Let’s just admit it; it is very easy these days to be pessimistic about the future of both the economy and the stock market. There are issues with sovereign debt, fears that China will raise rates too fast, and the assumption that the consumer in the U.S. is not going to get fired up about spending anytime soon. And while we will admit that our forecast for the stock market calls for a fairly substantial correction sometime in the middle of the year, we are beginning to become a little more optimistic about the future from a macro point of view.

It is for this reason that we recently wrote a piece entitled: A Contrarian View: Strong Growth Ahead? Although that article focused on the potential for job growth, today’s exercise in optimism will dare to suggest that the hoard of corporate cash is likely to trigger growth that is above and beyond the current less-than optimistic assumptions.

JPMorgan recently issued a report showing that corporate America is currently sitting on a mountain of cash. And we’re not talking about the Smoky Mountains here. No, at $3.2 trillion, this mountain of cash should be considered part of the Himalayas! In the report, the JPMorgan analyst pointed out that the current cash sitting around on corporate balance sheets is at a 60-year high.

In addition, the National Bureau of Economic Research shows corporate cash and other liquid assets currently comprised 13.8% of corporate net worth statements at the end of the fourth quarter – an all time high.

The reason behind the cash buildup is fairly simple. When the credit crisis hit, short-term funding dried up almost entirely. Remember, at one point during the crisis, even GE was unable to float short-term paper. So, in response, corporations were forced to become self reliant and have been building up cash.

However, as the song says, the times they are a changing. And more recently, the trend has been for corporations to forego the short-term funding markets in favor of the longer-term bond market – which has been receptive to offerings (as investors search for yield, corporate bonds become more attractive). Thus, the thinking is that with short-term financing needs starting to be satisfied, corporations will start to look for ways to put all that cash lying around to work.

At the present time, Ned Davis Research says most capital spending by corporations is going toward equipment replacement and software that has outlived its useful life. There is relatively little NEW capital spending that is being undertaken. However, given the Everest-like mountain of cash on balance sheets, it is easy to project that this will change as the economic recovery gains its footing.

So, what will all this cash be spent on? We will opine that corporations will start to put money toward the following in the next three to six months:

• Dividend Increases
  
• Stock Repurchase Plans
  
• Mergers and Acquisitions (M&A)
  
• Capital Expenditures
  
• Expansion
  
• Higher Pay for Employees
  
• Work Force Expansion

Are we being optimistic here? In a word, yes. After all, that was the challenge of the exercise. And while we expect the recovery to be bumpy, we do believe there can be a case made for optimism making a comeback.

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