
Google plays the yield curve - michael_nielsen
http://marginalrevolution.com/marginalrevolution/2011/05/google-plays-the-yield-curve.html
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sunir
A commenter on this blog, L. Zhang, made an excellent point that most of
Google's cash is trapped overseas. Repatriating it to the US to buy US
companies would cost them 35% in tax.

Borrowing US money at 3.75% to buy US companies is far cheaper than using
their own cash reserves.

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dataminer
Accoring to
[http://torontostar.morningstar.ca/globalhome/industry/news.a...](http://torontostar.morningstar.ca/globalhome/industry/news.asp?articleid=381481)
Google has 17 Billion offshore and 20 Billion in US they are not as cash
strapped as Microsoft which has almost all its cash outside of US.

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T_S_
I think what they are doing is getting some practice issuing bonds. Since they
are Google, they can't just dip a toe in the water.

They have a great name and their ad business is looking more like reliable
cash cow. Over time it makes sense to leverage stable cash flow. My guess is
they will continues to issue bonds over time.

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3pt14159
No. What they are doing is heavily betting that inflation will go up, or that
the US currency will fall relative to other currencies. They don't need an
extra $3B to buy anything. That would be like me borrowing $3k when I already
have $37k to buy furniture and nick nacks. Sure a good sofa might cost $2k or
so, but most of the stuff I'll be buying are way less than that and I
certainly don't need the extra $3k.

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mcnees287
WIth $37 billion in cash currently they are bleeding money with negative real
interest rates. It doesn't make much sense that Google is worried about
inflation here. Also, consider that Google has about $17 billion in cash
overseas to avoid US taxes and may not be able to deploy the full amount of
funds at home.

Google may be altering their capital structure to include more debt which will
do a few things, 1) lower to firms cost of funds and allow it to better
operate in a lower interest rate environment. 2) Debt offers firms a tax
shield, by putting out some debt,Google can lower its effective tax rate.

With interest rates at historic lows it makes sense to borrow as much as you
can. We have negative real interest rates currently. If you borrow at a big
economy like Google, paying back the debt will be much easier in this
environment and the lenders stand to loose on a purchasing power basis.

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3pt14159
"the lenders stand to lose on a purchasing power basis."

Because the the long term debt's interest rate will be lower than the
inflation rate, correct?

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orijing
> An alternative explanation is that Google has a very high option value for
> the cash, which more or less implies they see a lot of acquisition and
> investment opportunities in their not so distant future. A lot.

But don't they have $37 billion in cash already?

I think the critical point is that a lot of that cash is overseas, subject to
taxes when brought back home.

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petervandijck
They're getting cash to buy Twitter?

