This story is interesting. Apple has a $100B cash reserve. Apple employees, customers, and shareholders are subsidizing the banking cartel.
Apple earns close to 0% on its cash reserves. True inflation is 20%-30% per year or more. Apple earns a real return of negative 20% or less on its cash reserves. With $100B in cash reserves, that’s a gift of $20B+ per year. That is stolen by the banking cartel, via inflation.
That article proposed that Apple invest its cash surplus in gold. That article had a serious error of omission. It’s illegal for a corporation like Apple to hold a lot of gold or other investments. Otherwise, Apple would start falling under laws regarding a hedge fund or mutual fund, rather than a regular corporation. That would lead to a less favorable tax treatment. Effectively, it’s illegal for Apple to hold its cash reserves in gold.
Suppose that a small corporation had huge cash reserves like Apple. Then, some hedge fund (like Bain capital) would do a leveraged buyout. They would use the corporation’s own cash and equity to do a buyout. The hedge fund would take out the cash and load the corporation with debt. They would use the cash and equity to finance the buyout and immediately pay themselves a huge dividend, making it practically risk-free to leveraged buyout a corporation and strip it.
Why are leveraged buyouts profitable? It’s the usual answer, negative real interest rates. The hedge fund may borrow at 2%-5% while true inflation is 20%-30%+. The central bank credit monopoly and paper money subsidize hedge funds.
Why do banks lend money to do leveraged buyouts? The answer again is negative interest rates and the central bank credit monopoly. The bank borrows from the Federal Reserve at 0-0.25% and lends to the hedge fund at 2%-5%. The loan is backed by a tangible business, making it less risky. It pays for the hedge fund to borrow at 5%, because true inflation is 20-30%+. In effect, the State inflation tax booty is shared between the bank and the hedge fund.
The leveraged buyout industry didn’t explode until after 1971, after the gold standard was completely abandoned. Negative real interest rates subsidize leveraged buyouts. Only in a system of paper money and negative real interest rates, is it profitable to use financial tricks to buyout another business.
A pro-State troll says “A hedge fund manager is a brilliant business leader. He’s taking risks and allocating capital.” That is false. In a really free market, banks provide a useful service. With a corrupt State financial system, a hedge fund manager profits by exploiting defects in the financial system.
In a really free market, banking is an honest business. Free market banks match savers and businesses that need capital. Fractional reserve banking is inherently fraudulent, and would not exist in a real free market. Instead, banks would match time deposits and loans, avoiding the inevitable runs that occur in a fractional reserve system. (Even before 1913, State law forced banks to operate under the fractional reserve model and not the time deposit model.) Also in a free market, interest rates would be positive. It wouldn’t be possible to profit by loading up on debt without doing anything else.
In the present, the financial system is completely corrupt. There is a system of paper money, a central bank credit monopoly, and negative real interest rates. The State central bank cartel creates recessions and inflationary booms. A hedge fund exploits these defects to profit. The hedge fund manager borrows from the State more than investors, making him the recipient of a huge State subsidy. For example, if a hedge fund has $1B of investor money, they will borrow $5B-$10B+ from the State banking cartel. In effect, the hedge fund actually is in the money printing business, obfuscated behind complicated financing arrangements.
In the present, bankers don’t need deposits; they can borrow from the government. Bankers don’t need to lend to individuals and small businesses; they can lend to the government and large corporations. The State protects the large corporation from competition, making it less risky to lend to large corporations. Individuals and small businesses can borrow, but they typically pay higher interest rates than a large corporation.
Also, the hedge fund manager is typically investing other people’s money, another classic scam. If the hedge fund fails, the fund declares bankruptcy. Very often, the hedge fund manager immediately starts a new fund. (He may warn “preferred customers” to withdraw their cash before the bust is announced. Then, they invest in his new fund.) The hedge fund manager has no personal liability if his investment fails. If his investment succeeds, he keeps a huge chunk of the profit.
There’s a lot of “stupid money” invested in hedge funds. One large source is State pension funds, either government pensions or large corporation pensions. The pension fund trustee is also managing other people’s money. He may agree to invest in a hedge fund in exchange for favors, such as hiring his brother-in-law at a high salary. With “stupid” investment money, the trustee is concerned with CYA more than a good return, making hedge funds attractive. The details of a hedge fund are nearly completely obfuscated, making it impossible to determine if the hedge fund manager is doing a good job or not.
Even though I would probably make a good hedge fund manager, I don’t have any connections, so that career path is closed to me. Besides, now that I know that the State financial system is one big scam, my honest best investment advice is “Buy gold and silver and platinum. Take physical delivery. Hide it someplace safe.” It’s hard to base a hedge fund on that principle.
A hedge fund manager isn’t a brilliant businessman. He’s merely profiting from defects in the financial system. A hedge fund produces nothing useful. The hedge fund manager is brilliant according to State anti-logic, because he successfully managed a corrupt system, maneuvering himself into a position where he can leech other people’s money. It is an example of excellent psychopath skills, but not real skills. With a corrupt financial system, a hedge fund manager can make a huge profit while destroying real wealth.
The leveraged buyout is profitable due to defects in the financial system. The leveraged buyout is practically risk-free. There’s usually an immediate dividend and “management fee” almost equal to the investment. The hedge fund waits a few years, waits for inflation, and cashes out by selling the business. Inflation and negative interest rates are why it’s profitable for a hedge fund to “Do a leveraged buyout, load up on debt, wait a few years, and sell the business.”
Each deal is a separate corporation. Even if one corporation is ruined by the debt burden, then just that one files for bankruptcy, while the hedge fund still manages the others.
Why can Apple have large cash reserves and not a small corporation? Apple is so big that it can’t be a leveraged buyout target. Therefore, Apple can hold cash reserves without some hedge fund targeting it for a leveraged buyout.
This is another evil aspect of the State banking cartel. The State paper money system favors huge corporations over small ones. A large corporation (Apple, Google, Microsoft) can afford to hold large cash reserves, because it’s too big to be a takeover target. It’s effectively illegal for a small corporation to have no debt and cash reserves, because then some hedge fund will leveraged-buyout it.
A small public corporation can’t bootstrap growth by saving cash reserves. First, cash reserves are stolen by inflation. Second, if a small public corporation has large cash reserves, then it becomes a leveraged buyout target.
There are “balance sheet guidelines” for how much debt a small or medium public corporation should have. A small profitable public corporation with no debt will borrow money and pay a dividend or repurchase shares. This prevents a hostile takeover. These “guidelines” are “Have enough debt on your balance sheet so that the corporation isn’t a leveraged buyout target.”
There is a problem, when the small corporation carries a lot of debt. Then, it is at risk for bankruptcy during the next recession. Then, then bondholders/banksters explicitly take control of the corporation.
This gives Apple and other large corporations another advantage. The huge cash reserve means that Apple can make it through a recession, without being forced into bankruptcy. When small corporations are struggling, Apple can use its cash to finance a buyout.
Apple has huge cash reserves, approximately $100B. With negative interest rates, this subsidizes the banking cartel. It’s effectively illegal for a small corporation to have no debt and huge cash reserves, because then some hedge fund will do a leveraged buyout.