Apple now has 194 billion dollars in cash. Why aren't companies investing the cash they have sitting - Polidicks

[url]http://time.com/3837580/apple-dividend/[/url] [QUOTE]Apple’s announcement today that it would increase its dividend 10.6% and give out the biggest chunk of cash to shareholders in history—$200 billion of capital will be returned to investors through March 2017—means one thing and one thing only. The market has topped. [B]Share buybacks and dividend payments of this type don’t signal underlying economic health so much as they indicate a market riding on a financialized sugar high, one built on easy money, cash hording and tax dodging, which will eventually crash.[/B] The Fed has poured $4 trillion into the market over the last few years, and kept interest rates at historic lows. That’s a crucial part of understanding this massive Apple payout. [B]Despite having nearly 10% of corporate America’s liquid assets on hand, Apple has borrowed[/B] much of the money needed to do its capital return program over the last few years, [B]at the lowest rates in corporate history, in order to avoid taking money out of offshore tax havens and paying the U.S. corporate tax rate on it.[/B] (CEO Tim Cook has said he would support repatriating some of the money at a lower rate as part of a wider deal on offshore holdings.) [B]One key part of the theory of “secular stagnation,” is that financial markets are no longer serving the real economy because they funnel so much money away from it.[/B] Others go further, believing that financialization itself is a core reason for slow growth and the decreasing competitiveness of U.S. economy in a global landscape. A recent paper from the [URL="http://rooseveltinstitute.org/sites/all/files/Mason_Disgorge_the_Cash.pdf"]Roosevelt Institute[/URL] shows that as borrowing to fund paybacks to investors has increased over the last few years has increased, investment into the real economy has decreased. What this means on a practical level is that the claim from corporate leaders about how tight credit conditions, a lack of consumer demand and an uncertain regulatory environment has kept them from investing their cash horde back into the real economy is not the case. William Lazonick, a University of Massachusetts professor who has done extensive research on the topic of buybacks, says that the move from a “retain and reinvest” corporate model to a “downsize and distribute” one is in large part responsible for a “national economy characterized by income inequity, employment instability, and diminished innovative capability.”[/QUOTE]

[I]Why aren't companies investing the cash they have sitting on their balance into our economy in things like factories, workers and wages?[/I] Correction: why isn't Apple doing this? Answer: because it can leverage that cash to finance debt, which is cheaper than just drawing from the cash reserve and paying taxes on it because they would first pay taxes on withdrawing it, then pay taxes on the marginal income they receive from investments. It is literally cheaper to say "give me $10,000 and I'll pay you back $12,000, and don't worry because I have $100,000,000 in the bank" because interest rates are so incredibly low right now yet taxes haven't changed. They aren't not investing - they are just using debt to do so because it's cheaper than cash.

[QUOTE]Why aren't companies investing the cash they have sitting on their balance into our economy in things like factories, workers and wages?[/QUOTE] Why would they? Having the ability to is not a reason

[QUOTE=butt2089;47625246]Why would they? Having the ability to is not a reason[/QUOTE] Generally, unless your firm is completely fucked upside down, investing in your own company makes it grow faster.

Still how much is enough, 10B,50B? 200B in hard cash is a bit much especially when their workers manufacturing their devices are making only a few dollars an hour Also that cash isn't being taxed because they probably have it filtered through tax loopholes

Even though Microsoft, Apple, and other companies have a shit ton of wealth. I bet in about 30 to 40 years or so, Private space companies like SpaceX or Planetary resources might become the top companies in the industry. Call me crazy, but i think it might happen.

Enough cash to industrialize a small nation but lets just sit on it instead.

Believe it or not, Apple tends to invest more into their capital and resources than other companies. [editline]29th April 2015[/editline] [QUOTE=Snowmew;47625218][I]Why aren't companies investing the cash they have sitting on their balance into our economy in things like factories, workers and wages?[/I] Correction: why isn't Apple doing this? Answer: because it can leverage that cash to finance debt, which is cheaper than just drawing from the cash reserve and paying taxes on it because they would first pay taxes on withdrawing it, then pay taxes on the marginal income they receive from investments. It is literally cheaper to say "give me $10,000 and I'll pay you back $12,000, and don't worry because I have $100,000,000 in the bank" because interest rates are so incredibly low right now yet taxes haven't changed. They aren't not investing - they are just using debt to do so because it's cheaper than cash.[/QUOTE] This.

[QUOTE=Hoffa1337;47625284]Enough cash to industrialize a small nation but lets just sit on it instead.[/QUOTE] Throwing money at a country isn't really the way to industrialize it. Things like land reform, a good legal system covering property or bankruptcy or whatever, free markets, sound fiscal and monetary policy, transparency, etc is what you need.

[QUOTE=Snowmew;47625218][I]Why aren't companies investing the cash they have sitting on their balance into our economy in things like factories, workers and wages?[/I] Correction: why isn't Apple doing this? Answer: because it can leverage that cash to finance debt, which is cheaper than just drawing from the cash reserve and paying taxes on it because they would first pay taxes on withdrawing it, then pay taxes on the marginal income they receive from investments. It is literally cheaper to say "give me $10,000 and I'll pay you back $12,000, and don't worry because I have $100,000,000 in the bank" because interest rates are so incredibly low right now yet taxes haven't changed. They aren't not investing - they are just using debt to do so because it's cheaper than cash.[/QUOTE] This, and it's not really unique for apple either. This is pretty common, even in small indie companies.

I don't pretend to know the first thing about economics but I'm pretty sure there's a lot more to the story than "big bad Apple is greedily sitting on a pile of cash."

It isn't a bad idea to have a sizeable reserve of cash on hand if you're a huge company like that. It provides a buffer if you have a shit product launch, it means your company doesn't fall over and die if the next big thing is a fizzle. I have no objections to Apple sitting on that hoard, it'd go pretty damn quick if, say, the next iPhone is a miserable failure. [QUOTE=Deng;47625351]Throwing money at a country isn't really the way to industrialize it. Things like land reform, a good legal system covering property or bankruptcy or whatever, free markets, sound fiscal and monetary policy, transparency, etc is what you need.[/QUOTE] And before all of that, basic infrastructure. A large part of what developing countries need is simple shit we take for granted. Roads. Water pipes. Power lines. Phone lines. Sewers. It's shit like that they need first, because if you don't have those things all the reforms in the world aren't gonna do jack to help. If I had to choose one or the other I'd pave and electrify and water a third world nation instead of trying try to push reforms through.

[QUOTE=Sableye;47625257]Still how much is enough, 10B,50B? 200B in hard cash is a bit much especially when their workers manufacturing their devices are making only a few dollars an hour Also that cash isn't being taxed because they probably have it filtered through tax loopholes[/QUOTE] Except the difference here is that Apple can go out and borrow $194B quite easily because it has those cash reserves on hand, then use that money to invest in their company, then pay it back in a few years and reap the continued rewards. In essence, they pay nothing yet jump start their own business. The more cash you have on hand, the more cash you can borrow, because if you default, the bank can just say "well, you have cash, so I'll take that, thanks". That's not even including the other assets they have in securities, PP&E, etc. which could be put down as collateral. [QUOTE=TestECull;47625388]And before all of that, basic infrastructure. A large part of what developing countries need is simple shit we take for granted. Roads. Water pipes. Power lines. Phone lines. Sewers. It's shit like that they need first, because if you don't have those things all the reforms in the world aren't gonna do jack to help. If I had to choose one or the other I'd pave and electrify and water a third world nation instead of trying try to push reforms through.[/QUOTE] I remember a discussion on this a few semesters ago; I think the issue was that there's little motivation for the government to invest in infrastructure because it's generally too corrupt, indifferent, or poor to do so. But, if you assume a third party will throw some FDI in, there's little motivation to do so because corporate regulations are far too strict in poorer countries for them to even bother trying to help. It's a pretty shitty gridlock situation. Honestly I got a C- in international business so I could be talking out of my ass on that.

[QUOTE=Deathtrooper2;47625266]Even though Microsoft, Apple, and other companies have a shit ton of wealth. I bet in about 30 to 40 years or so, Private space companies like SpaceX or Planetary resources might become the top companies in the industry. Call me crazy, but i think it might happen.[/QUOTE] Nope, it will be bad dragon

[QUOTE=TestECull;47625388]And before all of that, basic infrastructure. A large part of what developing countries need is simple shit we take for granted. Roads. Water pipes. Power lines. Phone lines. Sewers. It's shit like that they need first, because if you don't have those things all the reforms in the world aren't gonna do jack to help. If I had to choose one or the other I'd pave and electrify and water a third world nation instead of trying try to push reforms through.[/QUOTE] I'd actually choose the reforms first. Countries need the actual institutions in place before they can develop working infrastructure that is going to be of any use. If you build the infrastructure before the institutions have time to take effect, most of it tends to decay, suffer from underfunding, and will often be built in bad places. There's no point building roads when nobody will be driving on them. A nation like Zimbabwe needs an actual competent government. They already had top-notch infrastructure, but 30 years of decay made it break down to the point that cholera returned and the Zimbabwean railways use steam locomotives. Venezuela is a similar case, in which all of the oil wealth they had for 15 years couldn't mask the deficiencies of bad management.

[QUOTE=butt2089;47625246]Why would they? Having the ability to is not a reason[/QUOTE] It's completely rational to do so though, investing even for a small profit is a profit. Something like investing in R&D to make parts cheaper to manufacture for better profit margins makes sense, even if they're doing it entirely to sit on a larger pile of money

That cash becomes more devalued as they hold onto it. Wouldn't they want to reinvest it and not let it sit there.

[QUOTE=Deathtrooper2;47625266]Even though Microsoft, Apple, and other companies have a shit ton of wealth. I bet in about 30 to 40 years or so, Private space companies like SpaceX or Planetary resources might become the top companies in the industry. Call me crazy, but i think it might happen.[/QUOTE] I can't see that happening. The only way space technology could be profitable is through mineral extraction - at least for the foreseeable future. Phones are used by consumers everywhere in the world and will continue to develop and evolve - chunks of space rock are not (as cool as it would be to have a chunk of Triton or a jar full of Saturn). It's possible though if we begin to exhaust our resources on Earth, industries will start to branch outwards (or rather, upwards) for minerals - but again, for most commonly used minerals I can't see them being exhausted that quickly.. at least, I hope not, because we'd be in some seriously deep water if that were to happen that soon considering our level of technology in space and speed of travel. Who knows what the next 40 years will bring, though.

[QUOTE=butt2089;47625246]Why would they? Having the ability to is not a reason[/QUOTE] Money not being used is worthless.

[QUOTE=Snowmew;47625252]Generally, unless your firm is completely fucked upside down, investing in your own company makes it grow faster.[/QUOTE] To a point. As your company get larger and has a larger chunk of the market its return from investments grows smaller. The only way they could keep growing is to invest it outside the electronics market.

[QUOTE=download;47627133] The only way they could keep growing is to invest it outside the electronics market.[/QUOTE] Which is a great idea for any corporation, really.

[QUOTE=Emperor Scorpious II;47627177]Which is a great idea for any corporation, really.[/QUOTE] True, but Apple have no experience in that industry so most investors would probably feel more comfortable using the money they've been given to invest in other companies themselves.

They aren't investing because there is nothing profitable to invest in, due to the crisis of overproduction and technological innovations that make the tendency for the rates of profits to fall. Just like the 2008 market collapses, the only avenues left for expanding capital are in financial schemes with high risks and little interveneing controls when One cuts and runs with everything

[QUOTE=Emperor Scorpious II;47627072]Money not being used is worthless.[/QUOTE] Hardly, it's been mentioned already that this cash pile has allowed Apple to borrow a lot of money at low interest rates

[QUOTE=download;47627189]True, but Apple have no experience in that industry so most investors would probably feel more comfortable using the money they've been given to invest in other companies.[/QUOTE] It's not like it'll literally have to reinvent, say, automobiles from scratch if they were to dive into that industry. They'll hire professionals from the industry they want to tap into and use them as the leaders of that part of the company.

Maybe they're saving up for something? Sounds silly, but I doubt Apple is doing this without reason.

Another reason Apple holds on to it and say not issue dividends is because of double-dip taxation in the US. The company's taxable income is taxed at the high US company tax rates, and a shareholder who receives a dividend from whatever is left pays tax at their marginal rate on the dividend. So the same income source is taxed twice, so it's generally not worth it for companies in the US to issue dividends. Sensible countries use dividend imputation to eliminate the double-dip effect, but I mean we are talking about the US which refuses to adopt international accounting standards, still lets companies use LIFO inventory management for their tax accounting and prefers sales taxes to VATs, so there's nothing very sensible going on there.

they should get investors and pay them back with money they'd get from more investors

[QUOTE=Map in a box;47628357]they should get investors and pay them back with money they'd get from more investors[/QUOTE] ▲N EXCELLENT IDE▲!