“It sounds perverse, but one of the emerging problems for investors and company executives is cash, too much cash,” writes Steve Liesman in today’s Wall Street Journal.

“According to Standard and Poor’s, cash on hand at the nonfinancial S&P 500 companies will top half a trillion dollars for the first time ever by end of this quarter. While it’s only an estimate, because not all companies have reported yet, so far, with 193 companies already in, cash and short-term equivalents is up 17% over the first quarter of 2003, which itself was up 25% over 2002, according to Howard Silverblatt of Standard and Poor’s.”

“How much cash is there? Think of it this way: Microsoft, with $51 billion in cash, could give 51,000 entrepreneurs $1 million to start new businesses.”

“General Motors has some $37.5 billion in cash. Intel is sitting on $15.7 billion. At a share price of about $26, roughly 9% of its stock price is just cash.”

“Meanwhile, even with interest rates very low, long-term debt has risen more slowly, up just 6% from 2003. A record number of S&P 500 companies, 43, have less than $5 million in long-term debt, according to S&P.”

“Behind the rise in cash are surging revenues amid still-stringent cost containment. Meanwhile, companies have been paying lower taxes, both part of the Bush tax-cut plan along with increased use of loopholes. Corporate taxes as a percentage of gross domestic product in 2003 were just 1.2%, their lowest level in 21 years.”

“Now, how on earth, you’re wondering, could this be a problem?”

“I was surprised, too, when I called a couple of investment strategists this week and found them fretting – sort of half in jest, and sort of seriously – over this cash mountain. What concerns them is what corporate executives decide to do with it all. Among the choices they have: corporate acquisitions, share buybacks, new hires, new capital equipment or bigger dividends. What I can promise you is that some or all of that is coming to a cash-rich company near you in a big way sometime soon. Yet it was only a few years ago that legions of corporate executives made the wrong decision when it came to how to allocate capital – overspending, over-acquiring and over-hiring.”

“Where we are right now is at an inflection point for both corporations and the economy. Economically, the question is how this corporate cash is going to filter out to the population. The economy is generating plenty of income, as witnessed by the strong 4.2% growth number reported Thursday. But a lot of this income looks to be at the corporate level. While S&P 500 earnings are headed for a record, the government reported Thursday that wage and salary growth in the first quarter was the lowest year-to-year increase on record (Overall compensation gains are higher but the bulk of the increases are going towards higher benefit costs).”

“John Lonski, chief economist at Moody’s Investor Services is relatively optimistic. ‘As these cash reserves mount, you’re building up this great reservoir of cash that at some point will be unleashed and it could very well be in the next 12 to 24 months that we could be shocked by the level of hiring activity, acquisition and capital spending,’ he says.”