What's Shaping Up? Why Are Companies Hoarding Cash?

There is a lot of press lately about now organizations are hoarding cash in record amounts and about how they are not investing in long term growth opportunities.

So, the question is: why are companies doing it?

I think there are three key reasons:

Preparing for a Competitive Onslaught: Companies have been addressing competitive price pressures from globalization by aggressive outsourcing, wringing efficiencies and productivity gains from their processes. The next phase is going to be all out competition on all fronts (price, products, customers, channel, innovation, designs, etc) from companies in the emerging nations. The pattern is emerging already with increasing merger and acquisition activity driven by foreign players. In response to which, incumbents are merging and saving cash to erect greater protective defenses.

Changing Economic and Currency Order: The world economy is booming just as the US economy grew in the very early 20th century driven largely in part by the wars in Europe. At that time, the US supplied goods and services without directly participating in the wars. Today, the emerging economies are vastly benefiting by the unsatiable desire for low-cost, high-quality products and services. Combined with large scale borrowing by developed nations, could cause the world's mightiest currency to fall precipitously. Organizations recognize this and they are conserving cash for a rainy day (and to buy themselves out, if needed).

Significant Uncertainty in Energy, Financial Markets, Foreign Affairs, and Environment: While this is a seemingly unconnected list, there are serious developments that could shape the things to come. Global organizations are conserving cash, and are on a wait and watch pattern see how things shape up. A lot of things could go wrong before they get better. Here is a list.

• An global energy crisis.
• A collapse of the US automobile industry.
• Significant defaults on credits, home loans, foreclosures
• A collapse in the US real-estate asset prices
• A collapse of the US bond market.
• A collapse of the US dollar
• A gradual revival of the global automobile industry based on renewable fuels, hydrogen powered cars, electric cars, etc.
• A gradual, steady drop in the reliance of oil.
• A serious change in the US leadership that values environmental protection.
• An enforcement through global treaties to reduce "carbon emissions" now that the US economy doesn't depend on it any more.
• A fall in the Middle Eastern economies.
• A rise in communist Russia, belligerent Venezuela, a religious and nuclear Iran, and an unpredictable China.

Let's discuss if you agree.