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To add to this, the trend in corporate America today is to reduce capital on balance sheets. Hoarding cash or assets that can be borrowed against is considered

by kolbe 11y ago

To add to this, the trend in corporate America today is to reduce capital on balance sheets. Hoarding cash or assets that can be borrowed against is considered very passe, and many CEOs have been either fired or forced to do stock buybacks by activist investors for not deploying capital or returning it to investors. That is, they're being encouraged to withdraw investments at a time when it's easiest to get investment. It will be interesting to see what happens when companies that are reliant on capital markets encounter both a draw down in income and vanishing liquidity for their need to borrow (and hint, these things are highly correlated with recessions).

snowwrestler 11y ago
Corporations are hoarding record amounts of cash: http://www.nytimes.com/2016/01/24/magazine/why-are-corporations-hoarding-trillions.html?_r=0 http://www.nytimes.com/2016/01/24/magazine/why-are-corporati... Isn't that why there is pressure on CEOs to return capital to shareholders? Because they're holding onto more of it than ever before.
- kolbe 11y ago
  To start with Google and Facebook don't feel any pressure to do any of this. Their founders have complete control of the company, and they do not have to listen to anyone. That article is a little misleading because it does not net cash holdings with liabilities. The notion of "holding cash" is a ridiculously misleading concept. For example, Apple does have a lot of cash and cash equivalents: roughly $250bn worth. But they also have a lot of debt. $165bn of debt according to their latest filing[1]. And what's more, Apple holds this cash offshore, and borrow money domestically. So, they use the money they borrow to buy back their stock and pay dividends, but leave their cash offshore, with the hopes of one day getting a tax holiday that would allow that money to come back to the US tax free to pay back the aforementioned debt. Even still Apple is a cash-heavy company, but that same narrative is playing out in every business that has an international presence. They accumulate "cash" overseas, borrow against it domestically to do stock buybacks, and then the NYT can write misleading articles. [1] http://finance.yahoo.com/q/bs?s=AAPL http://finance.yahoo.com/q/bs?s=AAPL
- adventured 11y ago
  Corporations have to hoard that cash, they've taken on record amounts of debt obligations. If they discharge that cash or otherwise spend it, their balance sheets start to violate debt covenants. The very large stock buyback binge that has been going on courtesy of the Fed's low rates, has been paid for via a lot of debt.

by kolbe 11y ago

snowwrestler 11y ago

Corporations are hoarding record amounts of cash: http://www.nytimes.com/2016/01/24/magazine/why-are-corporations-hoarding-trillions.html?_r=0 http://www.nytimes.com/2016/01/24/magazine/why-are-corporati... Isn't that why there is pressure on CEOs to return capital to shareholders? Because they're holding onto more of it than ever before.

kolbe 11y ago
To start with Google and Facebook don't feel any pressure to do any of this. Their founders have complete control of the company, and they do not have to listen to anyone. That article is a little misleading because it does not net cash holdings with liabilities. The notion of "holding cash" is a ridiculously misleading concept. For example, Apple does have a lot of cash and cash equivalents: roughly $250bn worth. But they also have a lot of debt. $165bn of debt according to their latest filing[1]. And what's more, Apple holds this cash offshore, and borrow money domestically. So, they use the money they borrow to buy back their stock and pay dividends, but leave their cash offshore, with the hopes of one day getting a tax holiday that would allow that money to come back to the US tax free to pay back the aforementioned debt. Even still Apple is a cash-heavy company, but that same narrative is playing out in every business that has an international presence. They accumulate "cash" overseas, borrow against it domestically to do stock buybacks, and then the NYT can write misleading articles. [1] http://finance.yahoo.com/q/bs?s=AAPL http://finance.yahoo.com/q/bs?s=AAPL
adventured 11y ago
Corporations have to hoard that cash, they've taken on record amounts of debt obligations. If they discharge that cash or otherwise spend it, their balance sheets start to violate debt covenants. The very large stock buyback binge that has been going on courtesy of the Fed's low rates, has been paid for via a lot of debt.