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Why Are Corporations Hoarding Trillions?

nytimes.com

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Re: Why Are Corporations Hoarding Trillions?

#41

Post by padobson »

ryandrake wrote: post #19

Looks like the TL;DR of this article is: "Corporate leadership, being so much smarter than the rest of us dummies, sees something big on the horizon coming. They're saving all their cash so they can later invest because "the next transformative innovation could be just around the corner". Apparently they're smart enough to hoard all this cash, but not smart enough to know exactly what that transformative innovation i…

And they sure as shit won't throw a bone to employees (whose wages have been stagnant for a decade)

Labor rates have been stagnant for a decade -> disposable income is eaten up be inflation -> consumers have less money to spend on new and novel products and services -> there's less incentive to invent new and novel products and services -> there's no innovative companies to invest in -> companies pile up cash in banks, but don't think to invest in their employees

Re: Why Are Corporations Hoarding Trillions?

#42

Post by JoshTriplett »

jimrandomh wrote: post #23
mschuster91 wrote: post #12

> Remarkably, the United States government was able to tax all that productive corporate behavior so much that it came close to paying off all its debts for the first time in 160 years. The current US debt is over 18.900.000.000.000 $ ( http://www.usdebtclock.org/# ). Am I getting the author right that the US managed to put on 18 B $ in 20 years?!

No. In the 90s, there was a brief period where the US managed to not have a deficit (ie, it was taking in as much as it was spending). The US has never eliminated its debt, nor should it; that would essentially mean withdrawing the US dollar from circulation.

> The US has never eliminated its debt, nor should it; that would essentially mean withdrawing the US dollar from circulation.

To the best of my knowledge, the standard debt calculations do not include outstanding currency, though they do include outstanding bonds.

Re: Why Are Corporations Hoarding Trillions?

#43

Post by analyst74 »

mschuster91 wrote: post #10
bobby_9x wrote: post #2

It's the same reason I save my money: for opportunities when prices are low. This is especially relevant now that the stock market is tanking. Most people with any kind of money think this way.

> It's the same reason I save my money: for opportunities when prices are low The problem is: how do you know if the time is right (i.e. ten years later you can say "I invested in the lowest possible price")? Possibility A: you invest too early, stock drops further and you can't recover in a reasonably long time frame (e.g. 1 year) Possibility B: you invest too late, and people who invested before you made more profi…

The trick is, you don't invest during the downturn, hence all the cash hoarding.

You invest after it bottoms out for a while. Macro economies do not recover like a rocket, the window to invest is very large, so large that if you only recognized the bottoming out a couple years later, you still haven't missed the opportunity.

Re: Why Are Corporations Hoarding Trillions?

#45

Post by GFK_of_xmaspast »

padobson wrote: post #41
ryandrake wrote: post #19

Looks like the TL;DR of this article is: "Corporate leadership, being so much smarter than the rest of us dummies, sees something big on the horizon coming. They're saving all their cash so they can later invest because "the next transformative innovation could be just around the corner". Apparently they're smart enough to hoard all this cash, but not smart enough to know exactly what that transformative innovation i…

And they sure as shit won't throw a bone to employees (whose wages have been stagnant for a decade) Labor rates have been stagnant for a decade -> disposable income is eaten up be inflation -> consumers have less money to spend on new and novel products and services -> there's less incentive to invent new and novel products and services -> there's no innovative companies to invest in -> companies pile up cash in bank…

In real terms, wages have been stagnant since 1981-ish.

Re: Why Are Corporations Hoarding Trillions?

#46

Post by trjordan »

One theory I'm currently fond of is that the band of growth where unicorns live ($100mil -> $1bil in valuation) used to be accessible to the public markets, but it's recently only become available to private investors.

This creates weird distortions in investment behavior, because it means investments seeking this behavior have to trickle down to VC or acquisition. This could be way this comes about -- by investing in Google or Apple, you're effectively investing in a 10-year VC fund. Sure they're sitting on a lot, but hopefully they make enough acquisitions with it + "raise" enough more during that time that it looks like the cash is going to work.

Re: Why Are Corporations Hoarding Trillions?

#47

Post by forgetsusername »

zanny wrote: post #39
forgetsusername wrote: post #28

Earlier quoted context omitted.

Why is it that people always talk about only one side of the accounting ledger? The US has a net worth of nearly $150 trillion dollars. Who cares about the absolute value of debt?

That's not absolute debt, that is debt relative to GDP as a percentage. Its a measure of, effectively, how long it would take the US to pay off its debt if it forced itself to operate in the green, since there is a limit on how much you can tax out of an economy without causing it to contract, and GDP is a flawed but relative measure of what you can potentially tax.

So where is the equivalent graph showing the rate of growth of assets as a percentage of GDP?

It's one sided accounting that people love to trot out as a big scary thing. The net worth of the US is growing; what else matters?

Re: Why Are Corporations Hoarding Trillions?

#48

Post by ksdale »

tomp wrote: post #32
ksdale wrote: post #22

Theoretically the value of all that cash should be baked into the share price. If shareholders think they can better invest the money, they can sell their shares take their money elsewhere, and only have to pay capital gains tax. If the companies repatriate the cash, they have to pay tax right now which eats up a substantial percentage. Then they still have to find something to do with the cash. If they pay it out to…

By this logic, every dollar abroad should be worth only 50 cent in the price of a share - after all, that's the real value of that cash after all taxes (contrasted to the accounting value of the dollars on the companies' annual report).

You're right that it's probably discounted somehow by some investors, but it's also worth it's full value if they choose to spend it abroad, so it's not necessarily worth exactly what it would be worth if they repatriated it and paid it out as dividends. The discount depends on what the shareholders think will happen to the money, and I don't think anyone is predicting repatriation any time soon.

Re: Why Are Corporations Hoarding Trillions?

#49

Post by lmm »

brianwawok wrote: post #13
digikata wrote: post #4

It seems to me that holding large amounts of cash is only viable when inflation stays low. So a higher level of inflation might cause the release of some of these huge cash reserves in the form of real investment (real in terms of hands doing work instead of moving the cash to some other financial instrument)...

I mean, cash doesn't need to literally be a pile of money right? It could be in some kind of ultra short term instrument that has some kind of inflation protection. Normal people could buy t-bonds to exactly match inflation. Not sure what options are out there when you have 100 billion dollars - but something like interest rate futures could hedge you against inflation risk.

Inflation goes hand in hand with growth, you can't hedge away changes in real value. If cash can be put to productive use, people who hoard it will do less well than those who put it to work.

Re: Why Are Corporations Hoarding Trillions?

#50

Post by bradleyjg »

fennecfoxen wrote: post #29
ryandrake wrote: post #19

Looks like the TL;DR of this article is: "Corporate leadership, being so much smarter than the rest of us dummies, sees something big on the horizon coming. They're saving all their cash so they can later invest because "the next transformative innovation could be just around the corner". Apparently they're smart enough to hoard all this cash, but not smart enough to know exactly what that transformative innovation i…

As a corporation, the traditional thing to do with cash you don't need is to return it to your owners, either through dividends or through share repurchases: If the owners wanted to own money sitting in a bank account, they could put the money in a bank account themselves. If they wanted to own a company, they'd be better off owning just the business part without a chunk of low-return cash attached. Beyond basic liqu…

If you expect your shareholders to get much better overall tax treatment on the money sometime in the relatively near future, it makes a lot of sense to hold on to it.

Especially with respect to money earned abroad, I'd think that's a decent guess. In particular, I'd expect there will be another one-time-only-we-really-mean-it-this-time repatriation holiday in 2017 or 18.

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