gimme my cash blankee

Creative Commons License photo credit: Yogi

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!)

11 Replies to “gimme my cash blankee”

  1. I found your site on technorati and read a few of your other posts. Keep up the good work. I just added your RSS feed to my Google News Reader. Looking forward to reading more from you.

    Eric Hundin

  2. I agree about cash, even on a smaller scale, like having a credit card that gives you cash-back, rather than points. Cash is cash, it’s tangible.

  3. So you are saying that these big corporations are waiting for the recession in order to buy companies on the cheap. Maybe we should be investing our cash in stocks now 😉

  4. If we’re buying our stock throughout the ‘recession’ (dollar cost averaging) – then we don’t have to ‘time’ the market – buy once a quarter, or twice a year…whichever’s affordable. It’s also a sketchy idea to try to decide if CEOs are buying stock out of optimism, or making a point (marketing).

    cash is good too.

  5. Having cash is very reassuring. I know that if I get laid off, we will be okay for 6 month to 1 year with only minor belt-tightening. Whereas another couple we know, who rely on their credit cards as their emergency fund, cannot make the mortgage within one month of either one being laid off. They make more money than we do, but their outflow is a lot higher too.

  6. Companies are also spending lots of money on their own stock which can also be used to make acquisitions.

    The build up of cash can also be a negative sign — they don’t know what to do with all the money they are currently making and are afraid to invest it in anything.

    Although, I’ll go with “T h rive” and dollar cost average for my personal investments.

  7. Indeed. Cash emergency funds are awesome. Cash retirement plans are not awesome because over time cash is a guaranteed loss, due to inflation.

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