Hollowday Sales on the Rise

This blog post is going to be more of a commentary on the economic outlook than it is about tax planning. Tax planning is after all about the smart use of your money, a primary business asset, and how best to deploy it to grow your business. Sometimes that business might be the asset you, the business owner, would like to sell in order to retire someday. But most of us know we cannot work forever, so we more than likely are saving and investing for retirement. No matter your situation, it is always better to sell when there is a good economy.

In assessing the economic outlook for the next year to two years, I am going to focus on three recent headline phenomena. First is the complaint from politicians and their Keynesian economic brethren that corporations are holding too much cash on their balance sheets. Second is the rise in raw commodity prices ranging from cotton to gold. And last is the recent data that is pouring in about holiday consumer spending and retail sales.

It is hard to believe given the recent crisis of 2008 that any corporate CFO is not trying to build cash reserves. If you were to look at the number and size of the non-financial corporations that had to take advantage of the Federal Reserve’s Troubled Asset Lending Facility, also known as TALF, to continue in business, it is no wonder why corporations are building reserves. It makes one wonder why presidential advisors have jobs when you look at the comments made to the Huffington Post by these advisors in the article, “Obama To Meet With 20 Top CEOs: See Who Made The List”.

Cash on the balance sheet is always invested. If corporations took it out of the banks or U.S. treasuries, it would cause either a banking crisis or higher interest bills on the national debt. Cash on the balance sheet is not a pile of paper money sitting on the floor in some storage room doing no one any good. It does represent safety and peace of mind for CEOs and stockholders.

Next on the list is the rise in commodity prices. Let’s break this into three basic components: food, energy and materials or metals. Grain prices are higher in large part due to poor harvests in most regions of the world except the U.S. Production and therefore supply is lower and emerging market economies continue to grow and demand more food.

Energy prices and mainly crude oil has seen steady demand with emerging markets consuming more and the U.S. consuming less. Coupled with quantitative easing on both sides of the Atlantic, high energy prices look as if they are here to stay. The same can be said of precious metals.

The last item has been the celebratory mood of the press in reporting increased holiday sales and how that is a big boost to the economic recovery. There is no shortage of stock market forecasters on the business channels increasing their growth forecasts for U.S. Gross Domestic Product for 2011 because of this buying anomaly.

There is one huge problem with thinking increased holiday sales are helping the U.S. economy and I am going to lead you to the answer with the following questions: How many U.S.- made products did you buy or receive this holiday season? Of all the gifts bought and received these holidays through out the country, what percentage do you think were made in the good old U.S. of A.?

It kind of makes you want to hold cash doesn’t it? Or, even better, silver and gold.

About this Author 

John Beidle is an enrolled agent who specializes in helping entrepreneurs, small business owners and real estate investors pay the least amount of tax as legally possible.

About The Author

John Beidle

John Beidle is an enrolled agent who specializes in helping entrepreneurs, small business owners and real estate investors pay the least amount of tax as legally possible.

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