Moody’s reports that American business is sitting on $1 trillion in cash because it is too uncertain about taxes, health care costs, regulation and the political battles ahead. This isn’t new news but it is just as shocking as when we heard it before.
The biggest hoarders by sector were technology companies at $207 billion, pharmaceuticals at $124 billion, energy at $105 billion, and consumer products at $101 billion stored up waiting for better times and better deals. Moody’s said the most likely use for this cash would be share repurchases to shore up stock price and acquisitions with many great buying opportunities in consolidating markets.
The recession and the long slow recovery has given companies plenty of reasons to cut costs, plant and equipment capital investment and reduce operations to bare bones levels while simultaneously restructuring debt and pushing out maturities to conserve cash. This cash hoarding behavior seems to be getting worse too as Moody’s reports $943 billion of cash and short-term investments on hand at US companies through July 2010 up from $775 billion in December 2008. Since the US penalizes companies for bringing profits back from overseas more than 25% of this cash hoard is being parked in off shore accounts being used to stimulate recovery in Asia and elsewhere.
“This cash hoard would be enough to cover a year’s worth of capital spending and dividends and still have $121 billion left over.” —–Moody’s Investors Service
The top 20 companies holding large corporate cash balances make up 37% of the total cash on hand with $346 billion on their balance sheets Moody’s estimates including $39.86 billion as CSCO; $36.79 billion at MSFT; $30.06 billion at GOOG, $23.64 billion at ORCL and $21.89 billion at F to round out the top five in cash holdings.
So while Senator Barbara Boxer runs scathing political ads charging her opponent for US Senate Carly Fiorina with shipping HP jobs overseas, she is simultaneously holding a fund raiser at CSCO hosted by CEO John Chambers telling the assembled employees that she has “Silicon Valley’s back” in the battles ahead. While that might be good politics for both Boxer and Chamber, CSCO is hedging its bets by keeping a lot of that nearly $40 billion in cash parked offshore or using it to invest in job creation in India and elsewhere.
To get America back to work, reduce our deficits, improve our competitive advantage and leverage the economic engine that is the American economy we must create a political and business climate more conductive to domestic production and growth.