Fear and Loathing In America

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At The Wall Street Journal’s CFO Network conference last week, the top recommendation was…what?

Was it urging firms to take advantage of lower natural gas prices?

Or suggesting businesses grow by acquiring foreign firms with the strong dollar?

How about lowering prices to cash-strapped consumers?

Nope. None of the above.

The top recommendation was for firms to hold onto their cash.  And I quote:

“Stay liquid.  Protection of principle and liquidity trump all.  You can’t rely on the capital markets to be there when you need them.”

Sounds like a ringing endorsement of the economy to me.  And the cow jumped over the moon.

But just how negative is the view of major US firms’ outlook on the economy?

Firms fear the future

According to the Federal Reserve, “nonfinancial companies continue to hold unprecedented levels of liquid assets, $1.74 trillion at the end of March.”

That’s a lot of liquidity.  More importantly, that’s a lot of fear.

And let’s get down to it, shall we?  In the political realm, there is a lot of wiggle room where a lot of rhetorical fertilizer gets spread around and peddled as fact by those whose job it is to do so.

But when you’re a CFO of a major firm, there’s no room such nonsense.  The only concern is to know what the reality is and to prepare for its impact.  Otherwise, you’re out of business.

On the one hand, there is political finger painting targeted toward its juvenile audience who believe in the rhetoric of hope and change, and on the other, the hard reality of survival in High Definition.

Get the picture?

You should, because the picture is crystal clear.  There is no confidence in this administration to fix the economy; hell, there’s no confidence that this administration even knows what an economy is or how it works.

“Ah, but that’s just your political bias showing, JRG,” you might say, but I think not.

Admittedly I am no fan of this administration…

I tend to chafe at those, whomever they may be, who think they know best how you or I should run our lives while taking the majority of our hard-earned money in the process.

That’s why it’s so amusing, if not disgusting, to hear those who’ve never, ever run a company in their entire lives, deign to provide us with such idiotic advice.

Blaming firms for not spending

Case in point: the President and his powerful union bedfellows whining and berating American firms for not spending more money to create jobs.

And therein lies the problem…

The belief that spending money, whether by government or by business, creates jobs.

Unfortunately, spending money does not create jobs.  Not real ones, anyway.  If that were the case, then with all the trillions of dollars that have been spent, the economy would be awash in jobs, falling unemployment, and rising wages.  But it’s not, is it?

Jobs are created by demand.

Demand is created by consumers earning money working at real jobs that produce goods and services for their fellow consumers…at least that’s how it used to work in America, back when the middle class was, well, the middle class.

But why cloud the issue with facts?

At the same time, the President is busy creating as many new regulations and taxes—two things that kill economic activity, the very thing he says he wants more of--as fast as he can.

And the institutionalization of Obamacare by the Supreme Court last week has only underscored the trend toward economic malaise in this country.

The public may be stupid; and the Supreme Court may be short sighted, but business owners are neither, or they’re not business owners for very long.

They deal with facts, not political spin or ideological arm-twisting.  Business people see what’s coming and are preparing for it. The facts are that fear and uncertainty are driving businesses to hoard cash. And why shouldn’t they?

The level of uncertainty in the economy is quite high, while confidence in the Administration’s ability to solve it dwell at the bottom of a very deep, dark hole.

The Obamanization of America

For many, the expectation is that it could take years before the economy turns around.  That estimate may be extended, of course, depending upon who is running the country in 2013.

But even that may not change things for a long while.

American firms know that such a reality is not good for business.  In fact, S&P 500 companies are holding 70 weeks’ worth of net operating cash, an unprecedented level of cash hoarding, which is earning those companies almost nothing.

Think about that for a moment.  Huge firms are not in the business of earning nothing on their money, but the view ahead compels them to do so.

Why is this happening?

There is of course the Eurozone problems and the global slowdown in general, but that doesn’t entirely explain the dropping domestic demand in our own economy.

What does?

The Obamanization of America, where the final transition to a centrally planned economy has put the last brick on the broken back of what once was a thriving middle class.

There is no mystery here; there is only economic hardship by design and the predictable degradation of the economy.

The absolute loathing that this president feels toward “the American way” has found its voice in polices that have turned the middle class into an entitlement-dependent class of workers who just want to hold onto what’s left.  They’re not spending money that they don’t have, and certainly won’t have, in the foreseeable future.

American firms understand this.

American exceptionalism, economic dynamism, and the rest of those ideas that this President has so effectively attacked while in office, have been marginalized. They have been replaced by the planned and command economic malaise we have today, and will have more of tomorrow, where “advanced nations,” apparently, ought to be.

That’s the reality behind all that cash, over $1,7 trillion, that is earning nothing.

And those are…The Gorrie Details.

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4 Comments

1. 

   sd

   July 3, 2012 at 9:09 am

   Could not agree with most everything you say more. Firms have a fiduciary responsibility to hoard cash. Share holders would have every right to fire directors if they didn't. Financial officers have not forgotten what it was like trying to raise short term capital for payroll & immediate expenses during our "Lehman Moment." They were caught off guard, they won't forget, and they won't let it happen again. They will keep their cash in T-Bills paying nothing because anything less than that (in terms of liquidity) would jeopardize the survival of the firm.
   As far as the loathing of this administration, I think they realize that there was a time when hard work alone would strengthen the middle class, but that is not the case right now. In fact, there are impediments in place that stifle the ability to do hard work, work your way up & out. The administration might have caused some of this, but at least they see it. Why do I get the feeling that some of you don't. By right, the autos should have been allowed to fail, the banks should have been allowed to fail, any European banks holding chopped up debt should have gotten pennies on the dollar, AIG should've closed up, and anyone behind on their mortgage should've been kicked out of their home. But "We" , as a country, chose not to do that. So, hence, the entitlements. And now you start looking for American exceptionalism & economic dynamism? A little late, don't you think?

   Reply
   • 

     James R. Gorrie

     July 5, 2012 at 12:04 pm

     Scott,

     Let's look at your points. The administration did not cause GM to fail; but it did not let GM restructure through chapter 11, either. To do so would have allowed GM to renegotiate all union contracts, slash costs and become lean and profitable. But by nationalizing GM, as Obama did, all union contracts stayed in place, and GM is still on the hook for the fatally high cost of union benefits that are no longer realistic. That is why, in 2007, both GM and Toyota did about $17 billion in revenues, but only Toyoto made a profit. The difference? Union labor costs and benefits. This president is a union-owned president.

     Banks should also have been allowed to fail, but all depositors' money should have been guaranteed. This is what Iceland did and it worked well. Why punish savers for risk-taking banks' failures? As for mortgages, the bubble was caused by a lowering of lending standards for political purposes at the executive and legislative levels, and were executed by Fannie and Freddie. The risky debt was then forced onto Wall Street, who then bundled bad debt with "good" loans, and sold them to the world and their own depositors.

     As for mortgage defaults, all "zero-down purchased" homes should have gone to auction, while buyers with 10-20% down should been able to pay on a fixed interest only --say the COFI-- as a way to keep their homes.

     We, as a country did not choose the path we're on--Washington D.C. chose it. And even when GM and Chrysler wanted BK protection, the President inserted himself into the law, into business and broke contract law and would not allow it. That's not what presidents do; it's what lawless fascists do.

     Regarding American Exceptionalism and economy dynamism, I remind you to look at the Carter years, where the "misery index" was born, and contrast them with the Reagan years. Reagan cut business regulation by a third his first 18 moths. Fact is, Americans are still the most productive people on earth and still know how to make and invent things, and still have the dynamic energy necessary for renewal; they just have to be allowed to function like Americans. A question for you, Scott: "If America doesn't lead the world, who would you propose do so?" JRG

     Reply
2. 

   Barry N. Peterson

   August 8, 2012 at 11:56 pm

   Having experienced profoundly disabling depression and a treatable form of autism, Asperger's Syndrome, for the past twey-one years, I am just getting into the ring as one with an interest in learning about investing. As one who receives entitlements to keep me housed in a safe and private environment; and, as one who receives Social Security Disability Income (SSDI) in the amount of $921 per month, I see prblems with some of the ways that the SSDI program is, and as this limits us from taking a jump into the competitive work environment.

   I'll note that I have an excellent education from University of Minnesota, went to a private day school in high school, and attended a boarding school in Norway -- the site of Norway's King Haakon 7's decision, as he met with members of the Third Reich, to not enter into an alliance with the Third Reich. One of my friends from school is a second cousin of King Harald of Norway; and, a friend of my parents is a neice of a Swedish countess...who may or may not be alive today, I don't keep track. All of this is to say that I would rather be using my education and talents to be a leader in our national and international community.

   What the Social Security Administration, Congress, and the President are not allowing for those of us on SSDI are second and third "trial work periods," where we can count on SSDI benefits while taking a second or third try at competitive work years after previous attempts. This keeps us locked into the system. Having experienced mental illnesses as a teenager and young adult left no room in my family's heart to extend a helping hand as I worked through the same kind of issues that millions of disabled Americans work through to become creative, productive, and prosperous contributors to our community.

   Now, at the age of 50 years, I am not only still labled and constrained as disabled, but our nation's hiring authorities in big businesses and small find us unappetizing as "college educated polyglots" who would be great assets to their companies with a hospitable degree of confidence and on-the-job-training that wouldn't place us in a financial position where we would make the $1010.00 monthly income that would take us out of SSDI, by law, and place us on the sea of opportuntieis without a boat and oars to get us back safe shore should we fail. Paid training is poison to those of us on SSDI who want to start slowly in the marketplace to see if we are yet enough able-bodied to maintain and support ourselves with persistent and excellent performance at work.

   I bring this up because a lot of people believe that those of us receiving the aid from entitlement programs really want to stay on entitlement programs. I don't. I've developed fluency in four languages and have met and befriended members of royal houses, their friends, and members of premier families from other nations. Having secluded myself for twenty-five years, due to harassment and illness, I haven't kept up with really enjoyable old friends. As a student of history, most don't know what I would be good for in their organizations. Before my depression, I'd hoped to become a diplomat and then a businessman.

   Please do not objectify all people on entitlements. Those of us who are intelligent and educated find them to be helpful for survival; yet, the programs are set to keep us imprisoned at 70% of povert-level, having grown up among heirs to multi-billion dollar family corproations.

   UNEDITED

   Reply
   • 

     James R. Gorrie

     August 9, 2012 at 9:30 pm

     Barry, no one in their right mind begrudges Americans with true disabilities receiving the help they need that they can't provide for themselves. However, no one in their right mind believes that there are 100 million Americans that meet that criteria. Nor would anyone with reasonable grasp of reality pretend that A) there isn't just rampant abuse of the system by far too many people, and B) the more dependent Americans become on government handouts, the weaker we become and the more pliant and reliable of a voting bloc the takers become. Neither of those developments are good, and yet both are where we are today. JRG

     Reply