Companies hoarding cash out of fear

I hear the same thing at big companies in Silicon valley as mentioned in the article. Demand is low so manufacturing is slow, there was a huge surplus in inventory which nearly stopped manufacturing but now demand is at a 'normal slow'. Also there's fear over new taxes, as we have an anti-growth/anti-business (car, oil, coal, bank, investor, etc) administration that wants a redistribution of wealth from those who worked for it. Global demand has slowed, and dry shipping has slowed again. The stage for a global double-dip (second dip worse) is being set.

www.economist.com...

Becalmed
Jul 9th 2010, 11:21 by The Economist online | NEW YORK

ALL IS eerily quiet on the corporate front. Even though the global economy continues to grow strongly, and the economic recovery is nearly a year old even in America, corporate investment, and mergers and acquisitions, remain at low levels even though firms are sitting on record piles of cash.

This, in turn, is causing growing concern about whether the recovery can continue, or at least continue with much strength. As The Economist noted earlier this month, “If cautious firms pile up more savings, the prospects for recovery are poor.”

Why are firms so cautious? One likely factor is that they regard the outlook for the economy as highly uncertain, particularly in America and Europe. The recent combination of volatility and a declining trend in developed-world stockmarkets has reinforced concerns that already abounded in companies’ executive suites, that the recovery so far has relied too much on government spending. That, given all the recent political talk about the need for public austerity to fend off bond-market vigilantes, may not continue. Meanwhile, private-sector demand remains anaemic.

A second factor is that firms have much less need to invest now because their capacity utilisation remains at historically low levels, points out Carsten Stendevad of Citigroup’s Financial Strategy Group. Currently, for example, industrial-capacity utilisation in America is 73%. That is up from the recessionary low of 69%, but well below the 80%-plus level it was at in the years before the economic meltdown in September 2008, and during much of the 1990s. Since plants still have so much spare capacity, managers see little justification for capital spending. Citigroup forecasts that in developed countries, industry’s capital spending will fall by 3% this year after a 10% fall last year. In emerging markets, capex is expected to grow by 8% this year—not a bad rate, but far short of last year’s roaring 21% growth.
...

...More at link

they can keep their money.
in just a lil while it won't be
worth anything


wait .... it isn't now


[edit on 11-7-2010 by boondock-saint]

Corporations Sit On $1.8 Trillion Until They Get Their Way
By karoli Wednesday Jul 07, 2010 7:00am

Back in early 2008 when the primaries were heating up between Hillary Clinton and Barack Obama, a friend with contacts in high corporate places whispered a secret in my ear. The secret he told: Money sources will tighten and corporations will hoard cash in an effort to make whichever Democrat is elected a one-term wonder.

At the time I shook it off as wishful thinking. After all, he's one of those corporate guys, and saw the handwriting on the wall. Knowing he wouldn't get another Republican administration for awhile (If I had my way, it would be forever), he was just whispering silly scare threats in my ear to suppress any enthusiasm I might have had for a Democratic President.

Fast forward to July, 2010 and his words practically scream at me. Anyone who doubts what is happening in this country right now should go read Fareed Zakaria's column about why corporations are hoarding cash. Hoarding to the tune of nearly 2 TRILLION dollars, by the way.

crooksandliars.com...

Obama's CEO problem -- and ours By Fareed Zakaria
Monday, July 5, 2010
www.washingtonpost.com...

Rob Black has a theory for corporations hoarding cash, that besides the uncertainty over the health of the economy (fundamentals), Congress is late defining tax rules, they have not been governing well, so tax rules are in the air. Companies can't make decisions on expenditures without knowing what the rules are.

They have to hoard cash.

The banking industry will not give loans for expansion.

So companies are hoarding cash to cover expansion when the economy improves.

No one can rely on banks anymore after the banks scammed everyone.

The government does not understand this and its one reason the economy is not recovering.

The government gave the banks money to improve the economy.
and the banks used the money to improve there bottom line.


[edit on 13-7-2010 by ANNED]

reply to post by ANNED
Yes you're right.

What would you do though? Get near unlimited money at a low rate, and you have a choice of buying lots of cheap bank stock, or loaning it out for homes and cars of depreciating value and 10-20% leave you holding the bag?

Treasury Secretary Henry Paulson forced banks to take TARP funds in the first place. Then Congress failed to put restrictions on TARP. This created a system that was begging to be 'gamed' by anyone with borderline ethics. Not all the blame belongs to the banks by themselves.