Is AAPL Doomed by Imploding Global Market

Apple and a Working Capital Loan

Apple (AAPL) will seek a working capital loan in order to heighten its dividend payment to shareholders. Although Apple is cash rich, a large portion of its capital is held in offshore accounts and to repatriate those holdings in order to benefit shareholders would require Apple to pay a significant tax on those holdings, which can be avoided by taking on new debt to fund the new dividend payments (Ehrman, 2013). The economic context in which Apple is thus taking the loan is one in which wealthy corporations are taxed in the U.S. at a tax rate that is among the highest in the industrialized world, which prompts many companies to seek tax havens abroad (Ehrman, 2013). However, there is a still greater economic concern that should be considered at this time -- and that is related to the economic implosion of 2008, in which a global recession began that has yet to really be reversed. After three rounds of quantitative easing (QE) by the Federal Reserve, there is still little sign of any improvement. Indeed, the recent raising of rates by a mere 25 basis points has wreaked havoc in markets, with some analysts calling for QE4 understanding that the only thing propping up markets and in fact the entire global economy is the printing of money by the Fed for the sole purpose of purchasing shares in already all-time historic high stocks like AAPL. With the Fed now poised to raise rates still further even as some clamor for negative interest rates and the Bank of Japan makes negative rates a reality, the economic context of this loan is somewhat unstable (Tenebrarum, 2016). Plus, with China's market beginning to implode, and Apple's dependence upon this market, the stock may be due for a considerable pullback (Durden, 2016).

The ethical, legal and regulatory context in which Apple will be making the loan transaction is explained by Ehrman (2013) and identified as one that is perfectly legal and in full compliance with regulations even as its ethical ramifications are questioned by investors. The fact is that the company is a typical multinational whose holdings in offshore accounts are there to preserve its substantial cash holdings. Were the company to dip into its reserves to give back to investors, it would be doubly dinged in terms of not only paying investors in the form of a larger dividend but also paying the U.S. government in taxes. The loan allows Apple to issue new debt to boost shareholder value and is perfectly in line with a QE world. Ethically speaking, however, it may be questioned whether this loan is truly in line with utilitarian principles, as it is somewhat contradictory in principle to borrow money to pay shareholders. Nonetheless, it is very likely that the market will be inspired by this loan to invest more deeply in Apple. The only question is whether such an investment is a sound one, considering the teetering nature of the market which has never been valued as high as it has in recent years.

The emerging trends of financial markets indicate that the global economy may have hit peak levels and is now looking at full-blown recession unless the central banks of the world step in to issue more QE, although such a step is not likely to really revive the markets, if Japan is any indication -- or China, for that matter, as the balance sheets of these countries' central banks have ballooned to unheard of proportions and still their markets are going down (Tenebrarum, 2016; Meijer, 2016). With the introduction of negative rates in Europe and now Japan, and the matter being discussed in Canada and bandied about in the U.S., one might predict with relative certainty, considering the extent to which all other Keynesian theories have failed to work that negative rates and helicopter money drops are the next events likely to hit. Helicopter money is already being discussed in Switzerland (money collected from taxes redistribute to citizens in an effort to stimulate the country) (Mezzofiore, 2016). In the U.S. this might happen though it won't be taxpayer revenues that are redistributed but rather fiat cash that taxpayers will later be on the hook for (if history is to be any guide in these matters). Environmental influences are a non-factor (global warming does not impact Apple) though seasonal adjustments and double adjustments may be made for the lack of consumer spending (which will impact Apple).