Corporate America is putting its record $2 trillion cash pile to work.
Apple Inc.’s quarterly results this week showed the iPhone maker reduced its cash holdings for the first time since 2006, cranked up a share buyback program by $30 billion and raised its dividend. General Electric Co. is considering tapping its $57 billion in overseas cash to acquire France’s Alstom SA, according to a person familiar with the situation.
The steps are encouraging investors who have pushed companies to reward them with higher payouts, as well as economists who consider the piles of cash a missed opportunity to start long-awaited spending on tools, facilities or new businesses to help accelerate growth and create jobs. Signs that the U.S. is rebounding from a winter slowdown and Europe is recovering from its recession are also beginning to encourage companies to pursue acquisitions.
“Corporations are flush with cash and are beginning to pick up M&A activity as well as share buybacks and dividend increases,” said Eric Teal, who helps oversee $3.5 billion as chief investment officer of First Citizens BancShares Inc. in Raleigh, North Carolina. “These activities will continue.”
The cash pile reached $2.02 trillion in the latest quarterly filings of 2,300 non-financial companies in the Russell 3000 Index, according to the data compiled by Bloomberg as of April 21. The total rose about 13 percent from a year earlier in each of the two latest quarters, the fastest six-month gain since mid-2011. For comparison, Russia’s annual gross domestic product was about $2.01 trillion last year.
The corporate Autonomies (large, multinational firms which are leaders in their fields) prudently preserved cash following the 2008 financial crisis and retired expensive debt with the help of extremely low interest rates.
Those cash reserves have mostly grown for successful firms over the last five years and confidence within the global economy is gradually and somewhat sporadically improving across continental regions where Autonomies ply their trade. They will invest more while global GDP growth improves and this will help employment somewhat.
However, investments for development and productivity growth in the current era and long-term future will often favour smart machines rather than employment on the scale seen in earlier recoveries. Governments can help the current and future unemployed with training programmes and start-up support for new businesses. This will also contribute to GDP growth.
The Autonomies have outgrown their countries of origin and have an increasingly large corporate presence in many other nations, where they maintain offices and factories, hiring and producing locally. They pay taxes in these countries. The USA and any other nations with global taxation policies would be better off if they only taxed within their own countries. This would increase capital flows, whereas double taxation is an enormous incentive not to repatriate overseas funds under any circumstances. Double taxation or even overly complex domestic taxation also slows GDP growth and encourages Autonomies to reduce their presence in countries which apply them.Back to top