Posted by: Dr Churchill | June 6, 2015

Bonds = Cash Wash 4 Tech CEOs

For those of You who know me — I am a firm Lover of Bonds for long term value Investment of Corporate Hoards.

Naturally I dress up at the New Bond Street with bespoke tailors and white glove treatment. And the same goes for my bonds.

But now I hear that there is a shuffle in the rarefied and quiet indoor voice and whisper Bond Market, and it’s not from anyone getting threaded on the New Bond street or even in the Old Bond Street either.

This new folks are like the Beach Boy and they wear Hawaian shirts and shorts under their casual khakis and blue jeans…
There is a new big fish and it’s driven by Jonas wearing surfing fashions from California’s coastal culture…

Yep … There’s a new whale in the waters.

And the corporate-bond market is shaken up because this whale of a dealer is called Apple.

No joke — Apple Inc, is buying Corpo-Bonds.

And it’s doing so right along with their brethren, the other Tech majors, the Titans, the Emperors and the Kings of Tech…

So it i now clear that Apple and her host are buying Bonds along the likes of Oracle, Google, and a few other notable Tech winners. And along with some other tech majors they are hoarding half a trillion dollars in cash for no apparent reason…

So they’ve got to do something with it. And they’ve got to do somethign fast… Maybe they have to take this “cash hoard” to the cleaners, before they get tackled down to the ground by the IRS agents and have to pay their fair share of Corporate Income taxes…

I say — please repatriate this “cash hoard” to the Investors and they will rejuvenate the Angel Investment scene. But you know the lonely voice in the desert is the voice of the lonely Prophet that nobody seriously is going to listen to — even though they have come to respect him. Am talking about Your, truly, — and am standing by the Novel Idea that we should be giving back money to our Investors because “That Is The Right Thing To Do”

Still that goes against the Orthodoxy of Silicon valley that spells out “Finders keepers” mentality for the corporate cash reserves.

And am not expecting the Tech CEOs of today to listen to me because this is the period of the Fat Cow all over again. Because they only listen to me in the era of the lean Cows… and we don’t want to change the dynamics of the relationship here.

Still for all practical reasons — the Tech Companies have all this Treasure in cash and are collecting zero interest on it, making only the Banker-wankers rich.

And the Techies of the Valley, obviously are not going to be giving it back to their Investors — so they have chosen to do something else.

They are going for a fairly liquid market and are going to get into it like flatfooted army grunts. So let’s be ready because they are going to disrupt the Bond Markets in a show of Force. Nothing like a bunch of army recruits showing up to break up a party. And especially if they have all gotten together to collude and get into the Bond Business to break the Rules …

So the Old Folks are busy now remaking the Rules of the New Bond Markets — to allow for the new kids to come in and play the old game — and still remain unmolested.

Be as it may — now Apple and all other Cali Tech giants have joined the ranks of the biggest buyers of the Bond Markets seeking to smurf-up debt, often snapping up as much as half or more of the upcoming bond issues.

Never mind RISK, this is the new DRUG. Capital Markets of the strong variety. The vaunted Bond Markets that very, very, very, few people know How to Play them well.

Tech giants are savvy and adept at muscling and disrupting markets to better advance themselves. ANd the Junk Bond market were just like that frothy at some point in time.

Corporate Bond and Sovereign Debt Markets have traditionally been dominated by big government sovereign funds, Big Bond Companies, Big Trading Houses, Family Businesses, Big Banks, Huge Investment Banks, Mutual Funds, Huge fund buyers, and all other white glove Bond Marketer and marketeers, along with big Pension Funds, and big Insurance Funds. One of these Big Guys is PIMCO – Pacific Investment Management, who along with BlackRock, Vanguard and Fidelity Investments control maybe a quarter of the Bond Markets.

Now the Tech boys are zeroing in this nicely protected game and are especially muscling into the Corporate Yield Bond, and thus are honing in on one of asset managers’ favourite ways to juicy returns, particularly as the Federal Reserve holds short-term interest rates near zero for a seventh year.

And of course the Techies are not treated anywhere near the same as Fidelity or Vanguard or any other investor, because there are Tax consequences and are all are heavily reliant on offshore debt markets, and on gambling with rates and risk.

And of course the Tech guys have sent their representatives like Apple’s money-management folks, and Oracle’s cash managers to bases in the city of Reno, known for its casinos, for it’s Mafia compounds, for second homes, and where hotel rooms provide cheap lodgings by the hour for the highly lucrative and rather liquid commercial Escort business.

Maybe this is a bigger Heaven for wrongdoings than the usual banker-wanker stops in New York, Boston, and Newport Beach, California, where Pimco and other heavyweights are based.

Corporate treasurers looking to invest record amounts of cash have increasingly turned to debt markets in recent years as yields evaporated on safer investments such as US Treasuries.

It’s important to note that No other industry has amassed bigger piles of cash than the Tech industry, making the “Kings of Tech” the Midas and Ozzymandias of today.

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. Bringing it home would mean subjecting it to U.S. repatriation taxes, so they invest it in the bond market.

Apple, run by Tim Cook is based on Cupertino, California, and had $171.3 billion of its cash and marketable securities in foreign subsidiaries and “generally based in U.S. dollar-denominated holdings” as of March 28, according to a regulatory filing.

The trend is cutting into traditional investors’ access to new issues.

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. The bonds aren’t added to the indexes investors and are measured until the end of each month. That can generate as much as 0.2 percentage points of additional gains for investors who get in early.

Apple, which had $193.5 billion of cash and marketable securities as of March 28, is now one of the biggest buyers of shorter-term debt sold by investment grade companies, often taking as much as $200 million of a $1 billion issue.

I am sure asset managers like Vanguard and Pimco would prefer Apple call them and have them manage the money rather than competing with them. But Apple, would prefer to become the UBER of the Bond markets, as did Oracle before them..

Still, Apple, Oracle and their peers, have largely been buying investment-grade securities maturing in two to three years. Most of the investments have been in financial firms, the people said. Yet unsurprisingly, they’ve also targeted the bonds of highly rated companies including Exxon Mobil Corp, Merck Co. and WalMart.

And here is where the Tech ideology gets confused and confusing — because smart people like Tim Cook, who are savvy and outspoken against Catastrophic Climate Change — come to financially support Shell and Exxon and indirectly finance the Arctic drilling and the destruction in the Gulf along with the oil spills in Californian coasts and hinterlands.

That I do not understand.

It simply doesn’t ethically Compute.

Go Figure…

Still Investment-grade bonds maturing in one to three years have returned North of 1.06% percent in the past 12 months, according to qualified data from the Bank of America Merrill Lynch index. That compares with 0.76 percent for US Treasuries with similar maturities. On big money this represent a big deal…

As competition intensifies for bond allocations, tech companies are increasingly approaching other corporate borrowers to anchor new bond sales, or buy the biggest chunks, of Fund raising from Companies that are Triple A rated, in what’s known as a “Reverse Inquiry”. And they tend to get as much of the debt as they want because underwriters know they typically will hold it to maturity, giving borrowers confidence their deals will get done and maintain value in secondary markets, according to two underwriters with knowledge of the transactions.

There’s obviously a greater pool of demand, as a result of these big corporates playing in the US corporate bond market, that helps to provide competition, and that results in greater price tension.

For example Oracle has $25.8 billion invested in corporate bonds, while Google has $11.5 billion of the corporate debt, invested in the Bonds according to their latest SEC regulatory filings.

Of course like any new comer to the party — the degree to which these companies have been buying corporate debt is raising concerns. Yet most of these concerns are like the Non-Problem of Abundance. that markets will weaken if they suddenly decide to do something else with their cash.

Companies including Apple, Google and pharmaceutical giant Pfizer Inc. have been lobbying Congress for two years to approve a repatriation holiday that would allow them to transfer overseas profits to the U.S. and pay a tax levy that is lower than the current rate.

Rising interest rates also may prompt them to allocate their cash to safer government debt, unless they run head on to the icebergs laying dormant like the ECB bonds, or EU government bonds or even the Italian government bonds or the Spanish equivalents …

Yet I do not worry much about the Sovereign bond markets collapsing — what I do worry about is that if the Fed decides to hike interest rates, and does so against tepid inflation – there will be a lot of other valid alternatives within fixed income other than corporate credit.

Of course then the Kings of Tech, can buy mortgage securities or US Treasuries, and mixed bond, and thus they will be in a much more liquid marketplace — competing with the likes of You and everybody else…

Somehow I don’t think they want to do this.

Dr Kroko


Apple and Google don’t want to compete against their own customers, but the old Samurai of Oracle surely does…

So expect the way to be opened up; and if they really want to take advantage of some liquid Capital Markets — I’ve got some really safe and stable Sovereign Bonds with High Returns to sell them.

Yes, indeed.

The sovereign Greek Government Bonds are an exemplary opportunity of Junk Bond slated for a huge upside.

However an Opportunity like this only applies, to those that know what they are doing.

And You could do it too — only if your name is Apple Inc, or Google Inc, or Oracle Inc, and You have a stomach of steel, a sack of bronze, and your Ticker can handle abundant risk, for the promise of some great rewards in the nick of Time… and for doing something good for the World.

Maybe my friend Tim Cook can do this, instead of financing the Tar Sands Oil development in Canada’s Athabascan territories, or spoting Oil discovery through drilling and spilling toxic crude in the Arctic Sea, or by killing people off the Nigerian Delta in the process of extracting oil & Gas and destroying the Environment.

Buying sovereign debt has a Humanitarian aspect to it and a great potential upside.

Think of it.

Cause it’s all great stuff.

And a Great Return — but not for the faint of Heart.

And that’s how Yours truly — gets to Be a Great Samurai… by doing the Great Things. Not like the faux samurai my friend Larry who has the fake Nippon house and all the acoutrements of the warrior class but none of the “Great Way”

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