The pile of unspent corporate cash that has built up since the start of the financial crisis is being held by an increasingly concentrated pool of companies that will be crucial to hopes of a pick-up in business investment to stimulate the world economy.One can stop reading right there, knowing full well the report by Deloitte is totally useless at best.
About a third of the world’s biggest non-financial companies are sitting on most of a $2.8tn gross cash pile, according to a study by advisory firm Deloitte, with the polarisation between hoarders and spenders widening since the financial crisis.
This will have a big influence on whether 2014 will bring a revival in capital expenditure or dealmaking, warned Iain Macmillan, head of mergers and acquisitions at Deloitte. “Looking ahead, the wave of cash that many are expecting will depend on the decisions of a few, rather than the many,” he said.
The study focused on gross cash holdings rather than subtracting their debt in an effort to simplify comparisons over time and identify how much money companies have to hand.
By ignoring debt, Deloitte's analysis does not represent the true corporate financial picture.
For example, if a corporation has $50 billion cash on hand and $50 billion in debt, Deloitte treats that as more available cash than a company with $10 billion in cash and no debt.
Investors are equally foolish.
A survey of fund managers conducted by Bank of America Merrill Lynch released on Tuesday shows record 58 per cent of investors polled want companies’ cash piles spent on capex. A record 67 per cent said companies were “underinvesting”.
Expand capacity for what? What is it we need more of? Mergers and acquisitions? At these prices?
I suggest any company smart enough to have genuine cash on hand, hold it, hope for a crash, then and only then acquire assets after they have plunged in value.
Cash Cow Revisited
I did a report on corporate cash in April of 2013. At that time, the five largest corporations, led by Apple, were sitting on available cash of $39.71 billion.
Care to guess the actual cash levels of the top 50 non-financial companies?
Taking debt into consideration, even counting short-term investments as cash, the answer back in April was negative $543.67 billion.
For more details, please see Cash Cow: Of the 50 Largest US Companies, Who has the Cash? Who has the Debt?
No Net Cash
Simply put, there is no net available cash, although a handful of companies do have some. Is a continued recovery really in the hands of Apple, Google, Microsoft, and a few others?
Equally clearly, Deloitte wants companies to spend money they have already spent!
By the way, this "alleged cash" is nothing more than an economic distortion caused by the Fed's artificially low interest rate policy that enables corporations to borrow at lower and lower rates. Many do, even though they have little use for the money, and so it sits.
Mike "Mish" Shedlock