Five Things You Need to Know: American Companies Have Billions In Cash Trapped Overseas

By Kevin Depew  JUL 05, 2011 11:20 AM

Given our weak and asymmetrical economic recovery, a one-time tax break on overseas cash balances isn't quite as far-fetched as it seemed six months ago.


1. American Companies Have Billions In Cash Trapped Overseas

House of Cards author William Cohan in an op-ed for Bloomberg View makes the case that companies with cash trapped in overseas bank accounts should be given an incentive to bring it back to the US with tax breaks tied to capital reinvestment, hiring and, research and development spending.

"Because of the success of American companies in the global economy, they have billions of dollars in cash trapped in the bank accounts of their subsidiary operations overseas," Cohan writes. "Why not give these corporations the incentive to bring that money home with a tax break, but in exchange demand that they use the cash to, among other things, build new plants and equipment, hire new employees, and invest in research and development?"

Cohan notes that, according to the New York Times, companies such as Apple (AAPL) have $12 billion in cash or cash equivalents overseas, Microsoft (MSFT) $29 billion, Google (GOOG) $17 billion, and Cisco (CSCO) almost $32 billion.

At issue is the present tax penalty for bringing the cash home, up to 35 percent. A possible one-time tax break, considered unlikely months ago, has long been rumored to be on the table in Washington. Given our weak and asymmetrical economic recovery it's not quite as far-fetched as it seemed six months ago. Cohan describes some of the nuances and counter-arguments to the tax repatriation holiday in his op-ed, which is well worth the read.

2. Speaking of Old Tech Stars...

Minyanville Professor Conor Sen directed me to this Wall Street Journal article, which observes that the former growth stocks (those mentioned in number 1) aren't trading like growth stocks anymore, and in some cases their valuations have fallen below the S&P 500.

"Some say valuations have gotten so low that they are likely to rise should there be any stronger signs that the economy isn't mired in a prolonged slump..." Or perhaps if Congress approves a one-time repatriation tax break? Food for thought.

3. Banks Still Hoarding Cash

I ran across a great July 4th post by David Schawel on his Tumblr site, Economic Musings. David rolled up his sleeves and looked at commercial bank loan trend data from the Federal Reserve. If total loans and leases are down 2.4 percent year-over-year (and small bank loan contraction running at an even worse 3 percent year-over-year) even as total bank assets are up slightly, where is the shift out of loans ending up on the balance sheet?

The answer: "[S]mall banks (defined as any bank not in the 25 largest), increased total investment securities by ~12% YoY. Treasury and Agency securities grew 15% while Agency MBS rose 23%. Cash at the Fed also grew ~7%. In aggregate, total commercial banks added a net ~$150 bln over the last year in both Treasury & Agency and Agency MBS. Interestingly, this debunks the somewhat prevalent belief that banks are not purchasers of US Treasuries."

Meanwhile, commercial bank cash is up an astonishing 38 percent year-over-year. 4. Barbecue Staples Up 6.6%!

While you were out in the sun messing around with the chimney starter yesterday, Bloomberg's Chart of the Day took a look at how much all those grilling supplies cost you this year. Retail prices for seven key grilling foods rose 6.6 percent year-over-year. Ground beef was up nearly 10 percent year-over-year, and white bread was up 8.2 percent.

The Bloomberg chart below shows prices for barbecue staples dating back to 1992. The index includes ground beef, white bread, American cheese, iceberg lettuce, tomatoes, ice cream, and potato chips.

Personally, I prefer chicken wings anyway and am far more concerned about rising beer costs. Below is the Bloomberg Georgia Dock Chicken Ready-to-Cook Wings Spot Price Index. I'm completely serious. Good news, wings are down nearly 30 percent year-over-year, despite rebounding in late May after a WEEKLY DeMark TD Buy Setup.

5. Myth: Everything Is Terrible and Only Getting Worse

In the Weekend Financial Times I read a great interview with musician/producer Brian Eno. I've long been an Eno fan. He was one of the founding members of Roxy Music as well as a solo artist and producer of David Bowie's so-called "Berlin Trilogy," much of U2's best early work, including The Unforgettable Fire and The Joshua Tree and some of the best of the early Talking Heads albums, including my favorite Remain In Light. Anyway, near the end, the direction of the interview took a surprising twist when Eno was asked about his most recent release, a far more optimistic work than his prior effort.

"Even the Earth-themed Small Craft on a Milk Sea had a downbeat ending, Eno’s electronics twinkling into nothingness as he imagined our planet being irrevocably altered by mankind’s rapacity.

“That kind of marks the change I’ve felt in the past year or two. I wouldn’t end an album like that now,” he says. Drums Between the Bells has a loose, funky feel; it ends with the words, “Everything will be all right”. Eno’s new-found positivity – partly sparked by eco-thinker and Eno friend Stewart Brand’s book Whole Earth Discipline and popular science writer Matt Ridley’s The Rational Optimist – boils down to a belief that we’ve never had it so good.

“Cultures have a tendency to be pessimistic. The whole of the history of humanity is people going, ‘It’s all going to fall apart, my God it’s looking terrible, we’re not going to survive for another 20 years.’ But, in fact, on average things have actually been getting better for thousands of years. It’s like you’re playing roulette in the casino and you keep winning and you think I’ve got to stop, this is not going to carry on. Well, it has been carrying on, by and large. Most of us in this country live a hundred times better lives than we would have done 100 years ago. So things are getting exponentially better for us, and we can’t believe our luck, so there’s a tendency to say, ‘It can’t go on’.”

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