Apple has about $210 billion in cash. So why is the company borrowing money? Because money is cheap.
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Apple isn't the only blue-chip company are jumping on the cheap money bandwagon and borrowing by the billions. This week U.S, multinationals borrowed a total of $27 billion led by Disney, Deere, Coca-Cola, Anthem, all issuing bonds.
|DIS||WALT DISNEY COMPANY||147.15||-1.57||-1.06%|
|DE||DEERE & COMPANY||174.38||-1.29||-0.73%|
What's going on? Easy. Money is as cheap as it’s been in years because of low-interest rates pushing the cost of borrowing to historic lows. So why not replace your old high-rate debt, with new, cheap debt. It’s called re-financing: Home-owners do it and now corporations are doing it. Virtually free money is very attractive, even if you're flush to start with.
So what's the result of all this? Well first of all these big companies can reduce the cost of their debt. That should help their profits now and their expansion plans for the future.
And it will also pull yet more money into America. In Europe, you get no interest. You don't even get all your money back when you take out a loan! Of course, you're going to look for someplace that’s safe, and pays you at least some interest.
You don't think investors will scramble to lend money to super safe Apple and get a near 3 percent return?
Now it is unusual to have a strong economy and cheap money all at the same time. But it is here and it is now.
And just look at those blue-chip American companies jump in quick, and suck in money from all over the world....