One of the great constants in this otherwise inconstant environment is the strength of corporate finances. Financial excesses and the need to deleverage concern governments and households, but not companies. The corporate sector actually came out of the 2008-2009 financial crisis and recession with its finances in good order and has only strengthened them since. The question now is how and when companies will deploy these impressive financial resources on capital spending, hiring and especially on the mergers and acquisitions (M&A) that typically proceed from strong corporate finances?

Huge cash holdings constitute the most impressive aspect of this financial strength. At the close of 2011, the most recent period for which complete data are available, cash on non-financial corporate balance sheets had risen to over $1.9 trillion, a jump of almost 60% from the dark days of 2008 and up more than 50% from the last cyclical peak in 2007. Cash and cash equivalents have risen so that today they constitute almost 13% of all corporate financial assets, up from 9.4% in 2008 and 9.1% at the cyclical peak in 2007. They amount to some 14% of all corporate liabilities, up from 9.2% in 2008 and 9.7% in 2007, and almost 12% of corporate net worth, up from 8.9% in 2008 and 8% in 2007.

While powerful cash flows permitted such accumulations, it is the high and persistent level of uncertainty that has kept the funds in cash instead of flowing into other corporate uses. Speaking volumes about this motivation is the fact that the bulk of the cash sits not in time or savings deposits, money market shares or commercial paper, but in checkable deposits. These have grown remarkably, over 1500% in fact, since 2008. The high level of uncertainty this behavior reflects is hardly surprising either, on at least four counts: