Ever since the financial crisis, corporate America has been beefing up its balance sheets with huge cash hoards.
“S&P 500 firms had $US1.4 trillion in cash at the end of 2014 (ex-Financials), and cash flows remain strong,” said Goldman Sachs’ David Kostin in a research note published on Monday. That number goes up to $US1.7 trillion if you consider the top 1,500 publicly traded companies.
For the most part, public companies have been deploying excess cash to shareholders in the form of buybacks and dividends.
Today’s $45 billion Time Warner Cable takeover by Comcast is similar in that it’s largely just money moving from one balance sheet to another.
“It’s basically just taking one ticker symbol and replacing it with a different one,” quipped Reuters’ Felix Salmon.
While buybacks, dividends, and M&A deals can line the coffers of investors in the near-term, it doesn’t do quite as much directly for the economy.
Companies can better stimulate the economy by investing in growth — which would include hiring more people — or even by just replacing old equipment, which means growth for manufacturers.
“The transaction will generate approximately $US1.5 billion in operating efficiencies,” the companies said in a press release.
Unfortunately, “operating efficiencies” usually means closed offices and layoffs.
Today’s deal is encouraging for financial markets in that it may reflect animal spirits are in the air. However, the U.S. economy would rather here about multi-billion dollar expansion plans that come with job creation.
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