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.
With the US Government 3-day shutdown resolved earlier this week, at least until the 8th of February, we revisited various facets of the Tax Cuts and Jobs Act of 2017 (TCJA) now a month on from its signing into law. Preliminary estimates from the Congressional Budget Office (CBO) forecast it to add a further $1 trillion to national debt over 10 years (even after macroeconomic feedback effects). This is in addition to the $10tn increase from the baseline forecast and existing $20tn in national debt. How many government shutdowns we shall see in the next decade as US national debt potentially grows to ~$31tn is anyone’s guess.
Congress should shortly pass a bill to temporarily circumvent the debt ceiling. Subsequently, they will deal with the budget, which is very likely to be late. Tax reform, like the repeal of Obamacare, is much too complicated to get done anytime soon, so the budget could be in limbo for the rest of the year. Or Congress would have to pass something that did not incorporate tax reform. The problem is that the Republicans, despite having control of Congress for many years, currently have no viable plans either for health care or tax reform.
1st March 2067 is the distant maturity of the latest €5bn bond issuance from Italy. Even in the wake of European immediate concerns, talk of the ECB reducing QE and Italian banks fears not to mention the Deutsche Bank furore - subscriptions for this first ever 50 year bond from ‘Il Bel Paese’ were 3.7x oversubscribed. €18.5bn of investor money was keen (or at least reluctantly persuaded) to bet on Italy’s ultra-long-term creditworthiness at underwhelming spread of 52 basis points over Bunds. Not us.
Buyback season apparently continues unperturbed with Apple yesterday completing a $12bn bond issuance. Apart from a $1.5bn green bond (for environmental and public relation purposes) much of the debt will fund buybacks at current ‘knockdown prices’ taking advantage of shares trading between $90-$100 this year - more than 25% below their peak of around $130 in mid-2015. The favourable timing also takes advantage of a lull in the recently agitated bond markets whist tapping into its hankering for AAA and high AA rated credit at a time when historically few other companies are doing so. Year-to-date US debt sales are at the lowest levels in over two decades. Hence Apple received over $28bn of orders across nine tranches on what is the second largest bond sale of the year (second only to AB InBev’s $46bn fund raising for the acquisition of SABMiller).
Marmite, wannabe Presidential candidate, you either love him or hate him, Donald Trump, is in the news again this time his target is Apple. Mr Trump wants to force manufacturing back to the US. “Make America great again”, “We’re going to get things coming. We’re gonna get Apple to start building their damn computers and things in this country instead of in other countries”, he said in a speech at Liberty University in Virginia.
In the present era one might expect to pay a hefty premium to invest in technology companies, especially market leading household names such as Apple and Alibaba; each flagship innovators and consumer gravitons in their respective superpower nations. However bonds from both of these, over the course of the past 11 months, have seemed to offer relative value according to our models; Alibaba when they first issued in November last year (and more so following the negative China and EM sentiment in Q2) and Apple after their 2043 issue fell from a price of USD 108.7 in late January to May when we picked some up at USD 91.8.