So Much Cash, So Much Caution

Corporations are sitting on a mountain of cash. Companies in the Standard & Poor's 500-stock index had more than $500 billion in cash and short-term investments at the end of the first quarter. With earnings at record levels, why aren't CEOs spending more on new investments? At this stage in the recovery, why aren't they taking more risks?

The answer appears to be uncertainty. Until key political and economic issues are resolved, the current lull in the economy may be more prolonged than anyone expects.

What's bothering CEOs? The close election, for one. Just months ago it appeared that President Bush's reelection was a lock. Now, with John Kerry picking popular John Edwards as his running mate, the race is very close and the stakes for tax, regulatory, fiscal, and health policies could be high. The good news: This uncertainty weighing on CEOs will end on Nov. 2.

Not so for most other unknowns. The security preparations for the Boston and New York political conventions is a reminder of how real the terrorist threat remains. September 11 traumatized the nation, and concern that the U.S. may still not be prepared continues to sap confidence. Iraq, of course, adds to the worry. Lack of preparation for the occupation and the resulting insurgency has damaged the Bush Presidency. The Administration's reputation for managerial competence has been shaken. The country's prestige abroad has also been damaged. Executives who run global corporations now face fierce anti-Americanism around the world. It is unsettling.

The economy, too, has question marks. One surprise is the sudden appearance of inflation. Oil prices have soared. China's growth has increased demand -- and prices -- for commodities. And prices for eggs, milk, health care, movies, coffee, much of what people buy -- have unexpectedly gone up. Now interest rates are starting to rise. The current pause in the economy is partly the result of consumers stepping back. When will they return?

The truth is that CEO reluctance to invest reflects an underlying fear about the future that has not totally gone away since September 11. The nation's wounds have not completely healed. Iraq appears to have made us feel vulnerable again. Much remains to be done before CEO confidence -- indeed, national confidence -- is fully restored.

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