Companies not sitting on shitloads of cash

[Po_d Mainiac]

By Brett Arends

BOSTON -- You may have heard recently that U.S. companies have emerged from the financial crisis in robust health, that they've paid down their debts, rebuilt their balance sheets and are sitting on growing piles of cash they are ready to invest in the economy.

American companies are not in robust financial shape. Federal Reserve data show that their debts have been rising, not falling. By some measures, they are now more leveraged than at any time since the Great Depression.

http://www.marketwatch.com/story/the-biggest-lie-about-us-companies-2010-08-03

[jody]

1. No one with "shitloads of cash" sits on it. As a minimum it's loaned to investors or consumers.

Problem is investors have few viable investments.

Middle-class consumers won't go into debt and unemployed consumers can't go into debt to buy things.

[zipplewrath]

2. I hate this kind of deception

"Fareed Zakaria reported that top companies "have accumulated an astonishing $1.8 trillion of cash," leaving them in the best shape, by some measures, "in almost half a century."

"There is one caveat to this, he noted: It focuses on assets and liabilities of companies within the United States. Some U.S. companies are holding net cash overseas. That may brighten the picture a little, but the overall effect is not enormous, and mostly just affects the biggest companies."

Look, the article is about basically ALL US businesses. Yes, alot of very small businesses, and even moderate size ones, are in rough shape riding out the economy. But the "top companies" or "biggest companies" have made their employment cuts, slashed inventories and are sitting well positioned to come out of the recession. It is why so many of them have been buying their own stock. Why are some businesses in the bond markets? Because credit his STILL hard to get.

Yes, things are still rough, but there is a segment of corporate America that is sitting on alot of cash ready to move.

[pscot]

7. The banks alone are sitting on enough cash

so that every other business in the country could be deadbeat and it would still look like corporations have lots of cash.

[jtuck004]

3. Consumers have a debt load that is crushing them. The few

businesses that do have money can't spend it without demand, and most, according to this chart, are leveraged way up, homes are mortgaged for at least $4 trillion more than their market value, and the banks that have them on their books would be insolvent were it not for the FASB rules. From the article:

But why is this line being spun about healthy balance sheets? For the same reason we're told other lies, myths and half-truths: Too many people have a vested interest in spinning, and too few have an interest in the actual picture.

We need a long, sober look at what we have to work with, and need to figure out a way forward that includes the 30 million (and growing) people who are unemployed or underemployed.

And we need to decide if the US is going to re-build it's wealth and use it's energy trying to emulate our late 1950's era manufacturing economy, or figure out what it is going to take to move into the 21st century and what that is going to look like.

[inna]

4. I saw that piece last night, and it didn't make a bit of sense.

Actually, I'd pay money (maybe a dollar) to have the author sit down with me and explain wtf he meant.

[jtuck004]

5. Here's another site with a similar take

See, I told You So (Again): Corporate Balance Sheets


BOSTON -- You may have heard recently that U.S. companies have emerged from the financial crisis in robust health, that they've paid down their debts, rebuilt their balance sheets and are sitting on growing piles of cash they are ready to invest in the economy.

...

It all sounds wonderful for investors and the U.S. economy. There's just one problem: It's a crock.

...

I noticed that the chart stopped at 2008, so I went to the Fed Data, and in fact business borrowing tailed off a bit this year - this is reflected in this post...so while they may have cash in their accounts, one needs to know the liabilities to know what that really means. Off to the reports...

More here...

[dpark08w]

6. companies,piles of cash

Business better have a lot of cash cause they will have to use
it to pay new taxes to bail out the Public Employee Unions.

[JohnWxy]

8. I thought one of the comments to Arend's simplification of the situation was noteworthy:

http://www.marketwatch.com/story/the-biggest-lie-about-us-companies-2010-08-03#comment4468346

SmartGuyStocks 1 day ago

Seems Mr. Arends misses some critical points not forwarded courtesy of Smithers in London.

1) The reason companies are flocking to raise money is because it's the cheapest in a century. As older obligations mature, they will roll off leaving insanely cheap money.

2) To compare Suzy Subprime to companies with real cash flow is severely ignorant. Bond traders are some of the brightest investors in the world. If companies were buried in debt with no cash flow in the current economic environment, no one would lend them money and the stocks would be marked with a scarlet letter.

3) Non-financials includes capital intensive sectors such as industrials which ALWAYS carry heavy debt loads. During an economic period such as the one we're experiencing, they skew the data because their revenues are lower thus making debt ratios look astronomical.

4) To brush off the "domestic debt" versus US GDP footnote regarding foreign sales and foreign GDP shows little to no understanding for the globalized economy. An overwhelming amount of public companies do business outside the US.

5) It's no secret the corporate bond market has been hot. Mr. Arends uncovers no conspiracy. What he does do is presume bond experts such as Bill Gross don't understand their business because Gross is actually recommending stocks based on the current data. If top traders were worried about a big charade, the CDS market would be offering major signals.

Therefore, either Smithers and Arends have truly uncovered the cancer of the world, or they simply don't appreciate the complexities of the cycle. Either way, bold move. But I put my money with the traders, not the journalists.

[JohnWxy]

9. Here's an article from USA Today - Companies hold record $837B in cash, yet won't hire workers

http://www.usatoday.com/money/companies/2010-07-28-cashcows28_ST_N.htm

The article notes that companies over the last couple of years have reduced investment in plant and equipment...

"Dwarfing money spent on investments. Non-financial S&P 500 companies invested $130 billion on new facilities and equipment in the fourth quarter of 2009, the latest data available from S&P. That's an improvement from the previous three quarters, but down 12% from the levels a year earlier."


If you are not investing as much in plant and equipment, your assets are getting older on average and therefore have been written down more. THis brings down the asset side of the B/S and increases Liabilities relative to total assets even if you haven't acquired new debt.

Since the Deregulation Disaster hit in 2008 it's hard for me to imagine what companies would have been investing in terms of Capital Equipment (these are the kind of acquisitions that are generally funded with borrowed money). Their sales have tanked. Nobody is thinking about expansion right now.

"The stockpiling of cash is troubling to some, who say that if companies keep hoarding money instead of investing in new facilities and products, it will put a lid on what the economy really needs to get going: new jobs. "Managers are being overly conservative until they're positive the crisis is over," says Kathleen Kahle, professor of finance at the University of Arizona. "They don't want to invest and add jobs, so they're delaying and don't want to be the first movers."