Can People or Corporations Have Too Much Cash?

Townhall.com ^ | February 15, 2013 | Mike Shedlock

[Kaslin]

Is it possible to have too much cash for your own good?

I believe the average 7th grader would easily recognize the inherent absurdity of such a question. However, the average economic writer does not understand what the average 7th grader does.

For example, please consider Apple isn't the only company with too much cash on CNN Money by author Paul La Monica.

Issuing preferred shares that pay a big dividend may not be the best use of Apple's more than $137 billion of cash and liquid investments. But hedge fund manager and Apple shareholder David Einhorn, who is pushing the maker of iEverything to reward investors with a new class of high-yielding stock, has a point.

Apple should be doing something more productive with its more than $137 billion in cash. Did I mention that Apple (AAPL) has more than $137 billion in cash?

And it's not alone. Several leaders in the tech and pharmaceutical industries are hoarding cash. ....Mercy Me

Mercy! Corporations have too much cash! And they are hoarding it!

My Goodness. It's no wonder their stocks are doing poorly. Why everyone knows making money is bad business and spending money isn't.

Yes readers, this is the way economic writers on mainstream media think.

Although I am not opposed to higher dividend yields, I am also not opposed to the concept of waiting for better opportunities.

Recall that Microsoft bid $44.6 billion for Yahoo in 2008. Microsoft's offer was over $30 a share. The current price, after a huge rally is $21.

But No! Heaven forbid corporations "hoard cash". La Monica wants corporations to do something with their cash now.

The fact is the S&P just had a rally over 100%. Stocks are likely to correct (and hard). Buying companies at lofty prices is a fool's game, and I commend Apple for not doing it.

[Carry_Okie]

You are quite welcome. I just happen to be untangling the structural relationships in those very laws in Lev. 25 & the corresponding blessings and curses of Lev. 26 as compared to known principles of ecology, politics, and economics.

It's been quite the challenge.

[Alberta's Child]

If my company was sitting on a lot of cash, I'd question whether the company was being managed well. There's nothing wrong with cash per se, but when I own a company I'm looking for it to do what it does well. Anyone can hold a pile of cash indefinitely. But if I own Ford, I want to know that the company is manufacturing new cars and developing new models of cars. For Microsoft, I want to see the company develop new software. If I own McDonald's stock, I sure hope they're selling lots of hamburgers and Happy Meals.

Maybe I'm missing the point here, but isn't a cash position even more ridiculous when interest rates are at record lows and inflation is a serious threat?

[discostu]

Or you’ve run out of ideas on how to grow and the younger hungrier companies are going to eat your lunch.

[P.O.E.]

Depends on what they mean by “cash”. Bills and coins? CD’s? Munis or T-bonds? Ledger entries?

Each has it’s own opportunity cost, risk, and valuation.

[P.O.E.]

it’s s/b its.

I hate when I do that.