In the financial press, regular readers will read about the commodification of many industries. In the world of commodities, the rules of supply and demand are the important as well as understanding there will be a number of industries that use the commodity and they want to lock in their expenses, However, there is money typically called speculative which tries to forecast supply and demand and either buy calls or puts depending on their viewpoint. If the view is correct, prices will rise or fall or prices will fluctuate. The higher the fluctuation, the greater the possibility of profit. A book examined the traders who have made and lost great sums of money is called The World for Sale by Javier Blas and Jack Farchy, published by Oxford University Press, NY, 2021.

While commodity exchanges have a long history, trading minerals such as iron ore, nickel, cobalt and grain, think about the Chicago Mercantile Exchange (CME) and the London Metals Exchange (LME). Fortunes were made and lost on the exchanges, but it was not until the 1970’s that firms begin to dominate the metals exchange. On Metals, the Marc Rich + Co eventually became Glencore which is the largest metal trader, a top-3 oil trader and the world’s largest wheat trader. Trafigura is the world’s 2nd largest oil and metal trader. The other big name in oil trading is Vitol. In grains Cargill is king. It is the world’s largest trader of grains. The other companies in the ABCD are Archer Daniels Midland or ADM, Bunge, Cargill and Louis Dreyfus.

All of the above companies take delivery or own the product to sell to the companies who will use the product to manufacture something to sell to businesses and consumers. For example, Glencore owns iron ore mines which is sold to steel mills which is sold to automakers (Ford, GM, Chrysler) which is sold to consumers.

The history of the oil industry involves Standard Oil which at its height controlled over 95% of the oil market from drilling to petrol station. Eventually, the company was broken up by Congress and became the 7 sisters – Standard Oil of New Jersey (Exxon), Standard Oil of New Jersey (Mobil), Standard Oil of California (Chevron) Anglo- Iranian Oil (BP), Royal Dutch Shell (Shell), Texaco (Chevron) and Gulf Oil (Chevron). For decades after Standard Oil was broken up, the sisters controlled the price of oil and it was relatively low given the use of oil in the economy. It was not until OPEC decided to essentially nationalize their holdings and raise the price of oil that oil prices fluctuated. With the fluctuations means there are trading profits to be made. Prior to the fluctuations, oil companies made most of their money refinery the oil and selling it to users. Once the price of oil began to move up and down, trading of oil contracts became a very lucrative field, particularly for those companies willing to overlook sanctions.

For example at various times, Iran’s oil was sanctioned by the US to penalize the country as it was doing things that the US foreign policy did not like. Traders such as Marc Rich realized if they bought oil from Iran, put in on a tanker there were refineries in the world which did not care where the oil came from. The Iranian oil was bought at a discount and when the oil is sold to the refinery it is sold at a higher price. Do this often enough and profits in the millions were made. If oil prices were down, they could be loaded on to very large oil tankers and be at sea for 6 months until prices rose which translated into profits. The traders were based in Switzerland, and they rationalized the Swiss has not sanctioned the country in this case Iran so they were fine with the outcomes.

If you are a trader, the one element you need besides the smarts is credit. In the commodities trading, everyone buys on margin and just before the option runs out it is either sold or delivery is taken. Most traders do not want the product, they are hoping prices fluctuate just enough to either make money on their longs or shorts. A flat market is not a trader’s friend. A flat market can be good for the producer or the user of the commodity, but not traders. Trading commodities uses supply and demand. When demand is high, prices rise. To do well in commodities the trader has to have good relations with banks and brokerage companies who give credit to the company and every trading company will have good and bad years. One of the banks, involved in giving credit was BNP Paribas. In the case of Glencore, when the company went public, a dozen billionaires were the result and most of the trading team were muti-millionaires.

Linking to dividend paying stocks, often times an investor will buy a company with the intention of holding for a long period of time, and if the company does well, it was a good investment. The issue is the business model can and will change over the years, from doing everything to specialization or similar to automakers to contracting others for product and services. Sometimes it is better to do everything inhouse, sometimes in better to contract out, there are good reasons for doing either and both. As an investor, particularly as you hold the stock for a while, ask has the business model changed and do you like it as the company remains profitable?

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

In many areas of the setting of rules, the rules are meant to have nice little boxes for the person or event to click off. At the end of checklist, the person can say this is what we should do, however when there are areas where there is overlap or not fitting into the checklist, what is a policy maker to do?

In an article by Jeanna Smialek of the New York Times News Service, the economy is not acting the way all the experts believe it should and this leads to the Federal Reserve to not to pull levers. The Federal Reserve or Fed controls interest rates and many believe after being 0 for a number of years and a quick rise, rates should be cut. This would give breathing room for the economy and people can adjust to lower rates.

The Fed is determined to slow inflation down and normally raising interest rates has the affect because businesses, which run on credit, has to pay more in interest charges would slow their business or layoff people. Individually it is not good for the person, but for the economy in general it is good thing. If enough business laid off people, then demand would slow and prices fall. The issue is the economy appears to be booming as prices continue to climb more quickly than usual.

Kathy Bostjancic, chief economist at Nationwide, says right now we are not even seeing a soft landing, we are seeing a no landing.

One of the signs is the Consumer Price Index or CPI, it is 3.8% on an annual basis after food and fuel costs are stripped out. The CPI has stayed around 4% for months. The economy can be in a recession, when growth falls and eventually pulls inflation lower. It can be in stagflation, when growth falls but inflation remains high. It can be in a soft landing, with cooling growth and inflation. Or it can experience an inflationary boom, when growth is strong and prices rise quickly.

Fed officials entered 2024 predicting 3 interest rate cuts to lower interest rates to 4.6% from 5.3%. The officials maintained the call into March economic projections.

But inflation and economy overall show staying power and Wall Street analysts expect only 1 or 2 cuts this year. Fed Chair Jerome Powell says he will be patient about cutting rates and Neel Kashkari, the President of the Minneapolis Fed says he sees a possibility of no cuts.

Linking to dividend paying stocks, when interest rates rise, generally companies tend to make less money, they can still make profits but make less money which means investors tend to be more defensive in their stock picking. It is one of the reasons why dividend paying stocks tend to rise in price when investors are more defensive, they care more about making money than growth. In a low interest rate environment, growth is good, when it switches making profits is better. If your investments can make profits in both high and low interest rate environments, all you have to do is monitor them to ensure the reasons why you bought remain solid.

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

Many dividend investors will have a utility in their portfolio because utilities have limited competition in their area and regulators tend to increase rates on a regular basis which allows for utilities to be profitable and pay dividends. Up until the pandemic, another popular investment was the REIT or Real Estate Investment Trust. After the pandemic, investors have switched from office REITs to apartment and data centre REITs. The data centre REITs are having an effect on utilities.

In an article by Laila Kearney, Seher Dareen, and Deep Kaushik Vakil of Reuters, 9 out of the top 10 electric utilities said data centres were a main source of customer growth, leading to revisions of capital budgets and demand forecasts. Last year only 2 utilities mentioned data centres as a growth.

Utility stocks are down 10% from last year as rising inflation pushed investors to chase higher yields.

According to Morgan Stanley research, data centres will move from 15 terawatt hours (TWh) to 46 TWh.

Surging electricity demand from data centres, along with an increase in US manufacturing and the electrification of sectors of the economy such as transportation was evident in the most recent earnings calls.

Southern Co expects growth to be 6% each year from 2025 to 2028, up from 1%. Sales from Georgia Power jumped 9%.

NextEra Energy of Florida, which is the world’s largest renewable energy company, said it had data centres in its queue to use the same amount of power the state of Minnesota uses.

American Electric Power, base in Ohio says demand grew to 2.5% versus the expected 0.7%. The demand is linked to data centres.

Traditionally, the utility sector is known for slow and steady both for returns and the way the utility is managed and run. Will the utilities react fast enough to meet online demand, asks Rystad Energy analyst Geoff Hebertson.

Linking to dividend paying stocks, we are seeing a change in computing to AI, but the chips to ensure AI works are run on data centres which use lots of electricity, can the utility sector meet the demands? Utility companies are not known for being innovative and nimble, but well-regulated and slow, will demand be met? It is possible, energy conservation is everywhere.

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

Every country as well as company does not want the rating agencies to downgrade its debt because credit and access to credit is the aspect which keeps the economy going. A downgrade automatically means higher interest rates or more money to pay for interest costs.

In an article by Elaine Kurtenbach of the Associated Press, China’s Finance Ministry denounced a report by Fitch Ratings that keep its sovereign debt rate as A+, but downgraded its outlook to negative.

China’s Finance Ministry said China’s debt is a moderate and reasonable level and risks are under control.

Fitch Ratings believes risks to China’s public finances are rising as Beijing works to resolve mounting local and regional government debts and to shift away from heavy reliance on its troubled property industry. Fitch added China is a large and diversified economy and vital to global trade and China does have large foreign exchange reserves.

The Finance Ministry disagreed with Fitch Ratings and faulted its methods. The Ministry said China was appropriately intensifying improvement quality and efficiency of its government spending. Overall, our country’s local government debt resolution work is progressing in an orderly manner and risks are generally controllable.

Fitch noted China’s debt is forecast to rise to 7.1% of GDP, up from 5.8% in 2023. The median for countries with an A rating is 3%.

Tax relief measures and weaker property investments, which are usually a main source of local tax revenue have eroded the government’s capacity to collect tax revenues to offset the high government spending.

Fitch believes the Chinese government GDP will grow to 4.5% down from 5.2% last year.

Linking to dividend paying stocks, over the past 30 years, China’s growth has very good, but since COVID, the economy is slowing down. There has been a desire by manufacturers to move some of their operations out of China, as well as the property industry was 30% of the economy. Local governments funded their spending by selling property, that has slowed down or stopped. China is still a large economy, it is just not growing the way it used to grow. However, all companies and countries reacted the same manner as China. They say it was a flawed study, they missed the good stuff, they did not count the potential. If the CEO begins to say those type of things, find alternatives quickly.

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

In every industry, there is a stock which lags the leaders, individually you may think it is doing ok but compared to the competition they seem to be better. In the banking industry, the company that lags is Citigroup. There are multiple reasons for it and CEO Jane Fraser is trying to improve the company.

In an article by Tatiana Bautzer and Saeed Azhar of Reuters, if you bought Citigroup in the last year, you likely made money as the stock is up 49% since September of 2023. However the stock trades at 0.57 of book value that is short of JPMorgan Chase of 1.73 and Bank of America of 1.1.

Wall Street investors welcomed the job cuts of 5,000 for the workers represents expenses to control and investors similar to Daniel Babkes, portfolio manager for Pzena Investment Management which manages $60 billion and owns Citigroup. Mr. Babkes also says there is potential and as the stock is low, there should be room for upside growth.

Ian Lapey, a portfolio manager of Gabelli Funds, which manages $30 billion and owns Citigroup, says the outlook for Citi is improvement. The jobs cuts were good, the quality of the loan portfolio and it has reduced exposure to paper losses on securities.

Hunter Doble, a portfolio manager at Hotchkis & Wiley which manages $31 billion, believes the job cuts improved efficiencies. He noted in Citigroup can meet the bank’s target of 11 to 12% return on tangible equity, the stock should move forwards.

Similar to every other bank, wealth management is a potential growth area and Citigroup recently hired outsiders to run the departments. Bank of America analyst Ebrahim Poonawala noted the outsiders will drive change.

Existing employees will need to sign on to the changes as the promotions after the job cuts went to outsiders.

CEO Fraser said Citi will leverage its relationships with the world’s largest corporations to boost revenue in investment banking and wealth management.

Another area of focus is Citigroup’s US consumer business which is much smaller than its competition. Retail deposits account for $105 billion of the $1.3 trillion in deposits, compared to JPMorgan Chase and Bank of America which have more than $1 trillion in consumer deposits. Part of the reason is the branch network, Citi has 700 branches, the others have much more. (if a bank has large consumer deposit, there will be a healthy balance which the spread between interest paid to consumers and loans to consumers and business).

Linking to dividend paying stocks, when you are doing your homework for your investments, you will notice some companies have advantages over others. The companies in 3rd, 4th and beyond have to great execution compared to the top 1 or 2 just to move towards a level playing field. It does not mean the top 1 or 2 has to continually improve, but with their built-in advantages they seem to be natural choices for your investments. You can hope for the underdog, it is a great story but if you want consistent profitability, it is better to choose the stocks with the best advantages.

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

Are you planning to fly during the summer? If you are, you will be one of 4.7 billion people expected to travel in 2024 compared to 4.5 billion in 2019. On a personal level that is good news, on a macro level, the global airline industry is having problems because of production problems at Airbus and Boeing.

In an article by Rajesh Kuman Singh of Reuters, air carriers are spending billions on repairs to keep flying older, less fuel-efficient jets and paying a premium to secure aircraft from lessors. At the same time, some carriers will be trimming their schedules because they have no planes.

According to Martha Neubauer, a senior associate at AeroDynamic Advisory, passenger carriers will receive 19% less aircraft because of production problems from the duopoly of Boeing and Airbus. US carriers will receive 32% less planes because of dependence of Boeing’s 737 Max. In Europe, Airbus as many as 650 A320neo jets could be ground because of a flaw in the RTX Corp’s Pratt and Whitney engines.

Similar to car rentals, there is a healthy aircraft leasing industry and the rates per month to lease an Airbus A320neo or a Boeing 737-8 Max have reached $400,000 a month, the highest since 2008.

If you cannot lease, then planes have to be repaired, repair costs are up 40% at United, Delta and American Airlines.

Last year, American airline companies posted a 4.5% pretax margin, expect it to be down in 2024.

Linking to dividend paying stocks, all industries can be examined from a macro level going down to a micro level for in every industry there are standout companies. Technically they all do the same thing, but some make more profits than others. For the investments you have, you always want to own the best of the breed and as long as they maintain the metrics you will have fewer concerns expect to collect your dividends.

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

Every time there is a conflict between 2 countries, whether it is good or bad, there is always another country which suffers because of the conflict. For example, the shortest route between India and Rotterdam, Netherlands in Europe is using the Suez Canal and the average ship takes 19 days, the alternative is to go around Africa which averages 48 days. To use the Suez Canal is to pay a fee to the company which is owned by the government of Egypt and in 2022-23 the fees were $9.4 billion. Ever since the Houthi attacks on ships using drones, even though the US and British Navy are providing protection, fees have dropped in half, because ships are finding a more expensive but safer alternative.

In an article by Eric Reguly of the Globe and Mail, the Suez Canal has been in operation since 1869, and the ships have created cities and jobs in Egypt. The attacks on the ships trying to use the canal, have damaged the economy of Egypt.

The country of Egypt is suffering from high inflation, nearly 1/3 of its population of 110 million live on $4 a day. The country has significant debts and since 2022 its currency has been devalued 4 times.

To the south of Egypt is the country of Sudan where there is an internal struggle for control which means the war has sent about 300,000 to Egypt according to the UNHCR or United Nations refugee agency. Meanwhile to the east of the country, Hamas and Israel are still fighting and thousands of Palestinians have gone to Egypt some paying $5,000 a head to secure a visa.

Traditionally the Pyramids have drawn many tourists to Egypt, but according to S&P Global Ratings Egypt’s tourism revenues are set to fall 10% to 30% shrinking economic growth and foreign exchange reserves.

Egypt has received $50 billion in international assistance from the UAE, the IMF, the European Union and the World Bank.

Linking to dividend paying stocks, for every disturbance in normal patterns there is analysis by a variety of agencies to determine the credit worthiness of countries. The same goes for companies, we expect normal routines, but if something happens out of normal, insurance companies and rating agencies will run numbers to determine potential impacts. There is reason why a credit card used to advertise no surprises, there should be little for your investments. You can determine what would be the impact if something was not normal and then maybe alternatives are better for you.

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

We are all from somewhere and it is very helpful to us if the other jurisdictions where we would normally travel have good relations. The somewhere we are from has it own wonderful things, otherwise why live there as well as some negative aspects. Sometimes the other jurisdiction says the negative aspects flow into their jurisdiction and the easiest way to stop it is ban it. What happens at the local level also happens at the national and international level.

In an article by Fatima Hussein and Ken Moritsugu of the Associated Press, for the past few years the US and China relations have not been the normal good relations. For decades, the US moved manufacturing to China and it was very hard for any manufacturer to keep manufacturing in the US, for the investors asked why have you not moved operations to China? As the manufacturing was the first step, the services and other expertise developed and soon politicians began to ask why is the manufacturing in China? it should be in the US, although there were a number of bills passed which encouraged companies to move operations. China is presently going through a restructuring because manufacturing companies have left China as well as the property market values have decreased. Government spending on infrastructure has slowed because much of it has been built, it still needs to be maintained but the building phase is slowing.

US Treasury Secretary Janet Yellen met with Chinese Premier LI Qiang and sent a message of mutual co-operation. The US is the world’s largest economy, China is second and both have fought over a variety of issues. However, when the US put up restrictions, China sought alternatives including more trade with Russia. The US and Russia are at odds over the war in the Ukraine, so it is better for the US to have better relations with China.

Linking to dividend paying stocks, many of these companies will have operations outside of the US and it is good to know although countries will have some differences, they are generally more working together than against each other. In the world of geo politics, relationships ebb and flow for various reasons, as long as your investments are with companies the US has good relations with, there is less need to be seeking alternatives.

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

In the world of politics, there has been many different sayings to get people elected. In the current US election cycle you may hear are you better off, then you were 4 years ago. This is designed to vote for the other person, because the politician saying it wants to hear you say no. If you say yes, then he or she will not get your vote. In the days when consumer goods such as electric stove was being common, a popular saying was a chicken in every pot. In symbolized both the ability to afford the new stove as well as food to cook. In India, it is a little different.

In an article by Sarita Chaganti Singh of Reuters, the odds on favorite person to win the leadership or Prime Minister of India is the current PM Narendara Modi. The PM is running on making the economy of India the 3rd largest in the world, up from the 5th. The US is the largest economy with a $25.5 trillion followed by China at $17.9 trillion, next come Japan at $4.2 trillion , Germany at $4.1 trillion and India at $3.51 trillion. The others in the top 10 are UK ($3.1 trillion), France ($2.8 trillion), Russia ($2.2 trillion), Canada ($2.1 trillion) and Italy ($2 trillion).

PM Modi asked officials to finalize plans to expand the economy to $6.69 trillion up from $3.51 trillion by 2030. This would raise the per capita income from $2,500 to $4,418.

Mr. Modi wants exports to jump from $700 billion to $1.58 trillion or 4% of global trade. The other goals are to increase literacy from 78% to 82%; unemployment to fall to less than 5% from 8%; and labor participation rate to increase to 50% from 46%.

In 2047, India will be a 100 years old, Mr. Modi hopes it will be a developed country by then.

Linking to dividend paying stocks, during the AGM companies will often talk about the future of the company but it is rare for a politician to talk about growth of GDP, because countries can only do so much, the private sector has to do the rest. Perhaps PM Modi will use government resources to build infrastructure in the hopes of spinoffs, but we have just seen in China, the government using the property value increases to do the same, however prices go up and down. But it should mean India is worth watching over the next few years.

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