Photo: Leszek Golubinski via Flickr
U.S. corporations have a higher proportion of cash on their balance sheets now, than anytime in the past 50 years, according to the Financial Times.And while M&A activity is picking up, up 27% versus the same period 2010, that doesn’t mean firms still aren’t fearful of the current climate.
From the Financial Times:
Other investors, bankers and executives, however, paint a picture of companies still cautious about the recovery and unsettled by shocks such as the unrest in the Middle East, the eurozone debt crisis and the earthquake in Japan. Nick Gartside, a chief investment officer at JPMorgan Asset Management, says: “There is future uncertainty. If you look at growth in the developed world, forecasts keep on coming down. If you are a corporate treasurer are you going to invest or are you going to wait and see?”
This reticence on the part of companies, post recession, to spend their cash fits nicely in with Richard Koo’s theory of balance sheet recessions. In this environment, Koo suggests that banks and businesses alike prioritise debt repayment over growth. This new psychology of business leaders, now fearful another great crash could be just around the corner, might be what’s hampering a return to significant growth.
It’s a bit like business leaders have post-traumatic stress disorder for what happened during the financial crisis. Never again will they leverage up, take risk, and trust in growth they can’t see evidence of.
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