[hashberry]

The market has been overvalued and manipulated for years. Even Apple took out billions in loans for stock buybacks.[0] Boeing took out $43 billion in loans for stock buybacks[1] instead of investing in planes, QA and employees. Everyone knew this was a stock bubble caused by record low interest rates. COVID-19 is the pin that woke everyone up.

[0] https://9to5mac.com/2019/09/05/apple-is-borrowing/

[1] https://wolfstreet.com/2020/03/11/boeing-crashes-as-43-billi...

[mythz]

It's well-known Apple has been moving towards a "net cash neutral" position for years, which is done with dividends or buy backs.

Both return capital to share holders but dividends yields a negative impact to their Market Value since it's dispensing their profits outside of the company.

AAPL is currently valued at a 20.38 P/E ratio, the lowest of all FAANG stocks, hardly overvalued.

[adventured]

Apple is a bad example. They took out that pile of debt primarily to avoid repatriation costs as they sought to return some capital to shareholders. It made perfect financial sense and it was not a manipulation of the market. They could reasonably afford to do it and it posed almost zero risk to the business.

Shareholders were clearly happy with receiving slightly less capital (that which will be lost to debt costs) in exchange for receiving it sooner. That is not a bad exchange, so long as the debt cost is not steep.

Apple can trivially afford their low-cost debt, both out of their extreme cashflow and their cash hoard.

[_ea1k]

I agree with you in the sense that the debt was primarily a tax optimization strategy for them.

However, I still see it as a bit of a problem. I think it is partially a symptom of a market that has become too focused on a single metric (P/E ratio). The result is that reducing shares is more important than boosting book value.

I'd love for this hypothesis to be proven wrong, but I'm afraid that it is part of what is driving some very questionable practices.

[xiphias2]

Interest rates are still low. This is not yet the financial crash and depression that will happen when the bond market pops.

Still, it was the first time when lowering interest rates didn't have a huge effect on the market, so the signs are there.

[jjoonathan]

What is the proposed mechanism for the bond market popping here?

[mgberlin]

Interesting. Where can I learn more about this hypothesis?

[vonmoltke]

> Even Apple took out billions in loans for stock buybacks.[0]

That article says nothing of the sort. It says Apple issued $7B in bonds despite sitting on $200B in cash, and independently mentions Apple having spent $122B on stock buybacks in the past 18 months. The article also explicitly states the new bond issue is being used to pay off existing, higher-interest bonds that are coming due this year.

> Boeing took out $43 billion in loans for stock buybacks[1]

Again, the article says nothing of the sort. It says Boeing spent $43.4B in cash over a six-year period on stock buybacks. As a result, it does not have sufficient cash reserves to handle the financial fallout from the 737MAX incidents, and so has to borrow to cover those costs and keep the company solvent. The amounts cited in the article are significantly less than $43.4B, though still significant in the absolute.

[whatshisface]

Interest rates are still low and all of the return-seeking money that pumped up asset prices in the first place is still out there. Why shouldn't we expect it to go right back to seeking returns as soon as this is over? (Remember, stock market crashes leave both the number of dollars and the number of shares unchanged. They just redistribute the dollars.)

[adventured]

This is when the doomsayers come pouring out, as they always do no matter the crisis. In small ways they help provide the buying opportunities that should be taken advantage of as the equity streets fill with blood now and in the coming weeks.

In the last two weeks or so the doomsayers have seen their bullhorns acquire large volume increases, they're being given far too much credibility (like Merkel's obscene, wildly irresponsible statement about how up to 70% of Germans could get Covid; back in reality, it'll be a tiny fraction of that). The emotion and irrationality has now swung too far, per typical herd behavior. That irrationality may get worse yet, the panic is beginning to set in more fully.

[sdinsn]

Disagree completely. Using saved cash is ridiculous when interest rates are very low. These companies are making smart decisions.