Cash hoarders are unlikely to ride to the rescue

[ErikJ]

Last edited Mon Jan 27, 2014, 06:30 PM - Edit history (1)

Financial Times 1/24/14

Consumers are not the only ones sitting on their hands at the moment. Research from Deloitte shows that the 963 non-financial groups in the Standard & Poor’s 1200 Global index have amassed a $2.8tn gross cash pile despite calls from politicians for corporate investment to stimulate economic growth.

But business executives do not appear to be rallying to the cause. In the US, where a growing economy might be expected to prompt increased investment, capital expenditure by non-financial companies in the S&P 500 index is forecast to rise just 1.2 per cent in the 12 months to October, according to Factset, the data group.

Corporate leaders wandering around Davos for the World Economic Forum reinforced that view. Zhang Xian, chief executive of Soho China, a Chinese property developer, said of the Rmb11bn ($1.8bn) on its balance sheet: “I am simply sitting tight on the cash.”
In some cases groups may be being sensible. The cash is not evenly spread – the data show that 200 companies are holding $2.2tn, or 71 per cent of the cash. Many of the others, particularly in Europe, are highly indebted. The net cash pile for the broader group is nowhere near as out of whack with historical norms as the gross numbers.

For indebted companies, hiking capital expenditure just as interest rates look likely to rise may not be the best choice. And energy groups and miners are famous for overspending during boom times, only to see profits fall with prices and demand. Shareholders are rightly asking for caution from these sectors given the uncertainty in emerging markets.

But fund managers are growing irritated with the rest. A record 58 per cent of those who responded to a closely watched Bank of America Merrill Lynch survey released this week said they wanted more capex spending.
In some ways this looks like a failure of nerve. When Deloitte looked closely at the hoarders versus those who have been spending, it became clear that more experienced chief executives had been more willing to take a risk and spend. The chiefs of hoarding companies have been in post on average nearly three years less than their more active peers.
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http://www.ft.com/cms/s/0/984122d4-84d9-11e3-a793-00144feab7de.html#axzz2rdapse2E

Edit: I thought/meant to post this in Good Reads forum! Sorry. Oh well.

[lancer78]

1. Thats easy to explain.

Without DEMAND, no business will invest in creating jobs. My former boss would gross around $800,000 profit a year, but pay 0% in income tax. He has not hired anyone since 2007. As he said to me "Why should I hire someone if there is no demand for our service."

[4dsc]

2. You should ask who killed the demand?

I would be interested in what he says is the reason.

[lancer78]

3. He stated

that the off-shoring of all the textile and manufacturing jobs is what destroyed the demand for his services.