The “cash hoading” also means that companies are not expanding all that fast. That may also reflect a fearful view of the future.
Ordinarily, falling interest rates indicate that there is an abundance of savings available for current investment and future consumption. But our low interest rates are very obviously a product of the Fed’s attempt to stimulate the economy. Executives at our most sophisticated companies are not under the impression that Americans are saving so much that they’ll have a lot of available cash to spend in the future.
The financial crisis also made many retail investors nervous. Add to that the lost decade in the stock markets—stocks have lost money over the past ten years once inflation and taxes are taken into account—and you have a recipe for investors who doubt that they can make better investment decisions than corporate insiders. So perhaps investors just aren’t demanding that corporate earnings get returned to them as dividends.
This nervousness about the wisdom of buying stocks can create another challenge for chief financial officers...
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