Apropos of yesterday’s post about Apple’s debt-financed stock buybacks, here are some related stories I’ve been reading this morning.
“Lose Your Triple-A Rating, Who Cares?” The WSJ reports that the triple-A credit rating is becoming insignificant: ” Once coveted and brandished by more than 60 companies and subsidiaries in 1980, the gold-plated triple-A credit rating has almost vanished from corporate America. Only three companies — Microsoft Corp., Johnson & Johnson and Exxon Mobil Corp. — hold that distinction today, the lowest on record.” More evidence that central bank easy money policies are causing investors and corporations to mis-price risk.
“Financial Engineers Hard at Work at Apple, Pfizer” Randall Forsyth at Barron’s this morning makes some similar points to my post yesterday. “The idea of substituting tax-advantaged debt for equity is an old one, and motivated further by the vast overseas earnings of U.S. multinationals that remain out of Uncle Sam’s reach until they’re repatriated. Better to borrow if bringing that cash home exacts a tax cost.” He also notes how the prospective Pfizer/AstraZeneca deal seems to be driven largely by its tax advantages.
And for the scary chart of the day (which comes via Barry Ritholz at BloombergView), here is U.S. GDP by industry sector. Government #1. Finance #2. Yikes.