Blain's Morning Porridge - Sept 6th 2017. Hurricanes and Apple. Why buy the Bonds when you buy t
Blain’s Morning Porridge – September 6th 2017
“That perfect feeling when time just slips away between us on our foggy trip…””
For the avoidance of doubt – the Morning Porridge is market commentary, it is not investment advice…
Disappointed no-body spotted yesterday’s song lyric was from Steely Dan’s classic Deacon Blues – frontman Walter Becker passed away at the weekend. In my humble opinion the Dan are one of best bands ever. I assumed at least one or two readers would have spotted the connection.
Nope, you are collectively less cultured than a pot of yogurt. Shame.
Remember, first person to get the quote each morning wins eternal glory!
I should probably be thinking about tomorrow’s ECB meeting. But, I’m watching Hurricane Irma with horror. This morning it slammed into Barbuda and will clip Antigua, one of my favourite places. Then it’s headed to Florida – check out http://www.nhc.noaa.gov/. Just as well there is “no such thing as global warming”, according to President Trump. (US Readers – Sarcasm Alert.) The fact sea temperatures are a degree warmer in the Atlantic, Caribbean and Gulf – this is what’s driving this (already) record storm season. It’s not going to get better. It could get worse.
Very good question from one client y’day: “How do I short CAT (Catastrophe) bonds?” – These defer or cancel payments of interest and sometimes principal in the event of enormous natural events. Reinsurers and Cat Bond buyers are going to be on the line – short them.
Meanwhile.. I might get time to write about the ECB meeting later this morning… Yawn..
Instead…
I read Apple Ipod-minis from the mid-2000s are selling for thousands of dollars on E-Bay. Obsolete Bright Shiny White-Tosh has become an instant collectibles market. It’s valuable because Apple don’t make that old stuff anymore.
In fact… there is nothing Apple was making just a few years ago that is still contributing to the bottom line today. It is constantly upgrading and replacing products. Every single product is an upgraded evolutionary iteration of something they stopped making years ago. The 10-year I-Phone 1 has practically no commonality with today’s version n+1, although it shares tech-genetics right back to the first I-pod.
Now I happen to be a reformed sinner when it comes to Apple Stock (although the hype attending the imminent launch of I-Phone 8 and the fact everyone wants one feels “frothy”). For a few years I doubted they could maintain the innovational/marketing genius of the Steve Jobs years, until I realised they successfully make and sell expensive stuff. Simples. I find myself the proud possessor of two IMacs, a Mac-Pro, umpteen I-Pads, the Phone, the Watch (although to be frank, it’s pretty much an utterly useless gimmick), and the Stock.
Lots of companies successfully sell stuff. Some stay at the top for years. Some fall from favour.
Which gets me thinking about Apple’s 30 year bond deal y’day. The company borrowed $5 bln in a multi-tranche issue from the international fixed income markets as part of the financing their 300bln buyback and enhanced dividend programme, making stock holders happier!. Why not take advantage of the bond market.
If you bought the new bonds.. Thankyou.
I would have struggled to make that call. You are asking me to give money to Apple to give to shareholders at a yield some 1.10% over US government bonds? A yield of 3.75%? I know what you are thinking – that’s a Modified Duration of 17.9 years.
There are some obvious questions: how are they going to pay you back if they aren’t selling Iphone 38 in 2047? Will everyone still want an Apple Phone in 5-years time, let alone 30? Of course, we love Apple because they are terribly terribly smart and clever. We expect them to innovate Bright Shiny New Things and a better life for everyone to keep the cash rolling in. I expect they will also be running road, rail and hyperloop transport, personal flyer systems, teleport networks, 3D food printers (making delicious cupcakes in less time than a Poppity-Ping (Welsh for microwave) takes to heat porridge), and just about everything else we can imagine by then.. so why worry?
Apple is here today and tomorrow.
In which case, why buy the bonds at the top of the bond cycle? “Because you have to” is not a particularly good answer. A fully priced bond issued at the top of the market captures all the downside and none of the upside.
Personally I would have bought the stock, the vision and dream, rather than be capped with a low yielding bond return.
Dah?
Or is buying the stock too optimistic. When I was youngish we all wanted Walkmans to play cassette tapes on (wtf is a cassette tape ask the children in the office.) When I was a bright young banker we all wanted the latest Ericson Phone – who were they you ask? My kids don’t mind using Samsungs.. I’m sure you get the drift.. Is Apple a genuine thot-leader trend setter or is it just fashion? Is it a BMW or a just a Nokia?
On Monday 11th September (next week) it’s our annual Charity Day here at Mint BGC. We remember our colleagues at Cantor lost in the 9/11 Twin Towers atrocity. We give all our commissions and fees that day to charity. It’s a good day to throw us some extra business secure in the knowledge your commissions are going somewhere deserving. If you fancy trading with one of the many A-List Celebs we’ll have in the office on Monday, give me a shout and let’s see what we can arrange.
Back to the day job..
Bill Blain
