Reply With Quote
Who wouldn't leverage money at 1%?
It's a no brainer...kinda like the insurance rate hike post healthcare reform attempt.
*edit...good lord, I can't spell attempt.*
By GRAHAM BOWLEY
While many households and small businesses are being turned away by bank loan officers, large corporations are borrowing vast sums of money for virtually nothing — simply because they can.
Companies such as Microsoft are raising billions of dollars by issuing bonds at ultra-low interest rates, but few are spending the money on new factories, equipment or jobs. Instead, they are stockpiling the cash.
The development presents something of a chicken-and-egg situation — corporations keep saving, waiting for the economy to perk up, but the economy is unlikely to perk up if corporations keep saving.
This situation underscores the limits of policymakers' power to stimulate the economy. The Federal Reserve has held official interest rates near zero for almost two years, allowing corporations to sell bonds with only slightly higher returns — even less than 1 percent. But most companies aren't doing what the monetary policy was intended to persuade them to do: invest and create jobs.
The Fed's low rates in fact have hurt many Americans, especially retirees whose incomes from savings have fallen substantially. Big companies such as Johnson & Johnson, PepsiCo and IBM seem to have been among the major beneficiaries.
"They are benefiting themselves by borrowing and keeping this cash, but it is not benefiting the economy yet," said Dana Saporta, an economist at Credit Suisse in New York.
Corporations have been saving more money since the financial collapse of 2008. But a recent rush of blue-chip bond offerings — including a $4.75 billion deal last month by Microsoft, one of the richest companies in the world — has put even more money in their coffers.
Corporations now sit atop a combined $1.6 trillion in cash, equal to slightly more than 6 percent of total assets. In the first quarter of this year, that figure was 6.2 percent of assets, the highest level since 1964, when it was 6.4 percent.
When will corporations start spending that money — in particular, by hiring?
That speaks to what has become the great question of this long, jobless recovery: When will corporate America feel confident enough to put its cash to work, building factories and hiring some of the nation's 14.9 million unemployed?
Well-capitalized
Corporations will be strong, well-capitalized and ready to act aggressively when executives decide it is time to expand.
After running up sharply every quarter since mid-2008, the ratio of cash holdings to assets by corporations fell slightly for the first time in the second quarter of this year.
Although investment in factories and plants still languishes, companies have spent some money on investment in new equipment and software. That spending grew at an annualized rate of more than 20 percent in the first two quarters of this year.
But economists say such investment is still below its peak before the recession.
In addition, many of the new machines and computers may be replacing older machines companies put off retiring in the recession. Businesses are playing catch-up, and little expansion is occurring.
"They may actually be using this new investment to be more efficient and cut jobs," said Michael Gapen, an economist at Barclays Capital. "The mix of signals right now is still telling corporations to sit tight and wait."
Those signals included the direction of the housing market, the outcome of midterm elections, the effects on the economy as the fiscal stimulus wears off and any changes in tax policy, Gapen said.
They are deciding, "Why don't we just wait until the first quarter of next year?"
The cheap money may be having yet another effect unintended by policymakers eager to cut the 9.6 percent unemployment rate.
Several of the corporations borrowing billions on bond markets are using the money to put their financial house in order rather than to create jobs.
Microsoft said it was using some of its money to buy back shares, and it boosted its shareholder dividend by 3 cents a share.
Other companies are locking in longer-term borrowing, and some borrowing is financing an increase in mergers and acquisitions.
All this may enrich shareholders and cut company costs, but it does not necessarily lead to more jobs or represent the big investments in growth that could fuel a sharp economic recovery for everyone.
"They are still holding on to more cash in the same way that Noah built the ark," said David Rosenberg, chief economist at Gluskin Sheff & Associates in Toronto. "It is very telling."
In the case of Microsoft's bond offering, one factor might have been avoiding a big tax bill, said Richard Lane, who analyzes the software giant for Moody's. If Microsoft had needed cash, it could have pulled some from its operations abroad, but "borrowing new money on the debt markets is now cheaper than bringing its own money back from overseas," Lane said.
One of lowest rates
Microsoft's offering was only its second; its first was last year. The second offering included three-year debt at an interest rate of 0.875 percent, among the lowest on record for such borrowing.
According to the financial-data provider Dealogic, companies have borrowed $488 billion on the U.S. high-yield and investment-grade bond markets this year, 7 percent more than during all of 2009, and on track to at least match the $589 billion borrowed in the boom year of 2007, the highest on record.
Meanwhile, smaller companies continue to have trouble borrowing and America's households continue to cut debt and consumption.
Some economists fear that consumers' frugality will hobble growth further
http://seattletimes.nwsource.com/htm...tories_section
--------------------------------------------------
A lot of larger corporations have been re-financing their debt at historic lows. This is a good thing going forward because it lowers their cost structures markedly.
Interestingly enough it also swings the debt/equity needle highly in favor of debt, simply because it is so cheap for large corporations.
I think what we are seeing is something of a perfect storm of contraction/stagnation.
Consumers, many saddled with declinine credit scores, have had to pay off debt and start saving cash for things. This has crimped demand, and will likely continue to do so.
Corporations for their part don't like uncertainty and have also been hanging back, preferring instead to buy other companies, rather than "invest" in the economic sense, i.e. build/buy new factories/stores/etc.
Who wouldn't leverage money at 1%?
It's a no brainer...kinda like the insurance rate hike post healthcare reform attempt.
*edit...good lord, I can't spell attempt.*
Last edited by TeyshaBlue; 10-04-2010 at 09:17 AM.
"insurance rate hike post healthcare reform attemtp"
attempt? it's real, not an attempt, just like they do every year, but this year they can falsely blame it on Magic Negro, as he hands them 40M new taxpayer subsidized clients.
No, I think it was an attempt at reform, and a weak and ineffective one at that driven by either a blinding ignorance of the underlying causes, or the willful act of kicking the problem down the calendar a few years.
Anything short of single payor is, IMO, bound for failure.
Like you said, going forward this is a good thing for these companies. Hopefully (fingers crossed, but not holding breath), they are doing this to position themselves to make significant investments going forward. It is much smarter than the "borrow more to buy more" at ude that everyone wants them to take. It is bad for the economy in the short term, but it would seem that it is better in the long term.
And honestly, why wouldn't a corp rake in cash @ 1%? It's a ing printing press at that rate. Why a tiered rate structure couldn't be tied to corp infrastructure borrowing vs fiat loans is beyond me. Maybe that's too simple and I'm missing something.
You might be right....certainly there is a cycle-time factor to this alright...it could be that we simply haven't waited the cycle out yet.
Why should corporations hire new employees just to have to pay more in taxes and everything else the democrats plan? Right now, it's far cheaper to pay people currently on the payrolls overtime than add more people to insure. I am currently working at least 44 hr weeks, and so are other people who want overtime. We had new equipment installed increasing our workload by more than 20%. We lost several people through attrition, and haven't hired anyone for more than two years. Nobody was laid off or fired where I work. Two that we lost simply moved to another facility, the others retired.
Why don't they higher more? My understanding is the new insurance costs on the horizon. This health care passed by congress I think helped killed the job growth, along with the expiration or the current marginal tax rates 1/1/11.
Last edited by Wild Cobra; 10-04-2010 at 12:45 PM.
You mean pay any taxes..right?
Corporate Profits 'Near-Historic' In Second Quarter, Thanks To Cost-Cutting
Corporate America finished the second quarter with "near-historic" profits, largely by cutting costs, laying off employees and streamlining operations, the Wall Street Journal reports.
Profits for companies in the S&P 500 soared 38 percent from the same period last year, hitting $189 billion, the WSJ says, the sixth-highest quarterly total ever. S&P analysts expect the trend to have continued in the third quarter.
Since 2008, corporate profits increased 10 percent -- but revenue was down 6 percent, the WSJ says. To achieve the impressive quarterly results, companies have had, as the WSJ puts it, to "streamline" their operations. This means firing workers, outsourcing labor and shuttering unprofitable (or less profitable) divisions.
The robust state of corporate profits presents a paradox: companies won't spend their money until the economy improves, but the economy won't improve until they spend their money. An increase in hiring, for example, would help drive a recovery. The New York Times reports this "chicken-and-egg" phenomenon, noting that near-zero interest rates have encouraged companies to borrow money and simply hoard it because, as the NYT puts it, "they can." Combined, companies have $1.6 trillion in cash, the paper notes. In the first quarter of this year, their cash reserves represented the highest percentage of assets since 1964.
"They are still holding on to more cash in the same way that Noah built the ark," Gluskin Sheff chief economist David Rosenberg told the NYT.
As HuffPost's Shahien Nasiripour reported in August, bank profits during the second quarter rose 21 percent to almost $22 billion, the highest level in three years.
All these corporate profits came as the country as a whole got poorer. The net worth of households and non-profits dropped 2.8 percent during the second quarter to $53.5 trillion, erasing two quarters of gains. The figure hadn't been that low since the third quarter of 2009.
http://www.huffingtonpost.com/2010/1...tml?view=print
====
How's that Dope-y Strange-y Repug "Pledge" gonna work out for us?
part of the grave problem with unregulated capitalism
Corporations are only interested in profit, and not in the well-being or general welfare of the population
are you suggesting we have unregulated capitalism?
19 Mind-Blowing Facts About the Deindustrialization of America
http://www.alternet.org/module/printversion/148362
Yes boutons, such facts have been seen and predicted by many of us long ago. Too bad liberals don't listen, and continue policies that drive jobs out of America.
What liberal policies drive jobs out of America?
(sorry, I have to call you your bull . I'll understand if you can't back it up)
I have stated in many past threads liberal policies that drive away employers. I'm not going to refresh your memory every time you forget.
Corporations don't behave any different than people do. We're all interested in our own well being.
The problem with your bull equivalence that Corporate-Americans and Human-Americans are equal is that corporations have so much power, and more and power, that they cause a lot of damage that individuals simply can't.
The problem with your bull attempted rebuttal is that corporations are run by human individuals.
You're SO nasty to me. Why?
ill break it down for you then
1) The populace needs employment to earn a living, right? Otherwise, starve and go homeless.
2) Societies can provide employment by providing services to the populace.
3) Corporations take hold of these service providing positions, therefore, they have all the power when it comes to employment and by consequences, the general welfare of the population.
Therefore, you can either have
A) selfish for-profit only corporations that care only for themselves and profit. This HURTS the populace by consequence, since logic dictates that you can make more profit by cutting salaries, restricting benefits, overworking your employees, maximizing productivity with minimal staff.....which is exactly what we have in america.
or
B) Corporations that are free to function as they please until there is a serious economic crisis in the nation. The government can then step in and force them to behave in a manner that benefits the population FIRST
I will never understand why anyone can support such a greed, vile system of running the economy. So many people have suffered in this nation for hundreds of years due to the nature of capitalism.
Because you're just a babbling bag of gas. Repug this, repug that without a sense of honesty. I swear, your hot air would be put to better use in a power generation facility.
I agree.
The problem with health care reform isn't that it was socialism, it that it wasn't socialistic ENOUGH.
Yeah, I said it. There's the gauntlet...
mgmt people have a very different set of priorities and ethics, which they can hide in sycophantic group decisions where responsibility is diffuse and often hidden, as managers than they do a private individuals.
Always remember that publicly traded companies are primarily owned, often literally, by widows and orphans.
The majority of stocks in this country are owned by pension funds of one sort or another.
It is a bit of a dichotomy, but one has to keep that in mind before really villifying corporations. True, corporations can be greedy and stupid, when run by greedy/stupid people. Lord knows there seems to be no shortage of those.
BUT
We are not entirely immune to the benefits those corporations provide, even poor people who might not directly own stock.
There are currently 1 users browsing this thread. (0 members and 1 guests)
Posting Permissions
