U. S. companies are sitting on the largest pile of cash ever.”

Cash holdings at non-financial companies grew to a record $2.1 trillion at the end of June….”

That is up 30 percent from that time last year and higher than the previous peak of nearly $2.0 trillion in 2017.”

Other measures show some of America’s largest companies continued to hang on to record cash stockpiles at the end of the third quarter.”

So Sebastian Pellejero tells us in the Wall Street Journal.

And, we are in a recession and people are out-of-jobs, and small businesses are closing, and things look pretty bleak for the next year or so.

But, the Federal Reserve has done its job. It has gotten the money out into the economy and the fears of a liquidity crisis have receded.

What To Do With The Money

However, these corporations do not seem to be focused on investing in physical capital.

Also, they do not seem real excited right now about engaging in mergers or acquisitions.

Furthermore, they do not seem to be ready to pay back debt.

Mr. Sebastian quotes David Kotok, chief investment officer at Cumberland Advisors:

It doesn’t make sense for cash-laden companies to pay down debt in this interest rate climate. That cash is going to be put to more shareholder-friendly uses.”

Okay, the money can be used for stock buybacks and higher dividends.

The hope…is to drive up share prices.

Remember that the latest tax give-away, the 2017 tax reform bill passed by president Trump and the Republican-led congress resulted in almost two-thirds of the benefits were used in stock buybacks and higher dividends.

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Well, if that is where the money goes, the stock markets may continue to hit new historic highs, great for investors, but don’t count on much of an economic recovery. And, if the economic recovery is modest , will the benefits of these actions lead to lower unemployment, fewer bankruptcies and fewer defaults?

Speaking Of Bankruptcies and Defaults

Speaking of bankruptcies and defaults brings us into another picture.

That is, as the editors of the Financial Times call our attention to the “mountain of debt” that has accumulated as a result of all this activity.

Any economic recovery will be hampered—in some cases seriously—by the very measures politicians have used to sustain companies through the height of the crises.”

The monetary authorities have done the job of sustaining us through the early days of the current situation. But, the editors contend that

“Once state support is switched off, many businesses will be unable to bear the debt they took on to survive.”

Whoa, that doesn’t sound so good. Well, economist Paul Krugman would like to see another picture evolving. Mr. Krugman argues

it’s clear that the U.S. government should be investing heavily in the nation’s future, and that it’s OK, indeed desirable, to borrow the money we need to make those investments. That is, to act responsibly, we must stop worrying and learn to love debt.”

There you go…we must stop worrying and learn to love debt!

Interest rates are low so corporations can carry on with their debt and given the government’s support this situation can be continued indefinitely.

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Thus, government spending can proceed right ahead and this will support the corporate debt and this will support economic growth and everything will work out just fine. Oh, this will also continue to support the stock market an allow the market to continue to hit new historic highs.

But, What About Inflation?

Guess what? A new concern has arisen: what about inflation?

Again, we find that the editors of the Financial Times find this to be important enough to make it their number one lead editorial.

Expectations of inflation are on the rise…”

The editors rely on information I have provided in my recent post: inflationary expectations as calculated from bond market yields indicate that, since the presidential election, inflationary expectations for the next ten years have risen significantly and now stand at a high reached almost two years ago.

The editors of the Financial Times are worried that government policy-makers, both monetary and fiscal, will move too soon if this concern grows. Whoa! Have we jumped ahead. ,

Sign Of The Times

But, this, to me, points to another issue that we have to deal with and it is something that investors have to recognize. We are in a mess!

Things are so convoluted right now we are having trouble distinguishing up from down. Furthermore, as I have written several times, the risk/reward relationship is “unhinged” right now. That is, things in the financial market are dislocated.

We are dealing in a world of “radical uncertainty,” a subject I have also written about.

This is a very difficult time to negotiate the economic and financial world. Policy-makers and investors beware.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Via SeekingAlpha.com