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You can't sit on all that cash forever. Can you? Print E-mail
Saturday, 21 November 2009

By Matthew Quinn

In his latest note to investors, Bill Gross, manager of the world's biggest bond fund at PIMCO, observed what a lousy return he's getting on his cash. Lousy is being kind.

"Almost all money market accounts," he wrote, "yield close to nothing, so close to nothing that I mistakenly did a double take when reviewing my monthly portfolio statement. 'Yield on cash,' read the buried line on page 15 of the report, '.01%.'"

Companies, still fighting to right themselves in the wake of the financial meltdown, have been hoarding cash. Assets of institutional money market funds increased by $8.62 billion to $2.251 trillion for the week ended Nov. 18, according to the Investment Company Institute.

Earlier this month, a Wall Street Journal analysis found that, in the second quarter, the 500 largest non-financial U.S. firms, by total assets, held about $994 billion in cash and short-term investments, or 9.8 percent of their assets. That's up from $846 billion, or 7.9 percent of assets, a year earlier.

They, in turn, are getting nothing for holding such a precious commodity. The annualized 7-day yield on the Crane 100 Money Fund Index tracked by Crane Data was 0.07 percent as of Thursday.

Well, then again, peace of mind isn't nothing.

Still, companies eventually need to look at that cash and figure out how to get a real return on it.

"Warren Buffet went all-in with the Burlington Northern [deal]," Gross wrote, "but in doing so he admitted it was a 100-year bet with a modest potential return. Still, Warren had to do something with his money; the .01% was eating a hole in his pocket too."

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