Apple Invests, Amazon Winnows, and Cryptocurrencies Get Plundered

In this Market Foolery podcast, host Mac Greer is joined by Total Income's Ron Gross and Motley Fool Pro and Options' Jeff Fischer to discuss several noteworthy news items out of the tech space.

First, Apple (AAPL 1.27%) revealed some long-term plans for U.S. investment and overseas cash repatriation, and the guys weigh what it all means. Then they consider the narrowed-down list of contenders for Amazon's HQ2. And finally, they offer some insights in reaction to the news that a serious percentage of the big cryptocurrencies in circulation have been at one time or another stolen.

A full transcript follows the video.

This video was recorded on Jan. 18, 2018.

Mac Greer: It's Thursday, Jan. 18. Welcome to Market Foolery! I'm Mac Greer, and joining me in studio, we have Ron Gross from Motley Fool Total Income and Jeff Fischer from Motley Fool Pro and Options. Gentlemen, welcome!

Ron Gross: Hey, Mac! How are you?

Greer: I'm good. How're you feeling?

Gross: I'm feeling wonderful!

Greer: Jeff?

Jeff Fischer: Me as well.

Greer: You had a birthday this week.

Fischer: I did. It was Martin Luther King Day.

Greer: Ron, what did you get Jeff?

Gross: A Facebook best wishes.

Fischer: Thank you, Ron! I appreciate that.

Gross: I wrapped it myself.

Greer: That was so unfair. I didn't get him anything. OK, on today's show, we're going to talk some Amazon (AMZN -1.64%) and some bitcoin, but we begin with big news from Apple. Guys, on Wednesday, Apple announcing that it will invest $350 billion -- that seems like a lot -- in the U.S. over the next five years. That's going to include a new campus and 20,000 new jobs. Jeff, Apple also says it's going to pay a one-time tax on $38 billion on all of its overseas cash holdings. My two questions here. Are you ready?

Fischer: Yes.

Greer: What does it mean for Apple investors?

Gross: Should I be writing these down?

Greer: And what does it mean for the broader market?

Fischer: What it means for Apple investors is, Apple is very optimistic about its future, at least as far as the next five years go, and hopefully much longer than that, or they wouldn't spend this money. What it means for the broader market is, possibly, more tailwinds this year for stocks, at least stocks of large-cap companies with a lot of money overseas who are set to bring at least some of that money back. Apple is the giant of them all. Its cash overseas represents about 14% of the entire U.S. tech industry's cash made overseas. And when it brings that money back, it represents about 11% of all the S&P 500's possible money coming back overseas and the tax bill that will get paid to the government here. So it's the biggest giant of them all, and it's making its move early and making it very vocally, which may inspire other companies that I'm sure were already thinking about it, but maybe to do it more quickly. So, net-net, I would say it's a positive for the stock market, at least the S&P 500. That doesn't mean the stock market will go up because of it.

Gross: It does not.

Fischer: But it may help, if it does decline, it may decline less. It's a small tailwind.

Gross: Yeah, hard to disagree with anything Jeff said. I think it's good for Apple shareholders. Interestingly, the company has returned $230-ish billion to shareholders over the last five years through dividends and share buybacks, and a lot of that has been done through them borrowing money at very low interest rates in order to get that done, because over 90% of their cash is actually held overseas, interestingly enough. I would expect to see the continuation of return of capital to shareholders, perhaps now with their actual own cash, in conjunction with borrowing, as long as interest rates stay low. But now, they'll actually have their own capital to return. They're still not going to need all of that. Yes, they're going to make $30 billion in capex over the next five years, that they've "committed" over the next five years, as part of this.

But is that something really that special? They did $12 billion or so in capex last year, so $30 billion over five years is not some huge commitment that's above and beyond what they would have done anyway. So the company will continue to reinvest in its business, will continue to reward shareholders through buybacks and dividends. I think we now will see other companies follow suit, taking advantage of this one-time repatriation tax lower rate of 15.5% versus the 21% typical corporate tax rate that will now be in place. So, you'll see more money coming back, you'll see more money being paid in taxes, but there's a savings there, because it's only 15.5%. And it will accrue to hopefully both employees and shareholders. My take on it is, shareholders will benefit more.

Fischer: Ron, it made me think, too, you have this one-time 15% repatriation tax. What happens five years from now, after Apple has built up $100 billion again overseas? Do they wait for another one-time low tax rate? Or --

Gross: That's a good question. We'll see how history reports, whether this whole thing was successful or not. We'll see where the deficit is and where our debt is, whether the whole corporate tax plan has worked or not. And then I guess our legislators will make a decision.

Greer: That all sounds good. As an Apple investor, as a shareholder, I'm heartened to hear everything you just said. But it can't all be sunshine and rainbows, so here's my question. For Apple, when you look at the company going forward, what's the biggest challenge? What's the one thing that would keep you up at night?

Gross: Please, Jeff.

Fischer: OK, I'll jump in first. You must have the same answer.

Gross: I do.

Fischer: It all rides on the iPhone.

Gross: Yes.

Greer: I've heard of that.

Fischer: The iPhone X, which, some reports say that it's shipping well, but not as well as hoped. Ditto with the iPhone 8, in China, at least. A slowdown that's modest any given quarter is OK, but if the trend continues in that direction, you have issues on your hand. They need to do something to change that, if that happens.

Gross: Yeah, and I'll just throw in the fancy term of "refresh cycle." How often do phones get refreshed, how often do people need to upgrade, can Apple continue to be innovative enough to want people to drive that refresh, and will they pay $1,000 for the iPhone X? Will they be able to continue to have pricing power? Will the innovations be such that people will want to continue to pay more and more each cycle? That's really what's going to drive profits, cash flow, and the stock price for Apple.

Greer: If I'm an indication there, I have device fatigue. I admitted this on a show recently. For the first time ever, I'm not upgrading my iPhone. What I'm doing is getting the battery replaced. So I have an iPhone 6. I love it, it does the job, and I don't need a new iPhone. I just need a new battery. So I'm going to pay $39. I'm actually -- that's not a good development for Apple.

Gross: That's not good. But I will counter that for those shareholders out there that I have upgraded to the X. It took a weekend to get used to it. I was a little bit unsure. But now, I've probably never been happier with a phone. I think it's a pretty fantastic device.

Greer: What can you do with your X that I can't do with my 6?

Gross: I can't tell you that. [laughs] No, the facial recognition is cool. I don't know if cool really translates to wanting to spend more, but it works perfectly. I was actually very concerned that I would not like it and it wouldn't work. The camera is a significant upgrade. The screen is larger because you no longer have that home button at the bottom. It's faster. The battery life is better. It's an improvement, for sure.

Fischer: Mac, I want to point out, too, that Apple called out that it's going to invest at least $10 billion just toward data centers, which it's been doing all along, but that's still a lot of money. Especially when you consider it's far from just Apple that's investing so much money in data centers. It's Facebook, it's Amazon, it's Alphabet, it's Microsoft, all of these giants are pouring tens of billions of dollars into data centers, which means you have to seriously look at everything from Applied Materials to Intel to NVIDIA, all of these companies that benefit as people spend on semiconductors and servers and whatnot.

Greer: Guys, let's move to Amazon. Amazon has chosen the 20 finalists for its second headquarters. The finalists are Atlanta, Austin, Boston, Chicago, Columbus, Dallas, Denver, Indianapolis, Los Angeles, Miami, Montgomery County, Md. -- Ron -- Nashville, Newark, New York, Northern Virginia, Philadelphia, Pittsburgh, Raleigh, Toronto, and D.C.

Gross: Are people still listening? You did the whole list.

Fischer: Good podcasting.

Greer: I was thinking, maybe I'll just read a few, but I don't want someone in Raleigh upset, so, all 20.

Gross: Well, CNBC said Charlotte-Raleigh-Durham is actually, based on their analysis, the best place, the best fit.

Greer: Is that right? And Toronto, the only Canadian name on that list. Do we have an early favorite when we hear that list?

Fischer: You know what I noticed? Everything is a city, at least in the list I'm reading, except for two, which are Montgomery County, Md., and Northern Virginia, which are two greater regions.

Gross: It's interesting that you say that. Everything in Montgomery County, where I live, everything is talked about in county terms. The school system is county-based, not town-based or subdivision-based. So it's very interesting that you point that out. It's unique. Montgomery, you have to be careful what you wish for with this Amazon --

Greer: Make the case, Ron. Come on!

Gross: I'm not sure I want to make the case, because traffic is already so darn lousy. It's going to get worse. Apartment prices are projected to spike as a result, because you can't bring in 50,000 people -- and they won't all be brought in; some already live there. But you'll see apartment prices spike. Perhaps the median house prices will spike, too, which I wouldn't mind as a homeowner. In fact, Seattle's median home price is up 17% from a year ago, if that's any indication. But you know what? Traffic congestion is also up quite a bit. There are pros and cons. Obviously, it's a tremendous injection into the local economy. It's great for taxes into local economy. It's great for employment. But it's not great for congestion and how crowded everything will be, and you'll never get a table at a restaurant ever again.

Greer: [laughs] It's not all about you, Ron. Come on!

Gross: Oh, I thought you were asking me the question. Sorry.

Greer: OK, as we wrap up this story, Jeff, do you have any thoughts on who you think the favorites are, or what investors should do with all of this?

Fischer: I think it's an exciting story. It's the biggest auction or bidding war for a new company headquarters since the 1980s, I read, with General Motors. They were building something, and everyone went after them. But it'll certainly change the lives of hundreds of thousands of people, if not more, who live in that area, millions, and all of the people who end up living there. So they're looking for, they need enough tech talent in that region, and to draw enough tech talent, who wants to stay in the region, that's important, they need enough space, good housing, good schools.

Greer: Northern Virginia. It feels like you're describing Northern Virginia.

Fischer: Maybe.

Gross: Metro access is also important. Northern Virginia, Northern Montgomery County, where there's still plenty of urban sprawl yet to occur.

Greer: Not near your restaurants.

Gross: Exactly.

Fischer: All these things, they're looking at, of course. And then, it's the behind-the-scenes incentives that we're not hearing about. The only one I could find was Newark, N.J., offered up to $7 billion in tax incentives. That's a lot of money.

Gross: Well, yeah. They'd have to, wouldn't they? 

Greer: Wow!

Gross: I used to live right outside of New York. Shout out to my New Jersey friends.

Fischer: Shout out or smackdown?

Greer: Yeah, we should add that you're from New Jersey.

Gross: I'm from New York, but I lived in New Jersey in my early 30s.

Greer: So are you allowed to make that comment?

Gross: I hope so. [laughs] 

Fischer: So we don't know the incentives the other 19 contenders are offering, but Amazon is obviously going to look at all of the benefits of each location and then go with it. I would say this region has a good chance.

Greer: My dark horse is Atlanta. I'm going to go, I think Atlanta is going to be the new --

Gross: Because that airport needs a little more congestion?

Greer: No, I think, somewhere in the South, mix it up. Northern Virginia and D.C. and New York and Boston, that's all too predictable. So I'm going to go Atlanta first and Raleigh second. Give me your top two.

Fischer: I'll say Montgomery County, because it's a little easier than D.C., more space, and yet you're right in D.C., you're not far from New York and the whole upper Northeast. Montgomery County will be top. I'll say -- everyone's waiting with bated breath for this.

Gross: [laughs] No, they just clicked off. They hit stop.

Fischer: Off to somewhere else. Chicago, my hometown of Chicago.

Greer: OK, Ron?

Gross: OK. Montgomery County, I think maybe that's in the lead, and Raleigh-Durham.

Greer: OK. Guys, our final story, courtesy of Bloomberg, crypto hacking. Jeff, you sent this one to me, and I'm just going to read the headline from the Bloomberg story. "Hackers Have Walked Off With About 14% of Big Digital Currencies."

Fischer: Yeah. That's the research put out by Autonomous Research. That's what they're saying. And it's put some companies out of business, of course. Yobit files for bankruptcy after it lost 17% of its assets in December. NiceHash lost up to $63 million --

Gross: You made that up.

Fischer: NiceHash? [laughs] They lost up to $63 million in bitcoin from its virtual wallet. The bottom line, the point is, it's more difficult to hack into virtual currencies, but it's possible, and it's more lucrative than your typical hacking. So, you know people are going after it. And there's only the time lag from when something really takes off and becomes mainstream -- or at least, highly popular and touted -- to the hackers showing up and taking from it what they can. Even blockchain is vulnerable. There are ways to get into blockchain. They've analyzed that you can get in there and delay in the reporting of blockchain enough so that you can spend your bitcoin twice, at least twice, which would --

Gross: I'm in.

Fischer: [laughs] So, as with any new technology, it's going to have its weaknesses, and it's another reason to be cautious.

Gross: Yeah, I would say, the overriding thing that we're talking about here, which wouldn't mitigate it completely, by recent examples, but it's regulation. It's unregulated. It's the wild West right now. Even if you regulate it, you'll still get hacked, as we've seen time and time again with credit cards. But still, the volatility we've seen recently as a result of folks being concerned about regulation actually coming in -- they're worried about more regulation, not less. South Korea talking about shutting down cryptocurrency exchanges, China talking about banning centralized trading of digital currencies. This is the reason, the conventional wisdom, for the weakness we've seen recently in currencies like bitcoin, which was off 50% from its December high. Certainly, these investments are not for the weak of heart, they're not for folks that are afraid of volatility. Again, since it's the wild West, we don't know how this is going to shake out, so please, buyer beware.

Fischer: And I read the IRS has called bitcoin an asset now. Have you seen that, Ron? I only found it from one source. I wanted to find another source.

Gross: I know that we use that term around here. "Crypto assets" is the new buzz term, but I haven't --

Fischer: If the IRS has called it an asset, you need to file taxes on it. Any gains and losses. And now, the SEC, if you want to open a trading platform for bitcoin, you need to file with the SEC. So, yeah, regulation is coming. That changes the game a little bit.

Gross: It's necessary, right?

Fischer: Oh, yeah.

Gross: It has to come, and the price has to adjust to become a regulated asset, which I think in the short term could be bad for folks who bought it at an inflated price, but in the end, it's good and necessary.

Greer: As we wrap up here, you mentioned it could be bad for folks. It was a bad week for the Winklevoss twins. 

Gross: Oh, yeah!

Greer: For those of you just joining us, the Winklevoss twins were involved with Mark Zuckerberg. They sued him, claiming that he stole their idea for Facebook. So there's a settlement there. What you need to know about the Winklevi now -- that's what we call the twins, the Winklevi -- is that they're big players in the bitcoin market. How big, you ask? Over the course of two days this week, the Winklevoss twins lost around $600 million in bitcoin wealth.

Gross: Oof. But they still probably have around $400...

Greer: That's what I was going to ask you -- do you have any advice in terms of how they can live below their means? Because that's not easy.

Gross: [laughs] Coupons. You've got to really stretch the dollar.

Greer: I don't know about you, but when you lose a $600 million in a week, this is our first-world-problem edition. Jeff, what do you think?

Fischer: I think Ron hit it right. There are coupons. They can go to Groupon.com. It's a thriving business.

Greer: Yeah, and the coupons are harder to hack. You can't really hack that Sunday supplement.

Gross: Exactly. You could try to Xerox them. That's not even a word anymore. You could try to copy them, but that never works.

Fischer: Speaking of hacking, there are thousands of different kinds of blockchain software codes written. I read something that compared it to web browsers -- those of us who are old enough to remember, in the '90s, there were all kinds of different Web browsers, and they were all vulnerable in different ways, until only a small handful, three or four, took over and became mainstream. The same sort of thing is likely to happen with blockchain. All of these, so many of these thousands, are vulnerable, until it boils down to one or two that take the lead.

Gross: My final tip is, Kraft mac and cheese is delicious. Cheap. You can stretch your dollar. So the Winklevi could maybe load up on a case of Kraft mac.

Fischer: They should buy some Facebook stock, too.

Greer: [laughs] Oh, wow! That hits close to home. You know, on the mac and cheese front, we have a friend who doubles the amount of butter she puts in it?

Gross: Wow! Caution to the wind.

Greer: Yeah. It's good. It's solid.

Gross: How could it not be good?

Greer: But I'm like, oh my God, you're making a deal with the devil. That can't be good for you.

Gross: [laughs] I respect that.

Greer: OK, guys. Thanks for joining me!

Gross: Thanks, Mac!

Fischer: Thank you!

Greer: As always, people on the show may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's it for this edition of Market Foolery. The show is mixed by Dan Boyd. I'm Mac Greer. Thanks for listening! We'll see you tomorrow!