Soft-landing enthusiasts (and who isn't one?) have had much to feel good about since June 2004, when the Federal Reserve began tightening the reins on monetary policy following a historic series of easings that took short-term rates to 1%. No doubt, there are serious long-term challenges ahead for the U.S. economy--starting with worker health care and retirement planning for an aging population and the federal government's renewed dependence on deficit spending. But economic growth has remained resilient, despite two years of steadily climbing short-term rates. Real gross domestic production rose 4.2% in 2004, 3.5% in 2005 and a stunning 5.6% in the first quarter of 2006.
This growth surge has helped generate substantial profits for most companies, and despite a sharp rise in stock buybacks and cash-led merger-and-acquisition activity last year, much of the windfall sits today in cash and cash equivalents. In fact, corporate cash hordes have expanded 50% since 1999, according to a study by Chicago-based treasury consultants Treasury Strategies Inc., with cash and short-term investments carrying maturities of three years or less rising 7.5% this year alone, to $5.4 trillion.