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U.S. corporations are amassing massive amounts of cash<\/a> – I am guessing over $3 trillion – on their balance sheets and this is a big concern of mine.\u00a0 Why?\u00a0 Because these corporations are earning about what you and I earn on cash balances – between 0.25% and 2.0%.<\/span><\/p>\n In business school they teach you that businesses have several uses for cash:<\/span><\/p>\n Businesses are not by and large doing any of these three things.\u00a0 Let’s take these, not quite in turn.<\/span><\/p>\n They seem to be holding cash in case of a rainy, stormy economic day.\u00a0 If I were a business leader I would want to pay down my debt levels.\u00a0 Except businesses like the tax deduction that they receive for debt.\u00a0 So they aren’t paying down debt.\u00a0 The incremental return to businesses here would be greater than the 0.25-2.0% they are earning on their cash balances, probably in the range of 4-6% in terms of financing savings.\u00a0 But they aren’t doing this.<\/span><\/p>\n Normally businesses hate to pay out dividends to shareholders because they like to keep the cash to fund their own projects.\u00a0 But even more importantly, they hate to pay out dividends because they consider such payments to their owners to be not tax efficient; and they aren’t.<\/span><\/p>\n You see, dividends are paid out to corporations with after tax profits.\u00a0 But then the IRS turns around and taxes shareholders for the dividends that they are paid by the businesses that they own.\u00a0 So the monies are double taxed.<\/span><\/p>\n This just is not an efficient use of cash, or so the theory goes.\u00a0 While true theoretically, that cash, unless invested by the corporation in new projects or something like a stock buyback, earns a paltry 0.25%-2.0%.<\/span><\/p>\n In effect businesses are saying “shareholders are dumb” and we can earn a higher balance than they can.\u00a0 But really, is this true?\u00a0 I have a hard time believing that, even after tax, I couldn’t earn more than 0.25%-2.0%.\u00a0 Couldn’t you?<\/span><\/p>\n This brings us to the final two things on my list; things that businesses ought to be doing, but are not doing.<\/span><\/p>\n Again, in business schools they teach students, including future CEOs, that a business should always seek the highest and best use for their cash.\u00a0 Typically this means that businesses will invest in growth projects that increase revenues, or save expenses.<\/span><\/p>\n In the case of the massive cash balances on corporate balance sheet, the incremental revenue or expense saving project currently only needs to generate more than 2.0%.\u00a0 But businesses just don’t seem to have a higher and better use for their cash.\u00a0 Instead they are sitting on the cash earning very little money.\u00a0 And this very much concerns me.<\/span><\/p>\n This means that businesses seem to be on auto pilot.\u00a0 That is, they are racking up sales that they normally would make, selling old products to the same old customers.\u00a0 There don’t seem to be new products to entice old customers, and more importantly, new customers, to spend their monies.\u00a0 This folks, is, on a scale of 1 to 10 regarding investment concerns, about an 8 or 9.<\/span><\/p>\n Businesses just can’t seem to come up with any new ideas, and that is the bedrock of economic growth<\/a> and of gross domestic product (GDP) growth.\u00a0 Yikes!\u00a0 Nor are businesses hiring new employees to relieve their overworked employees and reducing the haunting unemployment rate.\u00a0 Double yikes!<\/span><\/p>\n\n