Once the grand bargain is struck, look for those with cash to invest it.
There is an economic reason for the President seeking a “grand bargain” that would raise the debt ceiling by up to $4 trillion and outline a way to get there. It would provide visibility to investors and corporations. It would assure continued low prices for U.S. debt.
And it would unleash a torrent of corporate cash.
Corporations have been hoarding cash for years, and now have $2 trillion stashed away. True, much of that is in the form of U.S. debt. But an agreement that keeps rates low, plus a bit of inflation from the rising yuan and commodity prices, would combine to make that debt depreciate in value. Holders would have little alternative then but to put the money to work.
While cracking down on offshore tax havens would push some cash into the market, most of the cash is held by the largest banks and investment houses.Much of it, in other words, is insurance against another crash.
Still, plenty of industrial companies are sitting on mountains of money, with CEOs insisting they need to see lower volatility before they risk any of it. Assuming we get some, these companies will come under pressure to either spend it or give it to shareholders as dividends. You can even expect corporate raiders to become emboldened to attack big cash hordes, as they did in the past, hoping to buy companies with their own money.
Companies with a lot of cash, in other words, are about to become a lot more valuable.
The industries with the most cash are, in order, technology, pharmaceuticals, energy and consumer products. Following are some of the biggest players, and what they may do:
Apple (AAPL) has $76 billion in cash or equivalents, $10 billion of it actual green. Investors want a dividend, but cash is more likely to go after assets in the form of patents from Interdigital (IDCC). The aim in this case would be to box-in Google (GOOG) and force Android OEMs to pay so much in patent rights their products become uncompetitive with the iPhone.
General Electric (GE) has an estimated $136 billion in cash and equivalents. The number has fluctuated wildly in recent quarters, but it still has enough to make major buys in renewable energy, or in infrastructure, following CEO Jeff Immelt's own strategy. Or it could go after some rare earth miners and assure its supply chain.
Pfizer (PFE) has a cash hoard estimated at $24 billion . This could lead to consolidation in the drug sector, maybe even the big pharma company's purchase of a generic drug outfit. Mylan (MYL), for instance, has a market cap of just $10.23 billion.
Google (GOOG) is sitting on about $39 billion in cash, enough to buy Hulu and also engage in patent auctions like the one for Interdigital.
Ford (F) has a cash hoard of over $21 billion, which could enable it to secure its future by buying part-makers, open new factories, or accelerate its move toward a dividend.
Back in the 1980s there was a sort of Wall Street sport in seeking out companies with big cash hoards and buying them with what was essentially their own money.
Let the games begin again.
Disclosure: I am long GOOG, F, GE.
Additional disclosure: I was a little surprised after writing this story to note how many of these companies my IRA has pieces of.