Cash Holdings Record Highs for Corporations
Holding cash at record rates can result in these potential scenarios
1) Safe Haven currencies such as Yen, Swiss Franc, USD and perhaps CAD may benefit as Corporations hold their currencies to prevent devaluation of their cash
2) Short-term bond yields may drop further on increasing demands
3) When greed takes over, all the cash holdings will be converted to risky assets which will push prices over the roof.
Corporations are stowing away cash at record rates, reluctant to invest in their businesses or hire new workers as uncertainty clouds the future.
Amid a lackluster earning season that has featured many companies missing sales expectations, cash balances have swelled 14 percent and are on track toward $1.5 trillion for the Standard & Poor's 500, according to JPMorgan. Both levels would be historic highs.
The buildup contrasts with an earnings picture in which 61 percent of the 127 companies that reported through last week have missed revenue expectations though more than half have beaten estimates.
With unemployment mired at 7.8 percent, economic growth at 1.3 percent and the stock market getting no lift from earnings, the larger question is when companies will start putting that money to work.
“Companies aren't making the capital investments because they don't see the growth to make the investment,” said Jim Paulsen, chief market strategist at Wells Capital Management in Minneapolis. “They're not making long-term investments without a feel for sales growth. That's what's got to come.”
Since the 2008 financial crisis, investors had been content to watch companies use government stimulus to build up liquidity in case the economy should double-dip back into recession.
But with the S&P 500 breaching important support levels and an economy hungry for a growth engine, it's only a matter of time before that patience wears thin.
“It's going to take on more significance for investors. They're going to get more and more upset about sitting on hoards of cash. You may be hearing more activist investor calls,” Paulsen said.
Via – CNBC
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