February 13, 2008


$1.6 Trillion. Now We're Talking Stimulus: That's how much is just sitting on U.S. company books. And for what? Corporations with fat cash reserves aren't doing much for investors—or the economy (Roben Farzad, 2/06/08, Business Week)

For all the doomsaying, corporate cash abounds. According to Moody's Investors Service (MCO), a record $1.6 trillion in cash sits on the books of nonfinancial U.S. companies, $600 billion more than was there five years ago. This is both an asset and a liability, as the 13-figure mother lode is sure to draw hungry eyes.

The stars have aligned for corporations to start shelling out. Assets are in play or just plain cheaper than they were months ago; buyout shops are overextended and actually backing out of deals; debt is vexingly hard to score. Snooze, and some Beijing banker or Gulf sheikh will beat you to the punch.

So why the holdup? Obviously, executive worry outweighs opportunism. Defaults are on the rise, rekindling memories of all the bankruptcies of the last bust. A peerless credit rating, backed by triple reinforcements of cash, means something again. "CEOs want to be vindicated for sitting on their hands for all these years," says one analyst. But what good is cash that just sits there forever? Fred Lane, a veteran Donaldson, Lufkin & Jenrette dealmaker who now runs his own banking boutique, feels that most CEOs who hoard cash don't really understand how attractive that in-house financing is for opportunistic deals: "I tell my clients, 'I don't get you guys. Why are you so passive?'"

One wonders if, looking back at this period, the inchoate unease in American society during an obviously prosperous period won't be traced to a sort of free-floating anxiety brought on by 9-11. The problem is finding a positive event of similar magnitude to break the spell and it's hard to think of what such an event could even be.

Posted by Orrin Judd at February 13, 2008 8:29 PM

The Giants beating the Pats in the Super Bowl came close. : )

Posted by: Bartman at February 14, 2008 8:30 AM

It's the endless drumbeat of disaster in the media that's doing it.

Posted by: erp at February 14, 2008 10:24 AM

erp, I don't agree. Most people don't pay any attention to the media. But it also begs the question about why the media is so downbeat.

I think part of the problem is the lack of a defined objective in the present war. Uncertainty breeds unease. Sure, we want to end terror, but we can never be certain when it's ended. There hasn't been a major attack on us, but there might be. We've pounded the Taliban and Saddam into the ground, but suspect that if we stop pounding, they'd soon be right back where they were before.

VE and VJ day were defined ends, but even Bin Laden's death wouldn't be considered an end now.

Posted by: Brandon at February 14, 2008 10:55 AM

I'm saying "the inchoate unease in American society" isn't focused and has no basis in fact, it's a product of the media's incessant message of doom and gloom. The public doesn't have to be paying a lot of attention to have it seep into their consciousness.

Their reason: No less than the destruction of our way of life.

Posted by: erp at February 14, 2008 12:31 PM

When the price of oil falls off a cliff, I think that it will bring back the go-go mid eighties mentality.

Posted by: KRS at February 14, 2008 12:54 PM

The media has nothing like that much influence.

Posted by: oj at February 14, 2008 1:27 PM

One something might be the discovery/invention of almost-free energy. Patented by a United States suddenly no longer buying foreign oil.

Posted by: Qiao Yang at February 14, 2008 2:21 PM

The media is in a depression right now, so even if GDP is revised upwards and unemployment remains below 5.0%, the press only knows layoffs, salary freezes, expense cutbacks, corporate buyouts, and cratered stock prices (which means less 401k money). I haven't seen the NYT share prices in a couple of weeks, but it was around $14.20 three weeks ago before some speculative interest ran it up to $16.00. Remember, in 2000, it was about $52. Not the right direction for a long-term investment.

Posted by: ratbert at February 14, 2008 4:08 PM