Is Apple trying to buy itself out of the stock market circus?
No. Buying back stock isn't about going private. It doesn't move Apple any closer to being private or, likely, make it easier for someone to take it private. (I'd argue, for reasons I won't get lost in here, that in this case the buy backs make it a tiny bit less likely that Apple would get taken private. That effect isn't particularly relevant though because it would be extremely unlikely anyway.)
A company can't take itself private. It can't buy back enough stock that it becomes a private company. Someone else - or some combination of someone else's - has to, in effect, buy the company.
Right, because they’re really just promise notes (well, they’re not even that) and nothing to do with controlling the company. So buying the shares is really about their value and nothing more. So Apple is just doing what everyone else should be doing: buying low and selling high.
They must be pretty confident then that these shares are going to be worth a lot more than they are now at some point in the future.
Apple retains no value from them. They are in effect burned and removed from the market. They have no remaining value after Apple buys them back and worth exactly zero even at "some point in the future".
Totally false. The value of the shares Apple buys back are transfered to outstanding shareholders. So when Apple buys back shares low, it can buy up more, accelerating how rapidly the share count goes down, concentrating the value held by remaining shareholders.
The truth is: The stock buybacks began several years back when Carl Icahn raised enough fuss as an activist shareholder to force it. At that point, Apple had to borrow the money in order to pay it out to the shareholders. But, with interest rates near zero that wasn't a big deal.
Now interest rates are rising which makes that strategy far less appealing. So, the federal government borrowed money (or will borrow it) to issue tax cuts -- which Apple is now distributing to its stock holders. So, eventually the American people will have to pay the debt that Apple is distributing....
Apple started its stock buybacks in 2012. Carl Icahn showed up in late 2013, announced he'd bought lots of shares and demanded Apple push tons of its cash to shareholders (via dividends) so he could raid Apple's cash pile and leave. Apple largely ignored him. He then sold off on "China Concerns" in 2016 when AAPL was priced below $100. So he missed out on massive stock appreciation. He apparently had amassed nearly 1% of the company.
Apple followed its own strategy for buybacks, not mostly dividends. Buybacks help every shareholder. Dividends are a payout that shareholders have to pay taxes on immediately, and after you get a huge dividend the remaining value of the stock goes down in proportion.
Apple didn't borrow to follow Icahn's advice. It borrowed because spending its cash would have incurred a US penalty tax. Otherwise Apple could have just spent its cash directly.
Is Apple trying to buy itself out of the stock market circus?
Why would the stock market even matter to Apple now as a revenue-earning business? They don't receive any additional funding from their stock when it's bought or sold. I get that individual stockholders may benefit from the stock buybacks eventually but for general Apple owner, the vast majority of whom are NOT individual investors in Apple, I don't see why the stock price up or down or sideways matters at all to either Apple as a profit-making business or to their customers. When the stock price dives or goes up does it have any material effect on Apple's profit or loss or available funds?
Finally, someone else brings up the fact that no money gambled in the stock market ever reaches Apple the company's pocket. None of AAPL's $875B (as of right now) market cap money is available to Apple, it's all in the super Lotto gambling pot. Of course, employees of Apple would like to see AAPL continue to rise because they have shares they can sell but Apple the company doesn't really care. When will people understand the separation?
Apple (like all public companies) is affected by its stock price in a variety of ways, including the delta value in stock-based compensation it can offer recruited talent, and the value of stock-based acquisitions.
Many companies are effectively printing new stock for employment awards, which has the effect of eroding the value of outstanding shares (dilution). It's like a country printing money. Buybacks do the opposite and have a real impact on the value of a company's stock and what it can do with it.
Stock-based compensation is a critically important way for tech companies to recruit talent and experienced management, so Gater trying to blow this off as immaterial is totally incorrect. Google would love to have an extra $100 billion to buy back its stock with. Saying it doesn't matter is the height of willful ignorance.
Has Apple stock repurchases significantly raised the price of Apple stock? Has it attracted talent to Apple who otherwise would not have done so? Has it made any company acquisition less expensive for Apple? Specifically what would be different today about how Apple acquires companies and talent if Apple did not spend $200B+ on purchasing and burning stock? What, you don't really know? Willful ignorance is a pretty strong claim then.
And yes Google is among the companies with a stock repurchase program. They also have an extra $100B in free cash, tho buying back their stock with it may not be the choice they'd make for putting it to use.
In the years following the Great Recession Apple and many other companies were borrowing money (at super cheap rates) in order to funnel it out to shareholders as stock buybacks and dividends --which is obviously not a sustainable business model. But it kept the stock market in a 10 year bull market -- the largest period of sustained growth in its history (Well, actually, the 2nd longest).
But, now that the Fed is raising rates, that mechanism is no longer viable. So, rather than letting the stock market crash to its fundamental value, they thought up a new ponzi scheme: The federal government borrows the money, funnels the proceeds to corporations and the corporations funnel it out to their stock holders via share buybacks and dividends. Essentially, the U.S. government borrows the money from China and gives it to stock holders...
Like all scams, it's a brilliant scheme that works really, really well. Until it doesn't.
Apple borrowed Bonds against the value of itself, effectively its cash overseas. So it paid extremely low interest for flexibility to avoid paying very high tax penalties. It can now hold that debt and spend its cash pile, and pay off its debt from earnings (or cash, but it can probably invest its cash with a far better return!)
Rates are rising, but Apple no longer needs to issue debt.
How do you think the fed govt "funneling money to corporations"? Apple is distributing its earnings to shareholders. Apple also holds billions in US Govt securities.
The federal government cut corporate taxes -- which they will have to borrow money to pay for. Most of that borrowed money is not being invested. It is being distributed to share holders as dividends and stock buy backs.
And what exactly do you think a buyback does? Apple is taking money that was sitting overseas, not being very productive in any capacity, and placing it in the hands of Apple investors who no longer wish to be Apple investors. That means those investors, since they are presumably still investors, can disperse that money into other investments. And investments spur economic activity; that’s why we have stock markets that allow people to invest in economic enterprise. Why would you care whether Apple builds the next factory, retail concept, biopharma, or energy project. Let Apple repatriate it’s horde, place it into the hands of those who would sell Apple their Apple shares, and then go invest it elsewhere, in a business that will build those things and create jobs. Why can’t people see beyond one dimension on these issues?
You ignore the biggest part of the tax scam -- the rate reduction... And for that, the Federal Government has and will have to borrow the money that Apple is paying out as dividends. Then the American Taxpayer will, at some point, have to repay it.
Even the repatriation you talk of is the same: That money wasn't being kept out of the country. Apple was keeping it out - holding out for an ultra low tax rate on it. They got it. So instead of building roads and bridges and stabilizing Social Security and Medicare with the taxes on it, those funds are going to Apple ShareHolders. Not even jobs. Not even growth and expansion.
And, you assume that those dividends and stock buybacks going to shareholders are being used to create jobs and businesses. That's a very big assumption -- especially if you assume that those investments are being made here. Actually, since January when the tax scam went into effect, the S&P 500 has gone down while the Hang Seng - has gone up.
Thanks DED for the spirited defense of the buybacks! I find it funny that the haters disparage the buybacks. It is up their with notch-hate, macpro-hate, no-headphone-jack-hate, siri-hate and my all time favorite home-pod-hate which generates even more controversy than a trump tweet.
The buybacks at current elevated stock levels make less sense than ever. Apple should continue to provide value to investors by growing the company. A buyback amounts to an accounting trick. And I’m thankful that the current administration, not the previous one, had the wisdom to make repatriating overseas funds a reality.
I’ve heard a lot of analysts as well as retail investors suggest that share repurchases are nothing more than financial engineering, implying that they do nothing to add value to a company or its stock.
An additional, and I think significant, value of share repurchases and dividend payments comes from removing unproductive excess cash from the balance sheet. Lets look at Apple, with a $900 billion market cap and about $165 billon of cash and equivalents on the books, net of debt. Therefore, a dollar invested in Apple represents about 80 cents invested in the actual operating business, which is where the profits come from, and about 20 cents invested to buy a bit of that cash pile, earning about 1%. Arguably a less-than-ideal allocation of each invested dollar.
So a smart investor wants that cash removed from the books, which would either reduce the market cap of the company or, if the cash isn't being valued at even 1x its value, which could be argued is the case with Apple, removing that cash would leave the market cap where it is, which would then imply a higher earnings multiple against the productive operating side of the business, while also taking shares off the market, which would increase earnings per share going forward.
And a higher earnings multiple means that as earnings grow in the future, the stock will climb faster. Carl Icahn might have had all of these effects in mind - more efficient allocation of investor's dollars, increase in earnings multiple against operating business, and reduction in shares netting an increase in earnings per remaining share - when he approached Tim Cook years ago. Pity we didn’t have tax reform at that time, when the stock was in the toilet.
LOL... So how is the Federal Government borrowing money (and/or cutting Grandma's Social Security) to pay for the corporate dividends and stock buybacks a more efficient use of funds?
GeorgeBMac said: Now interest rates are rising which makes that strategy far less appealing. So, the federal government borrowed money (or will borrow it) to issue tax cuts -- which Apple is now distributing to its stock holders. So, eventually the American people will have to pay the debt that Apple is distributing....
Unless the economy revs up enough to make up for the losses, which I suppose is the game plan. But, I'm sure they would waste any gains before debt got paid down anyway.
The USA is in such a mess... and that's not a partisan, political statement. If you look at what Congress is doing, it's quite a cooperative effort to ruin the country.
I'm sure once they get the world-government in place, we'll all live happily ever after... not.
Since the Tax Scam was put into place, the S&P 500 has gone down while the Hang Seng has gone up. So much for (American) growth and jobs...
The truth is: American businesses were already flooded with excess cash from 10 years of ultra low interest rates. They didn't really need more and have no way of putting it to productive use -- so they use it to prop up the stock prices...
The truth is: The stock buybacks began several years back when Carl Icahn raised enough fuss as an activist shareholder to force it. At that point, Apple had to borrow the money in order to pay it out to the shareholders. But, with interest rates near zero that wasn't a big deal.
Now interest rates are rising which makes that strategy far less appealing. So, the federal government borrowed money (or will borrow it) to issue tax cuts -- which Apple is now distributing to its stock holders. So, eventually the American people will have to pay the debt that Apple is distributing....
Apple started its stock buybacks in 2012. Carl Icahn showed up in late 2013, announced he'd bought lots of shares and demanded Apple push tons of its cash to shareholders (via dividends) so he could raid Apple's cash pile and leave. Apple largely ignored him. He then sold off on "China Concerns" in 2016 when AAPL was priced below $100. So he missed out on massive stock appreciation. He apparently had amassed nearly 1% of the company.
Apple followed its own strategy for buybacks, not mostly dividends. Buybacks help every shareholder. Dividends are a payout that shareholders have to pay taxes on immediately, and after you get a huge dividend the remaining value of the stock goes down in proportion.
Apple didn't borrow to follow Icahn's advice. It borrowed because spending its cash would have incurred a US penalty tax. Otherwise Apple could have just spent its cash directly.
As you point out, the major buy backs occurred due to Icahn's activism. How much he made from that is up for debate and irrelevant. But, he got the ball rolling...
As for "helping shareholders" -- that's sweet. Unfortunately, the tax dollars being used to pay for it will, according to Paul Ryan come out of Grandma's Social Security check and Medicare benefits. It's not free money. There is no money tree. Somebody has to pay. According to Paul Ryan, that person is grandma.
Effectively, you could look at this as money laundering: From Grandma's Social Security & Medicare to corporate share holders...
Is Apple trying to buy itself out of the stock market circus?
No. Buying back stock isn't about going private. It doesn't move Apple any closer to being private or, likely, make it easier for someone to take it private. (I'd argue, for reasons I won't get lost in here, that in this case the buy backs make it a tiny bit less likely that Apple would get taken private. That effect isn't particularly relevant though because it would be extremely unlikely anyway.)
A company can't take itself private. It can't buy back enough stock that it becomes a private company. Someone else - or some combination of someone else's - has to, in effect, buy the company.
Right, because they’re really just promise notes (well, they’re not even that) and nothing to do with controlling the company. So buying the shares is really about their value and nothing more. So Apple is just doing what everyone else should be doing: buying low and selling high.
They must be pretty confident then that these shares are going to be worth a lot more than they are now at some point in the future.
Apple retains no value from them. They are in effect burned and removed from the market. They have no remaining value after Apple buys them back and worth exactly zero even at "some point in the future".
Totally false. The value of the shares Apple buys back are transfered to outstanding shareholders. So when Apple buys back shares low, it can buy up more, accelerating how rapidly the share count goes down, concentrating the value held by remaining shareholders.
It's like killing a Jedi.
Remaining value of a repurchased share of Apple stock must have confused you, and your understanding of the word "totally" would seem to be at odds with the generally accepted definition. The stock share they bought and then retired has zero remaining $value. Fact. That there may be some tangential Apple stock market-price effect (or not) from doing so, and one I don't believe you can quantify anyway, does not mean that share can now be booked as an asset, ie has value. It does not. It no longer exists.
Why would you seemingly want to argue just to argue, and why (un)intentionally introduce added confusion for a casual reader or even regular member who might rightly assume Apple is buying back shares of stock to keep and resell for a higher price at a later date? That doesn't seem particularly helpful.
It's wonderful to hear Apple bought back so many shares when the gutless sheep dumped their Apple stock. I held fast because I'd heard all that panic crap in past Apple financial quarters and it meant absolutely nothing as far as Apple being particularly doomed. I really hate the fact that lying analysts can so easily deceive shareholders and potential investors.
Why would you hate it? Love it! It is them dumping their share(s) is what causes the drop in price, so you could buy more.
People shouldn't be able to get away with pushing fake news of any type. Imagine if everyone was just walking around and lying about everything with impunity. I believe the truth should be told. Just because I benefit, I still don't believe hiding or twisting the truth should be an accepted practice. It makes life too confusing. When I was growing up, we were told not to lie. There are too many immoral people in positions where they don't belong.
It's wonderful to hear Apple bought back so many shares when the gutless sheep dumped their Apple stock. I held fast because I'd heard all that panic crap in past Apple financial quarters and it meant absolutely nothing as far as Apple being particularly doomed. I really hate the fact that lying analysts can so easily deceive shareholders and potential investors.
Why would you hate it? Love it! It is them dumping their share(s) is what causes the drop in price, so you could buy more.
People shouldn't be able to get away with pushing fake news of any type. Imagine if everyone was just walking around and lying about everything with impunity. I believe the truth should be told. Just because I benefit, I still don't believe hiding or twisting the truth should be an accepted practice. It makes life too confusing. When I was growing up, we were told not to lie. There are too many immoral people in positions where they don't belong.
There is only one defense against lies. spin and propaganda. It's telling the truth. The whole truth. And nothing but the truth.
Instead, most ignore the lies, spin and propaganda thinking it will just go away... That's what we thought about Nazi Germany in the 30's. That approach didn't work well.
THIS is an example of why Apple should not be blowing off so called "excess cash". They live in a world one miss step from disaster. Here, MBPs make a very small piece of their product. But, can you even imagine an issue like this on a new iPhone? In business, there is no such thing as excess cash.
But, in this case, they could satisfy all the unhappy and worried MBP owners using only a small fraction of what they are passing out as candy to their shareholders.
In the years following the Great Recession Apple and many other companies were borrowing money (at super cheap rates) in order to funnel it out to shareholders as stock buybacks and dividends --which is obviously not a sustainable business model. But it kept the stock market in a 10 year bull market -- the largest period of sustained growth in its history (Well, actually, the 2nd longest).
But, now that the Fed is raising rates, that mechanism is no longer viable. So, rather than letting the stock market crash to its fundamental value, they thought up a new ponzi scheme: The federal government borrows the money, funnels the proceeds to corporations and the corporations funnel it out to their stock holders via share buybacks and dividends. Essentially, the U.S. government borrows the money from China and gives it to stock holders...
Like all scams, it's a brilliant scheme that works really, really well. Until it doesn't.
Apple borrowed Bonds against the value of itself, effectively its cash overseas. So it paid extremely low interest for flexibility to avoid paying very high tax penalties. It can now hold that debt and spend its cash pile, and pay off its debt from earnings (or cash, but it can probably invest its cash with a far better return!)
Rates are rising, but Apple no longer needs to issue debt.
How do you think the fed govt "funneling money to corporations"? Apple is distributing its earnings to shareholders. Apple also holds billions in US Govt securities.
The federal government cut corporate taxes -- which they will have to borrow money to pay for. Most of that borrowed money is not being invested. It is being distributed to share holders as dividends and stock buy backs.
And what exactly do you think a buyback does? Apple is taking money that was sitting overseas, not being very productive in any capacity, and placing it in the hands of Apple investors who no longer wish to be Apple investors. That means those investors, since they are presumably still investors, can disperse that money into other investments. And investments spur economic activity; that’s why we have stock markets that allow people to invest in economic enterprise. Why would you care whether Apple builds the next factory, retail concept, biopharma, or energy project. Let Apple repatriate it’s horde, place it into the hands of those who would sell Apple their Apple shares, and then go invest it elsewhere, in a business that will build those things and create jobs. Why can’t people see beyond one dimension on these issues?
You ignore the biggest part of the tax scam -- the rate reduction... And for that, the Federal Government has and will have to borrow the money that Apple is paying out as dividends. Then the American Taxpayer will, at some point, have to repay it.
Even the repatriation you talk of is the same: That money wasn't being kept out of the country. Apple was keeping it out - holding out for an ultra low tax rate on it. They got it. So instead of building roads and bridges and stabilizing Social Security and Medicare with the taxes on it, those funds are going to Apple ShareHolders. Not even jobs. Not even growth and expansion.
And, you assume that those dividends and stock buybacks going to shareholders are being used to create jobs and businesses. That's a very big assumption -- especially if you assume that those investments are being made here. Actually, since January when the tax scam went into effect, the S&P 500 has gone down while the Hang Seng - has gone up.
And you ignore the fact that if they spend the money rather than reinvest it that too creates economic activity, which then increases the revenues and profits of the business they purchase things from. Why is it so difficult to understand basic concepts?
In the years following the Great Recession Apple and many other companies were borrowing money (at super cheap rates) in order to funnel it out to shareholders as stock buybacks and dividends --which is obviously not a sustainable business model. But it kept the stock market in a 10 year bull market -- the largest period of sustained growth in its history (Well, actually, the 2nd longest).
But, now that the Fed is raising rates, that mechanism is no longer viable. So, rather than letting the stock market crash to its fundamental value, they thought up a new ponzi scheme: The federal government borrows the money, funnels the proceeds to corporations and the corporations funnel it out to their stock holders via share buybacks and dividends. Essentially, the U.S. government borrows the money from China and gives it to stock holders...
Like all scams, it's a brilliant scheme that works really, really well. Until it doesn't.
Apple borrowed Bonds against the value of itself, effectively its cash overseas. So it paid extremely low interest for flexibility to avoid paying very high tax penalties. It can now hold that debt and spend its cash pile, and pay off its debt from earnings (or cash, but it can probably invest its cash with a far better return!)
Rates are rising, but Apple no longer needs to issue debt.
How do you think the fed govt "funneling money to corporations"? Apple is distributing its earnings to shareholders. Apple also holds billions in US Govt securities.
The federal government cut corporate taxes -- which they will have to borrow money to pay for. Most of that borrowed money is not being invested. It is being distributed to share holders as dividends and stock buy backs.
And what exactly do you think a buyback does? Apple is taking money that was sitting overseas, not being very productive in any capacity, and placing it in the hands of Apple investors who no longer wish to be Apple investors. That means those investors, since they are presumably still investors, can disperse that money into other investments. And investments spur economic activity; that’s why we have stock markets that allow people to invest in economic enterprise. Why would you care whether Apple builds the next factory, retail concept, biopharma, or energy project. Let Apple repatriate it’s horde, place it into the hands of those who would sell Apple their Apple shares, and then go invest it elsewhere, in a business that will build those things and create jobs. Why can’t people see beyond one dimension on these issues?
You ignore the biggest part of the tax scam -- the rate reduction... And for that, the Federal Government has and will have to borrow the money that Apple is paying out as dividends. Then the American Taxpayer will, at some point, have to repay it.
Even the repatriation you talk of is the same: That money wasn't being kept out of the country. Apple was keeping it out - holding out for an ultra low tax rate on it. They got it. So instead of building roads and bridges and stabilizing Social Security and Medicare with the taxes on it, those funds are going to Apple ShareHolders. Not even jobs. Not even growth and expansion.
And, you assume that those dividends and stock buybacks going to shareholders are being used to create jobs and businesses. That's a very big assumption -- especially if you assume that those investments are being made here. Actually, since January when the tax scam went into effect, the S&P 500 has gone down while the Hang Seng - has gone up.
And you ignore the fact that if they spend the money rather than reinvest it that too creates economic activity, which then increases the revenues and profits of the business they purchase things from. Why is it so difficult to understand basic concepts?
In the years following the Great Recession Apple and many other companies were borrowing money (at super cheap rates) in order to funnel it out to shareholders as stock buybacks and dividends --which is obviously not a sustainable business model. But it kept the stock market in a 10 year bull market -- the largest period of sustained growth in its history (Well, actually, the 2nd longest).
But, now that the Fed is raising rates, that mechanism is no longer viable. So, rather than letting the stock market crash to its fundamental value, they thought up a new ponzi scheme: The federal government borrows the money, funnels the proceeds to corporations and the corporations funnel it out to their stock holders via share buybacks and dividends. Essentially, the U.S. government borrows the money from China and gives it to stock holders...
Like all scams, it's a brilliant scheme that works really, really well. Until it doesn't.
Apple borrowed Bonds against the value of itself, effectively its cash overseas. So it paid extremely low interest for flexibility to avoid paying very high tax penalties. It can now hold that debt and spend its cash pile, and pay off its debt from earnings (or cash, but it can probably invest its cash with a far better return!)
Rates are rising, but Apple no longer needs to issue debt.
How do you think the fed govt "funneling money to corporations"? Apple is distributing its earnings to shareholders. Apple also holds billions in US Govt securities.
The federal government cut corporate taxes -- which they will have to borrow money to pay for. Most of that borrowed money is not being invested. It is being distributed to share holders as dividends and stock buy backs.
Thanks DED for the spirited defense of the buybacks! I find it funny that the haters disparage the buybacks. It is up their with notch-hate, macpro-hate, no-headphone-jack-hate, siri-hate and my all time favorite home-pod-hate which generates even more controversy than a trump tweet.
The buybacks at current elevated stock levels make less sense than ever. Apple should continue to provide value to investors by growing the company. A buyback amounts to an accounting trick. And I’m thankful that the current administration, not the previous one, had the wisdom to make repatriating overseas funds a reality.
Let's try this one more time for you.
- Corporations are "owned" by the shareholders. They are not owned by the US gov't, nor (generally) by whiny people on Internet forums, analysts, or the tech media. - When a company makes more cash than their business needs (accounting for R&D, growth, new products, M&A, etc), then that is "free cash flow". The question is what to do with this. A company could look at taking on more organic growth (increasing R&D in order to deliver new products), purchase other companies to grow business, or return the cash to the owners of the company - the shareholders. - Having too much excess cash on the balance sheet (e.g. just keeping it) is considered a liability for a company (could be wasted in future by SpamSandwich and thus its future value is less than present).
What is unique about Apple is that they are generating SO MUCH FREE CASH, that they cannot use it all in while "PRUDENTLY / EFFICIENTLY" running their business. Apple's whole corporate DNA is about focusing on a few "great ideas". You can only spend so much on those. It takes time, not just money, to bring new products to market. Just starting a whole bunch of side projects "because we have the money" is how companies lose focus and destroy their long term value.
So Apple has given back to the shareholders - over $275B USD in the last 6 years it would seem. If Apple had not done this, their net cash balance would be over $400B, just sitting on the books. Let it grow too large, and some hedge fund could (try anyways) to raise money to buy out Apple, since with so much cash it would help with the debt load to buy them, and the cash is not reflected well in the share price. Then said hedge fund would milk the company for all it was worth and that would be it.
While share buybacks at most other companies has been considered controversial, as it is perceived as a means to "goose" the share price in the short term (while siphoning off from investment in business, or accruing large debt), that is not why Apple is doing it. It is the most efficient means for them to return the cash to the shareholders by having each remaining share (those who don't want to sell) have a larger ownership stake in the company.
Good story!
The truth is: The stock buybacks began several years back when Carl Icahn raised enough fuss as an activist shareholder to force it. At that point, Apple had to borrow the money in order to pay it out to the shareholders. But, with interest rates near zero that wasn't a big deal.
Now interest rates are rising which makes that strategy far less appealing. So, the federal government borrowed money (or will borrow it) to issue tax cuts -- which Apple is now distributing to its stock holders. So, eventually the American people will have to pay the debt that Apple is distributing....
That is a totally distorted view of what is actually happening.
Apple was
sitting on over $200B in cash in overseas accounts because they didn't
want to pay the current (at the time) tax rate in order to bring money that they don't need, into the US. Money that Apple don't need in
the US because their US operation generated enough revenue and profits. Money that Apple had no problem leaving overseas, untaxed by the US. It's been like this for over a decade with Apple. That more than $200B in profits is the result of over a decade of Apple keeping their overseas profits oversea and Apple could keep doing this for another decade. Meanwhile, the Federal government
collected nearly 0% in taxes from those oversea profits. And as long as
Apple US operation is profitable, the Federal government would continue
to collect nearly 0% of those overseas profits.
In the meantime,
the taxes that the Federal government wants to collect on overseas
profits becomes less and less valuable each year, as inflation eats away at its
value. It's no different than keeping money in a bank account that is
earning 1.5% interest for 10 years. After 10 years, when accounting for
inflation, the money (along with the interest) in that bank account would be worth less than what it was 10 years ago. So unless the Federal
government raise the tax rate on the profits in corporate overseas account every
year, to make up for inflation, the Federal government is losing money
for every year that those profits sits overseas, untaxed. And as long as there's
inflation, they will continue to lose value on the taxes that they can not collect from those overseas profits.
By lowering the tax
rate for bringing in overseas profits, the Federal government collected
$38B from Apple alone, when Apple decided to bring their overseas profits into the US. The Federal government gained $38B in taxes from Apple and it cost the Federal government and US taxpayers nothing.
That's because if the Federal government did not lower the tax rate,
Apple would have just kept their overseas profits overseas and the
Federal government would continue to see value of the uncollectible tax
money on it eroded away with inflation.
Plus Apple and other corporations might start bringing in (to the US) their yearly overseas profit because the corporate tax is now more reasonable and aligned with the rest of the World. So the Federal government may very well see a rise in corporate taxes collected, as there's now less of a tax incentive for corporations to keep their overseas profits, overseas. Where the Federal government collected nearly 0% in taxes.
In fact, keeping overseas profits overseas might now be a liability for corporations as the amount of tax savings, over time, might not make up for inflation. It would be like putting money into a bank account that is only collecting 1.5% interest for 10 years. Corporations might now be better off paying the US tax and spending their overseas profit in the US, as they are earned, rather than have it sit untaxed (by the US) in an overseas account, all the while losing it's value due to inflation in the US.
It's like if you were
trying to sell a product, that cost you $5 to make, for $10 and there were
hardly any buyers. Plus you took out a loan to finance this venture. So you lower the price to $8 and sold more that you thought you would ever sell. Did you lose $2 on every one sold? Or did you gain $3 on every one sold? Logic will dictate that you made $3 for every one sold. And since you barely sold any before you discounted it by $2, you
could not have lost $2 per item sold as that $2 never really existed when you were trying to sell your product for $10. That was just wishful thinking on your part. Did you have to borrow the $2, in order to sell your product for $2 less than you wanted?
And all the while, when your product was sitting on the shelves, waiting to be sold for $10, in was losing value as you risk someone else coming along and making a similar product and selling it for $8. Not to mention having to use money from other sources to make your loan payments because your product is not generating any cash flow, while it's sitting on the shelf waiting to be sold for $10.
In the years following the Great Recession Apple and many other companies were borrowing money (at super cheap rates) in order to funnel it out to shareholders as stock buybacks and dividends --which is obviously not a sustainable business model. But it kept the stock market in a 10 year bull market -- the largest period of sustained growth in its history (Well, actually, the 2nd longest).
But, now that the Fed is raising rates, that mechanism is no longer viable. So, rather than letting the stock market crash to its fundamental value, they thought up a new ponzi scheme: The federal government borrows the money, funnels the proceeds to corporations and the corporations funnel it out to their stock holders via share buybacks and dividends. Essentially, the U.S. government borrows the money from China and gives it to stock holders...
Like all scams, it's a brilliant scheme that works really, really well. Until it doesn't.
Apple borrowed Bonds against the value of itself, effectively its cash overseas. So it paid extremely low interest for flexibility to avoid paying very high tax penalties. It can now hold that debt and spend its cash pile, and pay off its debt from earnings (or cash, but it can probably invest its cash with a far better return!)
Rates are rising, but Apple no longer needs to issue debt.
How do you think the fed govt "funneling money to corporations"? Apple is distributing its earnings to shareholders. Apple also holds billions in US Govt securities.
The federal government cut corporate taxes -- which they will have to borrow money to pay for. Most of that borrowed money is not being invested. It is being distributed to share holders as dividends and stock buy backs.
Thanks DED for the spirited defense of the buybacks! I find it funny that the haters disparage the buybacks. It is up their with notch-hate, macpro-hate, no-headphone-jack-hate, siri-hate and my all time favorite home-pod-hate which generates even more controversy than a trump tweet.
The buybacks at current elevated stock levels make less sense than ever. Apple should continue to provide value to investors by growing the company. A buyback amounts to an accounting trick. And I’m thankful that the current administration, not the previous one, had the wisdom to make repatriating overseas funds a reality.
Let's try this one more time for you.
- Corporations are "owned" by the shareholders. They are not owned by the US gov't, nor (generally) by whiny people on Internet forums, analysts, or the tech media. - When a company makes more cash than their business needs (accounting for R&D, growth, new products, M&A, etc), then that is "free cash flow". The question is what to do with this. A company could look at taking on more organic growth (increasing R&D in order to deliver new products), purchase other companies to grow business, or return the cash to the owners of the company - the shareholders. - Having too much excess cash on the balance sheet (e.g. just keeping it) is considered a liability for a company (could be wasted in future by SpamSandwich and thus its future value is less than present).
What is unique about Apple is that they are generating SO MUCH FREE CASH, that they cannot use it all in while "PRUDENTLY / EFFICIENTLY" running their business. Apple's whole corporate DNA is about focusing on a few "great ideas". You can only spend so much on those. It takes time, not just money, to bring new products to market. Just starting a whole bunch of side projects "because we have the money" is how companies lose focus and destroy their long term value.
So Apple has given back to the shareholders - over $275B USD in the last 6 years it would seem. If Apple had not done this, their net cash balance would be over $400B, just sitting on the books. Let it grow too large, and some hedge fund could (try anyways) to raise money to buy out Apple, since with so much cash it would help with the debt load to buy them, and the cash is not reflected well in the share price. Then said hedge fund would milk the company for all it was worth and that would be it.
While share buybacks at most other companies has been considered controversial, as it is perceived as a means to "goose" the share price in the short term (while siphoning off from investment in business, or accruing large debt), that is not why Apple is doing it. It is the most efficient means for them to return the cash to the shareholders by having each remaining share (those who don't want to sell) have a larger ownership stake in the company.
Good story!
The truth is: The stock buybacks began several years back when Carl Icahn raised enough fuss as an activist shareholder to force it. At that point, Apple had to borrow the money in order to pay it out to the shareholders. But, with interest rates near zero that wasn't a big deal.
Now interest rates are rising which makes that strategy far less appealing. So, the federal government borrowed money (or will borrow it) to issue tax cuts -- which Apple is now distributing to its stock holders. So, eventually the American people will have to pay the debt that Apple is distributing....
That is a totally distorted view of is actually happening.
Apple was
sitting on over $200B in cash in overseas accounts because they didn't
want to pay the current (at the time) tax rate in order to bring money that they don't need, into the US. Money that Apple don't need in
the US because their US operation generated enough revenue and profits. Money that Apple had no problem leaving overseas, untaxed by the US. It's been like this for over a decade with Apple...
By lowering the tax
rate for bringing in overseas profits, the Federal government collected
$38B from Apple alone, when Apple decided to bring their overseas profits into the US.
It is not really a choice any longer since the indefinite tax deferral has been done away with under the new corporate tax law if I understand correctly. With that said Apple has not yet "repatriated" all that cash, nor paid the nearly $40B tax bill due on it (unless that rumored loophole allowing 8% instead of 15.5% exists and lets them avoid some of it)
EDIT: From PED today:
Quoting Krugman: Public perceptions about who benefits from the tax cut, and who doesn’t, are accurate, a point Apple just nicely demonstrated with its announcement of a huge stock buyback… Its profits come from its market position — its brand, if you like. It doesn’t matter whether you think it deserves its role as a quasi-monopolist; what matters is that given its position, it can and does charge what the market will bear, pretty much regardless of costs. If Trump cuts its taxes, it gets to keep more of its profits, but it has no real incentive to change its behavior by, say, building more Apple stores. It just takes the extra money and either sits on it or hands it back to stockholders via buybacks.
My take (PED's): Nobody here should be surprised that Apple was going to funnel most of that money to its shareholders. Nor should they be surprised that it wouldn’t sit well with a lot of Americans who don’t own Apple stock.
In the years following the Great Recession Apple and many other companies were borrowing money (at super cheap rates) in order to funnel it out to shareholders as stock buybacks and dividends --which is obviously not a sustainable business model. But it kept the stock market in a 10 year bull market -- the largest period of sustained growth in its history (Well, actually, the 2nd longest).
But, now that the Fed is raising rates, that mechanism is no longer viable. So, rather than letting the stock market crash to its fundamental value, they thought up a new ponzi scheme: The federal government borrows the money, funnels the proceeds to corporations and the corporations funnel it out to their stock holders via share buybacks and dividends. Essentially, the U.S. government borrows the money from China and gives it to stock holders...
Like all scams, it's a brilliant scheme that works really, really well. Until it doesn't.
Apple borrowed Bonds against the value of itself, effectively its cash overseas. So it paid extremely low interest for flexibility to avoid paying very high tax penalties. It can now hold that debt and spend its cash pile, and pay off its debt from earnings (or cash, but it can probably invest its cash with a far better return!)
Rates are rising, but Apple no longer needs to issue debt.
How do you think the fed govt "funneling money to corporations"? Apple is distributing its earnings to shareholders. Apple also holds billions in US Govt securities.
The federal government cut corporate taxes -- which they will have to borrow money to pay for. Most of that borrowed money is not being invested. It is being distributed to share holders as dividends and stock buy backs.
Thanks DED for the spirited defense of the buybacks! I find it funny that the haters disparage the buybacks. It is up their with notch-hate, macpro-hate, no-headphone-jack-hate, siri-hate and my all time favorite home-pod-hate which generates even more controversy than a trump tweet.
The buybacks at current elevated stock levels make less sense than ever. Apple should continue to provide value to investors by growing the company. A buyback amounts to an accounting trick. And I’m thankful that the current administration, not the previous one, had the wisdom to make repatriating overseas funds a reality.
Let's try this one more time for you.
- Corporations are "owned" by the shareholders. They are not owned by the US gov't, nor (generally) by whiny people on Internet forums, analysts, or the tech media. - When a company makes more cash than their business needs (accounting for R&D, growth, new products, M&A, etc), then that is "free cash flow". The question is what to do with this. A company could look at taking on more organic growth (increasing R&D in order to deliver new products), purchase other companies to grow business, or return the cash to the owners of the company - the shareholders. - Having too much excess cash on the balance sheet (e.g. just keeping it) is considered a liability for a company (could be wasted in future by SpamSandwich and thus its future value is less than present).
What is unique about Apple is that they are generating SO MUCH FREE CASH, that they cannot use it all in while "PRUDENTLY / EFFICIENTLY" running their business. Apple's whole corporate DNA is about focusing on a few "great ideas". You can only spend so much on those. It takes time, not just money, to bring new products to market. Just starting a whole bunch of side projects "because we have the money" is how companies lose focus and destroy their long term value.
So Apple has given back to the shareholders - over $275B USD in the last 6 years it would seem. If Apple had not done this, their net cash balance would be over $400B, just sitting on the books. Let it grow too large, and some hedge fund could (try anyways) to raise money to buy out Apple, since with so much cash it would help with the debt load to buy them, and the cash is not reflected well in the share price. Then said hedge fund would milk the company for all it was worth and that would be it.
While share buybacks at most other companies has been considered controversial, as it is perceived as a means to "goose" the share price in the short term (while siphoning off from investment in business, or accruing large debt), that is not why Apple is doing it. It is the most efficient means for them to return the cash to the shareholders by having each remaining share (those who don't want to sell) have a larger ownership stake in the company.
Good story!
The truth is: The stock buybacks began several years back when Carl Icahn raised enough fuss as an activist shareholder to force it. At that point, Apple had to borrow the money in order to pay it out to the shareholders. But, with interest rates near zero that wasn't a big deal.
Now interest rates are rising which makes that strategy far less appealing. So, the federal government borrowed money (or will borrow it) to issue tax cuts -- which Apple is now distributing to its stock holders. So, eventually the American people will have to pay the debt that Apple is distributing....
That is a totally distorted view of is actually happening.
Apple was
sitting on over $200B in cash in overseas accounts because they didn't
want to pay the current (at the time) tax rate in order to bring money that they don't need, into the US. Money that Apple don't need in
the US because their US operation generated enough revenue and profits. Money that Apple had no problem leaving overseas, untaxed by the US. It's been like this for over a decade with Apple...
By lowering the tax
rate for bringing in overseas profits, the Federal government collected
$38B from Apple alone, when Apple decided to bring their overseas profits into the US.
It is not really a choice any longer since the indefinite tax deferral has been done away with under the new corporate tax law if I understand correctly. With that said Apple has not yet "repatriated" all that cash, nor paid the nearly $40B tax bill due on it (unless that rumored loophole allowing 8% instead of 15.5% exists and lets them avoid some of it)
EDIT: From PED today:
Quoting Krugman: Public perceptions about who benefits from the tax cut, and who doesn’t, are accurate, a point Apple just nicely demonstrated with its announcement of a huge stock buyback… Its profits come from its market position — its brand, if you like. It doesn’t matter whether you think it deserves its role as a quasi-monopolist; what matters is that given its position, it can and does charge what the market will bear, pretty much regardless of costs. If Trump cuts its taxes, it gets to keep more of its profits, but it has no real incentive to change its behavior by, say, building more Apple stores. It just takes the extra money and either sits on it or hands it back to stockholders via buybacks.
My take (PED's): Nobody here should be surprised that Apple was going to funnel most of that money to its shareholders. Nor should they be surprised that it wouldn’t sit well with a lot of Americans who don’t own Apple stock.
From the public perception, I might be able to understand how people might have seen buy backs as not benefiting anyone except Apple and its investors. What I don't understand is how they can think that now, now that Apple will be using taxed repatriated money for buy backs. Apple was already using their overseas profits as a way to secure cheap loans for buy backs (and dividends), without any repatriation and US tax on those profits. It's not as though Apple wasn't able to do buy backs using overseas profits, before this tax reform. I recall even you citing how overseas profits were not really confined to overseas as there are ways for corporations to use that money in the US, and still not pay the US taxes on it.
But now, the Federal government is going to collect some taxes on the money that Apple will be using for buy backs (and dividends). Tax money the Federal government wasn't getting before, because AAPL was still able to do buy backs and pay a dividend, without having to repatriate and pay taxes on any of their overseas profits. It will not be the 35%(or so) tax rate they were hoping to get on those overseas profits but what percent in taxes that they are (or will be) getting is more than the near 0% that they were actually getting. No matter how one looks at it, the Federal government and taxpayers are not losing anything from Apple using their repatriated overseas profit for buy backs, now that AAPL will be paying some US tax on that money. Even if Apple were to use all that money for buy backs, the Federal government would still gain tax money and it will not cost the American people a cent.
But Apple using their overseas profits to pay shareholders dividends should not be perceived as only benefiting AAPL investors, by anyone, even if the money used was not taxed at the corporate level. Dividends are taxed as capital gains when the shareholders receives it. That is a tax gain for the Federal government no matter what the capital gain tax rate is. Complaining that dividends only benefit Apple and its investors would be like complaining that an Apple employee getting a paycheck is only benefiting the employee and Apple because Apple was able to tax deduct the paycheck as a business expense. So the Federal government has to borrow money to pay for that business deduction and eventually the American people are stuck paying for Apple's employees. Never mind that the employee pays income taxes on the paycheck.
If I were the Federal government, I would force Apple to use more of their repatriated money for dividend. Hell, give all back to investors in the form of special dividends.This way more taxes can be collected from the repatriate money in the form of capital gains, on top of the tax for repatriating the money. AAPL Investors should have no problem with that. And neither should anyone else, but that will not be the case. As we all know that someone in the public will have the distorted perception that the Federal government is going to have to borrow the money to pay for the lower tax rate on the capital gains, that AAPL investors will enjoy, and that the American people will eventually end up paying for it?
Because I'm just sitting on my all shares of AAPL, even though it has vastly increased in value since I've own them, (maybe partly due to the buy backs) the Federal government haven't seen a cent of tax money based on how much more my AAPL has increased in value. And they won't until I sell. But now that Apple is paying a dividend and have been for the past 5 years, I'm paying capital gain taxes on that dividend. So now, the Federal government is collecting taxes from me due to me owning shares of AAPL, without me having to sell any of it. That's more tax money from me, than what the Federal government was getting before the dividend. No one should be complaining about that. Unless one has the distorted view that somehow, someway, Apple is paying the dividend with money that belongs to the Federal government or American people. Plus, I'm not sitting on the money I got from the dividend. After using some of it to pay the taxes owed on it, I might re- invest some of it, but mostly, I'm spending it. And that's good for the economy, no matter where or how I spend it.
In the years following the Great Recession Apple and many other companies were borrowing money (at super cheap rates) in order to funnel it out to shareholders as stock buybacks and dividends --which is obviously not a sustainable business model. But it kept the stock market in a 10 year bull market -- the largest period of sustained growth in its history (Well, actually, the 2nd longest).
But, now that the Fed is raising rates, that mechanism is no longer viable. So, rather than letting the stock market crash to its fundamental value, they thought up a new ponzi scheme: The federal government borrows the money, funnels the proceeds to corporations and the corporations funnel it out to their stock holders via share buybacks and dividends. Essentially, the U.S. government borrows the money from China and gives it to stock holders...
Like all scams, it's a brilliant scheme that works really, really well. Until it doesn't.
Apple borrowed Bonds against the value of itself, effectively its cash overseas. So it paid extremely low interest for flexibility to avoid paying very high tax penalties. It can now hold that debt and spend its cash pile, and pay off its debt from earnings (or cash, but it can probably invest its cash with a far better return!)
Rates are rising, but Apple no longer needs to issue debt.
How do you think the fed govt "funneling money to corporations"? Apple is distributing its earnings to shareholders. Apple also holds billions in US Govt securities.
The federal government cut corporate taxes -- which they will have to borrow money to pay for. Most of that borrowed money is not being invested. It is being distributed to share holders as dividends and stock buy backs.
And what exactly do you think a buyback does? Apple is taking money that was sitting overseas, not being very productive in any capacity, and placing it in the hands of Apple investors who no longer wish to be Apple investors. That means those investors, since they are presumably still investors, can disperse that money into other investments. And investments spur economic activity; that’s why we have stock markets that allow people to invest in economic enterprise. Why would you care whether Apple builds the next factory, retail concept, biopharma, or energy project. Let Apple repatriate it’s horde, place it into the hands of those who would sell Apple their Apple shares, and then go invest it elsewhere, in a business that will build those things and create jobs. Why can’t people see beyond one dimension on these issues?
You ignore the biggest part of the tax scam -- the rate reduction... And for that, the Federal Government has and will have to borrow the money that Apple is paying out as dividends. Then the American Taxpayer will, at some point, have to repay it.
Even the repatriation you talk of is the same: That money wasn't being kept out of the country. Apple was keeping it out - holding out for an ultra low tax rate on it. They got it. So instead of building roads and bridges and stabilizing Social Security and Medicare with the taxes on it, those funds are going to Apple ShareHolders. Not even jobs. Not even growth and expansion.
And, you assume that those dividends and stock buybacks going to shareholders are being used to create jobs and businesses. That's a very big assumption -- especially if you assume that those investments are being made here. Actually, since January when the tax scam went into effect, the S&P 500 has gone down while the Hang Seng - has gone up.
And you ignore the fact that if they spend the money rather than reinvest it that too creates economic activity, which then increases the revenues and profits of the business they purchase things from. Why is it so difficult to understand basic concepts?
Because that's ideology rather than reality. Even worse: it's a bastardization of Reagan's trickle down used to justify the tax scam.
Thanks DED for the spirited defense of the buybacks! I find it funny that the haters disparage the buybacks. It is up their with notch-hate, macpro-hate, no-headphone-jack-hate, siri-hate and my all time favorite home-pod-hate which generates even more controversy than a trump tweet.
The buybacks at current elevated stock levels make less sense than ever. Apple should continue to provide value to investors by growing the company. A buyback amounts to an accounting trick. And I’m thankful that the current administration, not the previous one, had the wisdom to make repatriating overseas funds a reality.
Let's try this one more time for you.
- Corporations are "owned" by the shareholders. They are not owned by the US gov't, nor (generally) by whiny people on Internet forums, analysts, or the tech media. - When a company makes more cash than their business needs (accounting for R&D, growth, new products, M&A, etc), then that is "free cash flow". The question is what to do with this. A company could look at taking on more organic growth (increasing R&D in order to deliver new products), purchase other companies to grow business, or return the cash to the owners of the company - the shareholders. - Having too much excess cash on the balance sheet (e.g. just keeping it) is considered a liability for a company (could be wasted in future by SpamSandwich and thus its future value is less than present).
What is unique about Apple is that they are generating SO MUCH FREE CASH, that they cannot use it all in while "PRUDENTLY / EFFICIENTLY" running their business. Apple's whole corporate DNA is about focusing on a few "great ideas". You can only spend so much on those. It takes time, not just money, to bring new products to market. Just starting a whole bunch of side projects "because we have the money" is how companies lose focus and destroy their long term value.
So Apple has given back to the shareholders - over $275B USD in the last 6 years it would seem. If Apple had not done this, their net cash balance would be over $400B, just sitting on the books. Let it grow too large, and some hedge fund could (try anyways) to raise money to buy out Apple, since with so much cash it would help with the debt load to buy them, and the cash is not reflected well in the share price. Then said hedge fund would milk the company for all it was worth and that would be it.
While share buybacks at most other companies has been considered controversial, as it is perceived as a means to "goose" the share price in the short term (while siphoning off from investment in business, or accruing large debt), that is not why Apple is doing it. It is the most efficient means for them to return the cash to the shareholders by having each remaining share (those who don't want to sell) have a larger ownership stake in the company.
Good story!
The truth is: The stock buybacks began several years back when Carl Icahn raised enough fuss as an activist shareholder to force it. At that point, Apple had to borrow the money in order to pay it out to the shareholders. But, with interest rates near zero that wasn't a big deal.
Now interest rates are rising which makes that strategy far less appealing. So, the federal government borrowed money (or will borrow it) to issue tax cuts -- which Apple is now distributing to its stock holders. So, eventually the American people will have to pay the debt that Apple is distributing....
Holy f*ck you are stupid...
That’s telling him.
So rather than remove the AI rules-bending post as a moderator would be expected to do you congratulate him and encourage more of the same?
Actually, I prefer that response as long as it’s evenly applied, rather than the left view being promoted and protected, while opposing views are immediately scrubbed and the poster admonished like a child.
No response would have been better. IMO entirely inappropriate response for a moderator tasked with enforcing AI rules as he presumably agreed to do as a condition of filing the position.
It’s all relative, isn’t it? I don’t miss the day after day slog of trench warfare here among posters, but honest disagreement (as long as it’s civil) shouldn’t be suppressed, in my opinion. Exposure to different points of view is still important.
I agree with you.
Should personally attacking another member's intelligence while completely avoiding comment on the points raised be considered "honest disagreement"? What we're doing is that honest disagreement you refer to IMO. If I were to resort to name-calling, tagging you as an idiot or troll (which would neither be true or anything I would do anyway) is that still honest disagreement? I think not. Yet that is what a forum moderator is encouraging?
The guy went on-and-on not responding to any of the "dialogue" the I and others were having. So there was no civilized discourse -> just a rant. If you pay attention to his posts, that is all you ever get.
I don't do it often, but sometimes a short & direct response conveys the meaning best.
I am sorry if I have offended you as a 3rd party...I guess that happens a lot these days.
Because you do not understand a point does not make that point incorrect. Neither does labelling it a "rant".
GeorgeBMac said: Since the Tax Scam was put into place, the S&P 500 has gone down while the Hang Seng has gone up. So much for (American) growth and jobs...
The truth is: American businesses were already flooded with excess cash from 10 years of ultra low interest rates. They didn't really need more and have no way of putting it to productive use -- so they use it to prop up the stock prices...
One thing to keep in mind, is that when people talk about corporate tax rates, they are often also talking about the huge mega-national corporations, with lots of ways of getting out of paying anyway. But, the real economic engines are the small to medium businesses, or especially in the coming decades, the entrepreneurs (i.e.: super-small businesses) who just have to pay whatever the rate is. The USA had some of the highest rates around for those people.
What needs to happen, is a whole overhaul of the tax system and structure... though a lot of the 'holes' are incentives for the big corporations to base some plant or operation in some locality, which if we stopped that, limits the capabilities of local areas to attract jobs.
... Apple should not be blowing off so called "excess cash". They live in a world one miss step from disaster. ... In business, there is no such thing as excess cash.
Yea, I have to agree here. Sometimes you have to invest, and I suppose this could be seen as a way of doing that. But, as an Apple fan, I liked their big stock-pile, as *when* bad times come, they'll be more likely to weather them.
Most modern financial "wisdom" is based on an incredibly long period of relative economic prosperity, and global stability. I don't think that period is going to last much longer... though I think the 'powers that be' honestly think they can just keep juggling. And, they are going to try really, really hard to keep doing so, even to the point of manipulating the people, lying, etc. We're now well into that phase.
radarthekat said: And you ignore the fact that if they spend the money rather than reinvest it that too creates economic activity, which then increases the revenues and profits of the business they purchase things from. Why is it so difficult to understand basic concepts?
Yep, the fundamentals are solid... but then human nature gets involved and mucks up the 'science.' Economics is a social-science, not a science. Most modern economists have forgotten the social aspect.
davidw said: But now, the Federal government is going to collect some taxes on the money that Apple will be using for buy backs (and dividends). Tax money the Federal government wasn't getting before ...
Unfortunately, it doesn't really matter how much money the gov't brings in, because they just waste the vast majority of it anyway. While I applaud improvements to the tax collection side of things, it will take some attention and accountability to the spending side of gov't if we ever hope to see things get better. And for that... I recommend Congressional Dish podcast so people start to realize just how horribly out of control and messed up things really are.
The government is currently kind of like a drug-addict. It wouldn't matter if they could collect 100% of everything.
In the years following the Great Recession Apple and many other companies were borrowing money (at super cheap rates) in order to funnel it out to shareholders as stock buybacks and dividends --which is obviously not a sustainable business model. But it kept the stock market in a 10 year bull market -- the largest period of sustained growth in its history (Well, actually, the 2nd longest).
But, now that the Fed is raising rates, that mechanism is no longer viable. So, rather than letting the stock market crash to its fundamental value, they thought up a new ponzi scheme: The federal government borrows the money, funnels the proceeds to corporations and the corporations funnel it out to their stock holders via share buybacks and dividends. Essentially, the U.S. government borrows the money from China and gives it to stock holders...
Like all scams, it's a brilliant scheme that works really, really well. Until it doesn't.
Apple borrowed Bonds against the value of itself, effectively its cash overseas. So it paid extremely low interest for flexibility to avoid paying very high tax penalties. It can now hold that debt and spend its cash pile, and pay off its debt from earnings (or cash, but it can probably invest its cash with a far better return!)
Rates are rising, but Apple no longer needs to issue debt.
How do you think the fed govt "funneling money to corporations"? Apple is distributing its earnings to shareholders. Apple also holds billions in US Govt securities.
The federal government cut corporate taxes -- which they will have to borrow money to pay for. Most of that borrowed money is not being invested. It is being distributed to share holders as dividends and stock buy backs.
Thanks DED for the spirited defense of the buybacks! I find it funny that the haters disparage the buybacks. It is up their with notch-hate, macpro-hate, no-headphone-jack-hate, siri-hate and my all time favorite home-pod-hate which generates even more controversy than a trump tweet.
The buybacks at current elevated stock levels make less sense than ever. Apple should continue to provide value to investors by growing the company. A buyback amounts to an accounting trick. And I’m thankful that the current administration, not the previous one, had the wisdom to make repatriating overseas funds a reality.
Let's try this one more time for you.
- Corporations are "owned" by the shareholders. They are not owned by the US gov't, nor (generally) by whiny people on Internet forums, analysts, or the tech media. - When a company makes more cash than their business needs (accounting for R&D, growth, new products, M&A, etc), then that is "free cash flow". The question is what to do with this. A company could look at taking on more organic growth (increasing R&D in order to deliver new products), purchase other companies to grow business, or return the cash to the owners of the company - the shareholders. - Having too much excess cash on the balance sheet (e.g. just keeping it) is considered a liability for a company (could be wasted in future by SpamSandwich and thus its future value is less than present).
What is unique about Apple is that they are generating SO MUCH FREE CASH, that they cannot use it all in while "PRUDENTLY / EFFICIENTLY" running their business. Apple's whole corporate DNA is about focusing on a few "great ideas". You can only spend so much on those. It takes time, not just money, to bring new products to market. Just starting a whole bunch of side projects "because we have the money" is how companies lose focus and destroy their long term value.
So Apple has given back to the shareholders - over $275B USD in the last 6 years it would seem. If Apple had not done this, their net cash balance would be over $400B, just sitting on the books. Let it grow too large, and some hedge fund could (try anyways) to raise money to buy out Apple, since with so much cash it would help with the debt load to buy them, and the cash is not reflected well in the share price. Then said hedge fund would milk the company for all it was worth and that would be it.
While share buybacks at most other companies has been considered controversial, as it is perceived as a means to "goose" the share price in the short term (while siphoning off from investment in business, or accruing large debt), that is not why Apple is doing it. It is the most efficient means for them to return the cash to the shareholders by having each remaining share (those who don't want to sell) have a larger ownership stake in the company.
Good story!
The truth is: The stock buybacks began several years back when Carl Icahn raised enough fuss as an activist shareholder to force it. At that point, Apple had to borrow the money in order to pay it out to the shareholders. But, with interest rates near zero that wasn't a big deal.
Now interest rates are rising which makes that strategy far less appealing. So, the federal government borrowed money (or will borrow it) to issue tax cuts -- which Apple is now distributing to its stock holders. So, eventually the American people will have to pay the debt that Apple is distributing....
That is a totally distorted view of is actually happening.
Apple was
sitting on over $200B in cash in overseas accounts because they didn't
want to pay the current (at the time) tax rate in order to bring money that they don't need, into the US. Money that Apple don't need in
the US because their US operation generated enough revenue and profits. Money that Apple had no problem leaving overseas, untaxed by the US. It's been like this for over a decade with Apple...
By lowering the tax
rate for bringing in overseas profits, the Federal government collected
$38B from Apple alone, when Apple decided to bring their overseas profits into the US.
It is not really a choice any longer since the indefinite tax deferral has been done away with under the new corporate tax law if I understand correctly. With that said Apple has not yet "repatriated" all that cash, nor paid the nearly $40B tax bill due on it (unless that rumored loophole allowing 8% instead of 15.5% exists and lets them avoid some of it)
But I'm not sure whether that applies to money that is already sitting in overseas accounts. It may only apply to new profits made, after the tax reform. As I understand it, corporations will now have to pay some taxes on overseas profits, regardless if they keep it overseas, as they can no longer defer all of the taxes on it. I assume that the money Apple have in overseas accounts now, can remain there untouchable by any new tax codes that would tax it, without it being repatriated into the US. That's why a special tax deal was made as an incentive for corporations to repatriate their overseas profits, at a lower tax rate, now.
I don't think the US can all of a sudden change the tax code and start collecting tax on the overseas profits that are in overseas accounts now, even if it's still sitting in an overseas account, as those profits are still subject to the tax code at the time they were made and put into those accounts. That would be like the IRS all sudden changing the tax code and say that the profits made every year in an IRA, will now be subject to a 5% annual tax, even if its still sitting in the account and the tax paid will be credited back to you as you withdraw the money from it. And you now owe a 5% tax on all the profits you're already made in the IRA, over the years you had the account.
Comments
It's like killing a Jedi.
Apple followed its own strategy for buybacks, not mostly dividends. Buybacks help every shareholder. Dividends are a payout that shareholders have to pay taxes on immediately, and after you get a huge dividend the remaining value of the stock goes down in proportion.
And yes Google is among the companies with a stock repurchase program. They also have an extra $100B in free cash, tho buying back their stock with it may not be the choice they'd make for putting it to use.
Why would you seemingly want to argue just to argue, and why (un)intentionally introduce added confusion for a casual reader or even regular member who might rightly assume Apple is buying back shares of stock to keep and resell for a higher price at a later date? That doesn't seem particularly helpful.
Instead, most ignore the lies, spin and propaganda thinking it will just go away... That's what we thought about Nazi Germany in the 30's. That approach didn't work well.
https://forums.appleinsider.com/discussion/205333/
https://www.vox.com/policy-and-politics/2017/8/8/16112368/piketty-saez-zucman-income-growth-inequality-stagnation-chart
That is a totally distorted view of what is actually happening.
Apple was sitting on over $200B in cash in overseas accounts because they didn't want to pay the current (at the time) tax rate in order to bring money that they don't need, into the US. Money that Apple don't need in the US because their US operation generated enough revenue and profits. Money that Apple had no problem leaving overseas, untaxed by the US. It's been like this for over a decade with Apple. That more than $200B in profits is the result of over a decade of Apple keeping their overseas profits oversea and Apple could keep doing this for another decade. Meanwhile, the Federal government collected nearly 0% in taxes from those oversea profits. And as long as Apple US operation is profitable, the Federal government would continue to collect nearly 0% of those overseas profits.
In the meantime, the taxes that the Federal government wants to collect on overseas profits becomes less and less valuable each year, as inflation eats away at its value. It's no different than keeping money in a bank account that is earning 1.5% interest for 10 years. After 10 years, when accounting for inflation, the money (along with the interest) in that bank account would be worth less than what it was 10 years ago. So unless the Federal government raise the tax rate on the profits in corporate overseas account every year, to make up for inflation, the Federal government is losing money for every year that those profits sits overseas, untaxed. And as long as there's inflation, they will continue to lose value on the taxes that they can not collect from those overseas profits.
By lowering the tax rate for bringing in overseas profits, the Federal government collected $38B from Apple alone, when Apple decided to bring their overseas profits into the US. The Federal government gained $38B in taxes from Apple and it cost the Federal government and US taxpayers nothing. That's because if the Federal government did not lower the tax rate, Apple would have just kept their overseas profits overseas and the Federal government would continue to see value of the uncollectible tax money on it eroded away with inflation.
Plus Apple and other corporations might start bringing in (to the US) their yearly overseas profit because the corporate tax is now more reasonable and aligned with the rest of the World. So the Federal government may very well see a rise in corporate taxes collected, as there's now less of a tax incentive for corporations to keep their overseas profits, overseas. Where the Federal government collected nearly 0% in taxes.
In fact, keeping overseas profits overseas might now be a liability for corporations as the amount of tax savings, over time, might not make up for inflation. It would be like putting money into a bank account that is only collecting 1.5% interest for 10 years. Corporations might now be better off paying the US tax and spending their overseas profit in the US, as they are earned, rather than have it sit untaxed (by the US) in an overseas account, all the while losing it's value due to inflation in the US.
It's like if you were trying to sell a product, that cost you $5 to make, for $10 and there were hardly any buyers. Plus you took out a loan to finance this venture. So you lower the price to $8 and sold more that you thought you would ever sell. Did you lose $2 on every one sold? Or did you gain $3 on every one sold? Logic will dictate that you made $3 for every one sold. And since you barely sold any before you discounted it by $2, you could not have lost $2 per item sold as that $2 never really existed when you were trying to sell your product for $10. That was just wishful thinking on your part. Did you have to borrow the $2, in order to sell your product for $2 less than you wanted?
And all the while, when your product was sitting on the shelves, waiting to be sold for $10, in was losing value as you risk someone else coming along and making a similar product and selling it for $8. Not to mention having to use money from other sources to make your loan payments because your product is not generating any cash flow, while it's sitting on the shelf waiting to be sold for $10.
EDIT: From PED today:
Quoting Krugman: Public perceptions about who benefits from the tax cut, and who doesn’t, are accurate, a point Apple just nicely demonstrated with its announcement of a huge stock buyback… Its profits come from its market position — its brand, if you like. It doesn’t matter whether you think it deserves its role as a quasi-monopolist; what matters is that given its position, it can and does charge what the market will bear, pretty much regardless of costs. If Trump cuts its taxes, it gets to keep more of its profits, but it has no real incentive to change its behavior by, say, building more Apple stores. It just takes the extra money and either sits on it or hands it back to stockholders via buybacks.
My take (PED's): Nobody here should be surprised that Apple was going to funnel most of that money to its shareholders. Nor should they be surprised that it wouldn’t sit well with a lot of Americans who don’t own Apple stock.
From the public perception, I might be able to understand how people might have seen buy backs as not benefiting anyone except Apple and its investors. What I don't understand is how they can think that now, now that Apple will be using taxed repatriated money for buy backs. Apple was already using their overseas profits as a way to secure cheap loans for buy backs (and dividends), without any repatriation and US tax on those profits. It's not as though Apple wasn't able to do buy backs using overseas profits, before this tax reform. I recall even you citing how overseas profits were not really confined to overseas as there are ways for corporations to use that money in the US, and still not pay the US taxes on it.
But now, the Federal government is going to collect some taxes on the money that Apple will be using for buy backs (and dividends). Tax money the Federal government wasn't getting before, because AAPL was still able to do buy backs and pay a dividend, without having to repatriate and pay taxes on any of their overseas profits. It will not be the 35%(or so) tax rate they were hoping to get on those overseas profits but what percent in taxes that they are (or will be) getting is more than the near 0% that they were actually getting. No matter how one looks at it, the Federal government and taxpayers are not losing anything from Apple using their repatriated overseas profit for buy backs, now that AAPL will be paying some US tax on that money. Even if Apple were to use all that money for buy backs, the Federal government would still gain tax money and it will not cost the American people a cent.
But Apple using their overseas profits to pay shareholders dividends should not be perceived as only benefiting AAPL investors, by anyone, even if the money used was not taxed at the corporate level. Dividends are taxed as capital gains when the shareholders receives it. That is a tax gain for the Federal government no matter what the capital gain tax rate is. Complaining that dividends only benefit Apple and its investors would be like complaining that an Apple employee getting a paycheck is only benefiting the employee and Apple because Apple was able to tax deduct the paycheck as a business expense. So the Federal government has to borrow money to pay for that business deduction and eventually the American people are stuck paying for Apple's employees. Never mind that the employee pays income taxes on the paycheck.
If I were the Federal government, I would force Apple to use more of their repatriated money for dividend. Hell, give all back to investors in the form of special dividends.This way more taxes can be collected from the repatriate money in the form of capital gains, on top of the tax for repatriating the money. AAPL Investors should have no problem with that. And neither should anyone else, but that will not be the case. As we all know that someone in the public will have the distorted perception that the Federal government is going to have to borrow the money to pay for the lower tax rate on the capital gains, that AAPL investors will enjoy, and that the American people will eventually end up paying for it?
Because I'm just sitting on my all shares of AAPL, even though it has vastly increased in value since I've own them, (maybe partly due to the buy backs) the Federal government haven't seen a cent of tax money based on how much more my AAPL has increased in value. And they won't until I sell. But now that Apple is paying a dividend and have been for the past 5 years, I'm paying capital gain taxes on that dividend. So now, the Federal government is collecting taxes from me due to me owning shares of AAPL, without me having to sell any of it. That's more tax money from me, than what the Federal government was getting before the dividend. No one should be complaining about that. Unless one has the distorted view that somehow, someway, Apple is paying the dividend with money that belongs to the Federal government or American people. Plus, I'm not sitting on the money I got from the dividend. After using some of it to pay the taxes owed on it, I might re- invest some of it, but mostly, I'm spending it. And that's good for the economy, no matter where or how I spend it.
What needs to happen, is a whole overhaul of the tax system and structure... though a lot of the 'holes' are incentives for the big corporations to base some plant or operation in some locality, which if we stopped that, limits the capabilities of local areas to attract jobs.
Unfortunately, there isn't an easy solution.
Yea, I have to agree here. Sometimes you have to invest, and I suppose this could be seen as a way of doing that. But, as an Apple fan, I liked their big stock-pile, as *when* bad times come, they'll be more likely to weather them.
Most modern financial "wisdom" is based on an incredibly long period of relative economic prosperity, and global stability. I don't think that period is going to last much longer... though I think the 'powers that be' honestly think they can just keep juggling. And, they are going to try really, really hard to keep doing so, even to the point of manipulating the people, lying, etc. We're now well into that phase.
Yep, the fundamentals are solid... but then human nature gets involved and mucks up the 'science.' Economics is a social-science, not a science. Most modern economists have forgotten the social aspect.
Unfortunately, it doesn't really matter how much money the gov't brings in, because they just waste the vast majority of it anyway. While I applaud improvements to the tax collection side of things, it will take some attention and accountability to the spending side of gov't if we ever hope to see things get better. And for that... I recommend Congressional Dish podcast so people start to realize just how horribly out of control and messed up things really are.
The government is currently kind of like a drug-addict. It wouldn't matter if they could collect 100% of everything.
I don't think the US can all of a sudden change the tax code and start collecting tax on the overseas profits that are in overseas accounts now, even if it's still sitting in an overseas account, as those profits are still subject to the tax code at the time they were made and put into those accounts. That would be like the IRS all sudden changing the tax code and say that the profits made every year in an IRA, will now be subject to a 5% annual tax, even if its still sitting in the account and the tax paid will be credited back to you as you withdraw the money from it. And you now owe a 5% tax on all the profits you're already made in the IRA, over the years you had the account.