48 ms·

Apple Is the New Pimco

116 points by chollida1 11y ago

chollida1 11y ago
> 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.
- whatok 11y ago
  New issues are not always free money. Seen many deals over the past few years get torpedoed by pricing way too tight or complete garbage allocations. Even seeing some recent IG issues widening a decent amount soon after issuance.
- larrys 11y ago
  "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 11y ago
    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 11y ago
      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.
      - anigbrowl 11y ago
        I'm not talking about the absolute best possible deal, I'm addressing larrys' observation that he picked up an investment property for significantly less than the broker could have sold it for if he shopped around. Fiduciary duties require brokers to act in the client's interest, not their own. This isn't something a broker can just blow off if a dispute arises, it's a legal obligation. That's why it's referred to as a duty. http://www.realtor.org/sites/default/files/handouts-and-brochures/2014/nar-fiduciary-duty-032213.pdf http://www.realtor.org/sites/default/files/handouts-and-broc...
- notsony 11y ago
  Bonds, billions, taxes, loopholes, Ireland, Dr Dre and BEATS, blah blah blah. Let's put this all into perspective shall we? Apple is drowning in cash yet takes a 30% cut from developers and charges developers $99 to join the iOS developer program. You also have to pay $99 to join the Mac developer program, even if you don't want to sell in the Mac App Store, because you need to codesign your application with an Apple certificate so that GateKeeper doesn't scare users away from your software. Yes, Apple, business, shareholders, not a charity, blah blah blah. So what happened to "THINK DIFFERENT"?
  - serve_yay 11y ago
    HN, you are adorable sometimes.
- sorbits 11y ago
  > Bonds are a volume game. You find an angle to make 0.2% and lever the hell out of it. This would only work if they are able to borrow money cheaper than the bond markets on which they are buying debt, which would put them in the business of debt arbitrage. I don’t think this is the case, they are just parking their money in something better than a bank account.
return0 11y ago
Where do these companies keep the rest of their cash?
- 7Figures2Commas 11y ago
  I know Apple keeps a lot of its cash in iMattresses.
  - notConspTheo 11y ago
    This really made me chuckle and I was having an usually bad day today. Thanks :)
    - 7Figures2Commas 11y ago
      Glad to hear it. Hope your day gets better from here!
  - return0 11y ago
    That would be fitting (they have rounded corners after all); but they would be very uncomfortable.
- sek 11y ago
  Yeah, they said "coming in". Where was the money before? There must also be some other investment vehicle where a drain happens.
- traskjd 11y ago
  Braeburn Capital (awesome name IMO) - http://en.wikipedia.org/wiki/Braeburn_Capital http://en.wikipedia.org/wiki/Braeburn_Capital
  - return0 11y ago
    OK then where does braeburn keep its cash, in banks? Afaik, you practically lose money by keeping it in banks.
deleted 11y ago
[deleted]
ChrisAntaki 11y ago
> 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-taxes-a-merger-abroad-and-a-new-home/?_r=0 http://dealbook.nytimes.com/2013/10/08/to-cut-corporate-taxe...
- twoodfin 11y ago
  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"!)
  - anigbrowl 11y ago
    Besides the fact that they're a US company, enjoying access to the world's deepest capital markets and most sophisticated and responsive legal system (the US legal system works incredibly well from a corporate perspective), you're implying that they're paying the same rate of tax as their domestic competitors in Germany and China/ I'm not sure this is the case, and in any case such local taxes would be deductible from US obligations under tax treaties, as far as I am aware (not a tax lawyer or accountant, consult a professional before setting up a megacorporation of your own).
  - rayiner 11y ago
    I think you answered your own question.
    - rconti 11y ago
      Is it a moral imperative in your opinion? Is it based on what other countries do? (hint: no) IMO, it is non-obvious that they are obligated to do so.
jalonso510 11y ago
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 11y ago
  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.
hkmurakami 11y ago
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.
sytelus 11y ago
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 11y ago
  >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").
arandomafrican 11y ago
>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 !!!

116 points by chollida1 11y ago

> 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.

whatok 11y ago
New issues are not always free money. Seen many deals over the past few years get torpedoed by pricing way too tight or complete garbage allocations. Even seeing some recent IG issues widening a decent amount soon after issuance.
larrys 11y ago
"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 11y ago
  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 11y ago
    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.
    - anigbrowl 11y ago
      I'm not talking about the absolute best possible deal, I'm addressing larrys' observation that he picked up an investment property for significantly less than the broker could have sold it for if he shopped around. Fiduciary duties require brokers to act in the client's interest, not their own. This isn't something a broker can just blow off if a dispute arises, it's a legal obligation. That's why it's referred to as a duty. http://www.realtor.org/sites/default/files/handouts-and-brochures/2014/nar-fiduciary-duty-032213.pdf http://www.realtor.org/sites/default/files/handouts-and-broc...
notsony 11y ago
Bonds, billions, taxes, loopholes, Ireland, Dr Dre and BEATS, blah blah blah. Let's put this all into perspective shall we? Apple is drowning in cash yet takes a 30% cut from developers and charges developers $99 to join the iOS developer program. You also have to pay $99 to join the Mac developer program, even if you don't want to sell in the Mac App Store, because you need to codesign your application with an Apple certificate so that GateKeeper doesn't scare users away from your software. Yes, Apple, business, shareholders, not a charity, blah blah blah. So what happened to "THINK DIFFERENT"?
- serve_yay 11y ago
  HN, you are adorable sometimes.
sorbits 11y ago
> Bonds are a volume game. You find an angle to make 0.2% and lever the hell out of it. This would only work if they are able to borrow money cheaper than the bond markets on which they are buying debt, which would put them in the business of debt arbitrage. I don’t think this is the case, they are just parking their money in something better than a bank account.

return0 11y ago

Where do these companies keep the rest of their cash?

7Figures2Commas 11y ago
I know Apple keeps a lot of its cash in iMattresses.
- notConspTheo 11y ago
  This really made me chuckle and I was having an usually bad day today. Thanks :)
  - 7Figures2Commas 11y ago
    Glad to hear it. Hope your day gets better from here!
- return0 11y ago
  That would be fitting (they have rounded corners after all); but they would be very uncomfortable.
sek 11y ago
Yeah, they said "coming in". Where was the money before? There must also be some other investment vehicle where a drain happens.
traskjd 11y ago
Braeburn Capital (awesome name IMO) - http://en.wikipedia.org/wiki/Braeburn_Capital http://en.wikipedia.org/wiki/Braeburn_Capital
- return0 11y ago
  OK then where does braeburn keep its cash, in banks? Afaik, you practically lose money by keeping it in banks.

deleted 11y ago

[deleted]

ChrisAntaki 11y ago

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

twoodfin 11y ago
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"!)
- anigbrowl 11y ago
  Besides the fact that they're a US company, enjoying access to the world's deepest capital markets and most sophisticated and responsive legal system (the US legal system works incredibly well from a corporate perspective), you're implying that they're paying the same rate of tax as their domestic competitors in Germany and China/ I'm not sure this is the case, and in any case such local taxes would be deductible from US obligations under tax treaties, as far as I am aware (not a tax lawyer or accountant, consult a professional before setting up a megacorporation of your own).
- rayiner 11y ago
  I think you answered your own question.
  - rconti 11y ago
    Is it a moral imperative in your opinion? Is it based on what other countries do? (hint: no) IMO, it is non-obvious that they are obligated to do so.

jalonso510 11y ago

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 11y ago
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.

hkmurakami 11y ago

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.

sytelus 11y ago

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 11y ago
>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").

arandomafrican 11y ago

>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 !!!