MacroScope

Corporate responsibility: it’s time to start investing those record profits and cash piles

Corporate profits and cash piles have never been higher. But it’s not just an economic imperative that firms get spending and investing, it’s their social and moral responsibility to do so.

Three of the four sectors that make up the economy got battered by the global financial crisis and Great Recession:

    - Households: millions of workers lost their jobs, households retrenched their finances and times got extremely tough - Governments: they rescued and guaranteed the global economy and financial system at a cost of trillions - Banks: often vilified for their role in causing the crisis and apparent lack of punishment or contrition, they’re being forced to undergo huge structural change that will cost them billions

The one sector that flourished – even more than banks (and bankers) – is the corporate sector. By some measures, it has never had it so good – profits, cash reserves and share prices have rarely been higher:

The problem is, hardly any of that is being reinvested and relatively few are enjoying the spoils. Management and shareholders are sitting pretty, thanks to dividend payments and share buybacks. According to financial market consultant and author Andrew Smithers, US companies invest barely twice as much as they  pay out to shareholders. In the 1970s that ratio was as high as 15:1.

Smithers argues this is largely down to the distorted and myopic monetary short-termism of management incentives.

Japan’s ‘quadrillion’ feat

The age of the quadrillion is finally here.

After years of being stuck in millions, billions, trillions and other terms that usually come up short of twelve zeros, Japan has broken out, with its debt crossing the magical 15 zero barrier.

Japan’s public debt exceeded 1 quadrillion yen — or 1,000 trillion yen ($10.39 trillion) — for the first time in June, Finance Ministry data showed last week.

Those are eye-popping sums even if you consider that a dollar fetches 96 yen today and the U.S. has a much higher public debt burden in dollar terms.

Bank of England on the money with its 1982 vision of a “less cash” society

The Bank of England has a fairly dubious record of forecasting the UK economy, but 30 years ago it was right about one thing – how our use of cash would change.

A look through the Bank’s publications archive, uploaded to its website on Tuesday and going back to 1947, reveals all sorts of historical curios – not least its handling of Nazi gold in 1939

Another is a 1982 report on why demand for cash was growing far more slowly than expected, which at the time was hard to reconcile with a widespread belief that the black economy was on the rise.

from Jeremy Gaunt:

And the investor survey says…

Reuters asset allocation polls for August are out. They show very little change from July, which suggests investors are still cautious and uncertain about what is happening.

One big difference, month-on-month, was a large jump into investment grade corporate debt.  Andrew Milligan of Standard Life Investments reckons this  may in part  have been because  sovereign debt rallied so much over summer that returns from government bonds are now too meagre.

Here is the big picture:

Poll