Dead Money: Cash Rich Canada, U.S. Stimulus & the Hunt for Double Digit Returns
Dead Money or Sound Business?
Bank of Canada Governor Mark Carney has been slamming Canadian corporations for storing too much cash. At $526 billion in cash on hand for Canada’s non-financial firms, which is 3 times normal levels and up 43% in the last 3 years they are in great condition, especially those in Alberta, led by massive Suncor.
So why is this a bad thing?
Obviously recent policy changes and new mortgage rules have caused far more damage to Toronto’s condo market, Vancouver real estate and confidence in the country’s financial strength and economy than planned and more cash flowing could help Canadians feel even richer and put aside their doubts. However, why should companies be penalized for their wise financial moves or encouraged to splurge when it is clear that they should be beefing up to weather uncertainty and have capital to make smart expansions at the most opportune moments? Alberta companies are strong and that is good for all of us. The stronger they are, the more hiring they will do, the safer Canadian jobs are and the more cash that will flow wisely.
The Canadian Stock Market Loves U.S. Stimulus Talk
Canadian stocks recently received a small boost after the U.S. Fed’s Ben Bernanke spoke of the ‘ability’ to create more stimuli. That’s great for those holding stocks right now and probably means this is the opportune time to cash out of them while they are up, especially for those who have been paying attention to analysts from Goldman Sachs.
Of course the bottom line is that while we will no doubt hear many more promises of stimulus for the U.S. before November presidential elections real meaningful help is likely to remain a myth, just out of reach. Interest rates are already rising in the states as are borrowing costs and if the U.S. government really wanted to do something real on a street level it would tap the $40 billion in stimulus money which has already been sitting idle for the last 3 years. Instead, so far ‘stimulus’ seems to only be stimulating big bank profits and fattening government employee’s bonuses which are doled out at lavish parties while taxes raises loom for the public.