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Earnings and the Double-Dip Question

Wall Street’s focus this week turns to second-quarter earnings announcements, and I can tell you that my contacts on the Street are worried.

Their concerns make sense.

Wall Street sign
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Wall Street sign

Companies are still struggling in this global recovery, and those with broad exposure to Europe, particularly in the tech sector, were under distinct pressure in the second quarter.

What’s more, even though companies have a lot of cash on their balance sheets—$1.8 trillion by some estimates—that fact is not an unmitigated positive.

Yes, it bolsters companies’ financial positions, and that is a plus.

But what would really be an economic tonic for the United States would be for companies to spend some of that dough—invest it—ideally right here in the USA.

But lately many companies are treating the retained cash as insurance, sitting on it; or, if they are deploying it, they’re putting it to work offshore in such places as Brazil, China and India where executives see stronger growth.

Corporate balance sheets are definitely better than they have been in a long time because of the cash and cutbacks that we’ve seen. But remember, they’re operating at a lean and mean level and they don’t yet have demand back on their side, which is critical.

Greenspan Encouraged by Rally

Alan Greenspan
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Alan Greenspan

The flurry of earnings reportswe’ll hear in the next few weeks will be a major influence on stocks, both at an individual level and in general as investors continue to wrestle with the question of whether the U.S. could face a double-dip recession.

There are few people with better insights into that question than former Federal Reserve Chairman Alan Greenspan.

At the Aspen Ideas Festival, in an exclusive interview, he told me that he was encouraged by the market’s run-up last week but didn’t shrug off the possibility of more market declines, which he described as a natural part of the recovery.

“We hit an invisible wall in the first week of June and things really slowed down. I don’t know if this is the end of this pause. For the moment, inventory accumulation, which was quite rapid, has stopped and production has flattened out. It's more than likely a pause in the usual cyclical pattern. But ... the most encouraging data is actually the stock market’s behavior in the last several days.”

During our interview, we discussed the staggering amounts of money not being spent by both financial and non-financial corporations alike. There are literally trillions of dollars of cash that commercial banks, as well as other companies, are holding. Banks aren’t lending because they’re nervous they won’t get their money back, while corporations, still fearful of a double-dip recession, are choosing to be conservative with their cash just in case.

Chairman Greenspan was also part of a panel I moderated called “Views on America’s Economy: At Home and Abroad.” The other two panelists were David Rubenstein, co-founder and managing director of The Carlyle Group, and David Hale, founding chairman of David Hale Global Economics. I thought the insights from all three were amazing, and I have received a lot of positive feedback from those who were there or have seen the video, so I want to be sure you know about it.Here’s the link to the full session.

For now, get ready to hear from the companies themselves about how healthy their businesses are and what they expect for the rest of the year. It will be an action-packed few weeks, and we’ll keep you up to date in Investor Briefand on CNBC.

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