Everyone knows that Apple, Microsoft, and Google have tons of cash somewhere overseas, however there are over 2,000 non-financial companies with excessive debt. A debt total of $6.6 trillion was accumulated by all of the above in 2015. This casts a long shadow over those same companies with a combined total of $1.84 trillion of cash on-hand. According to a study by S&P Global Ratings, the ratio of cash-to-debt is the lowest it has been in 10 years.
Recovery in 2009
has seen company debt grow 50 times that of its cash growth. In numbers, debt grew to $850 billion and cash grew one percent. This equation equates to bad math. Maybe all those stats that say the US is falling behind in math and science is taking effect?
Looking deeper into the numbers, the stats distort an intrinsic aspect. The elites like in the first sentence have the majority of the cash holdings, while the remaining entities, the 99% of companies hold $6 trillion in debt. The elites can withstand a downturn in the economy, but everyone else will face a serious ability to service their debt. Just ask the neighboring oil and gas tribe? At present, the cash-to-debt ratio fell to 12% among speculative-grade issuers. This aspect puts many banks in a tough position as they have to set aside more capital to cover Chief Rainy Day who may default.
Aeropostale, Quiksilver, Sunwear and Sports Authority.
What do they have in common? All retailers who filed for bankruptcy in 2016. They are not alone as they stand in the court line behind the 67 oil and gas tribe. Last year at this time there were only 39 standing in line. The S&P expects the default rate to continue to rise from 3.9 percent last year to 5.2 percent this year.
Spin
by analysts for the January stock market drop was due to credit conditions tightening. Now, they say the crisis period has passed. There is even money for Greece. I say,
Oh, really?
Those same analysts should have been at the victory pow-woo after Little Big Horn. The celebration of bows and arrows(debt) over guns(cash) would be short lived because debt grows with interest while cash is depleted in day-to-day transactions. The fire in the tee-pee cast a long shadow over the party just like our economy.
Debt Image By Jirka.h23 [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons
Read more by Sebastian4U
