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Why Are Corporations Hoarding Trillions?

• bobby_9x 11y ago
  It's the same reason I save my money: for opportunities when prices are low. This is especially relevant now that the stock market is tanking. Most people with any kind of money think this way.
  • mschuster91 11y ago
    > It's the same reason I save my money: for opportunities when prices are low The problem is: how do you know if the time is right (i.e. ten years later you can say "I invested in the lowest possible price")? Possibility A: you invest too early, stock drops further and you can't recover in a reasonably long time frame (e.g. 1 year) Possibility B: you invest too late, and people who invested before you made more profit in retrospect Possibility C: you invest at the right time frame and made a nice chunk of cash Possibility D, especially likely with unicorns: either A, B or C after a year... and two more years pass by, and the company goes bust (Myspace!)
    • analyst74 11y ago
      The trick is, you don't invest during the downturn, hence all the cash hoarding. You invest after it bottoms out for a while. Macro economies do not recover like a rocket, the window to invest is very large, so large that if you only recognized the bottoming out a couple years later, you still haven't missed the opportunity.
      • petercooper 11y ago
        That is a really interesting point. So I've never invested in stocks before (preferring to invest in my own business) but have decided to diversify and am only seeking returns in a 5-15 year bracket (but want to minimize 1-5 year downside so it could potentially work as an extra emergency fund too). I had assumed being 20%+ off of the highs, it'd be a good idea to start getting involved now, but.. maybe I should wait until a clear "bottom out" is showing?
        • throwaway_1010 11y ago
          So long as you don't wait forever. The market bottom of any exchange or stock is $0.00. The market, will likely never actually "bottom out". Look into DCA Dollar Cost Averaging. I personally, and professionally, manage DCA strategies with applying additional infusions during obvious lows (example: markets are down 10% in a given period). The bottom of a cycle can undulate "sideways" a bit over a period of weeks, months, years, decades with few discernible entry or exit points. Sometimes after an "event" occurs, the market/stock jumps XX% and opportunities may not occur again in the near future (goes sideways at new level). I note sideways markets/stocks and calculate the risk/reward if I deem it an opportune time. In most markets stocks don't go sideways forever.
        • kspaans 11y ago
          Don't try to time the market, it's a fool's game. Do regular purchases of a broad index ETF (exchange traded fund, low fees!), AKA dollar cost averaging as another child mentions. If you are worried about downswings, keep your portfolio balanced to roughly 50% equities and 50% bonds (there are broad bond index ETFs too).
        • ScottBurson 11y ago
          I can only offer you my personal opinion, which could well be wrong. I can take no responsibility for what you do with your money. That said, my opinion is this: there's far more risk than potential reward in the market right now, even after this drop. This is probably the beginning of a bear market that could last, I don't know, anywhere from maybe 6 to 18 months. I would definitely not suggest buying until it's clearly over. EDITED to add: here's a good summary: http://seekingalpha.com/article/3825236-bear-market-phases-see http://seekingalpha.com/article/3825236-bear-market-phases-s...
    • AnimalMuppet 11y ago
      You don't know. Nobody knows. So you make your best guess, and you don't put all your eggs in one basket.
    • throwaway_1010 11y ago
      Who cares if the investment doesn't maximize potential profit? If someone invests $50 and gets $100 in return, that's great. If someone else invests $50 and gets $99.42 in return, that's great too, and who cares if someone made more 'profit' from buying and holding an imaginary financial instrument? The point is: buy "lower", sell "higher" is close enough to buy at the lowest point and sell at the highest point. But other factors come into play on why someone would sell at any time. Theoretically, ceteris paribus mutatis mutandis, if you invest in some company that happens to survive a thousand years into the future and has an annual average ROR of 7%, you should never sell it, even after your death if you want to maximize profit...buy low-ish, sell high-ish as convenient and with common sense. Theoretical perfectly maximized trades should not be the concern of the investor. Count dollars instead of pennies. The problem you refer to is formally known as "Risk" aka Risk Capital.
  • forgetsusername 11y ago
    >It's the same reason I save my money: for opportunities when prices are low. So then you buy low, and no longer have money saved for even lower opportunities. The logic of this plan doesn't make sense. You can't both be saving for and spending on opportunities, and you have no way of knowing when or what opportunities might arise. >Most people with any kind of money think this way. According to...?
    • throwaway_1010 11y ago
      The logic of this plan is basic and has stood the test of time in any multi-party market. You can save and spend at the same time, I do it all of the time, it's called budgeting. You are mired in theoretical perfection, absolutism, and a misunderstanding of how to profit from investing or trading. On the Street this "plan" is referred to as "Keeping the Powder dry". You don't [rationally] blow the whole keg of powder on one trade. If I have $10k to invest, I might only invest ("fire", "blow", "shoot" )$2k at a current market/stock low and keep the rest "dry". What is your investment strategy? Invest at the market/stock highs? According to...people that have actually invested. Some positions lose money, some make money, but you'll never know what it's like until you get off the bench and put some skin in the game. Always be comfortable with losing what you invested, because you might lose it. Always be comfortable with taking a profit, because you might lose it.
      • zardo 11y ago
        >What is your investment strategy? Invest at the market/stock highs? I try to keep in mind that markets are unpredictable, and missing out on growth while you wait for the next crash can cost you money too, even if it doesn't feel as bad as a position you hold losing value. I invest about the same amount every paycheck whether people are crying bear, bull, bubble, or apocalypse.
        • throwaway_1010 11y ago
          Succinct. Exactly. Dollar Cost Averaging. For buys and when buying call options or selling puts, I increase commitment while maintaining the core strategy. Highs and lows are arbitrary in an irrational market. Profits can be increased if buying at "relative" lows or selling at "relative" highs. If a stock that trades at its highest yet value of $100/share falls to $80/share over a week because of a lawsuit claim or other similar construct, but the company is otherwise outperforming, that may be a buying opp (it may be a total loss, but that differential is risk/opportunity). That stock, at $80/share is at a "relative" low as compared to its high of $100. That is what I meant by low and high. Perfect maximization is possible, though almost always unlikely. Which is why your DCA strategy should outperform (depending on your investment choices, of course).
  • jameshart 11y ago
    When everybody is thinking that way about capital purchases, you get a deflationary spiral...
    • AnimalMuppet 11y ago
      Only until people with money decide that prices are low.
    • jayess 11y ago
      Which is only a bad thing when everyone is up to their eyeballs in debt.
• jeffreymanu 11y ago
  What many outside the government and corporate world do not know is that there is a storm coming(cue ominous music.) Corporations are struggling and only few people know what is going on. What we are seeing from some are just protective measures that will not work long term. The better thing to do is to invest in massive value creation.
• digikata 11y ago
  It seems to me that holding large amounts of cash is only viable when inflation stays low. So a higher level of inflation might cause the release of some of these huge cash reserves in the form of real investment (real in terms of hands doing work instead of moving the cash to some other financial instrument)...
  • brianwawok 11y ago
    I mean, cash doesn't need to literally be a pile of money right? It could be in some kind of ultra short term instrument that has some kind of inflation protection. Normal people could buy t-bonds to exactly match inflation. Not sure what options are out there when you have 100 billion dollars - but something like interest rate futures could hedge you against inflation risk.
    • lmm 11y ago
      Inflation goes hand in hand with growth, you can't hedge away changes in real value. If cash can be put to productive use, people who hoard it will do less well than those who put it to work.
• tracker1 11y ago
  I've often said that the key to improving investment is to eliminate corporate taxes, tax foreign currency movements (when money moves out of the country), and to put limits on the amount of unutilized/under-utilized assets a corporation can hold onto, and for how long. Corporations better serve the public good when they are spending, and beyond that spending domestically. By shifting funds out of the country and/or otherwise sitting on assets, there's a reduction in economic potential as a whole and said corporation is less serving of the public good. Corporations are meant to serve the public good by encouraging investment and limiting liability of investors not involved in decision making. Corporate behavior today doesn't reflect this.
  • r00fus 11y ago
    Seems like that's a proposal that's trivial to exploit, I can think of at least a couple of ways off the top of my head: shell companies funds-shuffling, related companies wash buying/selling, etc.
    • Nrsolis 11y ago
      Adding in another market distortion isn't going to help matters, you only create opportunities for people to game the system in an ever increasing effort to explore the law of unintended consequences. Those funds are held (usually) as US Treasury securities, or are at least hedged against any local currency risk, much the same way that any sovereign maintains a certain amount of foreign currency reserve. The most direct way to solve this issue is simply to say that profits earned in foreign jurisdictions are free from US tax. That's effectively what the British do and it's worked well for them vis a vis tax policy. The second most direct way to solve this issue is to offer reduced taxes for profits earned overseas. This encourages an export-driven economy because funds earned overseas are taxed less than funds earned here. The "problem" that everyone seems to be solving is: how do we enable the government to take the money of these evil corporations? That's the wrong goal. The best strategy is to align the goals of the country/people and the corporations. We haven't done that for a long time.
      • 11y ago
• vinceguidry 11y ago
  Investing money is work. You have to sink resources into it. If you don't, then you will assuredly lose that money. A guaranteed return is better than an assured loss.
  • apaprocki 11y ago
    Holding cash is essentially an investment in the sovereign government that controls that currency. Simply sitting on cash does not imply little or no risk.
    • vinceguidry 11y ago
      It's not risk-less, but it's way less risky than every other alternative.
      • apaprocki 11y ago
        Possibly only if you are operating in a single market. If you have currency/soverign risk because you are selling in 100 countries, it's way more complex. I bet Apple doesn't consider all the rubles they have from their operations in Russia as less risky than parking it in US treasuries. The problem is getting it there...
        • vinceguidry 11y ago
          > I bet Apple doesn't consider all the rubles they have from their operations in Russia as less risky than parking it in US treasuries. They certainly have somebody looking at it. There's more than one component to risk. Sure, holding rubles in a Russian bank is risky, but that risk isn't really of losing your whole pile all at once. So you have time to leave your position if it gets more dangerous.
    • rchaud 11y ago
      They are not sitting on the cash. The article worded this very poorly. While all companies hold cash for managing day to day operations, a lot of the 2 trillion or whatever the number is, is parked in CDs, Treasuries, Bonds, etc. i.e., income-generating investments. Financial statements require companies to disclose "Cash and Cash Equivalents"; much of the hoarded money is in the form of investments that can be quickly converted to cash. It would be foolish to simply park non-essential funds in a savings account making 1%/yr.
• golergka 11y ago
  What the CEO and upper management of these corporations say about this? Surely, they were asked about this by shareholders?
  • forgetsusername 11y ago
    >Surely, they were asked about this by shareholders? Except it's the hot, new Silicon Valley thing to structure your company as to not give your shareholders any power or voting rights.
    • golergka 11y ago
      But the worst offender they list is General Motors.
• mschuster91 11y ago
  > Remarkably, the United States government was able to tax all that productive corporate behavior so much that it came close to paying off all its debts for the first time in 160 years. The current US debt is over 18.900.000.000.000 $ (http://www.usdebtclock.org/# http://www.usdebtclock.org/#). Am I getting the author right that the US managed to put on 18 B $ in 20 years?!
  • mratzloff 11y ago
    Trillion. Here's a chart of debt as a proportion of GDP: http://dailyreckoning.com/dr-content/uploads/2015/06/Historical-US-Debt.jpg http://dailyreckoning.com/dr-content/uploads/2015/06/Histori...
    • forgetsusername 11y ago
      Why is it that people always talk about only one side of the accounting ledger? The US has a net worth of nearly $150 trillion dollars. Who cares about the absolute value of debt?
      • vetinari 11y ago
        That $150 trillion - is that book value, or fair value?
        • forgetsusername 11y ago
          I assume it's a combination of both; I very much doubt that all ~$250 TRILLION in assets are being marked-to-market. And, being as how both assets and liabilities will use the same accounting measure, I don't think it matters.
      • zanny 11y ago
        That's not absolute debt, that is debt relative to GDP as a percentage. Its a measure of, effectively, how long it would take the US to pay off its debt if it forced itself to operate in the green, since there is a limit on how much you can tax out of an economy without causing it to contract, and GDP is a flawed but relative measure of what you can potentially tax.
• tyingq 11y ago
  This article does a good job of explaining: http://www.dailyfinance.com/on/corporations-cash-hoard-trillion-profits/ http://www.dailyfinance.com/on/corporations-cash-hoard-trill... Some interesting excerpts: "Four of the top five holders of cash are tech companies ...who together possess...about 23 percent of all cash owned by corporate America today. Overall, the tech sector controls more than half of such cash" "about 60 percent of [non-financial corporate] cash piles are offshore and subject to as much as 35 percent tax if brought back to the U.S."
  • tamana 11y ago
    The simple answer is that these companies have leveraged the immense economies of scale in their info-tech niches, and are soaking up billions of consumers' money but there's nothing else for them to buy. This is the sort of purchasing power imbalance that caused the Great Depression. The good news is that even if Depression hits, we still have access to web apps.
    • shostack 11y ago
      Another viewpoint might be that if the economy is indeed in for a slow or down period (which is certainly not a guarantee at this point), they will be better equipped to weather the storm and seize opportunities that arise (ex: acquiring competitors who could not survive). Personally I'd love to see them throw around that cash to bring serious competition to a few specific markets. Cell phones and cable are the big ones (and Google is already getting started there). Looks like they are plans to do similar things with VR, robotics, and automated vehicles.
    • zardo 11y ago
      We may not have farms, but at least we'll still have farmville.
• csense 11y ago
  I think it's because the Fed's past easy-money policies (QE). The idea of QE is that the Fed puts a ton of cash into the market in order to encourage investment. However investment pushes asset valuations higher. Once asset valuations are high enough, people stop investing because the fundamentals don't support the valuations. The money injected by the Fed will eventually be absorbed by inflation and the Fed reversing course and raising rates to suck money out of the market. But inflation's been low and the Fed's only done a single, very recent increase in interest rates, so "eventually" hasn't arrived yet. I think the "big thing" they're waiting for is for the investment market to become less competitive. One way it becomes less competitive is with investors exiting the market (because they have things to spend their cash on, like bonds), another way it becomes less competitive is with more startups to invest in. So by this analysis, the next couple years will be a great time to own equity/options in a startup -- those balance sheets are just waiting for the right opportunity to make an acquisition.
  • forgetsusername 11y ago
    >The money injected by the Fed will eventually be absorbed by inflation and the Fed reversing course and raising rates to suck money out of the market. But inflation's been low and the Fed's only done a single, very recent increase in interest rates, so "eventually" hasn't arrived yet. Do you understand the relationship between interest rates and inflation?
    • csense 11y ago
      My understanding is that if Fed holds IR on bonds low, money exits bonds and goes into the market, causing inflationary effect (more money chasing same amount of goods). If Fed increases IR, money exits the market and goes into bonds, causing deflationary effect (less money chasing same amount of goods).
• ryandrake 11y ago
  Looks like the TL;DR of this article is: "Corporate leadership, being so much smarter than the rest of us dummies, sees something big on the horizon coming. They're saving all their cash so they can later invest because "the next transformative innovation could be just around the corner". Apparently they're smart enough to hoard all this cash, but not smart enough to know exactly what that transformative innovation is so they can get started on it right now. Let me propose an alternate theory: They're no smarter than the rest of us, and NOBODY knows what to invest in anymore. Corporate leadership is uncreative and can't think of anything else to do with that money that will produce returns in excess of what they're already doing. Shareholders don't want the money back (they'll just turn around and invest it into another company that already has a pile of cash). And they sure as shit won't throw a bone to employees (whose wages have been stagnant for a decade). So, what are they going to do with it all? Who knows? Let it sit in a bank account!
  • fennecfoxen 11y ago
    As a corporation, the traditional thing to do with cash you don't need is to return it to your owners, either through dividends or through share repurchases: If the owners wanted to own money sitting in a bank account, they could put the money in a bank account themselves. If they wanted to own a company, they'd be better off owning just the business part without a chunk of low-return cash attached. Beyond basic liquidity needs, a pile of cash can only drag a company down. Naturally, returning money works much better when taxes on dividends are low, or when stock prices are low (so you can give the remaining owners a better bang for the buck). Both taxes and stock prices have risen since the crash, however, and spending a cash horde on taxes or on overpriced company stock are a worse drag on the company than holding it.
    • bradleyjg 11y ago
      If you expect your shareholders to get much better overall tax treatment on the money sometime in the relatively near future, it makes a lot of sense to hold on to it. Especially with respect to money earned abroad, I'd think that's a decent guess. In particular, I'd expect there will be another one-time-only-we-really-mean-it-this-time repatriation holiday in 2017 or 18.
• ksdale 11y ago
  Theoretically the value of all that cash should be baked into the share price. If shareholders think they can better invest the money, they can sell their shares take their money elsewhere, and only have to pay capital gains tax. If the companies repatriate the cash, they have to pay tax right now which eats up a substantial percentage. Then they still have to find something to do with the cash. If they pay it out to shareholders there will be an additional dividend tax at the individual level so most shareholders would receive like 50 cents on the dollar for the dollars abroad.
  • tomp 11y ago
    By this logic, every dollar abroad should be worth only 50 cent in the price of a share - after all, that's the real value of that cash after all taxes (contrasted to the accounting value of the dollars on the companies' annual report).
    • ksdale 11y ago
      You're right that it's probably discounted somehow by some investors, but it's also worth it's full value if they choose to spend it abroad, so it's not necessarily worth exactly what it would be worth if they repatriated it and paid it out as dividends. The discount depends on what the shareholders think will happen to the money, and I don't think anyone is predicting repatriation any time soon.
  • tamana 11y ago
    Shareholders have to sell the business AND the cash together. That's the concern. If you want to invest in the say 10% ROI business, you have to also invest in the 0% ROI cash hoard at the same time, at a fixed proportion.
• mizchief2 11y ago
  If they paid it out they would have to pay the corporate tax and it's shareholders the capital gains tax. By hording it, it keeps the stock price high as they "could" pay it out in dividends. Then the shareholders go and get a nice almost zero interest loan using the stock as collateral and service the interest via the much smaller dividends or other sources of income and pay no taxes on the loan.
• iSnow 11y ago
  I don't think the reasons are that hard to understand. M&A opportunities outside the core business are especially hard to integrate in the software sector. Google and Apple never got social right - social is a field with such extreme network effects that it tends to create natural monopolies. Buying up smaller companies in that field doesn't provide a lot of help in cracking FB's castle. OTOH, Apple and Google are outcompeting each other in mobile - no other company is currently making big inroads, not even MS, even though they see it as a critical playing field for their future. And why would one of the big tech giants buy out old-economy companies (eg. in automotive) if they believe disrupting that field with innovation is much more likely to succeed? In the end, the international financial system let's them get away with hoarding and shuffling around the billions and the companies don't see killer investment opportunities. In a low-inflation period, just stuffing the money under the pillow is probably better than burning it on failed M&A.
• phkahler 11y ago
  The economy grows and you get inflation when interest rates are lowered. It shrinks and you are likely to get deflation when rates are raised. The rate lever was getting reduced over the last 30 years and is not at zero. Anyone can see the only way for rates to go is up, and the value of cash is likely to increase in the near future. I honestly don't see any need for mystery in that. There's also the notion that a companies stock price should be tied to its dividends, or at the very least it's ability to pay a dividend. If you want to buy low/sell high, you're assuming you are smarter than other people. If you want to buy and get income from dividends/profits you are a more realistic investor and will be interested in the P/E ratio. A hoard of cash is going to help stabilize the stock price - market cap should never fall below the value of the assets.
  • tamana 11y ago
    What's the point of stabilizing stock, price, when instead you can just have cash in bank plus an unstable lowe price stock?
    • joezydeco 11y ago
      Keeping the stock price high fends off hostile takeovers and negative feedback loops from nervous sellers. This is my main theory about why companies are hoarding cash. They're tired of being at the mercy of the traders.
• BIackSwan 11y ago
  I don't get it. The article does not point out even an attempt to ask the leaders of the said corporations - "Why?". Its better to ask to get some semblance of their thinking instead of pure speculation.
  • jayess 11y ago
    It's easier to speculate than do actual journalism. Particularly ideological journalism, a la the New York Times.
  • grp 11y ago
    The author seems to have a kind of old century overconfidence in the value of the dollar. I hope he uses only one currency for pratical reasons. And I would rather read an article that use ratios between liquid/static moneys those corporations got instead of random values. (I'm one of those that believes static money has no value, had and/or may have, but in reality it's absolute zero).
• trjordan 11y ago
  One theory I'm currently fond of is that the band of growth where unicorns live ($100mil -> $1bil in valuation) used to be accessible to the public markets, but it's recently only become available to private investors. This creates weird distortions in investment behavior, because it means investments seeking this behavior have to trickle down to VC or acquisition. This could be way this comes about -- by investing in Google or Apple, you're effectively investing in a 10-year VC fund. Sure they're sitting on a lot, but hopefully they make enough acquisitions with it + "raise" enough more during that time that it looks like the cash is going to work.
• amazing_jose 11y ago
  What if it's just people (exec) thinking that we are going to see a huge contraction in liquidity in the next 10 years? It could be an early warning that the central banks have injected too much money into the economy and the economy, saturated, instead of surrender to hyperinflation has "decided" to put the money under the pillow before is scarce (higher interest rates again).
• chatmasta 11y ago
  I'm surprised nobody has mentioned the geopolitical advantages of hoarding cash. A big pile of untaxed, uninvested cash represents a significant political bargaining chip for the corporation in control of it. Apple can extract more from negotiations with the US government, for example, when it's holding $100b USD offshore. Quite simply, that money is leverage. Over the next several decades we will see the decline of the nation state as the primary geopolitical powerbroker. Corporations already exert significant control over politics, and this trend will only continue. Perhaps what the executives see that us plebes do not, is that this geopolitical shift has already begun, and is much further along than anyone realizes.
  • jandrese 11y ago
    Sigh, I was really hoping Cyberpunk stories from the 80s wouldn't turn out to be prophetic.
    • chatmasta 11y ago
      Unfortunately more of them come true every month... On the bright side, at least cryptographers excel at predicting threat models.
    • snowwrestler 11y ago
      In reality they have turned out to be the opposite of prophetic. National governments are more powerful today, relative to corporations, than they were in 1992, when Snow Crash was published. In the 90s, a lot of people thought that businesses would leverage networked computer technologies to disrupt governments. People thought the Internet would be a new medium of exchanging information and wealth, impossible for governments to monitor and regulate. Does anyone think that anymore? What we see today--thanks to Edward Snowden and others--is that the Internet is thoroughly dominated by national governments. They have the best hackers and invest in the strongest technologies. For example it's hard to think of a smarter tech company than Google, and the GCHQ picked their pocket easily with MUSCULAR. Rather that disrupting the government, core technology companies like AT&T enthusiastically work with the government.
  • 11y ago
• rrggrr 11y ago
  Expenditures and investments by these companies have to be justified on the basis of expected returns. The constraints sequestering the money: - Valuations for acquisitions that exceed expected ROI. - Taxes on repatriated funds. - Dearth of top-end human talent to manage the acquisitions and investments. - Pervasive fear in corporate board rooms that the day of reckoning for quantitative easing and US debt is still ahead. - Changing demographics whereby consumers wealth is held by low spenders (older folks), rather than high spenders (younger folks). Its a combination of factors.
• Animats 11y ago
  The US is out of demand. Workers are spent out. Thus, there's no need to increase output, because nobody has the money to buy it. The US has huge excess manufacturing capacity, thousands of malls which could handle more traffic ("there's always parking at Sears", a rather pathetic ad), and services which could handle more business. There's a glut of capital, plenty of available unemployed or underemployed workers, no shortage of commercial real estate outside of a few cities, but no way to use it. The CEO of WalMart has mentioned this. They have a direct view into the spent-out economy - same-store sales data. Sales decline each week after payday, then recover after payday. Sales move to necessities later in the month. That's why companies aren't investing in capacity.
  • jandrese 11y ago
    This is the ultimate problem with "trickle down" economics. Capital doesn't drive growth. Lack of capital limits growth, but excess capital doesn't generate additional growth. Demand drives growth and 35 years of stagnant wages (wages are basically where they were in 1981) have put a chokehold on growth. This is why you have the seemingly incongruous effect of high taxes encouraging growth and low taxes stifling it. Ultimately "high taxes" tend to effect the rich a lot more than the poor, and the money ends up being redistributed somewhat equally, spurring demand as the poor can suddenly afford a lot more good and services.
    • deleted 11y ago
      [deleted]
    • partiallypro 11y ago
      That's not "trickle down" economics, which is not actually a real thing at all. That's a nonsensical political term that the Democrats seized upon during Reagan's "supply side" economic policy; which has beginnings much earlier than Reagan, and likely older than Jean-Baptiste Say's formulation. There isn't an idea that alone "capital drives growth," that's an idea that Keynes came up with by misreading Jean-Baptiste Say. Paraphrasing him to say that "supply creates its own demand," which we all know is nonsensical, but that's not what Jean-Baptiste Say was saying. The idea is far more complicated than your simple explanation offers, though I sympathize with your view (though, at least the second paragraph is almost entirely wrong), it is narrow in its scope to the study of economics.
• vellum 11y ago
  According to this Bloomberg article, companies have $2.1 trillion sitting offshore for tax reasons [1]. They're probably waiting for Congress to let them bring home the cash, tax-free. However, the last time that happened (2004), it was done to encourage companies to create jobs. Instead, they spent it buying company stock. [2] 1 - http://www.bloomberg.com/news/articles/2015-03-04/u-s-companies-are-stashing-2-1-trillion-overseas-to-avoid-taxes http://www.bloomberg.com/news/articles/2015-03-04/u-s-compan... 2 - http://www.theguardian.com/money/us-money-blog/2015/jun/13/repatriate-profits-encourage-corporate-tax-avoiders http://www.theguardian.com/money/us-money-blog/2015/jun/13/r...
  • ju-st 11y ago
    As far as I know the US taxes the income of its citizens even when they live outside the US. So why can't the US just tax the offshore income of the companies?
    • jerf 11y ago
      "So why can't the US just tax the offshore income of the companies?" There's 2.1 trillion reasons....
    • ryanlol 11y ago
      Because the US needs the businesses, not the other way around.
      • bsder 11y ago
        That's quite funny. If the US blocked a company from it's market, that company would collapse practically overnight. The US is the most profitable market in the world with the EU running not too far behind. Think about Alibaba--it's profit is about connecting Chinese sellers to the profitable markets in the US and EU--not about connecting to other Chinese suppliers.
        • ryanlol 11y ago
          But the US can't just block offshore companies from its market without absolutely destroying its economy. What do you think would happen if the US suddenly decided that no company can do business in the US without paying taxes to the US for their offshore profits?
• nstj 11y ago
  Why would the author substitute the terms 'cash', 'savings' and 'profits' in the article given their entirely different meanings? Corporations could be sitting on trillions of dollars in 'cash' if they wanted, with zero 'savings' and zero 'profits'. The whole article seems somewhat contradictory.
• frogpelt 11y ago
  My theory is that when the QE rounds started and trillions of dollars were pumped into the economy (major inflationary red flag), the velocity of money dropped like a rock (major deflationary red flag) as a natural reaction. EDIT: The reason is likely tied to the fact that interest rates sat on the bottom for the last 5-8 years and holding money was just as valuable as investing it. See the article[1] on the St. Louis Fed's website. 1. https://www.stlouisfed.org/On-The-Economy/2014/September/What-Does-Money-Velocity-Tell-Us-about-Low-Inflation-in-the-US https://www.stlouisfed.org/On-The-Economy/2014/September/Wha...
  • evanpw 11y ago
    The increase in excess reserves is not mysterious. The Fed starting paying 0.25% on them in 2008 (now 0.50%) while other interest rates were near zero.
    • dnautics 11y ago
      Eventually some minor crisis will trigger spending, all this excess cash will hit the system like a floodgate, and we will have an inflation spiral (because suddenly hoarding will be a bad idea). And the irony is that the ethical justification for the fed is that it is supposed to be countercyclical, and thus 'good for society'.
      • AngrySkillzz 11y ago
        https://www.kreditopferhilfe.net/docs/S_and_P__Repeat_After_Me_8_14_13.pdf https://www.kreditopferhilfe.net/docs/S_and_P__Repeat_After_...
• AJ007 11y ago
  The liabilities side of US corporations balance sheet makes the cash holdings far less significant than they appear. When one imagines a "hoard", we don't assume the fire breathing dragon also has bills that match the equivalent of that hoard or beyond. The expected EU tax payments for companies like Apple take another large bite out of how much of that cash is really their own. The word "hoard" is correct ("a supply or accumulation that is hidden or carefully guarded for preservation, future use, etc.") but suggesting that this money can just be unleashed upon investors or the general population in the form of capex or wage increases is silly.
• simo7 11y ago
  I suspect it's a taxation thing. Better to give back the money as capital gains than as dividends.
• ChuckMcM 11y ago
  Very much reads like the paradox of saving, where saving for a downturn, actually causes the downturn. It would be an interesting experiment to pay out a chunk of it as a bonus to their employees. Basically dump it into the economy that way.
• mc32 11y ago
  This is the NYT, and, I was hopeful they'd also include information about the state of company hoarding abroad as well as hoarding by foreign companies in their home nations, bjt they dont, so I don't know if this is uniquely American, or maybe its global, regional, etc. That said I'd like to see a look into an international tax collection agreement among nations,like they have IP rights agreements, human rights agreements, etc. in order to render foreign holdings loopholes useless.
• roymurdock 11y ago
  Summary: Many large corporations in pharma, auto, tech are becoming net savers in order to (1) avoid the taxes associated with purchasing and maintaining new assets; (2) have a warchest of cash for M&A activity as cash deals are generally much cheaper than equity/debt deals, and M&A can be more cost-effective than R&D if done correctly. Author is unconvinced that this covers the whole picture, and offers this meta-explanation: Through the 20th century, as we shifted from a horse-and-sun-powered agrarian economy to an electricity-and-motor-powered industrial economy to a silicon-based information economy, it was clear that every company had to invest in the new thing that was coming. Simplified: there isn't enough promising new tech out there to soak up all of the cash in circulation. This is a common theme that has economists asking: what will be the 4th industrial revolution, and when will we see it? [1] Is the cash hoarding good or bad? Author thinks good: If corporate leaders and their investors truly believed that the future were bleak, that innovation and economic growth were irreparably slowing, there would be little reason to hold on to all that cash. AKA that we are on the cusp of a new wave of innovation. Personally I don't believe this matches up with leading business cycle indicators, such as the stock market, employment rates, and trends federal spending as a percentage of GDP. [2] But what do I know - there could be an R&D lab somewhere out there that is tantalizingly close to bringing the next paradigm-shifting technology to market. I'd love to know what that could be. [1] http://www.nber.org/papers/w18315.pdf http://www.nber.org/papers/w18315.pdf [2] http://www.usgovernmentspending.com/recent_spending http://www.usgovernmentspending.com/recent_spending
  • maxwell 11y ago
    Seems to be autonomous transportation. Hence auto and tech. Google, Apple, and GM are the only companies named in the article. Google says they'll be ready in 2020. Apple TV has the biggest share of the streaming TV hardware market [1] and Watch almost brought in $2B last year [2]... but iPhone and iPod sales are sagging [3]. GM just put $500M into Lyft. Ford is pivoting to software and services. And so on. "Driverless" has the potential to be more like horse shoes or "iron horses" or "horseless carriages" than, say, western saddles or dieselification or automatic transmissions. Historically, dramatic changes in ground transportation seem connected with dramatic changes in how people spend time, where they live, and what they work on and value and eat. As for pharma, maybe the patent cliff? By 2020, patents on Plavix, Singulair, Diovan, Lipitor, Rituxan, Humira, Novolog, and Avastin will be expired. 1. http://advanced-television.com/2015/11/06/apple-tv-31-of-streaming-tv-hardware-market http://advanced-television.com/2015/11/06/apple-tv-31-of-str... 2. http://www.ibtimes.com/apple-watch-sales-topped-17b-apple-inc-fy-2015-2162403 http://www.ibtimes.com/apple-watch-sales-topped-17b-apple-in... 3. http://www.cnbc.com/2016/01/20/iphone-sales-worse-than-expected-ubs-analyst.html http://www.cnbc.com/2016/01/20/iphone-sales-worse-than-expec...
• tosseraccount 11y ago
  2 reasons ... "Economists ... showed in a 2009 article that the increase in the cash-to-assets ratio of firms was related tightly to precautionary motives." "[a] second motive is present for multinational firms and is due to repatriation taxes. ... firms may have incentives to keep foreign earnings abroad. As a consequence, in times of limited foreign investment opportunities and high profitability, these funds are likely to be held abroad in the form of cash." from https://www.stlouisfed.org/Publications/Regional-Economist/January-2013/Why-Are-Corporations-Holding-So-Much-Cash https://www.stlouisfed.org/Publications/Regional-Economist/J... : Why Are Corporations Holding So Much Cash? If I were to venture a third reason, it would be that with rising interest rates looming, the cost of borrowing will go up; which might be a subset of the 1st ("precautionary") explanation above.
• forgotAgain 11y ago
  Investment in hard assets like factories has been in countries with low levels of property rights. Better to let those countries provide the cash for building via state loans rather than the company investing it's own money. Then if the factory is confiscated or the company is kicked out of the country for whatever reason the loans are defaulted on and the company's money is intact.
• stickfigure 11y ago
  If the companies spent their savings, rather than hoarding them, the economy would instantly grow, and we would most likely see more jobs with better pay. The article makes it sound like these dollars are somehow being removed from the economy. If they're put in a bank, the bank loans it out to someone else. If they buy treasury bills, the government then takes the money and spends it. Even if all this money was converted to paper notes and stuffed into giant mattresses, the net effect would simply be to deflate the currency and increase the value of everyone else's money. Hoarding money isn't like hoarding oil or rice or microchips. Maybe GM spending money would grow the economy more than GM loaning it to the federal government so they can spend it, maybe not. Depends on what they spend it on - the return on education is probably higher than the return on fancy pensions or factories for products that nobody buys.
  • armenarmen 11y ago
    > If they're put in a bank, the bank loans it out to someone else. If they buy treasury bills, the government then takes the money and spends it. good call, this is Econ 101 stuff that most people just don't know. Saving money in a bank or government bonds is not the same as locking it in a vault or burying it in your backyard. It is still out moving around in the economy.
    • rchaud 11y ago
      While the article certainly worded that portion poorly, there is a difference between monetary velocity of retained earnings parked in a mutual fund, and earnings plowed back into a business. In the former scenario, it takes a much longer time for the money to flow back into the purchase of goods and services. By reinvesting in the business, there is far less of a time lag for that to result in growth-generating economic activity.
    • js8 11y ago
      I think difference between savings and investment (or consumption) is in reversibility. Savings are reversible, basically if you "invest" in any liquid enough assets that keep value, then you save. Investment (and consumption) is irreversible, once you made the decision, it's done deal - somebody does the work, energy is spent, entropy is produced and so on. That's why, contrary to mainstream economic opinion, it is useful to save. Saving lets you react to investment from competitors, by postponing the decision after they made their move. This gives you advantage (power) if you're big enough.
• secstate 11y ago
  I think my favorite part of this article is realizing how deep we all are in spin ... "disinflation"? What the hell is that? Do you mean "deflation"? But for pity's sake, let's not call a spade a spade and use the word "stagflation" which is what Japan went through, and where the US is heading. The Fed can't give banks money fast enough and consumer spending is stagnating. Sounds like a recipe for stagnating inflation to me. EDIT: My bad ... disinflation refers specifically to a decrease in inflation. Stupid English beating me again with a word for everything ;)
• oldmanjay 11y ago
  The hyperbole in the comments here is impressive.
• andrewjl 11y ago
  I doubt that the current political climate would allow for this but I wonder what would happen if the U.S. implemented a basic income program and put in place extensive support for building out more knowledge based clusters across the nation. Places like NYC and the Bay are are doing VERY well overall. (That's also where many of the corporations with large balance sheets are based.) Specific additional things I'm thinking of include free tuition, low cost small business / creative studio financing.
• littletimmy 11y ago
  The short answer is that everyone can see the current system is not sustainable, and that any change will be potentially catastrophic. Holding cash is going long on fear, and being prepared to deal with a massive crunch when it comes. The solution is to just force them to bring the money back into the US and invest. And not let the fear foment inaction.
• leeleelee 11y ago
  There's a saying something along the lines of: "if somebody owes you a million dollars, they've got a problem. if somebody owes you a billion dollars, then you've got a problem." I could be totally wrong, I'm not an economist -- but I think you encounter problems when you want to earn, let's say, 10% on $80 billion. To give an extreme example: If you give me $1 and want a 100% return on your money, then hell yes I can double your money in a day and give you back $2. If you give me $1 million then I'm going to have trouble earning you much more than whatever a savings account offers, like 2%, because I don't have a way to put that much money to work. Money doesn't magically grow, you give capital to somebody who's going to do something with it like pay some workers to produce a widget and sell them, making more money than they spent building widgets. When retail investors put money in a bank or in the stock market and it grows, it seems like it's just an automatic outcome. But somebody on the other end, after the money changes hands hundreds of thousands of times, has to be able to put that money to work. Where are corporations collectively just going to dump trillions of dollars and expect it to magically grow?
• AndyMcConachie 11y ago
  It might be interesting to see how the rise in this cash hoarding correlates with the tendency to stop paying dividends to stock owners and instead focus on growth in stock price.
• dnautics 11y ago
  An alternative narrative. This is classical economic group behavior near the top of a bubble. The fed has long goosed its lending programs with cheap money, in an effort to stimulate investment, and to avoid the spectre of spiraling deflation that they were worried would happen after the short deflation of 2009. Capitalists have then, rationally gone out in search of investments to yield a return. However, innovation is a limited resource at any given time, and we're close to tapping out on the amount of possible innovation. Moreover, realizing the full capacity of innovation is limited by the structure of society, wherein identifying entrepreneurs with actual potential is overtaken by identifying artificial 'signals' or 'tropes' of entrepreneurs: lots of false positives, charlatans, people with connections, or people who just got lucky once, are getting money, yields are decreasing. Accordingly, as capitalists identify that it is becoming difficult to find real investments, their investment behavior decreases, just as the Fed is starting to pay banks to hold cash, to shore up reserves and make banks appear more resilient in the face of their "stress tests". This is artifical disinflation, but the worst type, because normally deflation helps the poor, but by the very mechanism of the current disinflation, it's going to the top. (Austrians: Why is giving money out disinflation? Because in this case it's tied to not lending, and private lending-based monetary expansion has a multiplier effect). What to expect down the line: A minor economic crisis as happens occasionally (black swans) will start triggering capitalists to start spending their cash reserves. As this spending hits the market, prices will go up, triggering inflation measures to start accurately reflecting the pent up monetary expansion that the Fed has undergone over the past 8 or so years. As the price of goods goes up, it will no longer make sense to hold onto cash, and moreover, the smart move will be to start investing in goods producers that can take advantage of these increasing prices. We'll have an inflationary spiral spanning say 2016-2018. Don't worry, it won't be a Wiemar-republic level crisis, but it certainly will not be pleasant for the poorest Americans. I probably have some details about the macroeconomics wrong, so we shall see whether my prediction comes true. I welcome counter-explanations, and corrections to what I have to say.
  • dnautics 11y ago
    I should also say the strengthening dollar, partially due to the fed's disinflationary policy, and also due to external effects (OPEC oil activities, which are still priced in dollars) are making the dollar crazy strong relative to foreign currencies. Is disincentivising corporate spending and investment. This can't last. When the relative strength of the dollar starts to erode, take it as a leading indicator. Herding behavior will do the rest.
• spikels 11y ago
  HN is a terrible place for conversations about complex economic issues. Many comments seem to be both confused about basic concepts and trying to make political arguments. Not a recipe for enlightenment.
  • savanaly 11y ago
    Since economics touches our every day lives so often, people often think they have a lot to say on the subject but underestimate how little they know. Imagine if you got the same group of people with the same educational background from HN together (college-educated, usually, but not a specialist) and had them debate unsettled questions in geology or astrophysics. Surely not a single original or useful insight would come of it unless an actual geologist or astrophysicist happened to stop by, and I think economics is closer to those subjects than some people realize.
  • tim333 11y ago
    Yeah, I've noticed the average knowledge standard for programming issues is very high, economics less so. Then again I'm not sure where you do go for exceptional conversations about economics.
    • edanm 11y ago
      It's not that hard. This is an entrepreneurs/programmers forum. If you want better economics insights, go to where economists hang out. A few ideas: Read popular blogs of well-known respected economists, look at their comment's section. You'll find both really good articles, and serious discussions between actual economists.
• Outdoorsman 11y ago
  First, corporations are hoarding trillions collectively, not individually...Google, the example cited is banking 80 billion...others I'm guessing, much less... Maybe "caution" has risen a notch in the CEO/Board investment repertoire...there aren't nearly as many sure things as there used to be...why is that? The chances of making a mistake have never been greater... A large part of the uncertainty is likely dictated by the plain and simple fact that we Earthlings have now constructed a "global economy"...countries now share many of the same opportunities and risks, even when they're on opposing sides of the planet from one another...good times and hard times can now seep across borders and continents in ways they never could before... In any economy wages, production, living standards, etc., eventually even out across the spectrum (global), and arrive at a stasis... When that stasis is fully realized across the globe what will daily life be like for the average American, the Chinese, those in India, etc...?
• arasmussen 11y ago
  > With $80 billion, Google could buy Uber... No it couldn't, Uber isn't for sale.
• tim333 11y ago
  Here's a possible explanation. In the industrial days it made sense for companies to invest in plant and machinery. These days most of the value is intellectual capital and high wage employees. It makes sense to hold a load of cash so you can pay those high wage employees if there's a blip in sales. (The industrial the mentioned, GM may have $15bn in cash but it also has $73bn in current liabilities so it's not really rolling in vast excesses)
• pix64 11y ago
  What else are you going to do with it? Invest in your employees? Ha.
• emblem21 11y ago
  We are at peak globalization, which is to say, we are at peak oil production. In order to expand growth for multinational agencies, the world has to have access to more oil. However, as the world demands more oil, the price of oil goes up to reflect that demand. As the price of oil goes higher, it impacts the ability to engage in globalization. Right before the 2008 catastrophe, Brent crude was at over $100/bbl and the world was at maximum extraction capability. For those that don't know, a bbl is a blue barrel, which holds 42 US gallons of petroleum. When used, this will generate 13.6 kWh per gallon, or 571.2 kWh per barrel. As a reference and in ideal conditions, the 2014 Tesla Model S 85 utilizes 0.380 kWh per mile travelled. Or, if the conversion technology was in place, a single barrel of oil can move the Model S 1503.15 miles. And that's only two to four people. The moment you start moving the goods and freight in the volume required to keep the prices low enough for mass consumption, that number drops dramatically. And if you raise the price of that oil while oil production itself is at maximum extraction across the entire globe, you will drive the price of modern civilization to almost unbearably expensive. This is all to say growth cannot be separated from increased oil consumption. At our period in time, globalism requires more oil than it can extract to sustain its multiple decade streak of growth. Our previous consumption has pumped demographic capacity to the hilt within the confines of energy extraction. And once the Chinese come online and start demanding oil for their billions, we will have a full-blown oil shortage. This has prompted shale expansion, but that in turn has prompted nasty geopolitical strife between Saudi Arabia and Iran which is resulting in a cartel move to slash prices to flush out early stage competition. As the cartel reacts defensively in this environment, the world will be deprived of more and oil production to achieve the next level of global integration. This is why Russia is aggressively muscling its way around the Arctic and the Mediterranean. It's why China is moving into Africa. It's why the USA continues to support Saudi Arabia at all costs, no matter how many Arab nations get destabilizes and destroyed. You need a tremendous amount of oil to sustain globalism, let alone provoke additional growth, and right now, the spigots are not flowing like they used to. No amount of monetary policy can fix that because ALL of American monetary policy is deeply pegged to global oil consumption. Companies simply cannot grow when the world cannot grow, and so, they are awaiting the inevitable nationalizations of their global adventures with as big of a war chest as they can assemble.
• randomname2 11y ago
  Many corporations seem to rather spend their money on share buybacks than on capex lately.