19 January 2018

INVEST - Repatriation of Offshore Capital Begins

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Citigroup Says There is a Whopping $2.5 trillion of Capital Stashed Internationally by US Companies.

Apple's announcement on Wednesday shows the move to repatriate capital has begun. Apple will pay US$38B in US taxes on the cash it brings back to the US and claims it will add $US350B to the US economy over the next five years, create 20,000 new jobs and open a new Apple Campus.

On making the announcement, Tim Cook, Apple's CEO remarked:
"Apple is a success story that could only have happened in America, and we are proud to build on our long history of support for the US economy. We believe deeply in the power of American ingenuity, and we are focusing our investments in areas where we can have a direct impact on job creation and job preparedness. We have a deep sense of responsibility to give back to our country and the people who help make our success possible."
Apple identified several investment priorities:
  • Growing Apple's US Operations and Direct Employment Over $10 billion of Apple's expanded capital expenditures will be investments in data centers across the US.
  • Investing in Apple's Domestic Suppliers and Manufacturing Partners Apple works with over 9,000 American suppliers in 50 states and each of Apple's core products relies on parts or materials provided by US-based suppliers.
  • Preparing Students for the App Economy Apple has a 40-year history in education and plans to accelerate its efforts across the US in support of coding education. Apple says there are more than 500,000 unfilled programming-related positions across the country and noted a US Bureau of Labor Statistic that predicts by 2020 there will be 1.4 million more software development jobs than applicants qualified to fill them.
Apple is just the first company to announce. In a late December article, Business Insider identified 14 companies that would benefit from President Donald Trump's new tax plan and included a slide analyzing each of the 14 companies.

The new Tax Policy provides two options for capital repatriated under this program:
  • Reinvestment into core businesses which is expected to have a direct bearing on economic expansion; or,
  • Repurchasing company shares which would be beneficial to the market since it signals that a stock is undervalued.
To give the repatriation discussion and numbers some context, InfoStream captured the market capitalization of the largest companies at the end of trading yesterday (18 January 2018).

  • US$920.38B World's largest Technology Company Apple
  • US$526.13B Largest US Conglomerate Berkshire Hathaway 
  • US$228.06B World's largest Telecom Company AT&T
  • US$220.49B World's largest Pharma Company Pfizer
  • US$145.43B World's largest Industrial Company GE

According to 24/7 Wall Street, the largest 5 US companies by market capitalization at October, 2017 were Apple, Alphabet/Google, Microsoft, Facebook and Amazon.

Two questions come to mind:
  1. Will there be an impact from taking this money out of foreign financial institutions and markets?
  2. Where can this capital be re-deployed in a market that is already awash with under employed capital?
One wonders if capital will be deployed to support innovation and earlier stage plays.

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