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Where’s Wall Street’s Cash Going? Not to You.

As corporations continue to shed jobs, here's where that saved money is going

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The Vault

Well, plenty of it is sitting in corporate coffers.

Non-financial companies are sitting on more than $1.9 trillion in liquid assets — roughly equivalent to the GDP of Mexico with 120 million people. True, a lot of that is in Treasurys or commercial paper (cash equivalents), but it still counts as money not being deployed in something tangible and useful that would boost hiring.

Nonfinancial corporate business; checkable deposits and currency; asset
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Strip out all the assets that aren’t actual hard currency — that is, checkable deposits and currency (the kind of cash you hold in your wallet) — and non-financial companies had a hoard of $432 billion, up from $383 billion in the previous quarter. That’s yet another (dubious) record.

In 2009, this figure stood at $155 billion. Looked at that way, corporate coffers have expanded by a quarter of a trillion dollars since the crisis ended. That’s more than the market capitalization of Walmart (WMT), which employs more than 2 million full-time people. (Not well, mind you, but still.) That’s a huge chunk of money that’s not going into investment, expansion and hiring.

More incredible is the amount of dry powder corporations are sitting on that’s available for investment.

corp net cash flow IVA
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According to the BEA’s definition and accounting criteria, corporate funds available for investment come down to net cash flow with inventory valuation adjustment. (Don’t ask.) Anyway, looked at that way, funds are sitting above $2 trillion. That’s off from a recent record, but still insanely high compared with previous years.

Tech companies have especially large piggy banks. Apple (AAPL) has more than $40 billion in cash, cash equivalents and short-term investments on its books. Oracle (ORCL) has $37 billion. Google (GOOG) has almost $60 billion.

Consider that the Congressional Budget Office says 2009’s $800 billion stimulus package increased the number of people employed by between 1.4 million and 3.3 million. It’s hardly a perfect comparison, but that $2 trillion available for investment and hiring would essentially give almost all of the nation’s 10 million unemployed a job.

But the demand is not there. So rather than hire or invest, companies are sharing some of that wealth with shareholders through dividends and share repurchase programs.

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So … guess what’s at another all-time high? Dividend payments, which came to $908 billion last year.

And then there are buybacks.

Announced share buybacks are also at a record high, while actual share repurchases are at their highest level since 2008. For the most recent quarter, buybacks grew 32% year-over-year to hit $123.9 billion, according to FactSet. For the trailing 12 months, the money disbursed on buybacks amounted to nearly $450 billion.

Companies with the largest buybacks in the third quarter (the most recent data available) reads like a list of companies that could make a dent in joblessness if there were only more demand. Apple spent $5 billion. Pfizer (PFE) shelled out $3.8 billion. Halliburton (HAL) and Qualcomm (QCOM) each spent $3.3 billion. Oracle paid $3 billion to buy back its own stock.

Taken together, U.S. companies spent almost $1.5 trillion on dividends and buybacks over the last year.

Bottom Line

There’s plenty of wealth for everyone; it’s just that it’s sitting in corporate treasuries, waiting to be lavished on restive stockholders.

And until demand returns to stress capacity and inflate corporate revenue, companies have no incentive to do anything else with that cash, which, in a way, is their own undoing.

After all, one company’s employees are another company’s customers … so with so many customers out of work or strapped for cash, where is that demand supposed to come from?

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As of the writing, Dan Burrows did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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