Companies build up cash -- acquisitions to come?

The private equity downturn has been a significant factor in the market's malaise. Funny money toting buyout shops aggressively scooping up undervalued companies has a way of giving markets a lift.

Luckily, a set of shoppers far, far dumber than the LBO guys is stuffed with cash. The New York Times reports that "Unlike most American consumers, whose failure to save has exasperated economists for years, the typical American corporation has increased its savings so sharply that it probably has enough cash on hand to completely pay off its debts . . . But that raises worries among some analysts that companies will spend their cash unwisely, making them more vulnerable in the future."

And worry we should. Given the record of "strategic acquisitions" by public companies leading to the destruction of shareholder value, investors should regard acquisition-hungry CEOs the same way they would be wary of a crayon wielding five-year-old in the Louvre.

The ideal situation for investors would be for companies to use the excess cash to invest in their core businesses and buy back shares with whatever is left over. Never a trust a CEO bearing promises of synergy and business combinations.