Companies, funds hoard cash ahead of debt crisis

Even state governments are preparing in response to the budget drama.

By Kim Peterson Jul 27, 2011 1:59PM
The possibility of a debt-limit disaster is finally settling in, and state governments and big corporations are getting ready.

For many of them, this means hoarding cash or getting hold of as much cash as possible -- just when we were finally starting to see companies loosening up with cash in the form of higher dividends or share buybacks.

Now companies are not only holding on to cash, but they're delaying hiring and investments, The Wall Street Journal reports. They're also laying off employees.

General Electric
(GE), for example, ended the second quarter with $91 billion in the bank. "Our main protection against something like that not going well, or having a rocky outcome, is to have a lot of liquidity," the company's chief financial officer told the newspaper.

But Jim Cramer says investors need to remember there are two kinds of government defaults. Check out his thinking in the following video.

Post continues below:
The worst-case scenario for many of these companies is that they won't be able to get much access to cash later this year. Borrowing could become extremely difficult. Short-term investments may not provide good returns.

A recent survey of finance executives found that half will take defensive actions, such as hiring freezes or a reduction in capital spending, if Congress can't find a debt-limit fix before Aug. 2, the Journal reported.

We're seeing a similar response from money market funds, the Financial Times reports. Funds with government-only money have increased their cash for meeting redemptions within one week to 68% of assets. That's up from 48% at the end of March.

These funds are staying away from one-month Treasury notes that mature on Aug. 4 and Aug. 11. They're also cutting the time they are willing to lend, the FT notes.

And what about those entities without much cash? They're trying to borrow it now. Just look at California, which is about as broke as it gets.

The state has lined up $5.4 billion in loans from a number of banks as an emergency lifeline if the credit markets dive, The New York Times reports. Yes, someone out there is actually willing to lend California money.

The bridge loan would come from Goldman Sachs (GS) and seven other banks. "California had to obtain this interim financing to protect the state from the immediate, drastic consequences of a failure by Washington to resolve the debt ceiling impasse" by Aug. 2, the state treasurer said.

So what's an investor to do in these turbulent times? Some analysts say the best course is to focus on "ultra-safe equities," the Financial Times reports. Those include companies with credit-default spreads below that of G7 sovereign levels but with dividend yields above government bond yields, analysts from Credit Suisse say.

That rare group of stocks includes Centrica (CPYYY), Sanofi (SNY), Novartis (NVS), Compass (CMPGF), Pfizer (PFE), Philip Morris (PM) and Merck (MRK).



42Comments
Jul 28, 2011 12:50PM
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I'm sorry until you've written paychecks, paid your insurances, paid your taxes, continue to pay your suppliers, advertise, liabilities, workman's comp, medical/dental, vehicle expense, shipping expense, your cpa, your banker, utilities , rents or mortgage and continue to operate you have every right to hoard money's if you have any to hoard! 
Jul 28, 2011 12:48PM
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These businesses have not just started "Hoarding" cash. Most of these people as were the rest of the country were affected by the Housing bubbles effect. Artificially produced by the loose credit standards set by the Government. The ripple effect led to foreclosures, losses in value, loss of jobs, and etc.. Companies trimmed their operations and slowed their growth to be more efficient producing a higher rate of return for their stockholders. They have increased their retained earnings to record highs. They do not want to be caught unprepared for whatever may come. But to think the sole reason these businesses are hoarding cash is the looming debt crisis is quite naive.

Jul 28, 2011 3:27PM
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I read a lot of posts and rarely leave a comment so just take this for what its worth. I am a small business owner(manufacturer) . When I read that companies are hoarding money

I find it laughable and  sad. Laughable because I have been running on a line of credit loan

for 2 years to keep my bills paid and my workers employed. Sad,because a lot of people buy into this Bulls&#*t  reported as truth by MSN and other outlets. The truth is every business and company I deal with are in the same boat I am. Happy to break even and overjoyed when we make a few bucks.

The truth is very few in Washington really care about mainstreet. Democrats buy Votes thru entitlements and welfare. Republicans buy votes thru large corporations. I was a democrat

and changed to republican because they were to liberal. Now I can't vote republican because

they have no interest in what Middle class (if there is one) needs. Both sides delay these votes

and comprimises so they can use scare tactics to pass what they want. Sadly the media groups jump right in and help. This should have been resolved long before now,Think about what I am saying, Forget  your self imposed label of Democrat,Republican,​Tea party or whatever. We are falling for this crap time and time again. Every time they (either party)

wants to shove something down our throat they use the  Gloom,Doom and terror tactic.

 George Bush " if we don't  act this thing is going down" (financial bailouts)

Obama " If we don't pass this stimulus this things going down" Now its if we don't pass this thing its going down ( both parties and media). Well if you cared about America you would have put on your big girl panties and wirked this thing out like adults. My sugesstion is Vote out all of these self serving,good for nothing but trouble idiots and lets try agin. Just my opinion.

Jul 28, 2011 1:55PM
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I am so confused I am not sure who to trust anymore. Yes, I am a Conservative and I normally vote Republican. Unfortunately, I do not think any one person is to blame for this mess. I personally think it was all greed and self-interest that has led us down this path. The Boehner plan only kicks the can down the road to the beginning of the 2012 election. Yes, one would have to be pretty stupid not to smell the stench of politics  gone wild in this plan. While the plan has many benefits and value to the country we do need a long term plan. Of course, I see the party I am a member of purposely attempting to stall everything until 2012 to blame Obama and seize complete control of government. Then they will slam dunk horrendous plans through just as the big three (Obama, Reid, and Pelosi) were doing two years ago. I did not like that type of government then, nor will I like it in 2012. Government is by the people and for all the people. This some of the people crap and government control is not in sync with American values from either party. Perhaps we should ask economy specialist to conference and develop a short-term and a long-term plan with no politics involved. Then the people should force the bozos in the House and Senate to accept it unanimously.
Jul 28, 2011 1:34PM
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Every post I've read so far makes total sense. Market uncertainty is exascerbating the current economic situation. But just to be sure I'm on the right blog, are we blaming Bush, Obama, or both? Heavenforbid we neglect our partisan duties, and simply state matters-in-fact! 
Jul 28, 2011 1:28PM
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Another bad thing for small business owners - larger companies will be slower in paying their receivables. Then you will have to use reserves and/or be slow to our vendors which makes everyone unhappy.
Jul 28, 2011 1:51PM
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Mark is a perfect example of a tea bagger who blames Obama for all the mess that his party partly created. Guess what , didnt happen over night both parties created this mess, do you really expect Obama to fix this mess overnight? Same old BS talk. I say abolish both parties, they havent changed anything for the past 30 years. They so called parties just get rich and richer, while we the people have to pay for the mistakes of them
Jul 28, 2011 1:06PM
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They hoard it because they do not know several key things:

 

What are their taxes going to be?

What is healthcare "reform" going to cost them?

The recession is far from over, so when can they recoup their "investment"?

 

Banks will not loan money, so they have to keep cash so they can invest when the time is right.

 

If you do not understand these things, then you are ignorant of what owning a business is like, and should not criticize that which you do not understand.  Go cash your paycheck and be thankful you have a job.

Jul 28, 2011 3:17PM
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The money system doesn't work unless money is circulated throughout the system. No one owns money; it is a public good. Corporations hoarding money just make things worse, but unfortunately this is an immutable fact of corporate capitalism, and a market failure. The only solution is to re-develop our lost local economies so our communities have at least some level of self-sufficiency.

 

Isn't it obvious by now that corporations will use accounting tricks to hide their cash flow and psychological tricks to sell their products.

Jul 28, 2011 2:49PM
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Tman95 - But just to be sure I'm on the right blog, are we blaming Bush, Obama, or both?

It is both of their faults.  Neither of them did anything to Reinstate the US Laws eliminated by Both Parties that made Illegal the Causes of the 1907 Depression, 1929-1939 Great Depression, and the current 60-100 Trillion USD "Global Economic Crisis" consisting of the "Mortgage Crisis", "Wall Street Crisis", "Financial Crisis", "Credit Crisis", "Banking Crisis", etc..  Same Causes = Same Results, as to why the US and most ot the World is actually in a Depression, NOT a Recession. 

 

The Chinese retained their version of the US Laws as to why they are not affected and also immune to Financial Weapons of Mass Destruction that can destroy entire Nation's Governments and Economies.

 

Repeating the same mistakes and expecting different results does not help either:

 

1.  Known by President FDR, that his New Deal to the American People failed to get the US out of the Great Depression (people literally starving to death).  His Nationalization of all US Industry and Businesses, Suspension of US Labor Union Activities, and Sale of War Materials (Made at the US Nationalized Industry) to England, 1939-1941 (before US entered War) got the US out of the Great Depression (as to why the official date the US got out of the Great Depression was 1939 and not 1941.  The US Entry into World War II was the final thing that pushed the US out of the Great Depression.

 

Contrary to this is President Obama's Reduction In Force (RIF) of the US Military by 27,000 US Military Personnel, and the Unemployment of the xxx,xxx US Civilians (Jobs) that provide direct and indirect support to the 27,000 US Military Personnel.  Before anyone says use US Military on the US Borders, no that is Illegal, Against US Laws to use Federal Active US Military and the States cannot afford to absorb the 27,000 so they will be Unemployed along with the xxx, xxx US Civilians (all sectors including Raw Material Processing, Manufacturing, Transportation, Construction, Textiles, Food Processing, Farming, etc.).  Since they have no money anymore except for  necessities further layoffs (Unemployment) in these areas:  Retail, Restaurants, Car Dealerships, Theaters, Fast Food, Lawyers; less Taxes equals more layoffs for Teachers, Police, Firefighters, school closures, less work (construction) on roads and public buildings, etc..

 

2.  Health Care Reform, as pay back to the Insurance Corporations, Medical Device Industry, Pharmascheutical Industry for the almost 1 Billion USDs to President Obama of "Unlimited Corporate Campaign Contributions".  Instead of Eliminating the Insurance Corporations from the Medical Profession, and the implementation of President FDR's Universal Health Care For All US Citizens that would cost each US Citizen $42 for Unlimited Medical Treatments as what Senator Kennedy (RIP) wanted for all US Citizens.  The Health Care Reform costs US Taxpayers (the Budget) $1.7 Trillion USDs (adjusted for Inflation, $2.1 Trillion USDs).

 

Regardless of which Professional Politician you elect, they were already bought and paid for by the US Corporations.  The Professional Politicians are already indebt to those that paid for their Campaigns and that darn sure was not you giving them Hundreds of Millions USDs (your $1 Campaign Contributions do not mean squat).

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"Yes, I am a Conservative and I normally vote Republican. Unfortunately, I do not think any one person is to blame for this mess." Lucky Larry

I used to feel that way, until I found out about annual meetings of the very powerful, politicians and elite class. The yearly meetings called Bilderberg and Bohemian Grove. They seem to decide the futures (political and financial) of many countries (UK,  Europe and USA). Who attends these meetings? Past presidents Reagan, Bush(s), Ford, Nixon, Clinton(s), Prime Ministers of US and European countries, king and queens, Tony Blair, Henry Kissinger, TImothy Geithner, Ben Bernanke, Gordon Brown, Jean-Claude Trichet (Head of European Bank), Robert Zoellick (Head of World Bank), David Rockefeller and list goes on and on.

What's wrong with this? The press cannot or forbidden to disclose the minutes or topics of these meetings. It violates US law (Logan Act of 1799) that forbids US officials negotiating foreign policy with private individuals. Examples: Hillary Clinton and Robert Gates (while in office) both seen at Bilderberg meetings. Personally I believe, the presidential Republican and Democrat election is a shell game that the globalist allow us to play every 4 years. It doesn't matter who we pick because it's their agenda that is being served NOT ours!                      

Jul 28, 2011 12:50PM
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I thought companies were supposed to give away money to people less fortunate? How dare they hoard it. I'm joking of course.
Jul 28, 2011 3:03PM
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Let's face the truth, Affirmation of the truth will set you free..... The worst America gets the worst Obama looks, the worst Obama looks the better Republicans will be come election time in 2012. I think most educated/well informed Americans know this already.  In my opinion, the GOP leaders have a 2 headed monster to battle here,  America had prospered during the leadership of Bill Clinton who was a democrat, only to be handed over to George W. Bush who left a path of destruction behind, and now here comes another democrat trying to fix it, it  would look really bad for the Republicans if Obama was the one to do just that and for history to record to document it.  The Second monster is that Obama is the first African American president to lead and this would be another blow for GOP leaders if he was to succeed.  Please understand that I don't entirely agree with either party, I do believe we need both parties to keep each other in check and hold each other accountable.  This system has worked for decades and should continue to work, but for it to work we need leaders of both parties to put country and people first regardless of their personal agendas and score records.
Jul 28, 2011 2:15PM
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The best comment I have read so far, is get rid of both parties. It does not matter how you stack it. Both parties have proven recklessness with our countries interest. They have proven their inability to work for the better of our nation and its citizens. They will tell you to budget your money accordingly so you do not out spend your earnings, yet in their next act they do not practice that in which they preach. As for Obama, if we are dumb enough to bring him back in 2012, then we deserve to be destroyed as a nation. If he has his way we will fall under United Nations Rule, in which we will no longer have any rights
Jul 28, 2011 4:02PM
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As a small business owner I am telling you that we are not hoarding any cash. What we did was that we cut back on expansion, laid some people off and reduced our operating costs. If we  had more cash, we will expand, not hoard.

Lot of people commenting here are blaming either party and/or Bush or Obama for the economic/fiscal mess the country is in. To take this position is to be myopic. The mess the country is in was caused by policy. Lowering standards of credit to allow everyone to qualify for a house was really dumb, since at some point, these collateralized loans will become worthless, which they did. Once that happened, to paraphrase Bush I, we were in "deep doo-doo." And, this Debt-Ceiling issue has nothing to do with the current mess. The parties will come to some agreement right before the dead-line, so has to make it appear  that they have accomplished something worthwhile. However, the effects of the unintelligent housing policy will be felt for decades. (Last I checked there was $628 Trillion in Credit Default Swaps pending. The economy (GNP) of the entire world is $75 Trillion)

Jul 28, 2011 3:13PM
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I agree with your assesment wholeheartedly, georgianamax. One of the only comments that make sense. This is exactly what happened. And for that commenter had understood that the reason Community Re-investment Act  resulted in the bad loans in the first place is because of the relaxed laws and controls perpetuated by the previous administration that litterally distroyed our Financial Markets and Companies. Wake up, smell the coffee people. Thank God a president comes along with enough "Balls" to reign in this non-sense of lack of controls. If you give someone an inch, they will take a mile. The Deep Pockets of Wall Street who supported this non-sense for 8plus years and naive populous who bought this crap are to blame, and all the stupidity that invested in worthless paper all share the blame. We see right through your crap, and if you're not careful, and try and get away with this again, you may find a uprising simular to the fate of other countries you've witnessed the past few months.
Jul 28, 2011 1:49PM
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Therein lies the problem with the slow economy. Corporations and people are listening to the GOP gloom and doom pronouncements, and aren't spending money, which only makes the situation worse! Some are no doubt holding back to defeat President Obama in 2012.
Jul 28, 2011 4:31PM
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Are these the same damn companies that benefit from the Bush tax breaks that Republicans/TP's won't give up.  The job creation that it is supposed to promote--Wall Street Journal is laying off employees!  What about all those companies who received bailouts?  Where is the support of the greedy American corporations.  How will corporate America help get us out of the mess they and political lobbists got us into.   Politians are a group crooks more so today than throughout history of this country.  its all about how much money can they put in their own pockets.  The hell with Joe Plumber and his family!!!!!!!!!!!!!!!!!!!
Jul 28, 2011 4:46PM
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vintage1937 - What about all those companies who received bailouts? 

 

Facts not your uninformed emotive non factual opinions (thumbs down).

 

1.  US Congress NOT the President (Bush) Appropriates the money, as part of the "Checks and Balances".  In the Case of Trouble Asset Relief Program (TARP), it was the Demoncraptic Party Controlled US Congress that passed the November December 2008 TARP as "Time Sensitive" (no Public Scrutiny) to buy the January 2009 Electoral College Votes, as your "Popular" Vote does NOT determine the President and Vice President of the US.  Reference Businessweek Article as to the Physical Locations of TARP Recipients corelated to the Electoral College Votes.

 

2.  Research who "Mr. Corporate America" is, his major campaign contributors and major constituents are (I warned all of you about "Mr. Corporate America", he is a Demoncrap):

(My List from 2005) Delaware: Freddie Mac, Fanny Mae, Bank of America, Wilmington Trust, First USA / Bank One / JPMorgan Chase, AIG, Citigroup, Deutsche Bank, Barclays plc, GM, Chrysler, Wachovia, ExxonMobil, Chevron, ISDA, and those States with Corporations Incorporated at Delaware.
Over 50% of US publicly-traded corporations and 60% of the Fortune 500 companies are incorporated in Delaware;[1] the state's attractiveness as a corporate haven is largely due to its business-friendly corporation law. Franchise taxes on Delaware corporations supply about one-fifth of its state revenue.[2]
1. Delaware Division of Corporations
2. Delaware Fiscal Notebook - State General Fund Revenues by Category
Jul 28, 2011 4:17PM
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Companies hoarding money? What money?  They are flat broke. Companies had closed up.

laying people off. Banks are letting people go to. And when they do that ITS BAD!!  People who have lost their jobs after 20 years, I lost mine after 11. WE have NO JOBS in the USA, none in my town, nor many others Homes being foreclosed on, The unemployment rate is sky high.

the only ones hoarding money is the Government. Obama and his buddies. WE need to give all of them the boot out, from the President, To the senate, Congress, and get people in our Government who give a dam about the American people.

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