If at all possible, businesses, like people, should keep a rainy day fund. I wonder if all the companies that used their money for stock buybacks are kicking themselves in the foot right now.
Yes, companies have cash, but ad spending has dropped tremendously overnight.
https://www.msn.com/en-us/news/other/facebook-twitter-revenu...
And Apple, well, all of their stores are closed and I highly doubt they're selling a ton of expensive luxury goods right now -- as millions of Americans fear unemployment and a deep recession.
Cloud is dependent on large corporate spending, which may be in for a contraction as companies cut back or go under.
Startups may find deals harder to land as investors flee to safety.
Perhaps we'll look back and see WeWork as peak bubble, and Covid-19 as the impetus for a sever pullback.
With that said, I think were going to see pressure everywhere. As a recent switch to a new employer, I'm concerned, even if our source of revenue currently appears solid.
This doesn't mean much. Plenty of people are worth more than some countries' GDPs. Wikipedia's list of countries by GDP goes down to US$42 million.
You are missing the point entirely. A company only stockpiles money if it evaluates all other options, including paying dividends to shareholders, and still decides their best course of action is to not spend it. This is not a decision made passively or by forgetting to make a decision.
"their best course of action is to not spend it." is equivalent to "we have no (better) idea what to do with it"
I'm a member of the Church of Jesus Christ of Latter-day Saints (Mormon). Around December a 'whistle blower' came forth claiming, with extremely limited information available to him, that the Church had as much as 100 billion dollars invested to the press and the IRS [1].
People crawled out of the woodwork to try and vilify the Church for having a considerable amount of money invested legally via one or more investment funds.
Fast forward 3 months, the Church is having to recall missionaries and send them back to their countries of residence, Church buildings are closed worldwide until further notice, the Bishops' Storehouse system that helps local communities via food distribution have added shifts to meet demand for food as unemployment numbers are sky rocketing.
We told the world we save for a rainy day, as we were being accused in December this virus was beginning to spread in China. Now here we are in March with a cushion to keep the Church running while tithes likely dip considerably with unemployment rising as well as being able to assist members and non-members as the global economy grinds to a halt.
The media and those opposed to the Church were quick to rip us apart in December for having a cushion, now they are nowhere to be found when we're in a position to help ourselves and others with that cushion.
Perfect example to go with your comment.
[1] https://www.washingtonpost.com/investigations/mormon-church-...
The outside shareholders of these companies: absolutely
The executives and board: lol, no
Large corporations aren’t like people - they can easily move markets on accident.
Why is it better for the investor to allocate the money than Apple? Well, it is pretty obvious. Apple has a different risk profile. If it keeps money for a rainy day like covid-19 then the value of the assets it owns must not be correlated with the "disaster" that it is supposed to help you against. An index fund under performs during covid-19 so it's an awful choice for a rainy day fund. Meanwhile investors probably don't care about rainy day funds for day to day phone manufacturing. They might be interested in high risk VC investments that lead to a lot of dead companies but a few unicorns. They might be interested in low risk bonds because they are reaching retirement age. That's information that Apple doesn't have and therefore it will never make a good decision on your behalf.
That should be enough to sustain the whole world economy then during something like Covid, no?
They're not going to have to re-issue shares at a lower price; they're going to get bailed out by the taxpayers.
The conditions for government money should be:
1. All current debt is converted into shares, erasing payback preferences and on-going payments to creditors.
2. Companies must issue new shares as collateral to the government at current market rate, in exchange for the money.
3. Rather than repayment, the government will sell the shares on the open market in years 2-6 (a 5 year window).
4. All share buybacks at the company are banned for a period of 10 years.
It's okay to nationally support critical businesses, but make the shareholders take it in the wallet for their reckless business practices leading up to this.
They took a gamble by buying shares instead of saving -- let them take the hit for losing.
(not that I think much of the parent's idiosyncratic money-scheme but still).
The problem is that those business practices weren't decided by the shareholders. The shareholders in most cases are mutual funds holding millions of people's retirement savings. Those people had no say in the business decisions made by the companies; they don't even control which individual stocks the mutual funds invest in. Their retirement savings are not what should be taking the hit.
Doesn't saying that these are people's retirement savings and so structurally should only ever be allowed to go up in value create perverse incentives and remove all of the responsibility from.. everyone involved?
Shareholders benefited massively and accumulated huge rewards from the market leveraging up during the borrow-for-buybacks period, and now in a downturn we're throwing our hands up and saying that we can't let those companies face any negative consequences for taking on that risk because nobody was in control? Or some people were in control, but there were also some who weren't?
Something is missing here if a company having passive shareholders means it should do well, business-practices-be-damned.
There isn't any real accountability as far as shareholders being able to hold corporate executives and boards of directors accountable. That is a huge breakage in corporate governance that won't be easily fixed.
> saying that these are people's retirement savings and so structurally should only ever be allowed to go up in value
Who said that?
All I said is that, since the shareholders weren't the ones that made the questionable business decisions, they shouldn't be the ones that are shafted because everyone wants a scapegoat.
> perverse incentives
There are certainly perverse incentives for corporate executives and boards of directors, but they aren't of the form you describe. It's simpler than that: it's just what I said above, that there is no practical way for shareholders to hold them accountable.
> Shareholders benefited massively and accumulated huge rewards from the market leveraging up during the borrow-for-buybacks period
And now they are taking the hit from the market tanking. My 401k is down quite a bit.
> now in a downturn we're throwing our hands up and saying that we can't let those companies face any negative consequences for taking on that risk because nobody was in control?
I'm not saying that. I'm just saying that (a) the shareholders weren't the ones that made the bad decisions, and (b) the shareholders are already taking a hit anyway.
If you really want the government to Do Something, it should fix the perverse incentives that corporate executives and boards of directors face. Having real criminal penalties for breaches of fiduciary responsibility, and stricter rules for what companies that take any investment from retirement funds can do, would be a good start.