MONDAY NOVEMBER 2, 2009

Cash, Cash, Everywhere

There seems to be hoards of cash everywhere.   We have discussed the large cash positions that individual investors continue to maintain.  Today, the Wall Street Journal reported that the 500 largest non financial S&P companies hold $994 billion in cash and short term investments.  And Bloomberg reported that the largest financial companies are holding record amounts of cash.  Cash, it seems, is everywhere.

Certainly, these cash hoards are a sign that caution prevails in the household and the board room.  It is a result of the deleveraging process.  But I think that is a good thing.  First, one of the causes of the financial crisis was the lack of liquid, short-term funds that would have allowed banks to weather the storm.  Perhaps the large banks have learned a lesson, and that is a good thing.

The large cash positions of corporations and investors will not make or break the economy.  Is it possible the economy can double dip and go back into recession?  Sure.  However, regardless of how the economy moves, it will provide an opportunity this cash to be invested in the future.  At a minimum, I think it will limit the size of any correction we might experience.  If the economy does continue to improve, the large cash stockpile will provide the fuel for further growth.  Particularly if short-term rates remain low.

POSTED AT 1899-12-30 18:45:00.0

KEN ENTENMANN, CFA
SENIOR VICE PRESIDENT AND
THE DIRECTOR OF INVESTMENT MANAGEMENT SERVICES

Ken is a Senior Vice President and the Director of the Trust and Investment Services at Alliance Bank, N.A. He has 23 years of investment experience and oversees the management of assets totaling $1 billion. He holds a B.S. in Applied Economics and Business Management from Cornell University and an M.B.A. from the William E. Simon Graduate School of Business Administration at the University of Rochester. He has also earned his Chartered Financial Analyst designation. He is a member of the Executive Committee of the Trust Division of the New York Banker's Association. He is also a director of the Central New York Community Foundation.

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