2. Apple's CEO Committee
Tim Cook is not running Apple (AAPL). That much we learned from the tech giant's record-breaking $17 billion bond sale this week. Neither is the ghost of Steve Jobs for that matter.
So if not Tim or Steve's everlasting spirit, then who is calling the shots at the iPad maker?
Not in any particular order: the Internal Revenue Service, Fed Chief Ben Bernanke, Goldman Sachs (GS) and hedge fund manager David Einhorn.Let's start with the IRS. Apple has $145 billion in cash. One would think that with that type of moolah, the company could easily tap its reserves if it wanted to achieve its goal of returning $100 billion to shareholders by 2015 via dividends and buybacks. Apple could simply write one big withdrawal slip at the bank, distribute the cash and still have a mountain left over while it churns out more. Unfortunately, only $45 billion of that cash hoard is readily available in the United States, leaving it around $55 billion short for its distribution plan. The rest is stashed overseas, which means Apple would be forced to pay up to 35% in taxes should it choose to repatriate it.
Put it all together and you can clearly see how the IRS, not Tim Cook, made the decision to go into debt and sully its once pristine, debt-free balance sheet. Seriously, if you could borrow $5.5 billion for 10 years at an annual yield of 2.4% instead of paying Uncle Sam 35% of your hard-earned money, wouldn't you? Sure you would. Of course, those low rates are a function of Apple's other CEO in its CEO by Committee, Ben Bernanke of course. Ben has been buying bonds by the billions in his quantitative easing program in order to push investors out of bonds and into the stock market. Not that Ben's binge-buying has helped Apple's stock of late, even as it pumps up the housing market. The shares have sunk from over $700 in September to barely $440 today with a 2.9% dividend. Congratulations Ben! All those investors you want buying Apple stock so they can feel rich jumped into the bonds for an even smaller yield instead. What a brilliant plan to screw up corporate balance sheets in the same exact way the Fed's low rates caused American citizens to leverage themselves out of their homes. Not that Ben didn't have any help in selling that deal of course. Just like Wall Street used the Fed's yield curve manipulation to profit from the mortgage bond bubble, those very same folks are now using those very same skills to inflate a nascent corporate bond bubble. Think about it. Two of the most cash-rich companies in the world - Microsoft (MSFT) and Apple - raised money they don't really need by selling billions worth of bonds in the past two weeks. Neither of them is using the money raised to build plants, make products or create jobs. It's simply money being moved from one pocket to another with an investment bank taking its cut in the middle. Yep, you guessed it. Goldman Sachs led the Apple bond sale along with Deutsche Bank. Not to be a conspiracy theorist, but it's hard not to envision the Goldman guys whispering in Cook's ear: "Come on Tim. Don't you see how good a bond sale would be for Goldman...we mean Apple?!" Which brings us to Greenlight Capital's David Einhorn (ok, so we did have a particular order for the puppet-masters pulling Tim Cook's strings). For those who don't remember him, Einhorn is the man who knows better than anybody how debt and an economic downturn can destroy an overleveraged company because he's the hedge fund manager who called the demise of Lehman Brothers. Einhorn, you see, started Tim Cook down this Rube Goldberg-designed road when his frustration with Apple's "cash problem" led him to sue the company to get some of that problematic cash back to shareholders like himself. Aside from using the courts, he also offered his own brilliant, iPie-in-the-sky idea called "iPrefs" as an alternate solution to a crisis that nobody really knew was a crisis until Einhorn made it a Wall Street cause celebre. At first Tim Cook ignored Einhorn, calling his crusade "a silly sideshow". Nevertheless, we can now safely say that Einhorn's lip-flapping created the butterfly effect that led to this week's bond sale. And for the record, we here at the Dumbest Lab don't necessarily see debt as an evil thing on a balance sheet. We are well aware that debt makes things grow in a capitalist economy and it could turn out to be a grand slam of a move for Apple. Still, the whole way that this particular debt deal unfolded puts us on edge, especially with the ashes of last credit bubble fresh still smoldering. Apple's CEO called not a single shot during the process. Rather than make decisions for himself, Tim Cook let the quartet of the IRS, Ben Bernanke, Goldman Sachs and David Einhorn wittingly or unwittingly make his choices for him. In our opinion, that does not bode well for Apple's future. How can it? You know what they say about too many Cooks in the kitchen.
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