Everyday there is a wealth of information to be absorbed and most of us do not have the time to read and analyze everything or we rely on short cuts. In an recent article about the JP Morgan index, Scott Barlow helps explain why that index is important.

The monthly JP Morgan Global Manufacturing PMI Index is an excellent way to check for mispricing in industrial metal prices and domestic mining stocks. The data looks backyard or what has happened, however when metal prices diverge rom changes in global manufacturing activity it is often a sign that speculation excess in metals – bullish or bearish is creating investors opportunity. Another method to say that is global manufacturing creating a demand for metals? what are metal prices doing?

In Mr. Barlow, he compares the JP Morgan Global Manufacturing PMI Index to the S&P GSCI Industrial Metals Index and they are showing the same direction. The direction is negative and there has been a sell off in metal prices.

Andrew Garthwaite, a strategist with Credit Suisse uses the JP Index to compare the yield from 10 year Treasury. In 2017 it was at a high of 55, now it approaches 50, if the number is below 50 expect a worldwide decrease in manufacturing.

If the above continues, Mr. Garthwaite believes US Treasury yields will decrease.

The most widely agreed upon definition of a stock price is the discounted value of cash flow and dividends. Bond yields determine the discount rate, if it goes higher stocks go down, if it goes lower stocks should go up.

Similar to every theory, there are elements in the economy which can change the theory until the next month.

Linking to dividend paying stocks, no one knows which stock will go up or down, but you can look at history to determine which are better ones to own. Throughout history, if you own a profitable stock which pays a dividend, that has been a very good thing to own. Understand why your investments make a profit and as the value of the investment grows in your portfolio, you may start looking for the JP Morgan Index or another one.

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

Similar to countries around the world, Australia has faced drought and these days it seems we have more than less. We have all heard about the cycles of life (Lion King) but is there things which could be done to lessen the drought? Recently an You Tube video popped up and it was good that it came. The previous post was about dirt, if you do not have water no crops will grow. The Mulloon Institute story of two men and a creek or river in Australia. They own land on the creek but it was eroding, the creek was prone to flash floods when it did rain and then long dry spells, similar to many farmers they were looking for a way to lessen the droughts.

One of the gentlemen, saw the land differently, he believed the earth held the water like a sponge and it slowly trickled back to the surface. With the creek, he believed if you could slow down the water, plant reeds and willows then the water would be retained and soak into the earth, allowing the fields to stay green or be planted and grow. His partner had the resources to try and it worked! The lands by the creek stayed green through the drought while the lands on adjoining properties went brown. Over the past few years, the Mulloon Institute has gone further down the creek or river and more farmers are reaping the benefits. If it can happen there, it can happen anywhere.

Recently read a book called Silent Spring by Rachel Carson published by the Houghton Mifflin Company, Boston, 1962. She writes about the ill effects of chemicals in our environment and in the US for a number of years there was a single determined effort to treat a pest or what is perceived to be a pest by chemicals without consideration of how nature would do it. In nature elements are interconnected, for example in both Australia and the US, Willow trees were sprayed to be killed. Willow trees have long roots systems which hold water in the soil, eliminate that and what do you put in? if nothing the streams will erode the banks faster. Now you have more problems than you started with. Working with nature helps solve problems with less money.

Linking to dividend paying stocks, it took a couple of visionaries – one that had a vision and one that could make the vision into reality. We all tend to think some form of change is better, but often looking at how the systems developed originally or how elements are connected will give a solution. In many ways, one solution to investing is investing in profitable stocks, that pay a dividend. If the profit is sustainable, then you will reap a dividend for a long time to come and be wealthier for your actions.

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

In the fall after the plants are gone, farmers and gardeners look for next year. What can I do to improve or make it easier to farm or garden?  One method is to read books and one which was recently read was The Gardener’s Guide to Better Soil by Gene Logsdon published by Rodale Press Inc, Emmaus, Pennsylvania, 1975.

If you are fortunate to live and work in rich, black loam full of humus, all you  really need to do is start your planning. If you are similar to the rest of us, the quality of the soil will depend on how well your plants do. The better the quality, the better they will do.

If you consider the book was written in 1975 and om 2018 we are still dealing with the problem when the solutions are know, it sometimes makes you wonder.

Man is 7 inches from starvation is an old but true saying and it means we grow on the top 7 inches of the earth.

The fall of almost every civilization is largely an account of raping natural resources until all the easy profit goes out of them. The history books from Roman times to modern times are filled with examples.

We do not set up to intentionally do it but man finds a good land and establishes a civilization. His flocks graze the grass; he tills the soil. Increased populations put more demand on the productive capacity of the land. Overgrazing and over-tilling both follow. Plant life becomes too weak to restore itself, and the soil grows yearly more deficient in plant food and tilth. Weak plants can not control erosion – note wind and rain do not cause farm erosion, lack of nitrogen and organic matter do. Deforestation, over-grazing, intensive tillage all then contribute to a hard soil where water runs off quickly. Summer soils become drier, winter floods more destructive.

In the 1930’s many people heard of the dust bowls. Once alarmed the answer was technology. Technology included dams, grass waterways, contoured slopes, chisel plowing, terraces. Chemical fertilizers were used on a giant scale. By the middle 60’s, America had a surplus of food. The areas that showed the greatest increase in agricultural production was the Great Plains and California. How was it done – irrigation.

Water comes from somewhere and is it being replenished?

The issues remain, which is a shame – we know how to fix it.

Linking to dividend paying stocks, we all like to believe we have made progress but sometimes the answer is not so much. History does not always have to repeat itself. Mulching and using composting to continually enrich the soil is similar to collecting dividends. The company makes a profit, pays dividends to you – you are enrich once again and can either put more money into the business (buy shares) or have other alternatives to save or spend the money.

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

In the northeast, some of the power that is used comes from north of the border or Canada. Quebec brings hydro from the rivers that flow into James Bay and from the Churchill River or Churchill Falls in Newfoundland. In 1969, the people developing Churchill Falls needed Hydro Quebec’s to sell the energy, they needed Hydro Quebec’s credit to pay for any cost overruns so they signed a fixed contract to last until 2041. In the 1970’s OPEC raised the price of oil which made electricity a viable alternative and since then the price of electricity has risen. The Province of Quebec or Quebec Hydro depends on the difference between the fixed costs and the price paid by the citizens of New York and Boston and people in between. The Province of Newfoundland has been going to court to be released from the fixed contract and be able to sell the hydro to Quebec Hydro for more money.

Recently the highest court in Canada made a decision the fixed contract stays until 2041 because the people who signed the contract were not a group that was considered to be weak or vulnerable in a negotiation. Yes times have changed but a contract is a contract if people have been fair and reasonable during negotiations. Although Hydro Quebec has gained an extra $26 billion, if it was not for Hydro Quebec guarantee the building would not have taken place.

Linking to dividend paying stocks, there are many and will be many examples of a larger company offering assistance and credit to a smaller company, but the key is if the larger company did not offer the likelihood of the project going forth was remote. Times change but who knew? Often the bigger companies are dividend companies because they have a long time frame and can see the potential advantages if even customers use the product. In the case of the hydro plant, the alternative had to change – oil and gas to make electricity. When that changed the utilities need alternatives and looked to Hydro Quebec. We do not know, but larger companies have more options than smaller ones.

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

 

The biggest buyers of stocks are coming back, it is not the institutions but companies buying back their own stock. Stan Choe of the Associated Press wrote about the ebbs and flows of stock backbacks.

Business were holding back on repurchases because they were in one of their blackout periods for buybacks, a regular occurrence leading up to the release of their quarterly results.

Buybacks are huge in this market, partly because of the record profits companies have been making thanks to lower tax bills. It is expected buybacks will reach $ 1 trillion this year. Last year the number was closer to $500 billion.

In the financial services, analysts expect to see Bank of America, Citigroup and Wells Fargo as the most aggressive buyers.

Buybacks provide support for stock prices or limits the decrease, as well they enhance the EPS or earnings per share. When a company makes a $100 profit, if there was a 100 shareholders the EPS would be $1 per share. If the company buys back 50 shares the EPS jumps to $2 per share and the price of the share tends to increase as it trades at normal times EPS of its industry. In this example if the answer is 15 times earnings then the stock would move from 15 (15 x 1) to 30 (15 x 2).

Linking to dividend paying stocks, there are cycles and normal actions that happen on the market, for example when companies can and can not buyback shares. Patterns and cycles help make easy money for you.

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

We are all bias, which make lists from the investment banking houses interesting to note. Business writers often see investment bankers recommendations and David Berman wrote about Goldman picks. Goldman Sachs complied a list of US companies within the S&P 500 that have strong balance sheets, stable sales, growing earnings per share, high return on equities and a track record of mild sell offs. The companies have high gross profit margins and can pass along costs to customers.

Using a scale of 0 to 100, Goldman gave O’Reilly Automotive Inc a retailer of auto parts and tools for the do-it-yourself and professional installer markets. The company has 5.190 stores in 47 states and generated a profit of $366 million in the 3rd quarter. The same day sales per store increased 3.9% and the company is looking to open another 200 stores.

While O’Reilly received 94, Mastercard and VISA received 92, the average was 81 and 52 for the entire S&P 500.

Morgan Stanley also likes O’Reilly because the Do it yourself market is less discretionary, less promotional, and competitive pricing is generally benign.

The stock was down 5% in October, but is up 36% in 2018 to $320 area.

Linking to dividend paying stocks, there are opportunities in every sector, which makes doing your homework important. Most of us tend to look at 2 or 3 sectors because we pay attention to those sectors, but ensure you are looking past them, there are diamonds in the rough.

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

In the North east and for that matter anything over the Mason Dixon line, a consideration is winter. Most of love being outdoors, although our work takes indoors, while at home we will let the light shine in our homes. Unfortunately the weather patterns at this time of the year means winter is coming. Those of us that live in the northeast, know one way to save money is to ensure your home is relatively secure around the windows where heat loss occurs. When electricity was considered cheap, few people were concerned given homes were built with seemingly little instulation. As the price of heating moved up, it is expensive to redo a home so in the meantime we use insulating film.

The plastic goes over patio door and windows to help keep out the winter winds and keep the warm air generated by the furnance inside. There are a number of other things to do in addition to the insulating film for example use of caulking, insulation and air tight windows and doors. Similar to many things in life, there are potential solutions, which one  you choose is up to you for they all work to one degree or another.

Linking to dividend paying stocks, in the cycles of the weather, there are some companies which do better or should do better depending on the time of the year, given a reasonably normal course of weather events. For utiltiies, there will be more residential demand in the winter and less in the spring and fall and more in the hot summer days where air conditioning of some sort is needed. In your investing, there are cycles and it makes it easier to regularly invest if the dividends come into your account then you can reinvest in what you have or buy something on your wish list. The use of the dividends ensures you have the time element of patience.

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

In the world of mining giants, BHP Billiton PLC is one of the biggest and on November 1st announced it was going to return to shareholders $10.4 billion. The money will come in the form of a special dividend – cash to existing shareholders and buying back outstanding shares.

The money came from the sale of its US shale business to BP PLC.

According to Sonali Paul of Reuters the announcement was greeted with cheers however there are critics. The cheers like the actions, however it says the company does not see opportunities to use some of the cash in other operations. The cheers come from those who saw miners buy a peak prices and now those assets are still worth lower values.

BHP’s Chief Executive Andrew Mackenzie noted BHP in the past 2 years has returned $21 Billion to shareholders. BHP trades on the Australian and British stock exchanges and the buyback applies to the Australian exchange. For institutional investors there are tax benefits to the Australian exchange over the British exchange.

Linking to dividend paying stocks, if you like miners, BHP is worth examining, if you buy before November 19 you will receive money for your shares which lowers the cost of your acquisition. With the company buying shares, this means the EPS will be lower and tend to increase to where it was before the announcement which means the shares should trade higher. No wonder investors are cheering.

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

At the end of October, IBM announced it was paying $34 billion for the software company Red Hat based in Raleigh, North Carolina. An article by Liana Baker and Greg Roumeliotis of Reuters, IBM’s reason for the purchase was to diversify its technology hardware and consulting business into higher margin products and services.

IBM faces slowing software sales and less demand for its mainframe servers, with the purchase of Red Hat IBM will become the world’s No 1 hybrid cloud provider.

Red Hat uses Linux which is an alternative to software made by Microsoft. Red Hat charges fees to corporate customers for custom features, maintenance and support. The purchase also shows how older companies such as IBM are turning to deal making to gain scale to fend off competition in cloud computing. The competition in cloud computing are Amazon, Alphabet and Microsoft.

To pay for the purchase, IBM will not purchase back shares in 2020 and 2021.

Linking to dividend paying stocks, one of the reasons dividend paying companies remain dividend paying is profits allow companies to buy successful companies with high margins or are profitable. As long as the subsidiary remains profitable, it adds to the company and the larger company folds it into the many products and services it offers.

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