Despite the debt crisis in Europe at the moment and all the economic uncertainty it has caused, I would like to turn your focus for now to America. Recent figures have emerged stating that businesses in the US in the non-financial sectors are currently sitting on $3 trillion of inactive cash. To put this into perspective, China is sitting on $3.2 trillion in stagnant cash. China is currently the leading emerging economy of the world.
Since the financial crisis in 2008 US companies have been storing massive cash reserves. This comes down to fear that by investing their cash they are not going to get their desired return on their investment.
“Corporations in the US are probably in the best shape they have ever been in”, according to Byron Wein of Blackstone Advisory Partners. If only the corporations put their cash to work they would be able to create more jobs without putting the government in more debt, thus improving their economic position.
The only way the US is going to recover is if the people and companies regain confidence in their own country. Currently, the US is only operating at about three quarters of their capacity.
Australians during the last few years have managed to get a hold on their debt situation. Borrowings have stalled significantly. This is then reflected in the household savings rate. On average Australians are currently saving 10% of their disposable income, this is a dramatic increase from recent years.
Australian non-financial sector companies have also significantly reduced their debt. The debt to shareholders ratio of Australian ex-financials currently sits at just over 20%, whereas World ex-financials have a debt to shareholders ratio of 40%. Australian ex-financials are leveraged at half the rate of that from the rest of the world. This is not saying the 40% leverage rate is bad for the World ex-financials but shows the incredible strong positions Australian ex-financials are in.
There will continue to be volatility in the market but when confidence increases across business and the populous this will create new growth and opportunities.
The message for investors is to hang in there.
Reference Source: Australian Financial Review – Tuesday 8th November 2011, pg65
