Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Corporations Bringing the Big Bucks Home May Not Be the Solution

Companies / Corporate Earnings Dec 21, 2016 - 07:39 AM GMT

By: Rodney_Johnson

Companies Apple has a lot of cash.

At last count, the company’s horde had grown to a record $237 billion. But, as we all know, almost half of that supply is stuck overseas. If Apple, or any other company that paid lower taxes (or no taxes at all) in a foreign jurisdiction brings the money home, they’ll have to pay Uncle Sam up to 40%.


Ouch!

President Obama recommended charging companies a lower tax rate of 19% on repatriated profits, but President-Elect Trump has floated lower numbers – zero to 5%. He wants to tie taxes on corporate profits from overseas to infrastructure projects at home, providing some budget cover for his campaign promises.

Both approaches try to accomplish the same goal: provide companies a way to bring home the idle funds sitting in foreign accounts so that they can put the money to use domestically.

The problem is companies have already deployed a lot of that money. On top of that, they aren’t spending all the bucks they hold in the U.S., anyway.

In 2013, Apple (Nasdaq: AAPL) issued $17 billion of bonds. By any reading of its balance sheet, the company didn’t need the money. It had more than $100 billion in cash and was creating $20 billion worth of free cash every quarter. But a big chunk of that money passed through Ireland so it wasn’t taxed (which is a big can of worms we can open another time).

Instead of bringing the cash back to the U.S. and paying Uncle Sam, Apple kept the money offshore and issued bonds domestically to pay dividends and buy back its stock.

The company owes the U.S. taxes on the interest it earns overseas, but it writes off the interest it pays on outstanding bonds.

In the world of accounting, to the extent the company issued bonds, the foreign cash holdings were a wash.

In the big picture, this must have worked out well for Apple, because the company did the same thing again in this year, as did IBM (NYSE: IBM), which also holds billions of dollars overseas.

Microsoft (Nasdaq: MSFT), which has more than $100 billion outside the U.S., issued bonds to fund its purchase of LinkedIn.

Alphabet (Nasdaq: GOOGL), formerly Google, is also a member of the “they-can’t-need-the-money-but-issued-bonds-anyway” club.

Presumably, when these companies finally bring home buckets of cash they’ll immediately pay down their outstanding debt, pairing off their assets and liabilities.

There’s no question that companies like Apple, Microsoft, IBM, Alphabet, and others that hold large amounts of cash overseas have more foreign funds than domestic bonds outstanding.

But the point is that those funds aren’t as idle as they might appear. So, when they finally make it back stateside, chances are they won’t generate a flurry of new corporate investments.

Even if the funds were totally unencumbered, we shouldn’t expect companies to deploy them if they bring them home. While U.S. companies hold $2.1 trillion overseas, they also hold $1.92 trillion domestically. The foreign funds might be hard to spend, but the local cash doesn’t have strings attached.

If there are so many good uses of cash out there, just waiting to be funded if only we could get foreign profits home without an onerous tax, then why is so much money sitting in corporate coffers here at home?

The answer is obvious, even if it’s not a happy message.

Corporate leaders don’t see enough opportunity for sales to warrant further investments. They know that low growth, the hallmark of the economic recovery since 2009, will be with us for several more years. Their cost-conscious customers reiterate that fact every day with their purchasing choices.

Another testament to the low-growth story is what many companies actually do with their excess cash and bond proceeds – buy back their own stock. When your best use of cash is to purchase your company shares on the open market, it must mean the corporate landscape is devoid of good investment opportunities.

None of this should be news to investors, who have something of the same problem. We all want our money to work for us, and yet we have $2.7 trillion sitting in money market funds that pay little, if any, interest.

And banks are no exception. Financial institutions hold $2.2 trillion in excess reserves at the Federal Reserve. These are funds that could be lent as new credit, if only they could find worthy borrowers and projects.

Across the board, our economy has a lot more cash available than it currently needs, which in part explains low yields and high stock prices. Adding more monetary fuel won’t make the economic fire burn any hotter.

So, don’t hold your breath waiting for a burst of activity based on a flood of money coming home. When all is said and done, instead of a flood it could be a stream of water that’s already passed under the bridge.

Rodney

Follow me on Twitter ;@RJHSDent

By Rodney Johnson, Senior Editor of Economy & Markets

http://economyandmarkets.com

Copyright © 2016 Rodney Johnson - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Rodney Johnson Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in