As asset markets have soared into bubbledom again the past couple of years, the usual risk-selling crowd has been hard at mocking anyone for holding onto some cash. “Cash is trash; with interest rates low, you have no choice but to buy [over-priced] stocks and high-yield debt” is their typical sales pitch. Ironic really: the public is told they are fools to hold on to any cash, when financial firms and large corporations are today holding on to the highest cash levels ever seen.
The buildup of cash and marketable securities accelerated in Q1 2013 on a year-over-year basis to a record $1.73 trillion after slowing in early 2012. At the same time, capital spending in the most recent quarter rose by the least since March 2010. The trends suggest company executives lack the confidence to invest in the face of federal spending cuts and the economic slowdowns in the US, Europe and China.
“If you are a CEO or a CFO, you aren’t going to get fired or criticized by your board for keeping a little bit more cash,” McCormick said in a telephone interview. “They are not going to take a lot of risk in this environment.” See: Cash piles up as US CEO’s play safe with slow-growth economy
Now we see the dominant double standard in action..the investing public are dubbed fools for not funneling their cash into over-priced assets amid a global slowdown that has been spreading since 2010, but companies are wise for not doing so. So my cash is trash because I am not supposed to question valuations, or worry about my downside, but corporations hoarding cash now are deemed shrewd investors. Got it.
On a similar point also see: Why millionaires are holding on to cash
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