Billions In Corporate Mattress Money Could Be Yours
Following The Smart Money For Fast Cash
When Congress passed tax reform legislation last year, folks eagerly anticipated a massive repatriation of cash parked overseas.
A potential windfall of as much as $3.1 trillion!
The plan seems to be working in bringing the cash back home, but one question remains…
What will corporations do with all this fresh cash?
So far, they're just sitting on it.
Recall that the Tax Cuts and Jobs Act of 2017, aka Trump tax cuts, lowered the U.S. corporate tax rate from 35% to a globally competitive rate of 21%.
Better yet, it eliminated taxes on foreign earnings, instead imposing a one-time rate of 15.5% on overseas cash. An incentive to repatriate that money.
To date, it's working.
In the first quarter of 2018, U.S. non-financial companies brought home a net $158 billion in foreign retained earnings, according to Federal Reserve data.
That compares to a quarterly average of -$50 billion previously held offshore. A net swing of roughly $200 billion flowing back into the U.S.
Source: Bureau of Economic Analysis, Bloomberg
The Fed’s figures are backed up by additional data from the Bureau of Economic Analysis (chart above) that shows a total of $340 billion in dividends received from abroad last quarter alone.
A record high.
That's significantly more cash brought back home when compared to the last tax holiday declared in 2005.
The tax breaks seem to be working. And what are companies doing with this cash?
According to Bloomberg, capital spending has jumped about $14 billion in the first quarter. A 3% increase.
Also, companies are returning some of the cash to shareholders directly. Stock buybacks have increased by about $20 billion so far this year.
In truth however, that's not a big jump from previous buyback activity. So where’s the rest of this cash going?
Under the proverbial mattress it would seem.
Investors, both individual and institutional, have poured $45 billion into money market funds during the week ending June 6, according to the latest data from EPFR Global.
That's the biggest cash inflow to ultra-safe money markets since October 2013.
Investors are likewise growing more concerned about inflation. The amount of money flowing into Treasury Inflation-Protected securities right now (TIPs) is the most since 2016.
For the time being, most folks seem content to hide out in the safety of cash, corporations included.
In fact, cash in money market funds has now reached the highest level in over eight years, as you can see above.
It’s a contrarian positive sign for further market gains ahead.
IF and WHEN that cash finally finds its way back into stocks in the form of outright stock purchases, or other ways like dividends and stock buybacks, is anyone’s guess.
In the meantime I’ll keep you posted on these developments as they play out.
Here's to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch
Editor’s note: Tell us what you thought of today’s article. Drop us a line. Send your emails to WealthWatchFeedback@SevenFigurePublishing.com.