[alexpetralia]

To play devil's advocate, how are companies over-leveraged during an environment of such low interest rates? Companies will optimize their capital structure for the lowest cost of capital, and if the cost of debt decreases, companies should rationally leverage accordingly.

That's why we see Apple issuing $8B of debt (at ~135bps over 30 year Treasury bonds!) despite having over $200B of cash on hand. If your hurdle rate is 2.5%, surely your profitable business can return more to shareholders than that, so you should binge on this capital source? (Or even, as Apple claims it will do, distribute this directly to shareholders via buybacks & dividends.)

Also, I would qualify your statement that people are not necessarily long the economy in the short-term, which is where credit markets have miraculously thawed; they're long the fact that they will undoubtedly be able to get credit from yet someone else (namely, the lender of last resort).

[code4tee]

Apple’s move is more about tax optimization. Yes they have all this cash but it’s sitting in accounts all around the globe. They’d have to pay hefty taxes to repatriate it and then pay it out as dividends. It’s “cheaper” for them and better for shareholders to take out a loan (bond) in the US and then take that cash and give it to shareholders than it is to bring the money from around the world into the US and pay it to shareholders.

This is why Apple keeps asking for a “tax holiday” to bring all this money back home to the US.

[gwd]

GP said "leveraged and didn't have cash stockpiles". Your example of Apple may fit the first criteria, but not the second.

And this is exactly why you should have a cash stockpile, either as a company or an individual: You can never tell when a random event will completely wipe out your earnings for 6 months.

I'm no corporate financier, but I've certainly heard arguments in favor of borrowing money during times of low interest rates in order to have a cash stockpile. But borrowing to do stock bybacks when you don't have a stockpile is just skating further out onto thinner and thinner ice.

[cat199]

> But borrowing to do stock bybacks when you don't have a stockpile is just skating further out onto thinner and thinner ice.

this also partly depends on your expectation on the availability to resell the stocks later on if desired

[SilasX]

If you're creating the cash buffer as a way to stay afloat during hard times, that's a bad strategy, since the market for shares (including yours) will be weak precisely when you need the cash.

[alexpetralia]

Yes, I agree with you. I am sure shareholders saw piles of cash and demanded: "better in our pocket than yours." (Carl Icahn famously tried this with Apple.)