When a natural disaster happens, everybody begins to quickly find alternatives because there is an expectation that governments and partners will find ways to bring things back to what is considered to be normal. In the meantime, various routes will be found that will take extra time and money, but they will be safe and short term in duration. When a war happens everything changes, often with many unintended consequences.

In an article by Sarah El Safty of Reuters, it is well known that oil tankers are not going through the Strait of Hormuz because of the war between the US and Iran. Iran began shooting at oil tankers, the oil tanker moving through the Strait stopped. This has caused a backup effect because oil storage facilities are full, pipelines are full, and oil fields are being shut down because there is no place for the oil to go.

The Strait of Hormuz is home to many other ships going to the countries of Qatar, Saudi Arabia, the UAE, Kuwait, Iraq, Bahrain for those countries are located on the Persian Gulf and many supplies come into the Persian Gulf.

Everything travels the way it does because of price, it is inexpensive to move things by ship, it is more expensive to use railways if they are built and for shorter distances road is competitive. The most expensive is by air. The war is slowing down travel by planes and the UAE has one of the busiest airports in the world.

The result is according to Ronan Boudet, head of containers at data analytics firm Kpler, trucking the goods from any port to Dubai probably be multiple times the price of ocean freight.

According to Kpler, 81 container vessels were bound for ports inside the Strait of Hormuz on Feb 28, just before the war erupted. Since then 43 have been rerouted to other Gulf ports, with the rest diverted away from the Gulf entirely.

About 70% of the Gulf’s food is imported most of it passing through the Strait of Hormuz. An example is Christophe Belloc of French fruit and vegetable industry association Interfel, pointed to about 5,000 tons of French apples bound for Dubai but stuck in transit. Apples have a reasonably short shelf life, no more than a 15-day delay.

If an importer tries to divert to other ports, the ports lack the capacity of the larger facilities which creates delay. Since the ports are in other countries, extra paperwork needs to be done with the products cross a border. Prices to move goods have been raised a minimum of 5% to 15% plus.

Yuvraj Narayan, CEO of UAE based port operator DP World said companies are adapting. DP World is already seeing shippers stage goods in India and Pakistan for onward feeder runs into smaller ports in Oman and going to ports in Jeddah on the Red Sea and Egypt’s Sokhna port. There is a lot of rerouting happening.

Linking to dividend paying stocks, every company has backup plans that they hope they rarely if ever have to use, they are meant to be tested but not much else. For a natural disaster, there is some warning but usually it is over relatively quickly but the clean up takes longer. For a war, no one knows because infrastructure will be damaged and it will take longer periods of time to clean up. All countries have operations built to highlight their strengths for example, the UAE had one of the largest areas of tourists in the region, which fed into its airport and hotels and the list goes on. Most are mainly shut down for the time of the war. What happens afterward no one is positive. Every developed and undeveloped country went to the Middle East to try to get some of the excess dollars, now where do the dollars flow? War has many unintended consequences, which is why business likes stability.

There are more questions than answers, till the next time – to raising questions.

Most of us fundamentally believe the system we have right now is the system that will exist for the next few decades. We see companies signing office leases for 10 years, we expect the economy that exists will continue to exist and hopefully it does. Have you ever wondered what are some of the underlying assumptions we all make?

In an article by Sam Sivarajanm, an independent wealth consultant offered an opinion we often do not think about much.

There is an old saying in investing: the biggest risks are not the ones that appear suddenly, but the ones that have been building quietly for decades – until one event makes them impossible to ignore.

Historically, geopolitical shocks always show a familiar pattern: fear-driven selling, followed by gradual stabilization as markets assess the full scope of the disruption. Carson Group analysis of 40 major geopolitical events over 85 years found the S&P 500 lost on average just 0.9% in the first month after the crisis, then gained 3-4% over the following 6 months.

The pattern assumed the underlying financial architecture – center on the US dollar – remained intact.

Since the early 1970’s, oil has been priced in US dollars and oil-exporting countries recycled their surpluses into US Treasury bonds and American equities. This petrodollar arrangement gave the US a remarkable structural advantage: lower borrowing costs, stronger global demand for its currency, and the ability to sustain fiscal deficits. Economists estimate this privilege is worth roughly $225 billion to $270 billion annually to the US economy.

At present the structure of the Gulf sovereign wealth funds, Saudi Arabia’s PIF, the Abuu Dhabi Investment Authority and Qatar Investment Authority collectively manage well over $2 trillion in global assets. Much of the investments are in private equity, infrastructure and real assets – things that cannot be sold quickly. When cash flow demands arise, the money comes from the liquid portion – US Treasuries and equities.

Trade between Russia and China settles in rubles and yuan, bypassing the dollar entirely.

Project mBridge – a digital payments platform developed by the central banks of China, UAE, Thailand and Hong Kong has settled $55 billion in cross-border transactions without using SWIFT.

The US dollar still represents 58% of the global foreign exchange reserves and no credible single alternative exists.

Linking to dividend paying stocks, we all buy into investments expecting what has existed will continue to exist and most of the time that is correct. We have seen many industries be disrupted and change happened and new industries take their place, so the economy will keep going. It is important to consider the assumptions you make when investing.

There are more questions than answers, till the next time – to raising questions.

If you listen to or read President Trump’s tweets, you will hear him say he wants lower interest rates, and the Fed should lower them. The Federal Reserve or Fed is an independent body which although hears what the President wishes, makes its decisions about the facts of how the economy is doing. Roughly speaking if the economy is not doing well, lowering interest rates is a good thing, if the economy is doing well, rising them a bit is a good thing, because the object is to keep inflation at a relatively low level. All economies have cycles, but cycles can be changed with government policies.

In an article by Colby Smith of the New York Times News Service, the Federal Reserve was struggling to get inflation to a 2% target or lower and then President Trump went to war against Iran.

Wars are inflationary because at the time of the event there is very little productivity going into the economy. Some weapons will be made, but in war you use the weapons that were produced before the engagement. The military spends excessive money because war is expensive, there are reports the war is costing the US about $1 billion a hour if you include all the activities of the military. The government suggests $1.5 billion a day, but that is low. War tends to cause inflation.

The war in Iran is causing a supply shock to the world’s use of oil and gas. As a commodity, when the price rises on the exchanges it affects all countries with higher prices. Whether the country is an importer or exporter of the commodity. The rise in oil prices means everything connected to oil and gas – which is many products – will go up. When the prices go up, inflation rises.

The issue is how long will the war cause oil prices to rise. This particular war is causing the producing, the storage, the transportation and the usage of oil and gas to be all effected, which implies if the war was over there would be a time delay before what is considered normal to return. The producers had to lower or stop production and that does not start overnight. The ships have to go and come back, the storage facilities have to drop levels, logistics matters.

The Fed typically disregards swings in energy prices because it often takes a significant, long-lasting shock to fundamentally change the economic outlook.

Allan Detmeister, a former Fed economist now at UBS estimates for every rise in $10 for the price of a barrel of oil translates to 0.05% uptick in core inflation.

The real problem with the increase in the oil price is the cost of gasoline and other affected prices means the consumer has fewer choices and people tend to pull back on spending in general. Goldman Sachs economists believe for every $10 increase in the price of a barrel of oil, the GDP or economic growth will fall 0.1%.

Linking to dividend paying stocks, if you own oil and gas stocks, they will make windfall profits and increase share buybacks and continue to pay dividends. For the rest of the market, for consistently profitable companies they will likely be able to deal with the upheaval. For those in debt, it is good to look for alternatives.

There are more questions than answers, till the next time – to raising questions.

Every business particularly in the commodity-based industries there is a conflict, the higher the price that is good for the business producing the commodity, but not necessarily good for those who indirectly consume it. In the last month, the US started and a war with Iran for a variety of reasons, none of which has been well articulated. One of the many consequences is oil prices went up because Iran has large reserves of oil and gas and with a war it stops.

Another consequence of the war is geography; Iran is on one side of the Strait of Hormuz which is about 30 miles wide. The issue is 20% of the world’s oil and gas tankers need to go through the Strait. If the Strait is closed, no ships go through, if no ships go through, the producing countries have to store the oil, when the storage facilities are full, they producers have to stop production. If they stop production, it will take weeks or months to get back to normal.

The number 20% is stated in the media, but what does it really mean? Oil is measured in barrels and the 20% is equivalent to 18 to 20 million barrels of oil a day. Most of the oil from the Middle East goes to China and other Asian countries. If they do not have enough oil, production of goods will decrease.

In an article by Jeffery Jones and Emma Graney of Reuters, the International Energy Agency own storage facilities for oil they hold in reserve for their member countries. The IEA agreed to release 400 million barrels of oil which sounds good, but there are considerations.

Jeff Currie of Chief Strategy Officer of Caryle Energy Pathways, discussed the flow rate that can be released per day is about 2 million. The world needs 20 million which means they are short. In addition, 400 million divided by 2 million is 200 days. The IEA helps but it is not nearly enough.

In the US, Energy Secretary Chris Wright talked about expanded production in Venezuela (but experts predict that will take 10 years. He also talked about the US Navy which the 5th Fleet is headquartered in Bahrain would escort ships through the Strait of Hormuz and then had to walk it back. (the easier solution is to negotiate with Iran, remove sanctions and let the oil flow to Asia.

As a result of these actions, the commodity oil has increased, because oil and gas is used in many products in the economy, it will quickly have a ripple effect on higher prices. The easiest one to see is gas prices at the pump, but spring is coming which means farmers need fertilizer, that will go up in price. will the price of the crops go up? Food prices will rise at some point and the list goes on.

If you are an investor in airlines, after planes, the biggest cost is airline fuel, the cost went up. More people were flying which is a good thing, it will quickly become more expensive to fly. If you want to see an interesting chart is flights over Iran before the war and the day afterwards. Many airlines flew over Iran, they have to go around it which means higher energy prices because they will use more fuel.

Linking to dividend paying stocks, there used to be a saying about 6 degrees of separation meaning it does not take long before many things are interconnected. The world somehow balances one and if you let one part of the equation lapse, others will suffer. This is when you have to ask can the companies you invest in pass on their higher costs to the end user?

There are more questions than answers, till the next time – to raising questions.

A book called Longshot by David Heath published by Hachette Book Group, New York, 2022 helps explain why the process did not take as long as it generally is expected to.By all accounts, the vaccine did what it was suppose to and millions of lives were saved, but it seemingly came faster than most vaccines. Why and how are the pieces of the puzzle Mr. Heath writes about.

The story of finding of discovery is also about the people who work in the industry. Their curiosity allows them to make the next step and then there will be ups and downs as they try to find a solution.

Barney Graham was the deputy director of the National Institutes of Health’s Vaccine Research Center. This is the clearing center for the US government response to all the viruses that are out in the world. Scientists around the world share information about what is new and what could be the next concern. A scientist in China posts on Virological.org, a scientific bulletin board. In this case most of the email was a jumble of 4 letters, A, C, G, T, when the email is analyzed on a computer it revealed the virus’s identity. Graham had suspected the virus was a coronavirus, but he needed more data. The genetic code revealed the precise makeup of the so-called spike protein on its surface. Block that protein and you can render the virus harmless.

The center’s primary mission from the start has been to develop a HIV vaccine. But the virus that causes AIDS proved to a formidable foe. Our bodies mount a pitiful defense against it. Any vaccine able to defeat it would have to dramatically outperform our own immune systems.

The National Institute of Health was formed to tackle HIV, but over the years, it had evolved into tackling other virus such as the common cold for children or RSV. The RSV is the leading cause of hospitalization of children and as a cause of death among the elderly. Mr. Graham borrowed lessons learned from the HIV to ultimately choose messenger RNA as the vehicle to stop a pandemic.

The other story about drugs is the world of allocation of resources or money to do something. As the deputy director, Mr. Graham was in a position to move to production of the virus and receive $5 million for a demonstration project.

Later on in the book, the 2 scientists working at Penn State, besides being good scientists they had to be or have the skills in the office to be good grant writers. Scientists have theories, grants from the government pay for the research facilities and salaries. How good is the grant writing ability of the scientists will depend on what people do research on. After doing research and coming up with a conclusion, then Universities sell or partially sell the research to a company to commercialize the work.

Sometimes it is wonder how the world of pharmaceuticals functions at all.

Linking to dividend paying stocks, before you invest and even after, doing your homework or research is always the key. The key to understanding how the industry makes money, the key to understanding what factors work in the industry and if you are comfortable you can invest in early stage or late stage. Technically you can make more money in early stages, but some companies will not go far. If you invest in later stage companies, the probabilities means you may not make as much money but it will be more consistent through the years. There are tradeoffs in investing, and you have to understand them.

There are more questions than answers, till the next time – to raising questions.

If you invest in pharmaceutical companies, you will know there usually is a process, there is a long process and that long process has many ups and downs. The companies’ scientists pursue various drugs, hoping for a breakthrough on the way to a billion-dollar drug. The process includes years of research, years of testing and then testing on people and if the drug actually works or does what it supposed to without having side effects, it can be introduced to the public. Most people believe even with AI or technology, the process is supposed to take years. Then the vaccine for COVD-19 came along.

A book called Longshot by David Heath published by Hachette Book Group, New York, 2022 helps explain why the process did not take as long as it generally is expected to.By all accounts, the vaccine did what it was suppose to and millions of lives were saved, but it seemingly came faster than most vaccines. Why and how are the pieces of the puzzle Mr. Heath writes about.

The truth is the science behind the vaccines had been in the works for at least 15 to 20 years. Both the Moderna and Pfizer mRNA vaccines relied on a breakthrough that was published by scientists at the University of Pennsylvania in 2005. Work on a coronavirus vaccine really began in 2013 with the outbreak of a different novel coronavirus: Middle East respiratory syndrome- MERS for short. In fact, the COVID-19 vaccines stem from a scientific article published in 2017 as well as a patent a team of dozen scientists filed for in October 2017.

The truth is that the politicians and the drug companies could not have made these vaccines rapidly had it not been for a small group of scientists who made the right decisions at the right time. Their moves are ones of incredible foresight as well as incredible luck. The breakthroughs had quietly revolutionized vaccine science, and yet hardly anyone realized it or even frankly cared about it at the time. Even the scientific community was largely unimpressed as it was happening. Prestigious scientific journals rejected some of the key articles that would ultimately make the vaccines possible.

One man in particular, Barney Graham at the National Institute of Health pulled all the threads together. His main reason for studying coronavirus was less to save the world and more to explore the unknown. Mr. Graham had seen SARS and MERS and was concerned that another virus was coming, it is better to be prepared.

HIV played a role in developing COVID-19. HIV has the rare ability to play hide and seek with antibodies. Even if the antibodies find the virus, HIV magically disguises itself through rapid mutations, rending the latest batch of antibodies useless. HIV is treated by antiviral drugs, but if someone goes off the drugs, the virus can and does come back quickly. For our story, learning about the science changed our ability to develop vaccines forever.

The story of the vaccine is full of what-ifs. At several stages, any wrong turn might have taken us down a path that would have deprived us of a COVID-19 vaccine. The 2 scientists who solved the riddle of how to use RNA to treat disease were Katalin Kariko and Drew Weissman at the University of Pennsylvania, what if they were never able to convince investors to let them commercialize their discovery? What if another scientist – Derrick Rossi of Harvard University – had not use Weissman and Kariko’s science to be found Monderna? What if Graham had kept pursuing an HIV vaccine and never bucked the culture at the National Institutes of Health by turning his attention to other viruses? What if MERS had not broken out in the Middle East just when Graham was looking for a new virus to conquer?

Perhaps the biggest stroke of luck was that SARS-CoV-2 was not more lethal. The book says many things had to happen at the same time or we were lucky this time.

Linking to dividend paying stocks, if you invest in drug companies, there are a multiple things which had to and do happen in the background. Understanding the process is important to investing, and clinical trials are the key. Does the work on humans? because humans are complex. For the drug companies what percentage of people is the drug a solution to their problems and for investors what revenue does it translate to if approved by the government and put in the health care drugs that get paid by medical insurance? There are many moving parts, few seem to be simple.

There are more questions than answers, till the next time – to raising questions.

A number of years ago, Russia invaded Ukraine and the western world-imposed sanctions on Russia, for a wide variety of issues, including what Russia might do if they took over Ukraine. The war has been going on and the sanctions have remained. Then the US invaded Iran which sent up oil prices because of where Iran sits in geography. Iran borders the Persian Gulf and the Gulf of Oman which is connected by the Hormuz Strait. The Strait is about 30 miles across, but Iran covers the eastern side of the gulfs while countries such as Iraq, Kuwait, Saudi Arabia, Qatar, the UAE are on the other side. All those countries are rich in oil and gas and for decades the way to move the oil and gas was pipelines to the Persian Gulf and load the oil and gas onto tankers to go around the world.

The logistical problem is the Hormuz Strait, whoever controls the Strait controls the tankers. All the countries use the Gulfs to move goods around the world and 20% of the world’s oil goes through the straits. Most of the oil and gas is being sent to Asian countries including China and Japan as well as India and Europe.

When President Trump invaded Iran, this set up an unintended consequence. It was expected during the conflict, Iran’s production would drop, but the problem is the tankers stopped moving which meant the producing countries had to store the oil and gas and when the storage facilities were full, they have all cut production.

President Trump has proposed a number of solutions including the US Navy providing assistance to tankers, the US International Development Finance Corporation (DFC) providing insurance to the owners of the ships However, logistically how many ships could the US Navy cover as they move thorough the 30 mile Strait of Hormuz?

The US Department of Treasury has come up with a solution, it will lift sanctions on Russian oil and gas and allow Russia to sell to India for 30 days.

In the meantime, the President of Russia has told Europe that if it removes sanctions, it could buy Russian oil and gas.

The problem is Russia has some of the world’s largest reserves of oil and gas, if it sells to Europe and India which they were doing before it invaded Ukraine, the Russia will have money in the bank account. The war with Ukraine has meant Russia’s bank account has suffered, it has drawn down reserves to pay for the war and the economy is not doing is essentially in recession. Selling the oil and gas reverses the situation and allows the war with Ukraine to go on.

Treasury Secretary Scott Bessent said the 30 day period would only apply to Russian oil stranded on tankers after no customer could be found. In the oil business, companies fill tankers and they are dispatched without an end customer, they are the shadow market of the business. Customers know about the oil and often it goes to refineries at a discounted price, so there is incentive to keep the shadow market operating.

Analysts believe that the shadow market for Russia would be 125 million barrels of oil.

Prior to the war with Ukraine, oil and gas was easily 20-30% of the Russian budget.

Linking to dividend paying stocks, government policies are supposed to be based on principles but if you are a student of government politics, those principles seem to be malleable under pressure for the world circumstances.

There are more questions than answers, till the next time – to raising questions.

In many companies, the President makes a significant contribution and the stock moves higher. If that period is sustained for a few years, the name of the person becomes known beyond the company. If they manage to do it for decades, the financial press regularly will cover the individual. However, as time goes on people also get older and eventually succession planning takes place. A prime example of someone who has run an organization for decades is Warren Buffett.

In an article from Reuters, one of the widely known businesses owners is Warren Buffett and at present he is 95 years old and he has recently stepped down from the CEO of Berkshire Hathaway. Mr. Buffett remains Chairman; the new President and CEO is Greg Abel.

Taking over as President comes with a heavy burden and as one of the most successful companies in the world, there are many opportunities to do something meaningful. The company has $373 billion in cash at its year-end.

Berkshire will buy back some of its shares, something it has not done in two years. The company does not pay a dividend and does not expect to in the future.

Mr. Abel said he bought 21 Berkshire Class A shares for $14.6 million, he now holds about 249 shares worth about $182 million. He envisions running the company for 20 years.

Berkshire’s portfolio of companies include: Geico Corp car insurance, BNSF Railroad, Berkshire Hathaway Energy, companies such as Dairy Queen, Duracell, Fruit of the Loom, about $300 billion of stocks led by Apple, Coca Cola and American Express and a host of industrial and manufacturing companies.

Linking to dividend paying stocks, often times one of the many variables you are drawn to a company is the President and what you think of the person. As time goes by and the person executes you like the company even more, but eventually the person retires what do you do? what steps does the new President do to make the company on their vision? Do you keep the stock or find alternatives.

There are more questions than answers, till the next time – to raising questions.

If you ever tried or wanted to evaluate companies, one of the people who you likely used the work or heard about Aswath Damodaran. He teaches corporate finance and valuation at the Stern School of Business in NYC and has many You Tube videos about valuation. He is featured on many business shows and has been doing valuation for a number of years. A decade or two ago, his analysis would include: he would ask his students why did they pick the number for growth they did. The answer was China. The country was booming and picking a number had the possibilities of being correct. If you believe in cycles for economies, the growth rate for China is on the downside.

In an article from James Griffiths of Reuters, China expects its economy to grow at 4.5 to 5%, the lowest rate the government has set in decades. This the first time China’s leaders have set a target below 5% since 1991.

Premier Li said, particular attention to expanding the domestic economy. China must shift from its long-standing reliance on investment and exports toward a model primarily driven by innovation and consumption, adding that while manufacturing could be further upgraded, its share of the economy should fail.

China’s current insufficient consumption is deeply tied to a series of institutional and structural factors, making it unrealistic to fully resolve these issues in the short term.

Linking to dividend paying stocks, every company expects and projects growth rates, do you agree with them? do you expect things to be different? If your investments are expecting lower growth rates, then it is time to reflect on your holdings.

There are more questions than answers, till the next time – to raising questions.