th.


We petition the Obama administration to:

Perform an assayed public audit of all the Treasury's claimed 8,100 tons of gold and net of swaps, loans & sales.


As of 12/31/2012 the US Treasury claims to hold 261 million ounces of gold at Denver, Fort Knox, West Point and at the Federal Reserve Bank of New York. This bullion was last subjected to a full physical audit in 1953. The gold bars need to be assayed and weighed. Once the gold is verified the paper trail must be audited to determine who really owns the gold; i.e. how much has been loaned to bankers and dealers and sold or swapped to non-Treasury entities including foreign governments. The audit must include professional auditors outside of the Mint, Treasury, GAO, Inspector General and Federal Reserve system.

Disclosure1:  I am holding silver through Sprott and the levered ETF, AGQ.  I WOULD stand to benefit if there was no gold to be found/questionable title/rehypothecated ten times over.  In those circumstances I believe that gold would spike and carry silver with it. 

Disclosure2:  I intend to "spam" ZeroHedge with this.  Please forgive and don't throw me out.  I am more interested in restoring sound money to the US than making a profit.

ChanceIs's picture


Please consider reposting your referenced blog entry every other day.  I would prefer not to "spam," and I am sure that everybody else would as well.

Please advise if you would like me to stop.  I will in a heartbeat.

Signatures now at 5,054.

Hey.  Its a slow day at the office.


Dr. Richard Head's picture

I have to agree with your sentiment.  If the oppressive governmental forces have taken such visible steps to usurp the constitution (supposed charter of our Repoublic), then why in the hell would that same force even give too shits about what their subjects ask of them?  Trying to work within the system has shown itself to be a farce at best. 

ChanceIs's picture

At the end of the day, the petition might not do any good.

I see three "distruptive" (unstoppable) actions:

1) Citizens withdraw deposits from the TBTFs.  Chris Whalen started a campaign to do that about two years ago.  He created a website to refer you to local "quality" smaller banks according to your zip code.  I don't think it went too far.

2) Corporations take their business out of the TBTFs.

3) Micro/internet (peer-to-peer?) banking takes off.  I can easily see this happening for mortgages.

I expect to see a few more Lehmans in the next year or so.  That should put an end to the TBTFs, but I expect that the governments will just print more and bail them out.  If they couldn't jail anybody at HSBC for drug money laundering, then ...............

Panafrican Funktron Robot's picture

"At the end of the day, the petition might not do any good."

Might?  It just won't dude.

1) Citizens withdraw deposits from the TBTFs.  Chris Whalen started a campaign to do that about two years ago.  He created a website to refer you to local "quality" smaller banks according to your zip code.  I don't think it went too far.

Deposit withdrawls in the face of trillion+ in excess reserves?

2) Corporations take their business out of the TBTFs.

They are the only game in town re: revolving credit of any meaningful size.

3) Micro/internet (peer-to-peer?) banking takes off.  I can easily see this happening for mortgages.

The TBTFs don't give a shit about lending money.  Also, this still perpetuates the debt cycle.


You are a pleb.  You are along for the ride.  You can reduce the quantity and severity of "being ridden" by:

1.  Getting out of any debt you presently have.

2.  Not extracting debt payments from others.

3.  Transition your nominal to real, ie., use excess FRNs to purchase physical gold and other items of real value (tools, liquor, durable medical supplies, etc.)


Not Too Important's picture

Alll they want is your name and email address. It makes the NSA's job easier.

Flakmeister's picture

Aieeee!  The thought of a Randian woman (as opposed to a randy woman) is terrifying...

Are you sure it is not a gay encounter site?

Freddie's picture

Give her any back talk and your weiner wald gets slammed between two bars of gold.  Ouch!

marathonman's picture

Thanks for the laugh Freddie!

Diogenes's picture

"Petition the Obama administration to audit the US gold!!!!!!"

I'm sure he'll get right on that as soon as he finishes releasing his birth certificate,  high school records, college records, and passport.

AccreditedEYE's picture

Hyper-inflation is stocks to the moon.... of course, the actual VALUE of said stocks is, well, NADA.

snowman's picture

Here are the details if you are interested.

It's IT sector, Microsoft, Cisco, Apple, etc, and GE's Financial sector.

the grateful unemployed's picture

a third of capital expenditures was in energy?

and of course the companies which borrow money in order to buy their own stock. you  have to wonder what kind of business model that is, and what happens when the walking dead (DELL) do go private? one of the reasons you take a company public is to make borrowing easier. but then if you no longer need to buy your own stock, your borrowing needs are pretty much resolved. the black hole of deflation in american finance pulls on these behemoths a lot harder than small companies and individuals i suppose.

the grateful unemployed's picture

makes you wonder what the future of the corporation will be in the post industrial world. the supply lines are overextended. raw materials are shipped half a world away in china so they can be made into goods shipped half again as far to america? and money has to travel, through all sorts of currency barriers. you have to surprised it works at all. walmart thrives because it is a combination of home depot and a supermarket. but their constant negotiating down of vendors margins is going to end, as suppliers can go direct. the internet does that pretty well. what good is cash if you don't have a business model (thinking Mr Softie)

vote_libertarian_party's picture

'Cash on the sidelines' has peaked?


I guess all those bonds that created them are due.