Stock repurchases and their consequences

A LETTER TO TIM COOK, CEO OF APPLE INC.

Tim Cook, CEO
Apple Inc.
1 Infinite Loop
Cupertino, CA 95014

Dear Mr. Cook:

You recently received a letter from Carl Icahn, the billionaire owner of Icahn Enterprises and a large shareholder of Apple stock, along with his son Bret, in which they urged you to make major repurchases of Apple stock. They estimated that Apple shares are currently undervalued by about $100 per share, and that Apple had some $153 billion on its balance sheet from which to make major purchases. Such a move and its projected consequence would increase Carl’s net worth by about $5.3 billion dollars, an outcome he failed to mention. Son Brett would also benefit by many millions of dollars as the manager of Carl’s hedge fund. But they noted any such reference to those huge gains would be “cynical” on the part of those who might make it. I don’t wish to be seen as cynical, rather as a concerned U.S. citizen, economist, and a humanitarian with a broad view about such matters.

I also hope it is not cynical to ask if you still hold stock options on Apple stock worth some $700 million? It’s a fair question because you and the Icahns are wealthy beyond the imaginations of most other residents of planet Earth. Piling additional billions onto your combined wealth balance sheets would scarcely be felt by you or the Icahns, yet that same wealth would carry with it millions of lost opportunities that could benefit your employees, your consumers, the U.S. government and U.S. taxpayers, the communities in which you operate, growth and income around the world, employment in many other areas, living conditions in those same locales, health and educational opportunities, more tax revenues for rebuilding infrastructures, and the general well-being of people everywhere. If all of those consequences are “cynical,” then please count me among the cynical. But I still think of myself as citizen, economist, and humanitarian.

What Carl Icahn either does not understand, or does not want to understand, is that income and wealth inequalities are at critical levels here and around the world. He probably does not know that we have the greatest wealth inequality in the world, that $23 billion dollars in wealth is being sucked out of the U.S. economy every day, and it is being added to the wealth of those at the top. (I did the math, and I am really good at math). At present projections the U.S. and world economies will implode with consequences far beyond the reach of Carl’s projection lens. It is inevitable in 30 or so years unless leaders like you resolve to acknowledge your responsibilities to others and to change the course of history.

I maintain that you stand at a moral crossroad. You can take the path that Carl Icahn and others like him encourage, and bring on the biggest economic disaster in human history, or you can say “enough!” and take the other path that could begin to level the playing field of opportunity for millions of people everywhere. Here is my projection for wealth at the top in the U.S. It is similar for the rest of the world:

Wealth of the top 10 percent (in $trillions of dollars)

2014 - $75
2024 - $150
2034 - $300
2044 - $600
2054 - $1200

These projections are based on the compound annual U.S. wealth growth rate during the past 50 years. I can’t say when a bloody revolution will take place because of these numbers. I also have never seen what 500 million Americans can do when they get really fed up and begin destroying everything they have created.

Ed

P.S. 93 percent of GDP and jobs are created by consumer and government spending. Contrary to the assertions of some, increasing the value of a company’s stock via repurchases does not add one job to the employment roles, nor one penny to GDP, nor does it alleviate any of the social conditions such as hunger, crime, disease, obesity rates, suicides, life expectancies, teen pregnancies, or social mobility.