The Daily Update - Leaks: Trump’s “Amorality” and Cook’s Bigger and Pricier Apples

With the number of recent leaks, the Trump Administration and Apple Inc could both seemingly give Thames Water a run for their money. The suspicion within the White house has now gone so far as to persuade Vice President Mike Pence to offer undergoing a lie detector test to prove he’s not the author of the anonymous New York Times piece. The scathing op-ed highlighted the “adults in the room” making a “quiet resistance” against Trump’s “amorality” and lack of “any discernible first principles that guide his decision making”; it publicised “the internal workings of a chaotic and divided administration and to defend the choice to nevertheless work within it” to further the “bright spots” of the administration’s accomplishments in “deregulation, historic tax reform”... The hype is almost enough for one to forget Trump faces the threat of Special Counsel Mueller’s investigation.

Contrastingly, the leaks surrounding the “Apple Keynote Presentation” later today came with their usual media hype; the enigmatic leaked image of the new iPhone had fans reaching for their (digital) wallets getting ready to part with upwards of a thousand dollars for the upgrade. Apple’s share price has risen 3% so far this week, though this follows last week which was its worst performing since April. It looks like going bigger and pricier seems to be Cook’s recipe to improve Apple turnover; seeing how many existing iPhone advocates will fork out four-figures to upgrade in the coming months will be key in evaluating the future profitability of the company’s core business.

According to our investment process both Aaa rated US Government Treasuries and Aa1 rated Apple bonds can provide diversification to a bond portfolio, helping raise average credit quality which can be especially useful in periods of emerging market or general economic uncertainty. For example, Apple 4.45% 2044 bonds still offer an acceptable spread of 99 basis points after tightening from recent highs of 117 basis points. This is compared to fair spread estimates of 50 basis points for a similar Aa1 rated bond according to our Relative Value Model. From a credit investor perspective, regardless of whether the latest iterations of Apple Watches or iPhones fly off the shelves as analysts are expecting the company still has hundreds-of-billions-of dollars in cash (which it still seems to be repatriating at preferential tax rates) and sufficiently strong financial metrics; and its current cheapness provides holders of such a bond with a potential return-plus-yield of 12.1% under the scenario where bond prices moves to fair value over the course of 12 months.

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