American corporations are resoundingly saying “cash.”
Unlike most American consumers, whose failure to save has exasperated economists for years, the typical American corporation has increased its savings so sharply that it probably has enough cash on hand to completely pay off its debts.
This article points out that some well-known companies, such as Apple, Avon and Microsoft are building up cash reserves to massive levels. Technology companies keep cash on hand for purchases, but the buildup is also due to concerns about the global economy. And even corporations can get scared and need a blankee to cuddle with in the long, dark night of global economic instability.
Cash has an unsexyness to it – but I’m bringing sexy back. Even high-yield checking accounts, which were so much in vogue until the Fed starting pounding down the prime rate, are looked down upon as a vehicle for anything other than emergency funds or backup savings. With the recent fall of the dollar versus other world currencies such as the euro, cash (if it’s held in dollars) is losing value.
Yet at the same time there is only one truly liquid asset that any of us hold. There is only one asset that can be used to buy other types of assets (I am sure someone will prove me wrong pointing out some real-estate-for-bonds maneuver, though). Only one asset can be instantly “deployed” if a good investment opportunity suddenly becomes available, and that’s cash.
I suspect that is the reason so many corporations are saving cash – many are simply keeping assets liquid to fight off takeovers or to engineer takeovers of other companies. Yet isn’t that a good lesson for your average small investor? Does 100% of your investment portfolio need to be rammed into the pockets of other business owners? I know cash is low-return, but let’s face it – it’s also the absolute lowest-risk holding that most of us can make.
Most of us fight a mental battle between stability and risk every day in our lives, financial and otherwise. Cash purchases a tiny foothold on stability that for many of us is a comfort in the maelstrom of the market. Don’t disrespect cash. It will be there for you when the market has run off the hot young trophy investor.
(Don’t forget the Big Book Giveaway – still time left to enter!)