An Apple a Day
It's becoming obvious to me that I am not going to have the time to write down some deeper thoughts about this situation, so I'm just going to put it out there for you to ponder -- as I have been doing.
It is my habit to listen to a number of lengthy stories at The Guardian's "The Long Read". It's an interesting regular series. I don't listen to them all. I just pick and choose. Today's blog entry began with this one:
How big tech is dragging us towards the next financial crash
"In every major economic downturn in US history, the ‘villains’ have been the ‘heroes’ during the preceding boom,” said the late, great management guru Peter Drucker. I cannot help but wonder if that might be the case over the next few years, as the United States (and possibly the world) heads toward its next big slowdown."
That's the premise. The quote that got my attention was:
"Consider the financial engineering done by such firms. Like most of the largest and most profitable multinational companies, Apple has loads of cash – around $210bn at last count – as well as plenty of debt (close to $110bn). That is because – like nearly every other large, rich company – it has parked most of its spare cash in offshore bond portfolios over the past 10 years."
In short, cash-heavy tech companies have been buying bonds all over the world. They've become like banks. They lend out money at rates higher than what they are paying. They get cheap loans because they have great credit , say 1% (for simplicity's sake), and "loan" it to other companies at 2% (again, not a real rate, just to simplify the math). Shazam! They've doubled their money. But it also comes with risk of debtors defaulting on the bonds (loans).
Enter the Coronavirus (aka COVID-19).
"Apple has warned its production will slow, as has Nintendo. Nissan and Hyundai shut entire car plants because they can’t get the parts they need from China."
As most of my readers already know, we are "overdue" for an economic slowdown. The trillion-plus dollar tax cut Trump gave to the rich (aka stimulus) is wearing off. Speaking of Trump, well, I'm told businesses hate uncertainty. (They evidently don't mind it so much when it's coupled with tax cuts and deregulation.) And Trump represents nothing if he doesn't represent uncertainty. Couple all that with a (probable) global pandemic and things are...(what euphemism shall we use?)...dicey.
And Global Warming trumps all. (Pardon the pun.)
Don Brown
February 19, 2020
February 19, 2020
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