The Fallacy Of “Record Corporate Cash”
by ilene - July 6th, 2010 7:37 pm
The Fallacy Of "Record Corporate Cash"
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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Meltup “Abysmal Volume” Summer Approaches, Even As Americans Now Openly Shun Stocks
by ilene - June 15th, 2010 12:13 pm
Meltup "Abysmal Volume" Summer Approaches, Even As Americans Now Openly Shun Stocks
Courtesy of Tyler Durden
As algos now focus exclusively on gaming the EURJPY and other funding currency pairs, the stock market is completely dead and trades purely as a correlation and hedging pair. With under two hours into the trading day, we are already at 40% below average volume: don’t be surprised to see a 5%, 15% or 50% market up move if we drop to below 50% of cumulative.
In other news, the LA Times reports that Americans, for the most part, have now officially said goodbye to stocks. With a broken market such as what is evident every single day, who can blame them. Bernanke has officially failed to lead the lemmings into a risky asset reflation, as primary dealers, HFT algos and mutual funds will need to take profits occasionally, and every time this happens we will see another, ever flashier crash.
The amount Americans have in basic savings accounts at banks and thrifts rose to a record $5.06 trillion at the end of May, a jump of $209 billion since the start of the year.
But even as bond portfolios now hold a record $2.4 trillion, individuals and institutions still sit with $2.8 trillion in money market mutual funds that pay next to nothing. The average annualized fund yield is a barely detectable 0.04%.
The world’s richest people, too, are hoarding cash. You might imagine that they got wealthy by taking risks, not by playing it safe with their money. But they’re playing it safe now: The annual Boston Consulting Group report on the world’s millionaires, issued this week, estimated that those households (there are 11.2 million of them) overall hold 48% of their financial assets in cash accounts, up from 44% in 2007.
We all know where to affix the blame for this state of affairs. In the wake of the world’s worst financial crisis since the Great Depression, and the devastation it wrought on stocks and real estate values, fear has triumphed over greed. For many investors, capital preservation now trumps all else.
Some large portion of the population that was comfortable in 2007 having, say 60% of their money in stocks, 30% in bonds and 10% in cash now has significantly lowered the amount allocated to stocks. Watching the market drop 50% in six months
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the site