The opening lyrics to James Honeyman-Scott and Chrissie Hynde’s song Brass in Pocket could easily be changed to: “I’ve got [cash], in pocket; got [money],I’m gonna use it”. Only the cash in pocket has become the huge economic threat of this financial crisis – one that still lingers several years after the fact.
We all know that consumers need to spend in order for the economy to see any substantial recovery. Once that happens, businesses will be forced to met the demand and when that happens, jobs are created, exports ramp up and imports follow. And the whole world sees a significant uptick. Yes, that dollar in your pocket is that powerful.
But the American people are still skittish. A recent article in Businessweek reported that: “American households are sitting on nearly $8 trillion in cash—money that’s earning virtually no return because people are so wary of additional losses. U.S. corporations are hoarding at a record pace as well. According to Moody’s Investors Service, cash at U.S. nonfinancial corporations stood at $1.84 trillion in the first quarter of this year—a 27 percent increase from early 2007.” (I wrote about this several days ago in a piece titled “Crossroad Capitalism“.)
The gist of the article is focused on hedge funds, who have seen some unexpected losses. The result of those set-backs uncovers the all-to-human aspect of this type of investment: less risk in their retreat and retrenchment. They believe that a large bet placed now will not allow them to make a large bet in the future – one they believe will be another market decline and a missed buying opportunity.
Which leads the article’s author Roben Farzad to ask: “When does holding so much cash go from being a virtue to a vice?” The speculation of what happens next is with the shareholder. If the business you are invested in isn’t doing anything with the money they are holding, then doesn’t that make them nothing more than a bank? The most logical result of such posturing by these companies is dividends and share-buybacks. While these two things make a company’s shareholders happy, it does nothing for the economy and even less for the business.
In terms of retirement planning, the dividends that the largest companies have been paying do not match the cash these businesses are holding. And hedge funds will begin the battle to get some of it back. If you aren’t growing, then fork it over or so the thinking seems to be. Hedge funds will take the cash if the other option is no growth, risk or investment. That said, it might be time to look towards mutual funds that focus on dividend plays in the near-term. It is what the hedge fund managers are doing.
Read the whole article from Bloomberg BusinessWeek
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- Mutual Funds: Could there be hope in investing both long and short?
- Mutual Fund Investing: The Group Picture
- Mutual Fund Investing: It is what You Believe It is
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Cash, in Pocket
The opening lyrics to James Honeyman-Scott and Chrissie Hynde’s song Brass in Pocket could easily be changed to: “I’ve got [cash], in pocket; got [money],I’m gonna use it”. Only the cash in pocket has become the huge economic threat of this financial crisis – one that still lingers several years after the fact.
We all know that consumers need to spend in order for the economy to see any substantial recovery. Once that happens, businesses will be forced to met the demand and when that happens, jobs are created, exports ramp up and imports follow. And the whole world sees a significant uptick. Yes, that dollar in your pocket is that powerful.
But the American people are still skittish. A recent article in Businessweek reported that: “American households are sitting on nearly $8 trillion in cash—money that’s earning virtually no return because people are so wary of additional losses. U.S. corporations are hoarding at a record pace as well. According to Moody’s Investors Service, cash at U.S. nonfinancial corporations stood at $1.84 trillion in the first quarter of this year—a 27 percent increase from early 2007.” (I wrote about this several days ago in a piece titled “Crossroad Capitalism“.)
The gist of the article is focused on hedge funds, who have seen some unexpected losses. The result of those set-backs uncovers the all-to-human aspect of this type of investment: less risk in their retreat and retrenchment. They believe that a large bet placed now will not allow them to make a large bet in the future – one they believe will be another market decline and a missed buying opportunity.
Which leads the article’s author Roben Farzad to ask: “When does holding so much cash go from being a virtue to a vice?” The speculation of what happens next is with the shareholder. If the business you are invested in isn’t doing anything with the money they are holding, then doesn’t that make them nothing more than a bank? The most logical result of such posturing by these companies is dividends and share-buybacks. While these two things make a company’s shareholders happy, it does nothing for the economy and even less for the business.
In terms of retirement planning, the dividends that the largest companies have been paying do not match the cash these businesses are holding. And hedge funds will begin the battle to get some of it back. If you aren’t growing, then fork it over or so the thinking seems to be. Hedge funds will take the cash if the other option is no growth, risk or investment. That said, it might be time to look towards mutual funds that focus on dividend plays in the near-term. It is what the hedge fund managers are doing.
Read the whole article from Bloomberg BusinessWeek
Related posts:
Posted in commentary, economics, Repercussions: A Retirement Review, Retirement Planning Target 2025