Race to the bottom as governments around the world rush to the printing press to pay for bills they can’t afford without a healthy measure of quantitative easing.
Tim Geithner: “We’re not coming before you to say we have a definitive solution to our long-term problem. What we do know is we don’t like yours.”
What does Apple’s Dividend & Stock Buyback Really Mean?
It means about $45 Billion in Quantitative Easing because the money used to pay for this package will likely be borrowed in the U.S. (at ridiculously low rates).
But why would Apple BORROW money for dividends and stock buybacks when it has $100 Billion in cash reserves??
It’s very common for companies to borrow money for stock buybacks and cash distributions. In APPL’s case, I’ll provide three reasons why it makes sense:
1) The majority of Apple’s cash reserves isn’t in the US. At least $66 Billion of its cash reserves is held overseas. APPL can’t repatriate those funds to the US without incurring major taxes, so all that cash will stay overseas.
2) AAPL will likely borrow money (probably from big US backed/funded banks) at insanely low rates because of the suppressed Fed rate + $AAPL’s mass & clout. $45B in cheap debt = AAPL mega-play on US inflation — their debt will be easy to pay back when the value of USD falls.
3) AAPL will likely use AAPL stock or warrants as collateral for the debt in a way which significantly reduces, hedges, or eliminates any real financing costs to AAPL.
This play simultaneously floods liquidity to the consumers most likely to turn around and buy AAPL products AND most likely to buy more AAPL stock b/c the $2.65 quarterly dividend will drive many new “passive income” investors to purchase AAPL stock (because bonds, gov securities, CDs, etc are now such low yielding vehicles).
Basically, this is an awesome play by AAPL that a) hedges against inflation b) puts cash in the hands of AAPL customers c) drives up the demand and value of AAPL stock d) and all of this liquid joy will come at the expense of everyone holding USD, which will continue an overall course of declining value.
What do you think?
