A trillion dollars is not what it used to be! That impressive figure has revealed itself in two different ways over the past few weeks.
In the first case, it marks a measure of business success that is truly unparalleled in history. In the second case, it highlights a deep and growing concern about official economic policy.
Apple released their latest quarterly report and its stock rose to levels that helped the company pierce the trillion dollar mark.
Investors for many years have been doubting the resilience of Apple. The littered path of hardware makers is both long and storied. Just think of names such as Gateway, Blackberry or Nokia. The primary concern with hardware companies is the intense pace of change they face in both customer tastes, required successful innovation and the inevitability of commoditization. Few have ever navigated it successfully for too long.
Yet, the doubts have begun to fade into the background as Apple has shown itself to have two additional assets that pure hardware makers don’t usually possess.
With an installed base of iPhones and iPads of over 1 billion in use today, the business model of “planned obsolescence” has created a very predictable device upgrade cycle for Apple. Once you get hooked into the Apple-based user experience, few switch to an alternative. As a result, almost like clockwork, a new iPhone finds itself in your palm every two to three years.
And, with almost 25% of its revenues coming from services such as the App Store, Apple Music, Apple Pay and iCloud, Apple is building an enviable level of consumer stickiness; creating a virtuous cycle for future device upgrades. It’s little wonder Apple now sails in the unchartered waters of a trillion dollar company.
While not as celebratory as Apple’s, yet another trillion dollar milestone will soon be reached.
Despite entering our tenth year of an economic expansion, the latest projections from the nonpartisan Congressional Budget Office show soon-to-be $1 trillion deficits for as far as the eye can see. Not surprisingly, the surge in deficit projections has been fueled by a combination of large tax cuts and continued unconstrained federal spending.
What’s sparks my concern is the talk of a new wave of tax cuts to come. The most recent chatter focuses on making the cuts “permanent” and using inflation adjustments as a way to lower taxes on capital gains.
The stated goal, of course, for this unconventional policy – that is, boosting fiscal stimulus deep into an already long-in-the-tooth expansion – is to grow the economic pie. As the old business saying goes, I guess we’re going to try to make it up on volume!
Still, if one wanted to charge that this political agenda imprudently throws caution to the wind while unabashedly favoring the wealthiest among us, it wouldn’t be a totally unfair charge.
We do live in a time of economic and political wonder. All I can say with certainty is a trillion dollars just isn’t what it used to be!
Jason P. Tank, CFA is the owner of Front Street Wealth Management, a fee-only wealth advisory firm located in Traverse City. He encourages questions and comments about future columns. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com