
Apple Is the New Pimco - chollida1
http://www.bloomberg.com/news/articles/2015-06-05/tim-cook-is-giving-pimco-a-run-for-its-money-in-the-bond-market
======
chollida1
> Getting allocations of corporate bond deals is one of the easiest ways for
> managers to outperform benchmark bond indexes because they’re typically sold
> at a discount to market rates, according to Jason Shoup, the head of U.S.
> high-grade credit strategy at Citigroup Inc. The bonds aren’t added to the
> indexes investors are measured against until the end of each month. That can
> generate as much as 0.2 percentage point of additional gains for investors
> who get in early, Shoup said.

If you ever wanted to know about the bond market there are two pieces of gold
in the above lines.

1) Getting in on new issues is free money. Stocks are the same. Steve Cohen at
SAC was famous for overpaying on commissions just to get the first call for
new issues. When bond funds return 1.1% and beat the market having an
additional 0.2% really puts you ahead of the competition to the tune of 18% in
gains for free.

2) The fact that the gain is 0.2%, not 2% or 20%, 0.2%. Bonds are a volume
game. You find an angle to make 0.2% and lever the hell out of it. Having said
that, this is the playbook directly from LTCM.

~~~
larrys
"Steve Cohen at SAC was famous for overpaying on commissions "

After a real estate deal last year I bought the broker a gift and delivered
it. He said "wow shouldn't I be buying you the gift?". No problem because the
next time I was the person he called first when he got a fresh listing on a
commercial investment property which I was able to buy at a much lower price
per sf than if he had actually taken the effort to shop it around or keep the
listing active. People respond amazing predictably even if they think of
themselves as highly ethical. They tend to remember the people who treat them
well and appreciate their efforts.

In this context a small gift (what I am describing) also isn't necessarily a
bribe. It is an "advertisement" that makes the person that you are giving the
gift to remember you and to call you when they have "a good deal".

It all depends on the relationship. It is often the case in business that
instead of thinking solely about the costs (or commissions) that it definitely
pays to be someone's good customer and allow them to make money from you.

~~~
anigbrowl
Not to be critical of your business practice, but the broker's behavior seems
to be on thin ethical ice here, since he had a fiduciary obligation to the
client - his intentions may have been ethical but but he comes off as a little
lazy/irresponsible for not getting the best price for his client.

As you're obviously investing in real estate yourself, how do you balance the
benefits of liquidity from a quick sale vs. those of maximizing the sale price
by shopping around? Put another way, if you were the seller in that
transaction, is the opportunity cost of waiting a bigger worry than getting
the best price? Is it just the seller's responsibility to instruct the broker
'this is my liquidity goal, anything on the top is gravy' or 'take your time
selling, I want to get the full value of this asset', depending on the
seller's need?

I'm not a business person/investor so I would like to understand your thought
process better. Thank you. PS feel free to email.

~~~
forrestthewoods
No real estate broker gets the absolute best possible deal for a client. They
get a small percentage of any deal. A slightly better deal might be worth
thousands of dollars to the client but only a few hundred to the broker. It's
not worth the broker's time to spend a full week looking for the absolute
highest buyer. It's in the broker's interest to process more deals more
quickly than to squeeze that last little bit out of every property.

That's just the way it is.

~~~
larrys
Generally you are right.

However I am paid to negotiate and buy things for people (not real estate). I
have even had people tell me that they will pay me more if I can get them a
better deal. I tell them that they don't have to do that. That I charge a
fixed fee. [1] (And the fixed fee varies btw.) The truth is I get them a good
deal because (as I mentioned in my other comment) this is a game for me that
is fun and that is the reason that I do this. The money that I make is
secondary (one reason is it's not my primary source of income).

In one case I already had a buyer and a seller agree to a deal. The buyer (my
client) agreed to the price that I had negotiated and was very very happy.
However when talking to the seller I sensed weakness. So I exploited that and
got them a better deal than they had already agreed to. Just for the fun of it
and because I could. Just to hear the pleasure in my client's voice. Was worth
a great deal to me. Didn't make 1 penny more.

So my point is although I think in general (and a book that I can't remember
the name of talked about this concept with regards to realtors) you are right
there are almost certainly realtors who act the same way that I do in other
words they do act in the client's best interest because it is a game for them
like it is for me. I guess the key is finding that type of realtor.

[1] Some people who do what I do charge a fee based on "how much they save
someone over their budget". So the game there is that they try to get you to
increase your budget while knowing that they will be able to buy for much less
so they are playing you knowing you don't know what they know about the
market.

~~~
misterbee
That's great, for each of you there are 10 people who look like you but who
rip off their clients. So what's a client to do?

~~~
larrys
A tough question. So I would ask indirect questions that all revolved around
"what do you like about your job?". And listen carefully to the answers.

If the answer sounds like some standard BS such as "well I really like helping
people get into the home of their dreams at the lowest price!!!!" or something
canned or manufactured "we win when you win!!! I like win win deals" and so on
then perhaps that is just someone who is going through the motions and isn't
really in to what they are doing.

Just like with computers. There is the guy who is in it strictly to make a
buck, but would never tinker or experiment after hours, and the guy who really
enjoys programming for the fun of it and was doing it as soon as they could or
as soon as they were exposed to it.

------
ChrisAntaki
> Apple, Oracle, Google Inc. and seven of their biggest peers now have in
> excess of $500 billion of cash and marketable securities, up more than
> three-fold since 2008, according to data compiled by Bloomberg. The problem
> is much of it is stuck overseas.

Stuck overseas in the sense that these corporations aren't willing to pay
American taxes [1], insisting on using complex tax loopholes that essentially
leave the bill on the doorsteps of normal, hard working American citizens.

[1] [http://dealbook.nytimes.com/2013/10/08/to-cut-corporate-
taxe...](http://dealbook.nytimes.com/2013/10/08/to-cut-corporate-taxes-a-
merger-abroad-and-a-new-home/?_r=0)

~~~
twoodfin
_Stuck overseas in the sense that corporations aren 't willing to pay American
taxes..._

Why should Apple pay American taxes on the profits from a product manufactured
in China and sold in Germany? (Albeit "Designed in California"!)

~~~
jusben1369
Errr because they're headquartered in the US and rely on the shield of the US
government when it comes to rule of law, educating their workforce, providing
the infrastructure etc for them to be in the position where they are today? In
this day and age it makes _less_ sense to try and tax based on where
componentry or network services or consumers start or finish.

~~~
charlesdm
Only an American could have written this answer. All other countries in the
world use a non global taxation system.

Two basic scenarios:

1\. US entity owns a company in the UK. UK company earns $100, pays 20% tax on
that, and is left with $80. Declares a dividend to the US parent, and the US
then taxes the difference (35% US tax rate - 20% UK tax rate = another 15% to
pay). We're left with $65

2\. UK entity owns a company in Sweden. Swedish company earns $100, pays 22%
tax on that, and is left with $78. Declares a dividend to the UK parent, which
is then left untaxed.

Why does 2 make more sense than 1? Because the money was generated in Sweden,
and the fact that some parent/holding entity is UK based does not matter
(like, at all).

Scenario 1 pushes US companies to expand abroad (i.e. through foreign M&A),
and not repatriate any profits back to the US. It also makes it easier for non
US entities to acquire US companies, because they can achieve larger tax
synergies than a domestic US acquirer would.

A US company trying to achieve something like that would have to do an
inversion, which sometimes can be hard to do.

The current state of the US tax code is a great example why Microsoft paid a
whopping $2bn for something like Minecraft (Sweden based), or an even larger
amount for Luxembourg based Skype. What can they do with that cash otherwise?
It's not like they're going to repatriate (ever) without a tax holiday.

~~~
return0
It looks like the real issue is the high corporate tax rate in the US then.
Are there not double-taxation treaties to avoid overtaxing otherwise?

On the other hand, the scenario of a UK company owning a company in a tax-free
zone in dubai and thus paying 0% taxes anywhere doesn't sound fair either.

~~~
charlesdm
Well, the second part of this equation is that they are able to funnel a ton
of cash to low tax companies (via loans/royalties/other loopholes). So maybe
they've only paid 1-5% on the entire amount.

Repatriation of those funds would essentially mean paying close to 35% tax (+
state taxes). DTTs don't fix that, they just make sure you don't pay the same
amount twice. I.e. the 20% in the UK AND 35% in the US.

Add to that fact that Apple can pretty much borrow unlimited funds in the
market (debt != income, you don't pay tax when you borrow) to fund share
buybacks and dividends. Why repatriate? Financially it just does not make
sense, since you'd lose so much of your equity. It's better to invest it
abroad.

Re Dubai: If an entity is a conduit company, then maybe not. But if you're
operating a business or selling stuff there, then I think it is. No income tax
is more of an anomaly these days, and a way for countries to attract new
business.

------
sytelus
It boggles my mind that Apple isn't using all these money for something
better. What prevents them from, say, hiring up or luring away all the great
CS/hardware PhDs, build a giant lab for robotics, build new space exploration
company, new sustainable for-profit tech company, start massive search engine
efforts, start giant initiative for for-profit cancer research and so on and
on and on.

There are endless challenges to work on and we have tons of great people who
would wholeheartedly work on these if they were paid well. The only barrier is
capital and leadership ambitions. Apple can _really_ put the world 50 years
ahead in tech if they chose to _invest_ the money in these areas.

~~~
coldtea
> _It boggles my mind that Apple isn 't using all these money for something
> better. What prevents them from, say, hiring up or luring away all the great
> CS/hardware PhDs, build a giant lab for robotics, build new space
> exploration company, new sustainable for-profit tech company, start massive
> search engine efforts, start giant initiative for for-profit cancer research
> and so on and on and on._

That they know that money isn't everything when it comes to engineering, and
just "getting the best" and "throwing tons of money" at a problem doesn't
necessarily result in a good outcome? Especially if it's something outside
their core expertise.

Apple, for example, consistently failed with their social attemps (Ping?), and
their online apps (mail, docs, etc) which are also-run. Microsoft poured a lot
of money into Bing, and it's still something nobody would use willingly
(except a couple outliers who would respond to this comment as if nobody means
"no one at all" in casual conversation).

And then there's the canonical example, Chandler:

[http://en.wikipedia.org/wiki/Chandler_(software)](http://en.wikipedia.org/wiki/Chandler_\(software\))
[http://www.dreamingincode.com/](http://www.dreamingincode.com/)

Or let's take another company who is "all over the place". For all of Google's
efforts in PR-driven research, what has it given us that was a success? The
Glass was a huge failure, their attempt at social (Google+) too, GAE is an
also-run, Dart got top talent but never got anywhere, and same with several
other attempts that linger on or have closed down. Judging from their revenue
report, it's all about ads still. (Sure, there's the self-driving car, that
might be marketable someday, but for that Apple is said to have a team working
on it too)

They also know that the company made all these money by having _focus_.

Finding a new area to explore is OK. Being all over the place is a recipe for
failure. And Apple they ain't gonna do it just because it's a geek's dream
e.g. ("space exploration company").

~~~
soperj
Google did well being all over the place as well... Youtube, maps, gmail,
android, chrome. If they'd just stuck to search, where would they be now? And
for that matter, where would we be now?

~~~
coldtea
Youtube and Maps were acquired, not Google projects. So they got something
that worked already, instead of just throwing money to come up with something
(which seldom worked for them outside of Search and Mail).

Android was Google's (though that was acquired too IIRC, albeit in a much
different form), but while a market favorite, it's not a profit source for
Google and it's also losing control of it (with Samsung, Amazon etc spinning
their own versions). Even for mobile ads, most of Google's revenue comes from
iOS devices.

> _If they 'd just stuck to search, where would they be now?_

Mostly where they are, revenue wise.

~~~
wodenokoto
Depends on how you define a profit source. The main purpose of Android was to
get people to look at Google ads on their cellphones.

They were very clear about this when they announced Android as free and open
source.

~~~
coldtea
Sure, but even in this case, as I wrote: "Even for mobile ads, most of
Google's revenue comes from iOS devices.".

To have to write a whole OS, buy Moto for multi-billion dollars, get the most
market share of the market even, and then lose money on it and still get your
ad money most of your competitor's mobile OS you don't control, is a little
failure-ish...

------
jalonso510
On the other side of things, Apple has issued about $39 billion of its own
bonds over the last couple years. A lot of it is longer term (30 years), but
for the comparable bonds with 1-3 year maturities, they're only paying about
1.0% or a little under. It's not a huge difference vs the 1.06% + 0.2% quoted
in the article, but they are making some money just by the fact that they have
great credit and can borrow at a slightly better rate than they can receive on
these comparable bonds.

~~~
justincormack
They are paying 3.85% on their 30 year debt and 2.4% on the ten year, so it is
costing them on the longer maturities.

------
return0
Where do these companies keep the rest of their cash?

~~~
7Figures2Commas
I know Apple keeps a lot of its cash in iMattresses.

~~~
notConspTheo
This really made me chuckle and I was having an usually bad day today. Thanks
:)

~~~
7Figures2Commas
Glad to hear it. Hope your day gets better from here!

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arandomafrican
>cash managers are also based in the city known for its casinos, where hotel
rooms costing as little as $69 a night provide cheaper lodgings than banker
stops in New York, Boston and Newport Beach, California,

LOL. As if a cheaper hotel room is relevant when discussing transactions in
dozen of milions !!!

------
hkmurakami
I honestly don't understand how this is news. Companies have been doing this
for ages; MSFT's operations are bests in class, returning over 2% on their
cash equivalents while being under tight restrictions for risk tolerances.

