Apple bumps up US corporate cash surpluses

STOCKTAKE: "CORPORATE CASH hits record" headlined the Wall Street Journal last week after a Moody's report found that US companies are sitting on $1.24 trillion.

The figures are, however, distorted by Apple. Of the total $179 billion corporate cash increase since 2009, $64 billion (36 per cent) has come from Apple. In fact, overall cash levels would have slightly declined last year but for Apple’s $46 billion increase. By next year, Apple will likely be sitting on $150 billion – 12 per cent of the total and three times that of any other company.

Equally obvious from the list is the maturing of the technology sector. The top four cash kings are Apple, Microsoft, Cisco and Google, while Oracle and Qualcomm are also in the top 10.

The pharmaceutical sector is a distant second, contributing $183 billion to the corporate cash pile.

Defending the profit motive

GOLDMAN SACHS, excoriated last week as “toxic and destructive” by departing executive Greg Smith, still has its defenders. Goldman bankers “can hold their heads up high”, said Bloomberg, scoffing that Smith apparently believed that the bank was once like the Make-a-Wish Foundation, “existing only to bring light and peace and happiness to the world”.

Adviser and blogger Joshua Brown ( thereformedbroker.com) was equally scathing of Smith's "Jerry Maguire-esque" complaint.

“The ‘culture’ of Goldman Sachs was, is and always will be about making money, often at the expense of a client,” said Brown. “Deal with it or leave and open an Etsy store.”

Such responses are facile, however, as evidenced by an article in the latest issue of CFA magazine entitled “The Financial Psychopath Next Door”.

It cited studies by Canadian forensic psychologist Robert Hare which found that 10 per cent of people in the financial services industry were psychopathic compared to just 1 per cent in the general population. Christopher Bayer, a Wall Street psychologist, believes the true rate to be much higher again. Profits matter, but it’s not Utopian to complain that the culture in high finance may have become warped.

Low volatility may be a positive sign

THE VIX, the US volatility index, recently traded below 15. That’s well below its historical average (about 19) and nowhere near last year’s panic highs (48), leading many to speculate that the market has become complacent.

A warning sign? The calm before the storm? Not necessarily. Bespoke Investment Group notes that the Vix was below 15 from mid-1992 through to early-1996 and again from mid-2004 to early 2007, both periods that saw strong market gains.

That's echoed by Vix expert Bill Luby ( vixandmore.blogspot.com), who notes that the Vix had a median value of 15 during the first three years of the bull market that followed the dotcom bottom in 2002.

Furthermore, realised volatility has been even lower (below 10) over the past two months, leading Luby to suggest that investors “need to come to terms with the reality of a Vix of 15” rather than seeing it as an inevitable precursor to heightened volatility.

Upside swing hints at a bullish mood

"MOMENTUM IS a powerful force in markets," this column remarked last week. That is borne out by a study by quant trader Rob Hanna ( quantifiableedges.blogspot.com) after the SP 500 last week hit four-year highs.

More than 90 per cent of trading volume was to the upside during Tuesday’s big market move. Sometimes called panic buying, it tends to occur near market bottoms and has coincided with intermediate-term market highs only 16 times since 1970.

Fifty days later, Hanna found, markets were higher on every single occasion, with average gains of 5.8 per cent. Markets may be technically overbought, but this “appears to be a nice piece of evidence for the bull case”