Posts filed under “Analysts”
On Friday the Federal Reserve released its quarterly Flow of Funds data, current through June 2011. One of the more popular headlines from this data concerns the record amount of “cash on the sidelines“. Through Q2 2011, nonfarm nonfinancial corporate businesses held $2.05 trillion in liquid assets on their balance sheets. As the argument goes, this must be a sign of pent-up demand just waiting to be unleashed on the market. The second chart below illustrates why this may not necessarily be the case.
Liquid assets held on companies’ balance sheets is a nominal number, much like the nominal level of GDP, that rarely decreases. Of course cash on the sidelines is at a record nominal level, it usually is. This series must be compared to other balance sheet items for relevance. The chart below shows liquid assets as a percentage of total nonfarm nonfinancial corporate business assets since 1952. By this measure, the “cash on the sidelines” argument is far less compelling.
Even when examined over a shorter time frame, as shown below, the percentage of cash on the sidelines is still within its range of the past 30 years. While liquid assets have certainly increased relative to the rest of corporations’ assets since the end of 2008, the idea of record levels of cash just waiting to invest in the markets is not evident when viewed in this manner.
Bianco Research, LLC.
September 20, 2011
Italy Downgraded by S& P S&P just downgraded Italy’s credit. I’ve been warning about Italy since 2008. The Problem Will Spread Because NONE of the Fundamental Problems Have Been Fixed None of the fundamental economic problems in Italy or Europe or anywhere else have been addressed … let alone fixed. So the problem will only…Read More
> My Sunday Business Washington Post column is out. This morning, we look at earnings, analysts forecasting track record, and what that means for stock valuations if we have a recession. I actually like both headlines today: The online version is Market action a ‘conversation’ between investors very much sums up a philosophical view I…Read More
“Wow, that was a sobering meeting.” -Western Asset Management, Stephen Walsh, CIO > Did S&P leak US credit downgrade info to specific bond firms in advance of it occurring? That is the subject of a WSJ article today, and should be a question the SEC is investigating: “Standard & Poor’s Corp. officials held private meetings…Read More
Today’s Dick Bove wannabe is the once respected Paul Miller of FBR Capital Markets & Co. In a note to clients that revealed a stunning ignorance of fiduciary and legal obligations, Miller said FHA, FHFA, and GSEs were “acting in their own self-interest as opposed to that of the broader U.S. economy.” The details of…Read More
I always laugh whenever I hear anyone say eejit hack claim “No one saw it coming!” This video — featuring a thinner, less gray version of your humble blogger — discussing the coming housing storm in 2005 gives lie to that claim. The advice: Sell banks, Sell Home Builders, Sell Home Depot and Lowes. Video…Read More
Slap your best-guess multiple (trend growth?, slow growth?, no growth? contraction?) on 2012 EPS estimates and decide for yourself where fair value is for the S&P. Of course, beware Farrell’s Rule #9. Set an alert to revisit this post one year hence. >
Forecasting is a rough gig that often confounds even those who do it for a living and generally do it well. Situational awareness (see e.g., this and this), on the other hand, is all about knowing “what you need to know not to be surprised,” and having “the ability to maintain a constant, clear mental…Read More