Bitcoin & Crypto | Commodities | US
US corporate cash holdings have risen to record highs in recent years, both outright and as a percentage of net worth. A majority of that excess cash is on the balance sheets of the large tech companies. With the Covid-19 shock having dampened near-term investment prospects, it is unlikely that this cash is deployed soon. Undoubtedly some of the cash will be used for buybacks, but for the cash remaining, will firms continue to accept close to zero percent returns and expose themselves to a further decline in the USD? In most cases, we would expect them to seek out some alternatives.
Corp Cash Holdings at Record (FoF)
The growing cash pile is certain to be a hot topic in corporate boardrooms. Some large corporations, such as Apple, have been running what amount to internal investment funds for years. Other tech giants are well-known financiers of start-ups, either directly or via investments in venture capital firms.
For the more risk-averse corporate boards, however, investing excess cash in other companies’ securities may not seem the best idea. In such cases, cash is likely to be held in some combination of bank deposits, money-market funds, or government securities. The problem here, however, is that with rates on cash holdings effectively zero and possibly going negative at some point, cash holdings become an automatic drag on earnings.
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I like Gold, mainly as a result of negative real yields and I think the Dollar will weaken further in the near term. I expect continued weak trend global growth which suggests there will amply reason for authorities to continue with ever more uncomventional policy making through the cycle. In this envirnoment I agree that senior management in some trendier, techie firms will be thinking along these lines but I’m not so sure this makes sense or indeed whether the practise will become widespread. For corporate treasuries there surely would be a giant leap in faith between maximixing risk-adjusted interest returns and taking capital risk with their cash. Agreed the spread between zero interest bearing assets (gold etc) and cash has moved in commodities favour and also agree that bitcoin is seen (amongst other things) as modern non-fiat money. Whilst I also see a further cyclical weakness in the USD but I am not yet in the camp that believes the structural dollar decline is guaranteed. So can Corporates really be sure that the volatility adjusted bitcoin and gold returns stack up. US rates would have to go significantly negative before I think this switch to Bitcoin/Gold would make sense to most Treasurers.
Ken you bring up some very interesting points I’m not sure this is something Corp treasurers will do immediately but I can see this discussion growing at least in exploratory sense probably more for Gold then Bitcoin now at least. It was interesting when we started to see some endowments moving into Bitcoin a year or two ago though not sure if that kept up steam? I do think your point around the volatility of the underlying is really super important.