The Homa Files

OK, the headline has the gist of the story. Here’s the meat.

1. The WSJ reported that companies are sitting on almost $2 trillion in cash reserves … the largest cash share of corp assets since 1959.
   http://online.wsj.com/article/SB10001424052748703766704576009501161973480.html?mod=WSJ_hp_LEFTWhatsNewsCollection
2. GE – a corporate bell cow, raised its dividend for the second time this year … reported a healthy balance sheet, cited an optimistic near tern sentiment, and declared an intention to distribute 45% of profits as dividends.  Analysts expect many companies to follow suit.

   ”A senior analyst at S&P, said the big factor for investors this year is that companies largely have stopped cutting their dividends. Next year, he expects over half the S&P 500 to raise their payouts.”
   http://online.wsj.com/article/SB10001424052748704457604576011561050926064.html?ru=yahoo&mod=yahoo_hs

   Disclaimer: I hold a bunch of GE stock and I am totally biased re: the company.
   

3. As part of the extension of the Bush tax cuts, the tax rate on dividends stays at 15% for high-earners and zero for low earners.  So, dividends will continue to be welcome on an after-tax basis.

   Technical note: The double-taxation of dividends – at the corp level and at the individual level — is stupid.  The tax rate should be zero.

4. As dividends go up, so do stock prices … which increases individuals’ net worth … in their Schwab accounts, in IRAs, in 401Ks, in pension accounts, etc. … some pundits are predicting the S&P will go to 1,450.

   ”The Fed’s data, known as the “flow of funds” report, show that the net worth of U.S. households increased to $54.9 trillion in the third quarter, up from $53.7 trillion in the second quarter, as rising stock-market wealth more than offset declining home values.”
   http://online.wsj.com/article/SB10001424052748703766704576009501161973480.html?mod=WSJ_hp_LEFTWhatsNewsCollection

5. As net worth goes up, consumer confidence goes up … consumers can use the “new found money” to finish cleaning up their balance sheets … and eventually, will start spending again.  That’s good.

There’s reason to be optimistic …

This entry was posted on December 14, 2010 at 6:59 am and is filed under Economics, Taxes. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.