Are Businesses Quietly Preparing For A Financial Apocalypse?

• Are Businesses Quietly Preparing For A Financial Apocalypse? 
  by Dan Steinhart, Casey Research, via http://www.zerohedge.com/ 
  US corporations are sitting on more cash than at any point since World War 2. That’s without including banks. I’m only talking about nonfinancial corporations – the ones that sell goods and services and make the economy go. Those businesses hold $1.4 trillion. In absolute terms, that’s the most ever. In relative terms, it’s the most since World War II.
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  As investors, we can infer quite a bit from corporations’ inability (or unwillingness) to deploy their cash. For one, it indicates that business have assumed a very defensive stance.
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  Cash, of course, is a buffer against uncertainty – the uncertainty that business slows for any reason. Management wants a healthy cash reserve with which to pay the bills and remain liquid should anything unexpected happen. I think we can all agree that this is prudent, and a good business practice. But $1.4 trillion? That tells me that businesses are not just a little jittery about the future. They’re prepared for an apocalypse.
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  Think about this, it’s important;
  If these businesses could conjure up even the most marginal of projects to earn a meager 1% return, they would generate $14 billion profit. Instead, they’re sitting on the cash and earning near zero for a guaranteed after-inflation loss.
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  It’s a bad omen that corporate management would forego a collective $14b per year. Clearly, by their judgment, the risk of investing in new projects outweighs the reward – the exact opposite of the conditions needed to produce healthy economic growth. That’s the bad news. But here’s the good, if paradoxical, news:
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  Even with all of this corporate slack, earnings and profit margins are very healthy, and stocks have performed quite well. Case in point, the S&P 500 is up 15% YTD. Why the disconnect? 
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  Well, the rising margins and earnings are easy to explain: corporations have cut costs over the past few years, becoming leaner and more efficient. This also partially explains higher stock prices.
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  read more!

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