Money in the (Foreign) Bank

by P.J. DiNuzzo                                                                                                June 9, 2015

Money in the (Foreign) Bank

You might have been reading worrisome comments in the financial press that corporate profits have come down from their highs, in part because unemployment is coming down and the labor markets are getting tighter.  None of this is really bad news, or particularly surprising, despite the breathless spin in the financial press and cable financial programs.

But does that mean that Corporate America will be starved for cash?  Hardly.  A recent report by The Economist notes that U.S. non-financial companies—including technology, consumer products, energy and health care firms—are collectively holding $1.73 trillion (with a “t”) in cash.  That’s more than the total gross domestic product of all but 11 countries around the world, and roughly 10% of the total gross domestic product of the American economy.

You might not see that money recycled into the American economy any time soon, however.  Moody’s Investor Services estimates that 64% of the total (roughly $1.1 trillion) is being held overseas.  The Economist reports that many companies are taking advantage of cheap borrowing costs in the U.S. to fund their business operations and expansions, meanwhile avoiding U.S. taxes on the money held abroad.  This does mean, however, that if/when interest rates rise as the economy grows and companies need to expand their operations to take advantage, there will be available cash, and the higher borrowing rates may not have a significant impact on Corporate America’s bottom line.

Sincerely,

P.J. DiNuzzo, CPA, PFS®, AEP®, AIF®, MSTx, MBA
President, Founder, and Chief Investment Officer