Trillion Dollar Surplus a Corporate ‘Problem’

Where would you invest $76 billion if you had it?  That’s the size of Apple’s cash hoard at the moment, and it would appear that they have no better idea of what to do with all that money than you or I.  Apple isn’t the only company with this “problem,” if you could call having a mountain of spare cash in the bank a problem. According to Standard & Poor’s data reported by the Wall Street Journal the other day, the 500 largest U.S. companies alone currently hold cash or cash equivalents that totaled $963 billion at the end of the first quarter, up from $837 billion a year ago.  Tech companies in particular are glutted with cash they apparently cannot use. Microsoft’s got $60.9 billion sitting around; Google, $39.1 billion; and Cisco, $43.4 billion. What’s a company to do? Traditionally, high-tech companies have shunned paying dividends because shareholders expect the companies to use the cash more aggressively for growth. But the likes of Apple and Google have been growing plenty fast without dipping into their so-called war chests. Come to think of it, maybe they should start a war with China, Europe or Brazil.  Hasn’t war always been good for business? As for the excuse that they need to hold cash in case a great acquisition opportunity comes along, Apple, Google and numerous other NASDAQ world-beaters could borrow all they want for next to nothing, at any time. 

And so they have been. We reported on the surge in corporate borrowing a while back, mystified as to why a corporate sector with nearly $2 trillion to spare was nevertheless borrowing hand-over-fist. The ostensible reason is that the money can be borrowed for nearly nothing – and so, why not?  Indeed.  Even so, we can’t help thinking that a wave of borrowing on top of a cash surplus mounting into the trillions can only end badly. Very badly, actually. But exactly how? We must confess that we lack the imagination to see how a literal mountain of dollars would somehow wind up doing the companies that hold them little or no good.  It’s not as though they are borrowing against real estate equity, as homeowners did until the market crashed in 2008. So how do they lose? Hyperinflation is the obvious answer, since, if one were to occur, any saver sitting on a pile of cash would be a dead duck.

Fun Guys Branson & Cuban

Maybe there’s an opportunity here for Carl Icahn, the sleazeball corporate raider. Instead of piously pretending he’s looking out for shareholders’ interests when he puts a company “in play,” he could swoop down on all that corporate cash and do some real good with it.  Let him finance the greening of planet earth: wind farms, solar panels stretching for miles across the flyover states, tidal generators, etcetera.  Of course, we’d rather all that money were in the hands of fun guys like Richard Branson or Mark Cuban. But sitting in Microsoft’s bank account?  What a waste.

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  • Jill July 24, 2011, 11:00 pm

    The official tax rate is not what wealthy individuals and big corporations actually pay. They have numerous loopholes. E.g. GE paid no taxes in 2010 and received a $3.2 billion tax benefit.

    http://abcnews.go.com/Politics/general-electric-paid-federal-taxes-2010/story?id=13224558

    A lot of folks pay no taxes because they don’t make enough money to be required to pay taxes. Should penniless homeless people, or people making less than enough to pay for bare subsistence living be taxed so that we can continue $3.2 billion tax benefits for corporations like GE? And to fund Lord knows how many wars and far-flung military bases, and military industrial complex companies, that don’t seem to accomplish anything constructive for the U.S.?

    • PhotoRadarScam July 25, 2011, 3:12 pm

      While I agree that the corporate taxes need to be reformed, are you really suggesting that 50% of our population is penniless and can afford to pay no tax?

  • Mava July 24, 2011, 6:13 pm

    Can’t just anyone take that CEO job and rack the millions? I understand this isn’t locked to anyone in particular, say, such as the money available for blacks for education, are only available for blacks. No?

  • Mario cavolo July 24, 2011, 3:01 pm

    As most of u realize I don’t get or want to get political in my approach to issues; so I’d like to ask here if the folllowing statement is an accurate reflection of the debt ceiling stalemate playing out in DC…

    “Democrats have resisted cuts to entitlement programs such as Social Security and Medicare and called for higher taxes, while Republicans have insisted a debt ceiling be accompanied by corresponding spending cuts and no tax increases.”

    Common sense tells me that if that is accurate then te republicans need to be hung by their thumbs… It is FAR BEYOND obvious that outrageous favoritism toward and lower taxes paid by the elite rich has been a major contributor to where America now precariously sits, i mean with the 1% wealthy controlling 40% of the wealth, with major corps raking in billions yet paying little tax in reality, with execs raking in millions PER year.

    I’m not posturing for a fight here… If I’m wrong tell me
    why with solid intelligent argument…

    Cheers, Mario

    • PhotoRadarScam July 24, 2011, 10:12 pm

      Without a balanced budget, a tax increase is silly. Refer to this chart:
      http://i56.tinypic.com/ao6lqa.jpg

      Current spending is at 24% of GDP. Many studies and charts show that taxing above 18% will kill the stock market (and probably the economy). So at 15% we could go up maybe 3% more. But to be meaningful, you still have to cut spending by at least 6% of GDP. As you can see, there is much more progress that needs to be made on spending rather than the taxing. Even if you raise taxes to 18%, without getting the spending down to 18%, we’ll just be having this discussion again in a year or so. I don’t think any of the spending cut proposals come anywhere near where they need to be. And with entitlement programs on an unsustainable trajectory, it must be addressed YESTERDAY. So while most people wouldn’t mind paying a little more in taxes, it’s similar to spending a bunch of money on renovations for a house you know will be foreclosed on in a few months. If you are on an unavoidable path toward bankruptcy, why are you going to pay your credit card bill? It only makes sense to pay that bill if you have a realistic plan to avoid the bankruptcy.

      “It is FAR BEYOND obvious that outrageous favoritism toward and lower taxes paid by the elite rich has been a major contributor to where America now precariously sits, i mean with the 1% wealthy controlling 40% of the wealth, with major corps raking in billions yet paying little tax in reality, with execs raking in millions PER year.”

      I don’t disagree that corporate tax reforms aren’t needed and that execs are overpaid, but your characterization of the wealthy and their taxation sounds like regurgitation of a media sound byte than a reflection of reality. I believe almost half of Americans pay NO federal taxes. Why don’t they have to pay their “fair share?” Or any share? According to this data, the US has the most progressive tax system around. The US taxes its richest 10% at the highest rate of any other western country. Are you suggesting we tax them even more?

      Oppressive tax rates are not the answer. In fact, one of the problems is that when you use oppressive tax rates the rich shut down or LEAVE. Us Corps didn’t send all of their manufacturing overseas just for the cheap labor rates. A large factor was the favorable regulatory environment and favorable tax rates.

    • PhotoRadarScam July 24, 2011, 10:13 pm

      Here’s the link to the data I forgot in my above post:
      http://www.taxfoundation.org/blog/show/23856.html

  • Mava July 23, 2011, 7:20 pm

    “For these are the 2 most pertinent OBVIOUS FACTS— 1. MAJOR world public POWERFUL corporations, and MAJOR world public POWERFUL banks, are holding back TRILLIONS in usa dollar CASH.—2. TRILLIONS of usa dollars are still being turned over, and newly purchased, in usa 3-month T-Bills, at near ZERO interest.”

    First of all, when I see a lot of cattle corralled in and waiting for something, it is pretty clear to me what it is waiting for, – slaughter.

    This would not be the case if the cattle was free to go. But, you would be totally kidding me if you call this a free market!

    Second, you should now by now, that if someone says he is holding something in cash, then there is not any cash there. Don’t believe just anything. Christ, the government has been saying they have gold on hands in Fort Knox, do you actually believe there is any gold there?

    A corporation can not just go and buy gold, ok. Because it would be confiscated by the Roger Ericson’s government. Can they transfer the funds outside? Nope! There are already so many rules about that, that most won’t even try. Can they buy gold mines? Yeah, may-be, after some bureaucratic torture, and what would be the point in doing that in a country that can just decide tomorrow that hey, let’s just tax the s**t out of gold mine owners, or confiscate their mines all together?

    This is why the gold stocks won’t perform this time, BTW, since they can’t perform in absence of private property, be it a communist country or just thieving populace.

    Why would you borrow even though you’re sitting on cash? Because, if there is inflation tomorrow, then you pay back with cheap toilet paper. If you expect deflation, then you want to lend. Nobody does.

    Now back to the original statement about zero interest rates. So, you have all this cattle in the corral now, ready for the slaughter. Are you gonna offer any incentives? Of course not! They have no freedom to go elsewhere, remember?

    So, to “LED to believe” I would say: Wow man! Really? This is what you think? Then you should get all in for the greatest wealth transfer in history, from the government to the downtrodden. Get ready. Loan all your wealth out. Because after the deflation hits, and the dollar takes its deserved place among the gods, you will be rich man! What they borrow today from you, is only good to buy some Chinese crap. What they will have to return, would worth more than the hated gold.

    (:rolls.eyes:)

  • Mava July 23, 2011, 6:57 pm

    ” roger erickson July 22, 2011 at 4:26 pm

    Since we the people are the government, you want us out of our way?”

    What is the point of asking, Roger? If I say YES, you then say: “nope, I’ll never let you out”.

    Just keep pretending that we all love your government, as before.

  • martin snell July 23, 2011, 1:30 pm

    This is actually a clear signal.

    It is a signal that capitalism is in trouble. Those with capital find no place to profitably invest it even while the cost of capital is at record lows.

    But at the same time many smaller companies are cash starved and unable to obtain capital, despite its alleged low cost. Clearly capital is not being well allocated – which is a major problem for the economy.

    Ultimately I blame Greenspan for artificially pushing rates lower and thereby fundamentally distorting the market for capital. We now have the hangover.

    Of course China too is to blame. Its mercantalist policies and accumulation of excess FX reserves have given the world economy a bad case of constipation (for which Greenspan was unwilling to supply some ex-lax).

    Only 2 other countries in modern times have accumulated even close to as vast a store of FX reserves as a % of GDP (America pre 1929 and Japan pre 1989). We know both of these ended badly and I expect the same for China … at some point in the not too distant future.

    So we have big tech and China both constipated with excess cash. The question remains – where is the Ex-Lax?

  • Mario cavolo July 23, 2011, 4:18 am

    Let’s explore how much total cash by corps and the wealthiest top 1% is being hoarded and therefore out of the economy.

    – according to today,s article $2 trillion in corporate cash.
    – the top 1% own 40% of the wealth. Is that 40% of the $14 trillion U.S. GDP? If yes that’s around $6 trillion USD. How much of that wealth is in supposedly safe passive USD cash ? No wonder the society is facing a decade or two of slow or no growth or negative growth. The scenario really a does look like another japan but even worse because there is a much larger, broke, former middle class in America.

    As well noted by other comments, concentration of wealth at the top has been a noted feature of societies and economies before they finally go bust.

    By comparison in the US property market, I recall hedge fund guy John Thomas noting that with 20% of the folks un/underemployed plus another 40% upside down in their current mortgages, that’s 60% of the buyers effectively out of the market so how can middle class property prices across the country possibly recover anytime soon?

  • Paulie July 23, 2011, 4:18 am

    The problem for the cash hoarders might come when there is a crisis in the MMF valuations due to a possible markdown of US debt, which would put the value of all those dollars in question and cause some interesting consternation in the board rooms, I’ll bet. This is a show that will require a lot of hideously buttered popcorn and massive amounts of the beverage of your choice. The beauty is, we’ll not need 3-D glasses, but, we might need helmets and kevlar. It’s just a matter of time, now. Silly boyz.

    • warren July 23, 2011, 5:34 pm

      “Through money, democracy becomes its own destroyer, after money has destroyed intellect.”

      Oswald Spengler

  • Benjamin July 22, 2011, 7:37 pm

    Very interesting commentary today. It also coincides with my recent explaination of the world, to a close family memeber…

    It’s all about ownership of debt. More specifically, it’s all about debt that has little choice but to default. From there, default is monetized, with the proceeds going into market “speculation”. The big players then try to take each other down, through the ongoing rise and fall.

    But in the process, government debt has to increase, as this screws many, many people. Not only are they driven into the kind of debt mentioned above, but then they have to deal with price inflation and falling employment or wages.

    Bottom line: I don’t care if a company has the greatest geniuses this side of the universe. Government IS the largest debtor, and therefore the biggest player and therefore will be the last to fall. This is facilitated by the defense of the other, non-government players. The only defense they have to keep feeding the process! The alternative is to admit that all the wealth they hold is in fact not wealth not all, but a pile of dirt that is both a reflection of the process as well as fated to “fill in” the abyss being created.

    Another poster mentioned that it’s not a problem of “too much government”. But, with all due respect, they could not have been more off the mark!

  • DG July 22, 2011, 7:06 pm

    Cash is a funny thing. Too much is systemically bad.
    During the dotcom boom chip companies, left and right, were easily raising huge amounts of cash through wildly inflated secondaries (I realize AAPL is organic growth).
    Fast forward to the implosion.
    These companies were now insanely cash rich, in a massive over-capacity industry. Companies would be doing a $100m in sales and have $400m in the bank! Hence, profits became very, very difficult, yet no one went under because of their cash horde. The joke was that the little guys were banks with a chip company attached to it. Too much competition drove out profit….and Apple has benefitted hugely by being able to put cheap chips in their products.

    Very, very slowly there has been consolidation, but not nearly enough. The cash simply feeds the “nobody will profit” (much) syndrome. This goes a long way in explaining why the $sox is still down 65% from its all-time highs and at the same level as 14 years ago.

  • gary leibowitz July 22, 2011, 5:20 pm

    The political spin has been that it’s Obama’s incoherent policies that have prevented these companies from hiring.

    Looks like this housing implosion was a great excuse for corporations to reap huge profits without much public uproar. It can’t last much longer since their actions have set the stage for a depression the likes of which we haven’t seen in a long time. I have wondered just how long they can horde their cash without major ramifications. It has exceeded my best estimates by 12 months.

    Looks like their might be a final equities blowoff in a week or so. I am so hesitant to even bring it up since every single episode so far has resulted in a fizzle.

  • PhotoRadarScam July 22, 2011, 4:27 pm

    But isn’t most of that cash allegedly “trapped” overseas?

  • Joel Bowen July 22, 2011, 4:21 pm

    Now now don’t just pick on Microsoft…. at least they pay a bit of a dividend. The other tech giants are just the same when it comes to their cash. In fact, you could make the argument that most of them are worse than Microsoft when it comes to their cash. I also recall that Microsoft has also granted their shareholder special dividends a few times. Have any of the other tech giants done that??

    • roger erickson July 22, 2011, 4:41 pm

      I’m surprised more gold hoarders aren’t Apple (BSD), Unix & Linux fans.

      In the end, to be relevant, any financial outcome has to be re-translated into a survival outcome, and the results are frequently not what profit seekers expect – based on the financial accounting alone.

      In tech terms, Microsoft has raced to make it easy to INITIATE things easily, and made it nearly intractable to finely tune (or secure) anything.

      Outcome is that Microsoft SW enables ~85% of all cybercrime losses, which are simply passed on to consumers as a cost-of-selling-snakeoil-business.

      Conversely, purists in the know, who do demand excellence, prefer the BSD-Unix-Linux systems that are essentially powerful tools with a bit higher learning curve, but 10x more advanced tuning & security tools.

      If you want more amateurs fiddling, use Microsoft, the originators of Quick & Dirty Operating System (qDos, purchased & renamed as Microsoft DOS).

      If you want things secure & stable, use BSD/Unix/Linux.

      If you want a survivable balance of dynamic invention plus stable security, use quick & dirty tools in skunkworks, and safe, secure tools where it matters.

      It’s not all about dividends. Using Microsoft SW & collecting their dividends is rather analogous to living in a ghetto & collecting slumlord rents, and accepting the cost of having to live with high crime rates.

    • Rick Ackerman July 22, 2011, 5:46 pm

      Of the companies I mentioned, Microsoft’s clueless, haphazard investment “strategy” comes closest to the model mentioned in the photo caption — i.e., drilling oil wells in YMCA basements. Microsoft is invariably the very last to recognize a good idea. When they finally get around to buying the idea by acquiring a company, they hugely overpay (i.e., Double-Click and Skype). By then, of course, either the game has evolved or moved on to the next big thing, or MSFT is stuck with a company that can’t make money. For instance, turning Skype into a revenue-producer will require bearing down on customers with aggressive advertising that will drive the customers away. Corporately, MSFT has demonstrated time and again that they have a reverse Midas touch: everything they touch turns to s**t.

  • Mark July 22, 2011, 3:07 pm

    At least in Apple’s case, they use it to fund other companies (manufacturing, fabs, R&D, etc.) that will give them a leg up. They then have access to this technology at a reduced cost and far in advance of their competitors. Their touchscreens, the aluminum machining, etc., is all way more advanced than anything any other handset or PC company is doing.

    Also, no way they’ve forgotten how close to the brink they were 10-15 years ago.

  • rmsimc July 22, 2011, 12:55 pm

    We would love to be investing in…say, a mine to further integrate…or, say, co-gen to take advantage of our shale drilling/reserves. But, have any of you applied for a permit for such things????? We have and are, and…as thet like to say on the East Jersey Shore…’fogetabotit’.

    All kidding aside, the regulatory picture is a HUGE impediment to corporate investing. Many are “keeping their powder dry” until the picture clears. After recently reviewing our 5-year startegic plan, we identified no less than 14 roadblocks to progress in the good ole US of A due to progressive regulation. NeoCon or Statist…I dont care what your idealogy is…just get the government out of our way! (Otherwise, many will be looking east and south to invest their hoard.)

    • roger erickson July 22, 2011, 4:26 pm

      Since we the people are the government, you want us out of our way?

      If China invades, you want the pesky FBI & Marines out of your way? If your toddler dies a horrible death from toxic cough syrup, you still want the meddlesome FDA out of your way? If BloodSucking Vampire Squids want to lend gangs inordinate amounts at high rates, to turn houses on all sides into high-margin crack joints, you want the infernal SEC & FDIC & DoJ closed down?

      Isn’t the goal to keep tuning all tolerance limits in all processes, instead of just shutting the engine down?

    • rmsimc July 22, 2011, 9:48 pm

      RE…go ahead and believe what you’d like. I’m giving you a view from the inside of a F500 manufacturing firm born and bread in our great land. It is my informed opinion that our gov’t is impeding economic progress with the consequences of collapsing the living standard of middle-income Americans.

      …and what “engine” is it that you are speaking of? The government as an engine? Really? Last I checked, they do not produce a thing. That is exactly the problem: We have become numb to the largesse in the govt system. Do you really think what we have going now is sustainable? How much insurance can we sell to each other?

    • Mario cavolo July 23, 2011, 4:42 am

      Ha… You two are mincing words because you are both thinking too much about the extremes.

      Good, well-guided govt is terrific while bad, bloated govt is wasteful at best and a nightmare at worst. Both exist. I see now how two govt systems (U.S. and China) are coming from opposite ends and how both have their good and bad points.

      The thought just popped into my head:

      The beautiful mantra of U.S. Governance is Lincoln’s ‘of the people, by the people, for the people.’ while I would suggest China’s more socialist approach mantra could be ‘govt of the society, by the govt, for the harmonious society as a whole.’

      We can observe that regardless of whether one wishes to follow either idealogy, American ogvt leadership has lost it’s way, is self-serving to a modern day extreme which is, so sadly, not governing by Lincoln’s wonderful statement. China’s far from perfect to say the least but they are doing an exemplary job in the current decade where it counts, of following their mantra their series of 5 year guiding plans of governance to improve the society.

      The final point is a matter of good, old-fashioned timing. The U.S. is at the tail end of the bell curve , the longer economic cycle which began after the wars, a tough place for any society to be. While China is more so at the front of the growth curve now and will be for the next ten to twenty years, a much better position to be in. These are realities for which there is no one to blame.

      Cheers guys, Mario

  • mario cavolo July 22, 2011, 8:52 am

    We could suggest that these companies don’t have a clue YET what they should do with their cash because they are observing the same as we all are; that the fundamental ways of life and business are still shifting too radically, so they’re in ‘wait and see’ mode. Let me ask a question, if YOUR business, say for example, chips or restauarants, it makes no differnce, had a billion dollars, what asset allocation would you apply? Would you keep it in dollars? Why don’t they put some of it or all of it in crude or corn or bonds or gold or copper or SGD or reals instead of 100% of it in USD? Perhaps by corporate rules, they’re not allowed to do that with their cash on hand…

    Even China is changing, you think factories are opening now to hire workers? Hell no boys and girls, VC investors now are looking at factory investments in China in which the latest tech / automation abilities are part of the model. China factories modernizing and automating!…how’s that for throwing a wrench in the wheel of creating jobs for a billion people!?

    We’re experiencing a massive, global-sized version of not needing buggy whips and VCR’s anymore. The way the world “gets things done” is transforming and retooling, leaving hundreds of millions of common folks with nothing to do.

    And by the way, where did the assumption come from that Wall Street represents society as whole, or that Wall Street represents corporate America and middle-class America together? Wall street more and more has become a separate world, a separate beast, a separate sector of the society, its mostly in fact now an HFT machine with us monkeys following the machines. The underlying assumption is that Wall Street valuations and revenues and ratios and stats “should” reflect the whole society but in fact it is just a reflection of the assets of investors and big companies. Do we see that rule doesn’t really apply anymore and hasn’t for some time, so complaining about it or criticizing it is a waste of time. The elite’s of Wall Street, special interests, lobbies, govt, pharma, insurance and healthcare have as a group (400 or so elite folks according to Michael Moore) are running their game at the expense of the rest of the world, whom they have literally marginalized. We can scream about the outrage all we want and indeed we should. But in the end, we each as individuals need to deal with “what is is what it is” And Wall Street today is now what it is, so for example, in my own mind I feel we each need to figure out how to be an individual walking, talking George Soros hedge fund operator with our trading accounts, following advisors and analysts and chartists like Rick along the way, so we can hopefully benefit from what’s happening too.

    And thus, here we are, which in my case at the moment includes being short crude at 99…

    Cheers all, Mario

    &&&&&&&&

    Great post, Mario. Corporate rules do indeed make it far more difficult for companies to make a good return on their money than the rest of us. Meanwhile, does anyone remember “disintermediation”? That’s an obsolete term that described how government borrowing could crowd out private borrowing. It is one problem companies evidently do not have any longer. RA

    • roger erickson July 22, 2011, 4:19 pm

      Doesn’t matter how much cash an agent has. Stockholders want RETURN on that cash. Hoarders are always between a rock & a hard place. Without the return of customers, they’re damned if they do & damned if they don’t, and rightly so.

      Any business system that manages to extract every last penny from their customer base is doomed. As any farmer would tell you, the point is to NOT eat all your seed. Being fattest this year is subordinate to still being able to feed the 7th generation yet unborn.

    • JH July 22, 2011, 4:38 pm

      Brilliant Mario, I couldn’t agree more. It isn’t a simple “too much government” problem but a “things are changing so fast” problem. Making this even worse, companies are so focused on stock price that they are afraid to make a mistake and prefer a wait and see and cut people attitude.

    • rmsimc July 22, 2011, 10:01 pm

      Mario…I would love to diversify our cash into ??? But there are those pesky regs again: FASB, SarOx, now FinReg. Our hands are tied more now than ever before.

      Great post as usual!

    • Mario cavolo July 23, 2011, 3:38 am

      RMSINC

      Whoa…

      Your and Rick’s comment about corporations restricted in their ability to diversify their cash triggers a fascinating question? :

      What if in the future , in the same way they deregulated the banking rules to allow banks to become investment houses, which in large part led to the current state of affairs, as a next step they start relaxing the various regs to allow corporations to diversify their cash into the other asset classes? As those policy arguments escalate it seems a logical next step.

  • Rich July 22, 2011, 7:44 am

    More huzzahs and kudos to Rick for his unforgettable +900 Dow point rally call three weeks ago…

    • Cam Fitzgerald July 22, 2011, 3:22 pm

      That was a good call, wasn’t it. On the issue of too much cash sitting around we are already seeing some evidence of share buy-backs taking place. This, in the absence of good acquisition targets. Who knows. Perhaps that is a trend that will evolve to improve shareholder value.

      Or, perhaps some of these companies will step up to the plate and start doing some serious hiring, R&D, expansion etcetera and give the economy a boost it could really use.

      This is really all about jobs is it not?

    • roger erickson July 22, 2011, 4:14 pm

      Cam “This is really all about jobs is it not?”

      Finally, some direct logic here. But why would any company start hiring before more customers start arriving? That’s not what stockholders will allow.

      Customers create jobs, not businesses alone.

      And how can customers start buying without some combination of less taxes and/or more public currency creation to denominate financial income? A fiat currency system where too much fiat currency is hoarded only squeezes the life out of dynamic commerce.

      Can you imagine what would happen to the NFL if Philly kicked a field goal against Washington, but teams & fans were told that no points could be credited on the scoreboard because the “NY Giants are hoarding all the points”. Teams may temporarily barter, say, their uniforms etc for a few points to use, but the league would folds pretty quickly, regardless of who’s owed what.

    • Cam Fitzgerald July 22, 2011, 5:09 pm

      See Henry Fords words on that subject. He had a very good understanding of the connection between production and consumption. A genius in his time. That was a different world though…..or was it?

  • Richard July 22, 2011, 7:40 am

    They should buy some gold..to offset the amount of money that went to EFT rather than the fund that historically would have gone to the market in non deriviate products

  • Rich July 22, 2011, 7:40 am

    Mentioned a decade ago maturing growth companies with uncommitted cash like AAPL, CSCO, GOOG, INTC, MSFT et al, might enhance market share and shareholder value by going to customer subscriptions and paying dividends growing faster than the cost of living like Info Tech Utilities.
    18.44% of the $12.27 T of S&P 500 companies fall into this not insignificant category.
    Of course, there’s nothing to fear but fear itself and self-fulfilling prophecy…

  • Rich July 22, 2011, 7:30 am

    Maybe mentioned here or twittered the other day the list of companies with more cash reserves than the US Treasury, many of them banks:
    http://www.zerohedge.com/article/here-are-29-public-companies-more-cash-us-treasury
    Perhaps this accounts for 14.85% of the recent rally of financials leading the S&P 500 charge…

  • C.C. July 22, 2011, 5:08 am

    Agreed. Why use your own, when you can borrow for nothing? But the gist of Rick’s point is well taken in any event. Something is not ‘right’. It’s kinda like paradise, and then a Tornado comes along to ruin the day – maybe even the decade…

    Oh well, let’s hope the CFO’s of these companies have enough sense when the time is right, to cornhole a good plug of $cash into the mining sector when they start getting the jitters over the value of their $cash holdings, long about mid 2012 –

    • Robert July 22, 2011, 10:51 pm

      There is certainly an interesting question to address:

      How will zero percent interest rates resolve itself against the hoarding of so much cash?

      M2 aggregate is climbing aggressively again, after tailing off in 2010…

      Who out there dares to argue that this suggests future falling prices (what so many call deflation) ?

      Look, Krugman, Bernanke, and other Keynes protoges believe that wealth concentration (or hoarding if you must call it that) is unhealthy and antithetical to a healthy economy, and the Fed has unlimited power to destroy the economic value of only one particular hoarded item- the USDollar. So, if you are saving in dollars, don’t say you weren’t warned.

      Why is Krugman such a stimulus- monger? because he still still cross-applies the ideas of liquidity and solvency. In Krugman’s mind, every market that is adequately liquid can not contain participants that are insolvent. Thus- his permanent fear of “deflation” is born.

      Here’s the alternative scenario that I don’t often hear anyone talking about:

      What if Prices and interest rates remained in their current paralytical states and the global economy ground to a stop anyway?

      What if the right amount of currency stimulus was applied against a natural deflationary decline in the price of gas so that gas prices remained stable, and yet people still gradually stopped driving anywhere because they slowly became aware that there was really nowhere important that they needed to be?

      What if house values stopped declining, and yet still no one was willing to either sell their current house, or buy a new house?

      What if an entire generation of College graduates decided (in unison) that they simply did not care that they were unemployed, and they simply did not care that they had amassed a 6 figure student loan burden? What if there was NO attractive incentive, and no adequate rewards out there to inspire them to go out and strive to achieve? What if this generation looked at their elders as the most ugly, stupid, corrupt (and corruptable) people they had ever seen? What could such a completely broken, dysfunctional, corrupted system possibly offer them in return for their skills, service an loyalty?

      This is the precipice I think we stand on.

      Declining prices are not bad- they reward those who do real, economically valuable work with greater buying power. This is the veil that has been pulled over your eyes due to the fact that this “deflation” also rewards the enemies of the Keynesians: the savers (or hoarders if you must call them that).

      I’ve said it before- credit and capital are NOT interchangeable in a real economy- that is the unavoidable fallacy at the basis of Keynesian theory…

  • SD1 July 22, 2011, 4:18 am

    Maybe corporate America knows something we don’t? That sitting on a mountain of cash isn’t the threat we have been led to believe?

    • Erin July 22, 2011, 1:18 pm

      No…They will be caught just like the majority of the population when the real crises unfolds here and around the world. Dollar crises cannot be far away at the rate they are destroying our buying power. We are once again getting very close to all time lows in the USD and something will give.

      There seems to be no let up in the drive to push stocks higher which will keep tremendous pressure on the dollar. Remember…Bernanke got into economics so he could “Help the people”!

      Hilarious! Dangerous times dead ahead….

    • "LED to believe" July 22, 2011, 6:03 pm

      Maybe corporate America knows something we don’t? That sitting on a mountain of cash isn’t the threat we have been LED to believe? SD1 (caps mine).

      LOTS of people being “LED to believe” MANY things, sometimes from the most UNimagined, UNsuspicious sources.

      But you succintly hit the nail on the head, SD1, when you simply, logically state, that “maybe”, the most POWERFUL and MEGARICH of Earth (plus their lapdog agenda-disseminating servants), DO “know something we don’t”.

      For think of this–IF the usa dollar is supposedly such toilet-paper garbage (as most everyone has been “LED to believe” as today’s “common wisdom”), WHY are 3-month usa T-Bills STILL paying near ZERO interest??
      (Despite “the great recession” “officially” ending over a year ago, and the supposed “inflationary” Fed “quantitative easing” machine, still at full throttle, for 3 years now?

      (As an example, how does today´s near zero rate, compare to the TRULY yearly-double-digit INFLATIONARY 1970’s in the usa, where the 3-month usa T-Bills were paying nearly double-digit interest themselves, much of that decade?)

      ——————————–

      No, there is SOMETHING ELSE going on here, and IT IS NOT INFLATION.

      ———————————

      It is DECEPTION.

      Because, massive amounts of people worldwide, are being “LED to believe”, otherwise.

      ————————————-

      For these are the 2 most pertinent OBVIOUS FACTS— 1. MAJOR world public POWERFUL corporations, and MAJOR world public POWERFUL banks, are holding back TRILLIONS in usa dollar CASH.—2. TRILLIONS of usa dollars are still being turned over, and newly purchased, in usa 3-month T-Bills, at near ZERO interest.

      Ergo, the POWERFUL and MEGARICH of the world, are WAITING for a CATACLYSMIC DEFLATIONARY event–an event that is UNAVOIDABLE, already in the cards, and MOST LIKELY to occur, in ONE fell swoop, since the ENTIRE world banking system, has been DESIGNED, to fail in EXACTLY that interlocked way, in order to achieve THE GREATEST TRANSFER OF WEALTH, in human history, into the hands of the POWERFUL and MEGARICH of the world (and their servant lapdogs).

      I mean (as I have read R.A. tell you all repeatedly), the world debt has been approx. quantified at roughly ONE QUATRILLION usa dollars (1,000 billion)–so, you tell me, what are a TEN trillion, more or less (that the Fed has used to “ease”, over last 2 years), in comparison to ONE THOUSAND trillion, in world debt?

      Thus, the POWERFUL KNOW, FOR CERTAIN, that massive deflationary, worldwide, banking systemic failure, is UNAVOIDABLE, and straight ahead.
      (They just do not exactly which DAY, or week, ALL the dominoes will topple in chain reaction; therefore, they just WAIT, and sitting on more CASH usa dollars, every day).

      Remember the infamous “flash-crash,” over a year ago, that the dji fell approx. 1,000 points, in less than an hour? And how it was blamed (after the fact), on some computerized trading flaw? (btw, the oct. 1987 crash was also blamed on computerized trading flaws).

      My personal opinion is, that there will be a “flash-crash” TWO, and the SEQUEL will be MUCH bigger, and will take the dji STRAIGHT down (like a swan dive), down to it’s last drop-spot of 2009 (circa 6700), and in probably ONE day. Or, at the most, in a handful of days (possibly stopping temporarily, for a few hours, at major support points.)

      —————————————

      And, I do not even want to get into, the social implications of this shocking event; but, my estimate would be (based on similarly unexpected devasting “lights out” events), that violent crime would INSTANTLY explode, by 1,000 fold, mainly in high density areas, such as new york, l.a., washington d.c., chicago, london, paris, rome, etc.

      And, your beloved price of an ounce of gold, would also INSTANTLY drop to, IMO, to a minimum of 1,000 usa dollars an ounce. (fyi, I expect gold at UNDER 500 usa dollars an ounce, circa $425, before the final effect of the coming massive default deflation is over, several YEARS from now— and then, maybe around 2016, TRUE inflation will commence, WHEN NO ONE IS EXPECTING IT; change, which, you can track yourself, solely by watching the interest paid on usa T-Bills, as by then, the POWERFUL AND MEGARICH will be spending their t-bill cash huge stash, in buying up ALL HARD assets, before they crank up again, and for REAL this time, the TRUE inflationary PRINTING machine).

      ——————————–

      As you probably all know, Robert Prechter, obviously, agrees with my stratospheric deflationary views; and on how the will occur in even a faster time period, that they occurred in the 2008/2009 timeframe.

      Therefore, I include below a “FREE UPDATE”, that Prechter is currently providing on his website (elliottwave.com), on the fallacious concept of “lender of last resort”; concept which is currently dominating world news, as the ultimate “perfect” safety net, to catch all.

      Yes, it is catching all–so far.

      And putting them all–in one basket.

      As designed.

      ———————————

      Prechter on Europe’s Debt Crisis: A Fuzzy Picture Made Clear
      Recognize What the REAL Problem Is

      By Robert Folsom
      Tue, 19 Jul 2011 18:00:00 ET

      “The European Union was supposed to unite Europe by providing a common currency and a lender of last resort, the European Central Bank. Lenders of last resort are a folly.”

      This quote is from the July issue of The Elliott Wave Theorist, in a section titled “Twilight of the Financial Engineers.” It’s fair to say that anyone who has followed Europe’s debt crisis would probably be stunned by the idea that lenders of last resort “are a folly.”

      After all, there’s been a rising flood of debt-crisis stories in the news since early 2010: the European Central Bank has repeatedly organized major bailouts. Yet as you keep reading the quote from The Theorist, you recognize how that is the problem:

      “All they do is ensure a system-wide crash. When there is no lender of last resort, depositors and bankers have to behave prudently. In a free market, if they were to act imprudently, their competitors would take away their depositors and clients. When there is a lender of last resort, everyone is encouraged to act imprudently until the credit system fails.”

      Whoa. Another stunning comment, but this time it’s stunningly obvious common sense. It identifies the real problem and at the same time offers the real solution. There’s more:

      “A recent opinion piece on Bloomberg said, ‘The euro has turned into a bankruptcy machine.’ (Bloomberg, 11/16) Iceland collapsed, Greece is imploding, Ireland is failing, Spain and Portugal are on the brink, Italy and Latvia are weak, and Germany and Finland are fed up. And Europe is not isolated. When the world is loaded with debt, the failure of any major sector imperils everyone. It’s like an unsecured mountain climbing chain. If one guy falls off the ledge, everyone is going down.”

      You could read countless descriptions of and opinions about Europe’s debt crisis, but none would be as straightforward and rational as what Bob Prechter just published. It’s like he adjusts the camera lens to make a fuzzy image become clear.”

      ———————————————————

      http://www.elliottwave.com/freeupdates/archives/2011/07/19/Prechter-on-Europe-s-Debt-Crisis-A-Fuzzy-Picture-Made-Clear.aspx

    • SD1 July 23, 2011, 5:25 pm

      Some great comments “Led to Believe.”