$600 Billion In Trades In Four Years: How Apple Puts Even The Most Aggressive Hedge Funds To Shame

Tyler Durden's picture

Everyone knows that for the better part of the past year Apple, Inc. ("AAPL", or "The Company") was the world's biggest company by market cap, with Exxon finally regaining that title on Friday, following AAPL's latest price drop in the aftermath of its disappointing earnings. Most know that AAPL aggressively uses all legal tax loopholes to pay as little State and Federal tax as possible, despite being one of the world's most profitable companies.

Many also know, courtesy of our exclusive from September, that Apple also is the holding company for Braeburn Capital: a firm which with a few exceptions (Bridgewater; JPM's CIO prop trading desk) also happens to be one of the world's largest hedge funds, whose function is to manage Apple's massive cash hoard, with virtually zero requirements, and whose obligation is to make sure that AAPL's cash gets laundered legally and efficiently in a way that complies with prerogative #1: avoid paying taxes.

What few if any know, is that as part of its cash management obligations, Braeburn, and AAPL by extension, has conducted a mindboggling $600 billion worth of gross notional trades in just the past four years, consisting of buying and selling assorted unknown securities, or some $250 billion in 2012 alone: a grand total which represents some $1 billion per working day on average, and which puts the net turnover of some 99% of all hedge funds to shame!

Finally, what nobody knows, except for the recipients of course, is just how much in trade commissions AAPL has paid over the past four years on these hundreds of billions in trades to the brokering banks, many (or maybe all) of which may have found this commission revenue facilitating AAPL having a "Buy" recommendation: a rating shared by 52, or 83% of the raters, despite the company's wiping out of one year in capital gains in a few short months.

The Perfectly Legal Tax Evasion Scheme

Apple's massive cash hoard is something that gets its 15 minutes of fame each and every quarter, because for now at least, it keeps growing and growing and growing. However, that is not exactly correct. In fact, the company's cash and cash equivalents at December 31, 2012 is just $16.2 billion: barely $9 billion more than it was 4 years ago, on December 31, 2008. Where the bulk of AAPL's profits are kept, however, is not in cash and equivalents, but in various undisclosed short- and long-term securities.

It is these, and particularly the latter, that have soared in a near parabolic fashion in the past 4 years. As the chart below shows, while cash and short-term marketable securities have been virtually flat for the better part of the past 16 quarters, it is the long-term marketable securities that have exploded from just $2.5 billion to a whopping $97.3 billion.

So why does AAPL funnel its profits in a fashion that redirects it to investments instead of domestically hoarded cash? Simple: to take advantage of offshore venues which allow it to avoid paying any tax on the cash that gets redirected for trading purposes. As per the company's filings, of the massive $137.1 billion in cash and investments AAPL has access to, a near record 68.7%, or $94.2 billion, is held offshore.

The chart above means that contrary to popular disinformation, AAPL "only" has ready access to some $43 billion in domestically held cash for corporate purposes such as dividends, stock buybacks and local M&A. The rest of the cash is essentially in offshore lockboxes, which are non-recourse for domestic corporate purposes, absent repatriation. And herein lies the rub. From the latst 10-Q:

As of December 29, 2012 and September 29, 2012, $94.2 billion and $82.6 billion, respectively, of the Company’s cash, cash equivalents and marketable securities were held by foreign subsidiaries and are generally based in U.S. dollar-denominated holdings. Amounts held by foreign subsidiaries are generally subject to U.S. income taxation on repatriation to the U.S.

Apply a 30% tax to the offshore holdings and suddenly one can see why broad statements that AAPL has some $130/share in cash are largely meaningless: if AAPL wishes to have full access to dispose with this cash as it saw fit, it would first have to pay Uncle Sam some $30/share in cash before it had full recourse.

So why does AAPL chose to have cash stock up offshore instead of being able to dispose of it? Simple, and logical. Taxes, or rather the lack thereof.

The chart below shows that while AAPL has generated some $136 billion in operating profits in the past four years, the amount of cash taxes it has paid, as per the company's cash flow statements, has been a grand total of $18.6 billion: a 13.6% effective tax rate. And this $18.6 billion also includes taxes paid in offshore venues, so realistically the cash taxes paid in the US are likely well under 10% of profits.

The same on a quarter by quarter basis: operating income grows, cash taxes paid stay the same:

But far form us making an ethical claim here: AAPL is merely following the same legal loopholes that are available to all, yet made a mockery of the tax shelters used by recent presidential candidates. Perhaps one should ask Congress why these laws are there in the first place to allow the same companies that spend millions on lobbying members of Congress to retain billions in unpaid taxes via various tax shelters: a rather amazing IRR, if only for the corporations involved.

None of the above is news, and AAPL's aggressive use of tax loopholes has been known for years.

What has not been known is just how the cash from the company's seemingly endless profits gets moved from the Income Statement to the Balance Sheet: profits, which until recently were assumed would grow in perpetuity, until something strange happened: Samsung became cooler and faddier than AAPL, which coupled with accelerated margin erosion at AAPL grappling with an end-consumer who has increasingly less disposable cash flow, has led to a drubbing of the stock to new 52 week lows.

A Hedge Fund On Stroids

The conventional wisdom of Apple, and by implication of Braeburn, is of a boring old shop which invests its money prudently and cautiously in ultra-safe securities.

This is what AAPL itself has to say about its allocation of capital. From the just released 10-Q:

The Company’s marketable securities investment portfolio is invested primarily in highly-rated securities and its investment policy generally limits the amount of credit exposure to any one issuer. The policy requires investments generally to be investment grade with the objective of minimizing the potential risk of principal loss.

Good but... "primarily" and "generally"? One doesn't have to be an MF Global and JPM London Whale fallout expert to know that Jon Corzine's or Jamie Dimon's (or any other prop trading institution for that matter), was "primarily and "generally" supposed to be invested in highly-rated securities whose objective was avoiding risk and loss. Until it was uncovered they aren't. And as we explained previously, when we dissected AAPL's arm's length asset manager Braeburn, there is little more out there:

Braeburn has no reporting obligations: there is no Investment Advisor Public Disclosure (IAPD) entry on Braeburn for the logical reason that it is not an investment advisor: it merely manages an ungodly amount of cash for AAPL's millions of shareholders. There is also no SEC filing 13-F filing on Braeburn's holdings. As such, not confined by the limitations of being a "long-only", it is in its full right to hold any assets it feels like, up to and including CDS on housing, puts on Samsung, or Constant Maturity Swaps that pay if the 10 Year collapses. It just doesn't have to report any of them.

Nobody knows: and that's the beauty of Braeburn. It is the world's largest hedge fund that is not really a hedge fund, nobody has heard of, and nobody knows just what assets it holds.

Indeed nobody does know just what goes on behind the door of Suite 225 at 730 Sandhill Road in Reno, Nevada where Braeburn in situated. However, one can extrapolate some rather curious things.

Such as that starting December 2008, and through December 2012, according to its own filings, AAPL has bought and sold a grand total of $600 billion in "marketable securities", of which the sales alone amount to a whopping 205 billion!

What is not shown above is that over the same period, maturities on AAPL's ever-growing portfolio amount to some $82 billion. In other words, between maturities and sales, AAPL has generated nearly $300 billion in cash for investment and reinvestment purposes.

Shortening the time frame somewhat, just in 2012 AAPL's gross trading on its securities holdings amounts to a whopping $250 billion, or nearly $1 billion for every working day of the year: an amount that would put the turnover of some 99% of the most active daytrading hedge funds in the US to shame!

What is very curious is that even as AAPL's overall portfolio rose and rose, with purchases "primarily" of supposedly safe investment grade securities, an amount which has peaked at $121 billion as of December 31, 2012, the actual quarterly maturity of AAPL's portfolio, or the natural roll off, has decline to a near record low, or just 2.9% of total. How it is possible that the quarterly maturing notional continues to decline even as the portfolio, of both short- and long-term securities grows, is frankly, beyond our meager comprehension skills.

What is even more curious is that AAPL can't even make the excuse that it is merely churning its short-term marketable securitie. As the chart below shows, beginning in March 2011, the total amount of sales and maturities exceeds the quarterly total holdings of short-term securities, which naturally implies that a substantial portion of the long-term securities is also being sold.

So why would AAPL engage in what increasingly appears to be not only active portfolio management, but extremely aggressive and overzealous portfolio management, one which includes massive trades - buys but more importlanly sales - on a day to day basis?

Said otherwise: why is the world's premier maker of gizmos also one of the biggest under-the-radar day traders of unknown securities nobody has ever heard of?

* * *

We don't know the answer to these questions. We do know however, that if one is indeed engaged in plain vanilla money management, such as investing in ultra safe investments, there would be no need of such aggressive purchases and dispositions of securities.

In fact, adding the simple average of the short- and long-term marketable securities holdings of AAPL over the past 4 years amounts to some $59 billion. Yet, as noted above, the total amount of gross trades -buys and sales - over the same period is $600 billion, or a total portfolio turnover of some ten mindboggling times!

This is hardly what one would call boring investing in safe securities, and certainly something one would call aggressive to quite aggressive money management, one that not even some of the world's most successful hedge fund managers are equipped or willing to do.

Yet Braeburn Capital, a/k/a AAPL, has been doing it for the past 4 years, and does so to the tune of $1 billion per day.

* * *

Finally, there is the minor question of who exactly is it that executes these trades, or, in other words, which are the banks that have pocketed billions in commissions on AAPL's furiously traded portfolio?

We don't know, but we wonder: could it be the same banks that come rain or shine, gave AAPL a Buy rating, one which is still held by some 52 of the 63 banks covering the company, among which naturally are the most prominent brokers of "investment grade" securities:

Perhaps it would be very informative one day, years after the AAPL craze is long gone, to inquire just how much money AAPL paid out to any/all of the banks listed above in the form of trade commissions and other forms of "soft dollar" compensation. After all, any client which has conducted some $600 billion in trades in the past 16 quarters is known by one word at every single bank: "dream."

And parallel to that, one wonders what AAPL's total profits would have been and thus total marketable securities holdings, how much less the total trading churn and commissions to the sell side would have been had the downgrade battery started long ago, and thus broken the hypnotic and very much reflexive relationship between the world's most profitable company and its "coolness" factor, which in a feedback loop made it sell more products, making its market cap bigger, making its securities holdings larger, and making sellside profits greater, and so on ad inf... until one day it all snapped.

* * *
The point of the above analysis is not to take away from the operational side of the business: the fact that AAPL created and dominated the smartphone and tablet sector for years is undisputable. Yet now that many challengers are emerging, both new and old, both premium and commoditized, more and more attention is shifting to AAPL's balance sheet, and the main asset thereon: the company's cash and marketable securities.

The point of the above analysis is to show that when it comes to said cash and marketable securities there is much more than meet the superficial eye, and certainly much, much more than just a summary assessment that "AAPL has nearly $140 billion in cash so it has to hand this cash out to investors."

If there is one thing that the above should have made quite clear, it is that just as the AAPL product ecosystem is supposed to ensnare customers into always and only buying AAPL products, so the AAPL's portfolio management "ecosystem" may have made it impossible for AAPL to break away from what is now 4 years of uber-aggressive asset management in the vein of some of the world's most aggressive investors.

And that any hopes for a quick and easy disposal of cash to the benefit of shareholders may well not be coming any time soon.

* * *

Finally, a tangent: if indeed AAPL is invested in plain vanilla fixed income securities, as it reports, amounting to well over $120 billion which have a DV01 in the tens if not hundreds of millions, and if indeed, the great rotation from bonds into stocks has begun, AAPL, which many have jokingly called Fed-lite will suddenly develop a very, very big headache: how to dump over a hundred billion in debt in a market that suddenly has gone if not bidless, the bidweak.

Because while the Fed can print its own liquidity, AAPL, well, can't...

Source: AAPL public filings

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max2205's picture

Churn and burn

ziggy59's picture

Apple shelters almost $1bn a week from US tax man
Technology giant Apple shuttled $11bn (£7bn) into offshore tax havens in the fourth quarter of 2012, an analysis of its corporate filings has revealed.

Tyler Durden's picture

Or the analysis above. But that story is very well known by now. The question is "how" as this post explains, and what it means aside from the obvious.

SunBlaster's picture

I was so waiting for a graph that showed amount of own shares sold/bought vs stock price. 

reader2010's picture

Karma is a bitch.

dolph9's picture

Just keep updating your iPhones and iPads, sheeple, and don't ask questions.

joego1's picture

Are you trying to tell me that my bank of apple is a scam?

Cabreado's picture

Having experience in the industry, perhaps Mattel and Hasbro could help(?)

PhoThus's picture

Still waiting for Apple to pull their head out and make an iPhone with a nice large screen.

Tom Green Swedish's picture

Apple has a ton of cash.  That cash will one day be put to use.  It's a screaming buy at this price.  Remember what happened to Netflix.  Apple is 1,000 times better.


Secondarily, you keep bitching like a little girl about the FED and how much money they spent on QE.  I'm sorry buddy but the banks have excess reserves of 1.4 trillion dollars, and how much did the FED print?  The 53 to 1 leverage?  Thats bullshit the money is just sitting there doing nothing.  Yes the FED's balance sheet did increase, but all the banks paid back TARP, and we are only owed 130 billion dollars.  Yes you read that right.  Excess money have been printed, but it is being held by banks.  Do some research.  If it was let out into the economy we would have massive inflation, which would be rational for your PM hoarding nonsense.  So there you have it excess reserves beyond the 10 percent requirement are 1.4 TRILLION DOLLARS. Yes, that is money to burn.


How about we start with the EURO bashing again.  Italy only has 1.5 billion Euro in excess deposits, Germany around 313 billion Euro.  This is nothing and if there is a "run" on the banks this is about 30 DOLLARS PER PERSON in ITALY.  The ECB, and UK require 1 percent and 0 percent as a reserve requirement.  Get your facts straight.  The FED may have printed money but it is just a backstop. They are like Apple times 10. The banks hold all the money, not the Apple has more money than the Federal Government bs you talk abuot.



RSBriggs's picture

And your point is what, exactly??? 

TWSceptic's picture

Fools as yourself will be punished.

socalbeach's picture

The existence of X dollars in excess reserves doesn't mean the money is necessarily sitting idle, it means it's not being loaned out to the maximum amt permissible. Fed money printing has suppressed interest rates and enabled high levels of government spending, both of which cause price inflation. For example, if one is the recipient of government largesse and that person spends the money given to him, excess reserves stay the same as long as the moneys stays in US banks, but the money isn't idle.  Also, monetary velocity, which is tied to GDP, doesn't capture money spent buying existing homes, bidding up stock prices, or spent on imports.

Look at the graphs of M1, M2, and MZM, and you can see popular measures of money supply are increasing rapidly, so we have monetary inflation as well.

jonjon831983's picture

Dunno... maybe they`re trying to help by doing a wealth distribution from the poor sods who sell a kidney or liver to buy an iDead and churning it out to the poor old financial industry apparatus?

jonjon831983's picture

Did anybody try asking Siri?

Freedumb's picture

You can try, but you're not going to like what she has to say very much.....

"British tween Charlie Le Quesne and his mom were shopping at a store in England when he picked up an iPhone 4S on display and innocently asked Siri, "How many people are there in the world?" The 12-year-old, expecting the phone's automated assistant to give him a number, got a real shock when instead Siri answered, "Shut the fuck up, you ugly twat." Whoa, girl, watch your mouth!!! Charlie's mother, Kim, couldn't believe what she'd heard, so they asked the same question, thinking it must have been an error. But crabby Siri fired back with the very same expletive-laden rant." (Jezebel)

Ricky Bobby's picture

Bravo! Fucking Masterpiece.

Monedas's picture

What is your fucking problem .... it is AAPL's sacred duty to pay the Bernanke and the Obama .... as little tax as possible .... that's a resume enhancer .... as far as getting good PR for trading a lot .... well, what's your problem with that .... I don't own any AAPL .... but I applaud anyone's effort to survive in this sick socialist world  ?  

The Shootist's picture

Yeah, fuck taxes. The colonists had a revolution over a 1% tea tax. We're just debt slaves.

holdbuysell's picture

Fantastic analysis of the Q's and K's by ZH once again. Hidden in plain sight.

Show's over. The tech engine has gone to idle. Perhaps it rises again with the connected TV as Apple moves to the living room. Time will tell.

Or, watch for the Won to rise relative to the USD to put Samsung in check.

Monedas's picture

What were Foxconn employees doing before AAPL .... silk screening cormorant shit for edible fish scales ?  The Socialist mind set implies a limited imagination !

adr's picture

Making motherboards, TVs, LCDs, alarm clocks, and millions of otherfar more valuable products than an iPhone. Oh, by the way they still do. The iPhone is a big part of the business, but just one product of many.

Monedas's picture

Februrary  means Winter Festival in Pyongyang .... get your tickets now .... to get good standing room only spaces .... the military parades are superb over ice .... the synchronized click of the boots .... has a smart report .... you can't get that in the lazey, hazey parades of summer ! In Spain .... it's "sol or sombra" for the bull fights .... in Pyongyang .... you want your back towards Siberia !

Aunty Christ's picture

A cursory look of their 10Q and 10K's reveals their investment portfolio generates a return that is well under 1%. Traditionally, cash rich tech companies reinvest in short term debt instruments. Lately they have kicked up the allocation to mortgage backed securities and maybe a sprinkling of high yield, but those new allocations won't move the needle. It has always amazed me that tech companies treat their largest asset on the balance sheet as an after thought instead of trying to coax a return that beats their imputed cost of capital...

They Tried to Steal My Gold's picture

So how much money has APPLE made SHORTING it's own stock ? 


If Apple has the intention of doing a massive buyback anyway - Would it not make sense to short their own stock - taking out every damn stop known to man ,,,,,,,making money on the down side - create a technicallly poor stock to buy

and then create the :



                                   AT THE SAME TIME DRIVE THE STOCK ABOVE $750 A SHARE!!!!


Dr Benway's picture

For sure one day AAPL will engineer the greatest short squeeze of all time with buybacks. The beauty is this though: just the threat of this short-squeeze buyback is enough to deter shorts. The cash hoard should be seen as a way to terrorize other market participants into leaving AAPL well alone, thus removing price discovery. Soon all companies will engage in this financial terrorism, keeping billions on hand that they can use on selective ocassions to ramp the share, in order to squeeze the shorts or reward executives.

Oh regional Indian's picture

you're probably correct and the world of finance is truely and totally f'ed!

Just the daily figure, as big and sometimes bigger than POMO. Forget all the insider power such an arsnel of paper implies.

The mind truely boggles and APPL is really the company that will bring the house down when it's good and ready and the thermite is in all the right places.

A day of reckoning approaches.





mjk0259's picture

Most non index mutual funds have more turnover than that.

q99x2's picture

Why not own a public company and own a hedge fund to move the companies stock price up and down. I think Braeburn Capital should short AAPL into flames.

godzila's picture

I understand that the reporting requirements for what is being done with that money is pretty low but surely the AAPL balance should reflect whatever realized and unrealized P&L has been extracted from that pile of cash ?

Cardinal Fang's picture

The Telecom sector is very complicated, one would need to be able see the future to know what kind of rainy day Apple is forecasting, and for whom. hmmm, how much would you need to buy VZ or ATT? Or sell out to them? or?...

newengland's picture

The irony of it all. Steve Jobs the hippy geek jew designed a phone that everyone wants, and employed slaves in the East to make it. It's tradition. The world's biggest slave traders were jews.

Then the Israelis put major money into the company...and the price has fallen ever since.

What is it with these people? Do they hate each other? Madoff stole mostly from jews. Corzine's victims were mostly jews.

Oy vey! Their ghetto is killing them.

Milton Waddams's picture

jew bashing is the wart on zerohedge's ass.  

i hate to break it to you but people --- even non-jews --- hide behind the 'ANTI SEMITISM' balony because... it works.

don't hate the player, hate the game.

and you are here.

newengland's picture

Jew Jobs was a credit to his tribe. 'Jew bashing' on ZH is your perception.

Don't hate anyone. Write facts, figures and honest opinion.

TWSceptic's picture

No, he does not practice Judaism. He is not Jewish by blood either as his father is a Syrian Muslim and his mother is of Swiss and German descent. He practices Zen Buddhism.


Milton Waddams's picture

Fucking taxes, man.  If Apple were able to pay less they could hire more Chinese 'slave' laborers.  Think about the empire people, the empire.

Curt W's picture

Tyler's flash crash story about apple on friday is referenced on a cnn money story

Walt D.'s picture

"Most also know that AAPL aggressively uses all legal tax loopholes to pay as little State and Federal tax as possible, despite being one of the world's most profitable companies. "

... despite being one of the world's most profitable companies. ? 

What's that supposed to mean? Because they are profitable they should move to New York. Why not move to Paris? 

adr's picture

It was also just a few years ago that Apple just started opening thier own stores all over the place. The stores are used for channel stuffing to fake sales. I'm sure a little digging would find entities linked to Braeburn that either hold the property Apple stores sit on, or purchase inventory directly.

For certain the stores are incorporated seperately from Apple allowing them to book all shipped product as sold. The shipments to each Apple store are insane, and the reported sales are impossible. Perhaps if you could only purchase an Apple product from an Apple store, but considering you can buy an iPhone at just about any retailer, there is no fricken way.

Apple is every scam in the book wrapped into one company. Who knows, Braeburn may be the deal Steve made to get his job back, and probably his new liver. A funnel for Fed money, maybe even CIA stash. Whatever it is, it isn't just some shiny phones.

El Hosel's picture

         ... End the Apple

awakening's picture

Gonna need a lot of popcorn when that bubble, constructed by Apple flavoured bubblegum, pops.

resurger's picture

The FED will buy them, Afriend in need is a friend indeed right?

newengland's picture

CrApple is a scam now, although it was once a very fine innovative company. Pity about its's slave labour in the East, though. Odd that 'liberals' do nothing to end slave labour in the East which gives them their cheap toys, clothes et cetera.

Gosh. Anyone might think that the Democrats and Republicans are the new feudalists, slave masters with their globalist agenda.

Convenient that HollyWould comes out with another revisionist version of history  'Lincoln' as a guise for CONgress, and omits Lincoln's Christian will. Convenient that Obomba says he admires Lincoln. So many coincidences. So little truth.


Hobie's picture

Braeburn apples always were a little tart.

Baldrick's picture

Good for cooking though, not great like Ida Reds