4 ms·

For everyone wondering why the large cash balances on company books, this is why. But it also means that if companies are spending their 'rainy day' money that

For everyone wondering why the large cash balances on company books, this is why. But it also means that if companies are spending their 'rainy day' money that it's truly raining. The theory that the tech cycle is hitting its 8-year downturn cycle just got more substantiated.

taneq 11y ago
Does it really count as "spending rainy-day money" if they're spending their cash reserves on buybacks? It seems more to me like they just have literally nowhere else to spend the money other than bringing all those dividends back into the company.
- joshdickson 11y ago
  This is right. Though it's not that there is nowhere to spend the money, it's that the company believes there is nowhere that would generate a better return than just buying back part of the company and the money earns nothing in the bank due to low interest rates. Apple has spent a truly staggering amount of money on buybacks, money which it could have, for instance, used to buy Tesla, Spotify, etc. Even after investing in major new product areas (watch, cars), they still have more cash than they will ever realistically need.
  - eru 11y ago
    If Apple's shareholders want to hold Tesla stock, they can just buy it via the money Tesla gave to them via the buybacks. They don't need Apple sitting in the middle.
    - joshdickson 11y ago
      That's not how an acquisition works. It's not about Apple shareholders wanting to hold Tesla stock, it's about Apple potentially wanting to own the company, and that results in Tesla shareholders receiving Apple stock at whatever the agreed upon price is. Apple would not just become an equity investor and buy some Tesla stock, it would assume control of the company.
      - eru 11y ago
        And how would that extra layer of management be good for shareholders?
joshdickson 11y ago
> For everyone wondering why the large cash balances on company books, this is why. You have that backwards. Companies are generating vast amounts of cash and don't see investments that they want to make (hiring and expanding into new products, acquisitions, etc), which leads to the large cash piles. Some investors then pressure the company to return part of this cash to shareholders (see Carl Icahn / Apple for a recent and high profile example), and that can be done directly via dividends, somewhat indirectly via buybacks, or both. Companies do not spend 'rainy day' money on buybacks - companies in need of additional funds sell more shares or take on more debt, not use cash to buy shares.

taneq 11y ago

Does it really count as "spending rainy-day money" if they're spending their cash reserves on buybacks? It seems more to me like they just have literally nowhere else to spend the money other than bringing all those dividends back into the company.

joshdickson 11y ago
This is right. Though it's not that there is nowhere to spend the money, it's that the company believes there is nowhere that would generate a better return than just buying back part of the company and the money earns nothing in the bank due to low interest rates. Apple has spent a truly staggering amount of money on buybacks, money which it could have, for instance, used to buy Tesla, Spotify, etc. Even after investing in major new product areas (watch, cars), they still have more cash than they will ever realistically need.
- eru 11y ago
  If Apple's shareholders want to hold Tesla stock, they can just buy it via the money Tesla gave to them via the buybacks. They don't need Apple sitting in the middle.
  - joshdickson 11y ago
    That's not how an acquisition works. It's not about Apple shareholders wanting to hold Tesla stock, it's about Apple potentially wanting to own the company, and that results in Tesla shareholders receiving Apple stock at whatever the agreed upon price is. Apple would not just become an equity investor and buy some Tesla stock, it would assume control of the company.
    - eru 11y ago
      And how would that extra layer of management be good for shareholders?

joshdickson 11y ago

> For everyone wondering why the large cash balances on company books, this is why. You have that backwards. Companies are generating vast amounts of cash and don't see investments that they want to make (hiring and expanding into new products, acquisitions, etc), which leads to the large cash piles. Some investors then pressure the company to return part of this cash to shareholders (see Carl Icahn / Apple for a recent and high profile example), and that can be done directly via dividends, somewhat indirectly via buybacks, or both. Companies do not spend 'rainy day' money on buybacks - companies in need of additional funds sell more shares or take on more debt, not use cash to buy shares.