If you think about China, you may think about the manufacturing center for the world and that means both taking raw materials from around the world processing them to basic materials such as chemicals and steel and then transforming the materials to products that business and consumers can buy and use. This growth in infrastructure in China needs the steel and chemicals, while the export of finished goods allows the cycle continue. Similar to most countries around the world, the basic materials or commodities will go up and down and when they are down for a number of years, they are used in production. Then the price goes up and suddenly alternatives are needed.

In an article by Patricia Cohen, Keith Bradsher and Jim Tankersley of the New York Times News Service, in the alternative energy production, in 2022 according to International Energy Agency, China accounted for 85% of all clean-energy manufacturing investment in the world. While other countries want to increase manufacturing, they face barriers.

China’s lead is built on earlier cultivation of the chemical, steel, battery and electronics industries, as well as large investments in rail lines, ports and highways.

From 2017-19, China spent 1.7% of its gross domestic product on industrial support, more than twice the percentage of any other country, according to an analysis from the Center for Strategic and International Studies. The spending included low-cost loans from stat-controlled banks and cheap land from provincial governments, with little expectation that companies they were aiding would turn immediate profits.

China has been charged with a willingness to skirt international trade agreements, engage in intellectual property theft and use forced labor.

All the above, China is a position today to flood rival countries with low-cost electric cars, solar cells and lithium batteries. For China controls 80% of the worldwide production of every step of solar panel manufacturing.

Gregory Nemet, a professor of public policy at University of Wisconsin, says there are enormous economies of scale by going big as China did. When the investments resulted in overcapacity. suppressing the profitability of China’s companies, Beijing was willing to ride out the losses.

China also benefited from the West’s lack of industrial policy – the west believed in open markets and minimal government intervention that the US has championed. The view is that an unfettered market always knows best.

Recently under former President Trump tariffs were imposed on goods valued at more than $350 billion a year. President Biden kept the tariffs and increased some of the tariffs.

Linking to dividend paying stocks, in many industries in the world once the dominant players are established it takes a long time before they are not dominate. As an investor, you have to accept what is and watch for signs of why that would change, if it is not changing investing in the dominate players is a very good strategy for long term wealth building. If you review the Fortune 500 of Forbes 400 over the decades companies change which means you need to review your portfolio at least every 6 months.

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

In the world of real estate, there are always conflicting pressures on the market. If you buy in a reasonably good neighborhood and the price goes up over time, it is possible to sell the house and live off the capital gains. In many instances, the house can be inherited by one of the children of the family and it continues to be lived in and price is not that important till the person moves. In 2008 when the mortgage-backed securities market crashed, we saw house prices fall below their mortgages and people walk away from their homes. It took a few years till investors started buying up the homes and renting them out to stabilize home prices in the area. As a society, we believe home ownership is important, but most politicians do not believe housing is a right, but there should not be too many homeless. The housing market has many contradictions running it.

In an article by Alexandra Stevenson of the New York Times News Service, China has a complicated relationship to real estate. Technically the state or government owns all the property as it is a communist country, however apartments are bought and sold for profit. In China, 30 years ago, the bulk of the population lived in the country, however with the transformation of the economy and jobs in the cities, there was a great migration towards cities and they need a place to live.

This happened for decades and real estate became 1/3 of China’s economic growth. In 2020, the central government cut off easy money that fueled the expansion and this has set off a chain of bankruptcies that shocked a country of homebuyers. At the present time China has 4 million apartments no one wants to buy. There is also 10 million apartments that are in the stage of constructions that may or may not be finished. Billions are owed to builders, painters, real estate agents, small companies and banks around the country.

The biggest developer to go bankrupt was Evergrande, but it was managed carefully and quietly to allow Evergrande to finish many buildings. The issue is China has tens of thousands of smaller developers around the country that are in similar situation.

Dan Wang, chief economist of Hang Seng Bank believes the only way forward is for the state to bail out some mid-size developers in cities where the crisis is more acute.

China’s top leaders are encouraging state-owned companies to buy the apartments and rent them at lower rents or social housing. The senior level government has committed $41.5 billion to help fund the loans. The 4 million apartments is about 4 billion sq ft according to the National Bureau of Statistics.

According to Caixin, a Chinese economic news outlet, the government has tried out more than 300 measures to increase sales and bolster real estate companies. The measures include: cuts to mortgage rates, trade in old apartments and buy new ones, cheap loans to states to buy unsold apartments.

The central bank has committed $14 billion to buy apartments in 8 hard-hit cities, however only $280 million has been used. The states are not using the money for the same reason consumers are not buying, the apartments tend to be in smaller cities and no demand.

Linking to dividend paying stocks, investing in stocks includes investing in the property of the company and the expectation it will go up over the years. Some companies will hold on to property for generations and some of it could be sold off for capital gains. In every profitable company there are short term, medium- and long-term pressures, how it balances them is something worth considering? if not, likely a hedge fund will increase the short term pressures.

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

At the start of 2024, one company you might have expected to do better was Boeing. The company has a duopoly with Airbus in commercial airlines. If you fly, then the chances are very high you are in an Airbus or a Boeing plane. The company had introduced the Max series, regulations had gone through to make it an even better plane and the order book was building to over 3 years. People were flying again and the large airliners were ordering new planes to replace the old ones. Boeing also has a robust military aircraft and defense budgets are not being cut. Then things changed, a door blew out in an Alaskan Airliner and the battery for cockpit voice recorders needed to be fixed.

In an article by Allison Lampert and David Shepardson of Reuters, Boeing will burn rather than generate cash in 2024. CFO Brain West told the Wolfe Research Global Transportation and Industrials Conference he expects Boeing’s free cash flow to be negative compared with March’s outlook for positive cash generation in the low single digit billions.

Mr. West said due to regulatory issues commercial jet deliveries will not step up in 2nd quarter compared with the first 3 months. We have frustrated and disappointed customers owing to the supply chain and production issues. We see progress, but everyone wishes it was faster.

Boeing was aiming for 38 jets a month at its assembly plant outside of Seattle, but that fell to low as single digits in April.

Linking to dividend paying stocks, execution of the business plan is a refrain you often hear. Even companies that have all the advantages in the world, need to execute on their business plans. While Boeing is fortunate there are few alternatives, once it does execute on its business plan it will be a stock which you can buy and hold and watch the planes go by.

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

In the world of global supply chains, what tends to happen is overtime various parts of the world specialize in one aspect of the supply. There are very good reasons for this including after the first company is successful, other entrepreneurs begin to use the ecosystem that is built up. For example, the companies need a certain skill set, the universities and colleges respond to ensure the students have that skill set. The people who use the skills see it is easier to start and grow their business in the area and more companies are set up to cater to successful ones and the pattern continues. Then the other services build up including banking, accounting, legal firms which know and understand the business cycle that has specialized in the area.

All of the above is good till something in nature happens and we may not know the why the weather is doing what it is doing, but it is doing it. An example was a picture of an airport in Porto Alegre, Brazil, the tarmac is flooded. If you consider an airport which you have flown from and consider the tarmac or where the plane loads and unloads, having 3 feet of water across it, it takes a lot of water to have that result. The reason the airport and the city are flooded is the region has had over 2 weeks of heavy rain and the water has nowhere to go. If the airport is flooded, you can imagine what is happening to the people in the area and millions are affected.

Porto Alegre is in the south of Brazil in the state of Rio Grande do Sul. It is the 12th largest city in Brazil with a population of 4.4 million people. Similar to large cities, this one is a capital of the state and is blessed with a natural harbor which has translated into one of the chief industrial and commercial centers in Brazil. The surrounding areas have rich agricultural soils to grow crops such as soybeans and livestock including cattle and pigs. The region accounts for nearly 25% of Brazil’s pork exports.

Linking to dividend paying stocks, supply chains are important to all industries and generally for a variety of reasons they tend to be concentrated. While economic planners discuss diversification, in reality a concentration tends to happen. While we spend billions on predicting the weather, we can control the weather, but we do know something is happening. When that does supply chains are not as flexible as people think they are. Alternatives can be found but there tends to be a delay, and they tend to go back to where they were because of economics and it seems easier to rebuild. For your investments, do you have an understanding of supply chains?

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

Every profitable company eventually specializes in some field, but they use research and development to try different things to hopefully make the core products better. An example of this is the tire company Michelin. The Michelin Group is a leader in composite engineering and manufacturing with its headquarters in Clermont-Ferrand, France, which is 4 hour drive south of Paris. The Michelin has 69 factories around the world making tires and its tires are rated as some of the top in the world.

In an advertisement, Michelin introduced a new technology called WISAMO, it is an automated, fully retractable and inflatable wingsail system. If you ever seen pictures of Clipper Ships with large sails to move ships around the world, the wingsail system is a sail system for cargo ships.

Sails on cargo ships have been proposed over the years, but it was difficult to implement. The WISAMO system is designed to be inflatable which means it can easily come down when not it use and allow ships to go under bridges located in many ports around the world.

Fortunately, for Michelin, the system can be slowly implemented and tested because they specialize in tires. However, the engineers are using sustainable materials and can transfer the knowledge to the making better tires.

Linking to dividend paying stocks, all companies need to do research and development in areas where they do not make money but can learn. One example is the automotive industry is involved in the racing industry. The continuing study of aerodynamics for race cars to go faster can be translated into designs of cars to commute in with a smoother ride. Another example, after aluminum was invented, it needed markets to be sold to, as cars needed to be lighter, some of the steel was replace by aluminum. Companies seemingly need to be involved in pursuits to study and test materials to make their core business better, what is your company involved with?

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

For every investment there are the pros and cons related to it, for companies that cater to everyone the issues relate to using the platform. In the case of social media sites, as an investor you want to see statistics that people not only use the platform but spend a lot of time and effort on the program. That statistic is a good thing, however for the individual person maybe not so good. If it is a social media site, an election is coming up and while the parties want you to connect to their sites, there is always one site which can be used as political fodder.

In an article by Talya Minsberg of the New York Times News Service, we all know as individuals you are interested in many things, but it seems if you have a passing interest, the social media feeds caters to your passing interest rather than the full gamete of your interests. An example is a 12-year-old girl who followed people like Kim Kardashian and Olive Garden restaurant. Then she searched for ab workouts and her feed shift to everything under the sun about reducing weight and diets, most things a 12-year-old girl would not need to function.

TikTok is the present political bad boy social media because of its connections to Chinese owners who the US Intelligence Service feeds information to the Chinese government. Any complaints are now leading to new policies and procedures to do less harm. TikTok enacted guardrails on posts that show potentially harmful weight loss management behaviors and excessive exercise. TikTok is changing its algorithm.

The cynics include Dr. S Bryn Astin, Professor of Social and Behavioral Sciences at the Harvard T.H. Chan School of Public Health. He says The For You feed is still designed to boost revenue. to increase engagement.

Linking to dividend paying stocks, what is good for society and what is good for the individual is sometimes not good for stock price. For example, if you own a gambling stock because many people gamble, but you have to know some will lose all their money to gambling. In your portfolio you can cater to greater good for individuals and society, there are plenty of companies that try to do that. You can also buy stock in companies that some individuals will suffer. There is no perfect answer, except as you collect your dividends you have an opportunity to lessen what you thing are the negative aspects. You also have to understand every election cycle needs a bad company till the election is over and little will change.

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

In the stock market there is desire to look for patterns and find a reasonably predictable way of making some money. There are multiple ways to do this because the stock market is regulated and information flows. In terms of regulations, companies on the stock exchange need to report their earnings quarterly, companies need to file reports on when they issue more bonds and stocks and there are numerous other company filings. Recently it was released how the largest investors did to their holdings and you can do what you want with it.

In the stock market, while most people expect prices to go up, there are some who expect prices to fall or short the market. The bulls and bears are important elements of the market. For the bears, if a company is headed toward bankruptcy or its business models has been disrupted or fundamentally changed and it has not changed its business models, those who short the market offer to those that want less risk a way to avoid some stocks. If the overwhelming majority believe a stock is to be shorted, it stands to reason most of the time they are correct, but there are exceptions.

In an article by Medha Singh and Laura Matthews of Reuters, the exception seems to be meme stocks. 3 years ago, stocks such as GameStop and AMC and a few others were among the highly shorted stocks because of their business models had changed. For GameStop which caters to gamers, if gamers can download their games online, why do you need a brick and mortar store? for AMC there was COVID issue of people gathering and streaming services – where do you want to watch a movie home or a theatre? There were very good reasons why the stocks were some of the most shorted on the exchange. Then along came online forums such as Wall Street Bets and a desire to change Wall Street. People led by Roaring Kitty a social media influencer, bought option calls and the stock to help create a short squeeze to push up prices. GameStop was over 100% shorted which meant as prices rise, those that are short need to buy shares to stop their losses (or margin calls). Since the stock is short supply, and demand is high, prices rise even more than normal. After a few days, the rally goes back to normal as shorts are covered.

The pattern if this is to be normal, a regular investor may wait 6 months for GameStop to fall in price and begin to pick up shares. 3 years ago, the prices rose to from $5 to over $70. This time the prices went from $17 to $48, a healthy gain but only for a few days. If you do decide to buy, ensure you sell or take profits.

Linking to dividend paying stocks, looking for patterns is the key to making money trading, however for longer term investing the pattern of paying dividends every quarter and the raising of those dividends means you can trade less and hold more often.

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

After you have made money, there are numerous opportunities to invest your money – stocks, bonds, money market funds, real estate, private equity, venture capital funds and the list goes on. The reason why you might be interested in venture capital funds is the possibility of gaining multiple levels on your investment. You can pick up the stock for pennies and sell it for in the high 30’s and more. That is the good news, the bad news most of your investments will not even make money, but you only need one or two to make multi millions. If you want to put it in baseball analogy, singles are for dividend investing; doubles are for real estate; triples are for private equity and grand slam home runs are venture capital firms. There is an interesting book called The Power Law – Venture Capital and the Making of the New Future by Sebastin Mallaby published by Penguin Press, NY, 2022.

In the venture capital world, if the idea is to hit grand slam home runs or the company’s equity eventually becomes public and the shares go towards north of $100, how does a company find the up and coming companies? Which one do you choose? for if you think about social media there were hundreds of companies doing the same thing but only a few truly dominate. In the book, the author profiles a number of venture capital companies and they have many different strategies. The game plan is always the same, invest in a company that is a start up preferrably disruptive; help in grow by being on the Board to allocate resources and bring in experienced people to grow the company. To find these companies that have the potential is the key for many companies will be in the space, but why these ones.

One method is to understand the trends and why. For example, in 2009 Facebook was the hot company and had recently passed 100 million viewers. The company had grown at a very high rate, questions were being raised will the rate continue to rise or will saturation happen? DST believed the growth would continue because his team had complied spread sheets on consumer-internet business in multiple countries with cells tracking daily users, monthly users, the amount of time spent on the site, and so on. The information was showing Facebook type websites in countries around the world were in the top 3 websites in the country. Facebook in the US was not in the top 5. This meant growth was possible.

In the US, Facebook had found it easy to raise money, this meant unlike its foreign social media sites, Facebook lagged behind in converting users into revenues. Mr. Milner’s spreadsheets showed foreign companies needed to maximize revenues and had tried a multiple number of avenues which Facebook had never done. If Facebook followed the foreign companies and was successful, then Facebook had enormous room to monetize revenues or it was worth more than other venture capital companies thought it was worth. Some of the other venture capital companies were valuing Facebook at $5 to $7 billion, Mr. Milner believed $10 billion was closer to what it was worth. Mark Zuckerberg also wanted closer to a $10 billion valuation and DST bought $200 million for 1.96% share. He purchased secondary employee stock at $6.5 billion valuation pushing the blended valuation to $8.6 billion. It was accepted. 18 months later, Facebook was valued at $50 billion and DST’s shares were up $1.5 billion and the stock was continuing to rise.

In all markets once something is seen as making money, there will be lots of alternatives. Sometimes the money is made being a contrarian. Peter Lynch wrote a book describing Stalking the Tenbagger. If you like a stock that the other professional investors did not own, when others found the stock, it would go up based on their enthusiasm when they discovered it. If the stock is not covered by many analysts, the stock maybe mispriced or should eventually rise to the normal multiple for the group. The third buy signal is when the CFO tells you that they have not talked to an investor in ages, you may be onto something. One of the many stories, Mr. Lynch talks about is when the cellphone became portable, Mr. Lynch invested in companies related to cellphones infrastructure including in countries such as Mexico and China.

In Universities, professors come up with a theory, do research to test it and then write about it and teach it. Brian Arthur, a Stanford professor studied network business, Companies that enjoyed network effects inverted a basic microeconomic law: rather than facing diminishing marginal returns, they faced increasing ones. In most sectors of the economy, producers that supplied more of something sees prices fall: abundance meant cheapness. In network businesses, the consumer experiences improved as the network expanded, so producers could charge more for their products or margins improved. Moreover, the improving consumer experience was matched by falling production costs because of the economies of scale in building a network. Examples are ebay and Uber.

Linking to dividend paying stocks, understanding the business model is the key to investing, why and how does the company generate revenues to make a profit to pay shareholders. Once you understand the model, you can ask how does the company increase margins? how does it lower costs? Once you have an understanding, you can rest easy with your investments ensuring when the company does its quarterly reports it is executing on its business plan.

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

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