[WS:] Not anymore http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1
Wojtek
On Tue, Sep 27, 2011 at 5:29 AM, SA <s11131978 at gmail.com> wrote:
> On 9/27/2011 1:45 AM, Dennis Claxton wrote:
>
>> I keep reading about corporations sitting on record amounts of cash. What
>> happens with that money? Will they do stuff with it this trader is
>> suggesting?
>>
>> I guess my question is what does it mean to "sit on cash"?
>
> It means the same thing as for a household. You have a bunch of money, and
> instead of spending or investing it you keep it in a bank account. For big
> corporations, usually it's not literally a bank account - probably a money
> market account, a CD, or repos - but it all amounts to the same thing. They
> will almost certainly not do any fancy trading strategies like what the
> trader suggests - that kind of stuff is done by hedge funds, but it's too
> risky for non-financial corporations. (Except maybe just buying Treasury
> bonds, which is one of the things he suggests doing - but a corp wouldn't be
> doing that as a play for capital gains, just as a safe store of value.) What
> happens to the cash? It's recycled through the financial system, in
> different ways depending on the specific instrument (money market account
> vs. CD vs. repos). It ends up financing low-risk, short-term stuff (as
> opposed to the inherently high-risk, long-term nature of "real" investment):
> generally lending money short-term to banks, governments, and other
> corporations. But keep in mind - when you hear that corps are sitting on
> record amounts of cash, that's true, but quantitatively it's not a large
> amount of cash. Corps as a general rule aren't *supposed* to hold cash -
> from the shareholders' POV, it's annoying to know that the company you own
> has lots of cash in the bank. You're "paying" the CEO to make profits in his
> industry, not to hold low-yielding cash in a bank account - you could do
> that yourself, thanks very much. Households probably hold about 5x as much
> cash as corporations currently do, the "record amounts" notwithstanding.
>
> SA
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