Apple is gaming Fed policy to counteract its stagnating stock price

“Since the ominous 666 S&P 500 March 2009 stock market bottom, the financial world has operated with unprecedented Federal Reserve accommodation,” Justin Pulitzer writes for Real Money.

“In response to the Great Recession and a nuclear winter in global credit, the Fed took on a herculean effort to restore order to chaos and save the economy. Fed Chairman Ben Bernanke embarked on a zero interest rate policy (ZIRP) by vastly expanding the Fed’s open market operations, branded quantitative easing (QE). This means the Fed purchases government or other securities directly in the open market to increase money supply with the end goal of lowering interest rates,” Pulitzer writes. “That, in effect, floods financial institutions with capital/liquidity to encourage them to take advantage of their ability to borrow short-term money at lower interest rates and lend it out at higher interest rates, thawing the sudden and steep credit contraction.”

As expected, QE had many effects, but not necessarily the intended one of healing the economy. It forced savers and the risk averse to transfer money from sub-inflation-pace-yielding safe havens like money markets and CDs into the stock market for a shot at positive returns. It’s also facilitated large corporations like Apple to change capital structures with borrowing costs below that of the government,” Pulitzer writes. “The Fed’s hope has been for companies like Apple to use their cheap money policy to lower the hurdle rate on growth projects to invest in property, plants, equipment and labor. While this has happened with billion-dollar investments in Nevada for iCloud Server Farms and a new UFO-shaped campus in Cupertino, Calif., the larger part of those funds has gone to combat the effects of slowing global growth on Apple’s share price. This has been accomplished by paying dividends and through huge share buybacks.”

Read more in the full article here.

MacDailyNews Take: The other reason is that it’s currently much cheaper to issue debt than to repatriate hundreds of billions of dollars subject to the current confiscatory U.S. corporate tax rate.

Under the current U.S. corporate tax system, it would be very expensive to repatriate that cash. Unfortunately, the tax code has not kept up with the digital age. The tax system handicaps American corporations in relation to our foreign competitors who don’t have such constraints on the free flow of capital… Apple has always believed in the simple, not the complex. You can see it in our products and the way we conduct ourselves. It is in this spirit that we recommend a dramatic simplification of the corporate tax code. This reform should be revenue neutral, eliminate all corporate tax expenditures, lower corporate income tax rates and implement a reasonable tax on foreign earnings that allows the free flow of capital back to the U.S. We make this recommendation with our eyes wide open, realizing this would likely increase Apple’s U.S. taxes. But we strongly believe such comprehensive reform would be fair to all taxpayers, would keep America globally competitive and would promote U.S. economic growth.Apple CEO Tim Cook, May 21, 2013

Related articles:
U.S. Congress, Obama take Apple CEO Cook’s advice, eye corporate tax changes – February 3, 2015
Obama targets foreign profits with tax proposal, Republicans skeptical – February 2, 2015
Senator Rand Paul finds Democratic partner for tax repatriation holiday – January 30, 2015
Businesses hopeful Republican control of U.S. Congress will break tax-reform gridlock – November 5, 2014
Not in Taxes anymore: On site at Apple’s famous Irish ‘headquarters’ – November 2, 2013
Regan: U.S. tax code spurs loveless foreign corporate ‘marriages’ – May 13, 2014
Ireland to close Apple’s tax loophole, but leave bigger one open – October 15, 2013
G20 think tank OECD proposes blueprint for global crackdown on tax avoidance – July 19, 2013
Thomas Sowell on Apple, corporate taxes, and ‘the road to serfdom’ – May 28, 2013
Taxing Apple just taxes you – May 24, 2013
Don’t tax Apple, tax its shareholders – May 24, 2013
If Apple paid more tax, we might pay less or something – May 22, 2013
Apple CEO Tim Cook pounds another nail into the Keynesian coffin – May 22, 2013
Apple CEO Cook makes no apology for company’s tax strategy – May 22, 2013

12 Comments

    1. You sound like one of the welfare malcontents who leech off the system and contribute nothing. Or maybe you’re just a liberal who believes in taking from those who produce and giving it to those who don’t, thereby pumping up the Democratic Party.

      1. While not defending the well known troll, Jooop, in the slightest, it must be pointed out that your generalization about liberals taking from those who produce and giving it to those who don’t is highly misleading.
        It’s an accepted fact that overall, red states get more Federal dollars than they give, while blue states give more to the Fed than they get. So yes, in one way, liberals do take money from those that produce (the blue states) and give it to those who don’t (the red states). But I suspect that’s not what you meant. And for some reason, it does not pump up the Democratic Party. Those red states that get all the money continue to vote red.

        https://www.americanprogressaction.org/issues/economy/news/2012/09/20/38687/romney-needs-the-47-percent/
        http://wallethub.com/edu/states-most-least-dependent-on-the-federal-government/2700/#barry-rabe
        http://www.politifact.com/truth-o-meter/statements/2012/jan/26/blog-posting/red-state-socialism-graphic-says-gop-leaning-state/

    2. If they are not paying tax, as you say, why doesn’t the government send them a tax bill with penalties and back interest? They don’t do so because it is NOT true to say that Apple doesn’t pay its tax.

      1. I believe that’s 26.3% of domestic income, not of total income. That’s sort of irrelevant here. The point is, Apple doesn’t pay US taxes on money earned overseas. And their proposal for a lower rate for repatriated foreign income seems absolutely reasonable to me. And to you trolls who will bag on me nonetheless because you can’t help yourselves, this has nothing to do with partisanship. I’m a staunch, way-left liberal, but many conservatives agree with this position.

  1. Silly article. Apple also started paying dividends and stock buy backs because its shareholders started demanding Apple pay dividends and return value/money to shareholders. That was much more of a motivating factor than cheap interest rates.

  2. Bogus!
    There is no reason these business must repatriate any money.
    Taxes don’t keep them from moving this money into the US. What keeps them from moving this money is a weird form of greed. It’s not like they are going to pay this money to shareholders. So, claiming they are maximizing this saving for shareholders is bogus. And for those who claim they have a legal requirement to maximize profits, there should be a bunch of these CEO’s in jail, you know, for losing money quarter after quarter.

    How in world are these companies so disadvantage when they are making more profits then ever? This reminds me of the augments for having some sort of insurance program where every American could have insurance which they could afford. American business told us that they were at a competitive disadvantage to the rest of the world because they, American companies, had to pay for health insurance. Small business said they would love to provide their employees insurance but could not afford to do so. Health Care industry told us the reason cost went up at such a high rate was because service provided to those that had no insurance had to be covered. They told us they had to pass the cost on to those who had insurance. On and on and on. Then when a program is put in place, the whine about it.
    Enough, to the board of directors, stop hiring people how tell you regulation is holding your company back, stop hiring those people who want to pester Congress for lower taxes, they need to be doing developing product, start hiring those that have new product ideas. If your company has money overseas, in which, for some reason, they can’t write a check from the bank where that money is, you need to move the money. There is no reason they can’t buy goods and services with that money. None. There is a conversion rate for most currencies. Why have overseas subsidiaries? Save that money, close that office, what real value are they? President of UK, division, President of Asia division, etc, just close the offices and save that money…
    Really, if that money must come here, pay the taxes due.

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