Dispatch from the Commanding Heights

cards The July 12-July 18 edition of Bloomberg Business Week, a general business magazine tellingly swallowed recently by a speculator’s news wire, is running a multiply useful story on the ongoing hoarding of cash among the overclass.

Flush with more cash than they have had stashed in at least a half-century, it seems the investing stratum faces the harrowing prospects of only getting investment returns “in the low single digits” and, due to Great Depression III, is “as confused as the rest of us”* about how they’re going to escape that fate.

See?  We really are all in this together.  Doesn’t this situation sound oh so familiar, fellow Joe and Jane Sixpacks?  We have record amounts of money on hand right now, don’t we, but face the prospect that it might only grow slowly, if we just sit around and do nothing.  Right?  Thank God we don’t have classes in America!

Meanwhile, in case you were needing a confirmation straight from the horse’s mouth, this BBW article also includes a quote from a hedge fund manager on what exactly hedge funds and Wall Street brokerages do:

Max Trautman, a former Goldman Sachs proprietary trader who co-founded London-based Stoneworks Asset Management in 2006, is now paring his $460 million fund’s market exposure. “We’re trying to reduce risk by downsizing our trades,” he says. “It’s not that we have stopped taking views, but we’re just putting less risk in them.”

So… “taking views” expressed with money on “risk.”  In my house, that’s called a wager.

And this is the system that claims it is the best of all possible ways of allocating scarce resources…

*It might be suggested that not everybody is confused. Some of us, perhaps even most of us, might merely be excluded and ignored. As a reggae band named for a British unemployment benefits form once sang,

As always you were wrong again
To us a little seems a lot
Don’t turn your back on desperate men
Cause we can see how much you’ve got…

A Headline Worth 1,000 Words

moneybagsU.S. Firms Build Up Record Cash Piles

Under that headline, The Wall Street Journal reports this:

U.S. companies are holding more cash in the bank than at any point on record, underscoring persistent worries about financial markets and about the sustainability of the economic recovery.

The Federal Reserve reported Thursday that nonfinancial companies had socked away $1.84 trillion in cash and other liquid assets as of the end of March, up 26% from a year earlier and the largest-ever increase in records going back to 1952. Cash made up about 7% of all company assets, including factories and financial investments, the highest level since 1963.

And, of course, this:

The comfort of having cash on hand, though, comes at a high price companies may not be willing to pay for much longer. They are earning almost no interest on their holdings of cash, making it more difficult for them to achieve the returns shareholders typically expect from them. That will put pressure on companies to pare down the cash holdings eventually.

“Stockholders don’t want them to keep sitting on cash at a zero return,” said Paul Kasriel, an economist at Northern Trust. “They’re going to use it,” either to increase hiring and investment or to make payouts to shareholders in the form of dividends or share buybacks, he said.

Wanna bet which one it’ll be? Didn’t think so:

Earlier this week, retailer Target Corp. raised its quarterly dividend to 25 cents a share from 17 cents, saying that the company’s cash holdings were “well above the amount needed for optimal reinvestment in our core business.”

How fortunate for everybody that we love free markets and don’t begrudge people getting rich! And that we have a president who knows how things work, and that “Ultimately, true economic recovery is only going to come from the private sector.”