A Buzzkill for Bottom Callers - Companies Stockpiling Cash

Whenever I get the urge for a quick shot of reality (which is, admittedly, quite often), I like to hear what those on the economic front lines are thinking and doing. I'm not referring to the clueless wonders on Wall Street or in Washington. Rather, I mean those who ply their wares on Main Street and who can't afford to get caught up in "green shoots" fantasies or other such nonsense.

With that in mind, I found the following report from the Association of Finance Professionals (which probably has a few Wall Street types as members, though luckily they are in the minority), "Companies Stockpiling Cash, Credit Access Still Tight, AFP Survey Shows," to be a real eye-opener -- or what a cynic might describe as buzzkill for the bottom-callers.

42% increase short-term holdings; most move to more conservative vehicles

With little easing in access to credit, U.S. organizations are continuing to stockpile cash, according the Association for Financial Professionals' 2009 Liquidity Survey. Almost three-quarters (72%) of companies had increased or maintained their U.S. cash balances during the first part of 2009.

According to the new AFP survey, 42% of organizations increased their U.S. cash and short-term investment balances between December 2008 and May 2009, while 30% saw no significant change in short-term cash balances. More than a quarter (28%) of organizations saw their U.S. cash and short-term investment balances deteriorate over the six-month period. Organizations with non-investment grade ratings were more likely to have seen their cash and short-term investment balances shrink.

"Despite unprecedented government action, the lack of any significant thaw in short-term credit access is extremely troubling and many companies are reacting by stockpiling cash," said Jim Kaitz, President and CEO of AFP. "While, many organizations with their strong cash positions will be well-positioned once the economy begins to improve, overall economic conditions will not improve until organizations can begin using their cash in activities that foster growth."

Comments

[mplaut:]

It is hard to evaluate this kind of information without some perspective. How do these figures compare to the figures a year ago? To 2 years ago? To 10 years ago? To 10-year averages?

These are not numbers that many people follow and there is no way to know what they mean without knowing these kinds of comparisons.

After clicking on the report, I do not find much of "buzzkill for the bottom-callers" as it is billed here.

First of all this is only the 4th survey, so they have very little to compare with. And second, even within that little bit, things seem to be more-or-less the same as last year: "Forty-two percent of organizations held larger balances of U.S. cash and short-term investments in May 2009 than they did in late 2008. Still, the percentage of organizations that decreased their U.S. and non-U.S. holdings of cash and short-term investments is nearly the same as a year earlier. Twenty-eight percent of organizations are carrying smaller cash and short-term investment balances, while 30 percent of organizations report no significant change in their short-term investment balances. In the 2008 AFP Liquidity Survey, 37 percent of organizations reported that they carried larger cash and short-term balances over the previous year, while 29 percent reported carrying smaller balances."

Jul 02 01:43 PM