Lesson number one on what American corporations are likely to do with their collective cash balances of $1 trillion can be viewed through the lens of the action taken by Best Buy, a retail chain selling a wide range of electronic products. Yesterday, BBY announced a major buyback of its shares-- $5 billion worth-- and raised its cash dividend by 7%. The stock reacted positively- rising 2.66% to $32.38 a share-- still far from the peak of $45 hit in the last 52 weeks.
American corporations are not likely to use their $1 trillion held inside the US-- or their other $1 trillion held outside the US-- potentially $2 trillion dollars to make investments to create jobs-- unless there is demand for their products and services greater than can be met by existing manufacturing and retail operations. That's just the way it is.
And that's why you should beware of pressure to accomplish some sweetheart deal that will allow corporate giants to repatriate their tens of billions of cash help abroad in return for paying only a minimal tax. IBM, BIg Pharma, Johnson & Johnson etc aren't in business to serve the public patriotic interest by using that money to create jobs unless there is demand over and above what is being filled today.
American corporations are going to use their excess cash flow more regularly to repurchase their own shares which benefits the remaining shareholders who are left more earnings per share- and the expectation their stock will move higher. Two classic examples are Travelers Insurance and Viacom, which have a regular strategy of following this course. Viacom also continues to raise its dividend to keep its shareholders happy. It is not investing in new businesses to create jobs-- but to create additional shows and networks to enlarge its cable audience.
Some companies use their cash to make acquisitions, such as Berkshire Hathaway's $9 billion purchase of Lubrizol. Everyone knows that Warren Buffett has another $20 billion or so in cash he'd like to use to acquire another large company.
The best bets for new jobs are large national retail chains trying to enter new areas or expanding across the nation. Should Wal-Mart be successful in leasing a large new store in Brooklyn-- a pending matter-- it will hire a great many workers to staff that store. Could be one reason to let Wal-Mart come to New York-- though how many small businesses it might crush could put those people out on the street.
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