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The Fallacy Of “Record Corporate Cash”

The Fallacy Of "Record Corporate Cash"

Lightning is an atmospheric discharge of electricity accompanied by thunder, which typically occurs during thunderstorms. There are approximately 16 million lightning storms in the world every year.

Courtesy of Karl Denninger of The Market Ticker 

How many times have you heard that: "Corporations are flush with cash; they have record amounts of free cash on their balance sheets"?

Dozens, right?

It’s touted as a positive thing.

Baloney.

Corporations hoard cash when they are convinced that things are going to get bad.  No corporation hoards cash if it has somewhere better to deploy it - that is, somewhere it is convinced it can invest and produce a return for the business.

So what does a "record level of cash" tell us about business prospects?  Simple: Business sucks today and forward prospects are deteriorating, not improving.

Simply put, businesses not only fear the need for all that cash, they have no compelling places to invest in the growth of the company’s revenues and profits.  They can’t make the argument for expanding their plant, hiring, an M&A deal or even a stock buyback.  They expect a hard rain or worse, an outbreak of tornadoes, not smooth sailing and fair skies.

Don’t be suckered by the mainstream media. 


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