Every company exists in the political reality of their country. During elections, politicians have to say and do say things to try to win votes. After the election, the reality of economics comes into play. During the election, all political parties have a base to appeal to and they need to keep the easy votes. An example is a merger and acquisition target.

In an article by Josh Boak of the Associated Press, US President Joe Biden says he is opposed to the sale of US Steel to Nippon Steel of Japan.

In a political press release, Mr. Biden says US Steel has been an iconic American steel company for more than a century and it is vital for it remain an American steel company that is domestically owned and operated.

To digest to a brief history, Andrew Carnegie built US Steel to be the largest steel company in the world, but in 1982 reported a $852 million loss. To understand the reason, Clayton Christensen of Harvard University gave lessons on disruption. For example, in the steel industry, the recyclers started at the low end of steel, US Steel was not making money so it gave the market away. Through innovation the recyclers of steel could move up the value chain to greater margins, but US Steel had all the legacy costs and soon could not compete. Steel prices have gone up in the past couple years and now companies are making money.

Before Nippon Steel offer $14.1 billion in cash for the company, 2 smaller US companies had offered to buy US Steel.

Given this is election years, and the myth of dominance of US Steel is still around, politicians on both sides believe the merger should be blocked. The opponents are trying to invoke government regulations to slow down the merger.

Nippon Steel is advancing the arguments, it has been in the US producing steel since 1980; it would move its headquarters from Houston to Pittsburg; and among its steel operations are people in the United Steelworkers Workers (USW) and union contracts would continue with the merger. Nippon Steel also believed they could grow the business of US Steel with the introduction of electromagnetic steel sheet technologies.

Linking to dividend paying stocks, these companies are profitable and always looking to expand or do mergers. After studying the landscape and inspecting dozens of companies, a merger is announced, but sometimes the political landscape is missed. Fortunately, if the company really wants the candidate, they have the ability to wait until the political tea leaves are correct.

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

Where ever we live, we tend to accept the rules that govern us and the institutions that have built up to serve us. It does not mean that it is the only way, but it is the way we know. Unless something goes off the rails and change is demanded, the institutions tend to keep going. In North America, we are used to unions fighting management for a greater piece of the pie. Little is thought about if the pie gets bigger or smaller, but there is a fight for a pie.

In an article from Reuters, in the country of Japan, unions and management work differently. In Japan there is usually a collaborative relationship between Japanese management and labor. The largest companies of Toyota, Panasonic, Nippon Steel and Nissan set the pace and Toyota Motor’s factory workers will receive pay increases of $259 and bonus payments. Toyota does not provide a percentage figure for the salary rise, but it was the largest in 25 years.

The affect of the wage increases is the expectation the Bank of Japan will decided to end negative rates of interest which has been in place since 2016.

Linking to dividend paying stocks, we all want to get to the same point, but there are rarely just one method to do that. In Japan management and unions work closer together than in America. In America one political party always wants to stop the power of unions and the other political power wants to increase the power of unions. Hopefully when you buy your investments, whatever the rules are in the country, the company does not break them or can live within the rules. With dividend paying stocks, some years you make more money in growth stocks, some years you lose more money in growth stocks, ideally you want to limit your losses and accent the long term gains.

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

All around the world, there is a power relationship between those with capital and assess to capital and those that need it. Those that need it will have to pay higher rates or give more stringent demands to those that have access to credit. It is the same if you are a first type home buyer with minimal downpayment to development of resources in Africa.

In an article by Taiwo Adebayo of the Associated Press, the head of the African Development Bank Akinwmi Adesina is calling for an end to loans given in exchange for Africa’s rich supplies of oil and minerals. In recent times, deals with China allowed Chinese companies to gain control of resources and left some African countries in financial crisis.

Mr. Adesina said the deals come with a litany of problems. The uneven nature of negotiations, with lenders typically holding the upper hand and dictating terms. There is a power imbalance, lack of transparency and potential for corruption.

Mr. Adesina believes countries should use the African Development Bank and the International Monetary Fund to promote sustainable debt management.

One of Mr. Adesina’s bad loans is the country of Chad borrowing money from Glencore to develop oil in the country. Most of the money from producing oil goes to Glencore to pay off the loan as opposed to general revenues to help the people of Chad.

At least 11 countries have taken dozens of loans worth billions of dollars secured with natural resources since the 2000’s and China is the top source of funding through policy and state linked banks. An example is in the Congo signed in 2008. The financing gives Chinese firms such as Sinohydro and China Railways Group a 68% in a joint venture for copper and cobalt with Congo’s state mining company, Gecamines.

Last year, the state auditor demanded China’s infrastructure investment commitment be raised from $3 billion to $20 billion to match the value of the resources sold by the state. China rejects the auditor’s report.

Linking to dividend paying companies, when you invest for the long term, although you hope the relationships are win-win, the reality is because the company is profitable, the relationships can be one sided, but that is life. If the investment was never made or no risk was taking, the land would be or could be not developed. When the land is developed other spinoffs happen and can happen which allows at the macro level, the benefits are spread out.

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

On summer vacation, one of the escapes from the city is to drive around an area where grape vines are grown. All over the world grapes are grown and all over the world people enjoy having a glass of wine. It is a good match and governments around the world encourage the grape production and most wine needs some level of exports for the grape growers to make money.

In an article by Peter Hobson of Reuters, Australia is the world’s 5th largest exporter of wine behind Italy, Spain, France, Chile and Australia. Other countries grow grapes to turn into wine but countries similar to China and the US export very little as they have large domestic consumption.

In Australia, they have 2 billion litres or about 2 years’ worth of wine of production in storage in mid-2023. The biggest export market of China has slowed down consumption of wine or there is no growth in the market.

In Australia, the price of grapes fell to $271 a ton last year, the lowest in decades and down from $587 in 2020, data from industry body West Australia show.

Much of the grapes are grown around in land lands such as the town of Griffith where Italian migrants in the 1950’s started growing grapes. Now the owners are 4th generation wine growers.

Jeremy Cass, head of Riverina Winegrape Growers Association, believes that up to a 25% of the vines need to be taken out of production which will result in less supply and increase prices. Since most wine owners are small operations, everyone knows what should happen, but few want to reduce their vineyards, unless there are government incentives to help out.

Around the world, people are drinking less wine and when they do, they tend to reach to a pricer bottle. Australian in not alone in the oversupply, Chile, France and the US have the same problem.

Linking to dividend paying stocks, in many industries the simple equation is what is happening with supply and demand for the base commodity. If you invest in companies that are based on commodities it is important to look at the commodity. Growth tends to mean an increase in demand, but are there alternatives? It is important to bring back your investing to simple equations such as profits = revenues – expenses are revenues higher than expenses, should you look for alternatives?

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

If you are a normal investor, you will have a bias toward local even though there are stock markets around the world. Wherever there is a stock market the principles of profits = revenues – expenses rule. If revenues are greater than expenses, then profits will be made. If expenses including debt payments rise, then there are no profits. Those principles do not change, but still most investors are local in nature and that is not a bad thing. It is just something you need to be aware of.

In an article by Sinead Cruise and Yadarisa Shabong of Reuters, the second largest savings and mortgage provider in the United Kingdom, Nationwide Building Society has agreed to buy Virgin Money for $5 billion.

Nationwide holds almost 1 and 10 pounds saved in Britain and has 1 in 10 current accounts. This equates to 17 million customers and employs more than 16,000 people.

Virgin Money is the UK’s 6th largest retail bank by assets with 6.6 million customers with total lending of $126 billion including $98 billion in mortgages, with 7,300 people.

Virgin Money was founded by Sir Richard Branson’s Virgin Group which owns 14.5% and will vote its shares to merge. Richard Branson started with Virgin Records, moved in Virgin Air and there is a host of Virgin companies in the Group. The companies were to be innovative and appeal to a younger demographic. This maybe the reason, the company said it will keep the brand and gradually integrate into Nationwide over a several years or Virgin was wonderful assets but a slightly different work culture.

Linking to dividend paying stocks, while most investors focus on the country they live in, which is a good thing, there are other markets outside of where investors live. For a dividend investor, looking for a company which has a very solid base of customers and the company can make profits on a consistent basis allows you to look at stock markets around the world. Sometimes there are gems to be found if the country you live in stock market is going sideways. There are opportunities to be found.

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

Every company needs to decided if they want to get bigger or stay the same size and it is up to the owners to decide. If they decide to get bigger often times that means a merger or acquisition is part of the process, for internal growth will get the company so far, but a merger could leap frog the company to the new point. Once a merger is decided, it will take a process to decide which company and what price? ideally the merger is more friendly that a fight, and then companies have to decide who will manage the larger organization. There are multiple decisions to be made but the issue is mergers will take a significant time of the senior management. Once they begin to put the time in, it is very difficult to drop the merger because the other side knows your financials and you know their financials. However, in most industries there is a regulatory body and often they say yes, but sometimes they say no.

In an article by David Shepardson and Aatreyee Dasgupta of Reuters, JetBlue and Spirit Airlines called off their $3.8 billion merger because a US judge blocked the deal on anti-competition concerns. If the merger had be successful, it would have created the 5th largest airline.

US Attorney General Merrick Garland said it was another victory for the Justice’s Department work on behalf of American consumers. The Justice Department believed the merger would seen fares raised and fewer choices by consumers.

JetBlue’s chief executive officer Joanna Geraghty believed after the loss of the court case, the probability of receiving a green light to move forward with the merger is extremely low.

Spirit CEO Ted Christie agreed and did not see a possibility to regulatory approval by the required July 24 deadline.

JetBlue will pay Spirit $69 million for dropping the merger. JetBlue had paid out $425 million in total prepayments.

Spirit Airlines, the 7th largest airline is facing weak demand as it tries to regain profitability. Some analysts believe the company is headed towards a Chapter 11 bankruptcy.

JetBlue, the 6th largest, is in better financial shape and expects to boost revenues by $300 million and on track to deliver $175-200 million in cost savings from its structural cost program.

Linking to dividend paying stocks, these companies have the revenues to be able to do mergers and every company has an active strategic planning process. All the companies look to do it internally or jump start the process with a merger. All mergers tend to need some form of government approvals which is why they pay lobby firms to ensure the process at least from the government goes smoothly. The idea is to ensure the government is either on your side or not against the company when mergers are announced. It could easily be said the management did not do their jobs as well as they should have in the JetBlue – Spirit merger. Possibly if Spirit does file for Chapter 11 bankruptcy, JetBlue will know which are the best assets to buy at a discount.

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

If you carry change in your pocket, you will likely have a nickel or 5 cent piece, unlike the other coins the nickel is actually a mineral that is mined and worth billions of dollars. In many manufacturing productions you often see the use of nickel. Partly because when there was great discoveries made in North America, the companies that grew from the discoveries had to find more uses for the mineral or prices would not go up. The companies did and there is steady demand for the mineral. Nickel is one of the minerals in use for EV vehicles which means every time governments mandate cleaner energy, nickel prices have risen based on supply and demand, but something is changing.

In an article by Niall McGee of the Globe and Mail, the expected demand has materialized but the price of nickel has fallen 30% to $17,500 a tonne, what is happening?

Chinese companies own mines in Indonesia and are producing nickel as if the demand is even greater than expected. According to data from the Bank of America, Indonesia’s share of the nickel market has risen from 7% to 55%.

The rise in production is hurting the Australian mining industry. The government is offering a rebate to companies – over the next 18 months mining companies in the state of Western Australia will be eligible to receive 50% of the royalties paid if the price of nickel trades below $20,000 a tonne.

The large mining companies are suggesting the Chinese companies are not following environmental regulations and are not following good stewardship of the land.

In the mining business or any commodity business when the price falls, there is a desire to decrease production till the price rises again. The Australian companies are following that procedure. The Chinese have stepped up production because they have a different strategy. They want to establish dominance in minerals related to EVs such as lithium, cobalt, graphite and nickel.

The Chinese have a very highly vertically integrated supply chain with Chinese producers owning mines in Indonesia, refining the nickel in both Indonesia and China and selling processed nickel to the EV industry. It is noted Chinese company BYD became the largest EV seller beating out Telsa.

The other aspect is over the past decade, the Chinese revolutionized the steel manufacturing process by producing alloy cheaply using low grade Indonesian nickel (nickel pig iron or NPI) instead of the high-grade nickel found in Australia and Canada. The Chines have found a method to use NPI for use in EV battery manufacturing.

The downsize of Chinese innovations is to the damage to the environment. Steel made with NPI is more carbon intensive than steel produced with high-grade nickel. In addition to process the NPI takes a great deal of power and Indonesia is using vast amounts of metallurgical coal. This has resulted in the mining companies pushing the developed countries to penalize the Chinese with tariffs and ESG scorecards on how the final product is actually produced.

Linking to dividend paying stocks, in the world economy, while everyone believes in free markets, the reality is all companies hope for reasonably stable prices which will allow companies to make profits to pay dividends. There is always a grey area when the competition begins to change the industry, whether it is for the better or worse. It is good innovation allows NPI to be used, however that changes the demand for high grade material, which can be sold at higher premiums. Large organizations tend to use government regulations to hurt the competition and help themselves, which is why sometimes it is a grey area.

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

For the past 30 years, the number one country for a growth story was China and it delivered. The country has change, there are more people making money or raised from poverty to the lower and middle income groups. The rise in income brings many new service jobs along with the manufacturing companies and the government has and continues to spend billions on new infrastructure to move people around the country. The world has decided China’s manufacturing is too expensive and has moved operations to other countries, one of those countries is India. If what happened in China happens in India, India will be growth story for the next 20 years.

In an article by Alex Travelli and Sameer Yasir of the New York Times News Service, the large companies are focusing their efforts on trying to ensure some of the growth goes into their pockets. Disney announced a joint venture with India’s biggest conglomerate – Reliance Industries in a $8.5 billion deal that will create a media powerhouse in the world’s most populous country.

Disney will merge its Indian operations with those of Viacom18, a part of Reliance Industries. Reliance and Viacom18 will hold 63% of the company and Disney 37%. Reliance will pay Disney $1.4 billion to consolidate its control. At the present time, Disney and Reliance hold 40-45% of the market share of advertising and streaming, according to Karan Taurani, a research analyst at Elara Capital.

Disney has been in India since 1993, started as a vehicle to show movies. In 2019, Disney bought 21st Century Fox which included the rights to the Premier cricket league. Disney gain subscribers but not profits and its global operations lost $11 billion since the Fox and launch of Disney+. Reliance Industries outbid Disney for cricket rights at $3 billion. Disney lost 11.5 million subscribers.

Reliance Industries as a conglomerate besides the media operations is involved in retail, telecom and credit operations as well as infrastructure companies.

Linking to dividend paying stocks, for these types of companies which you want is a very healthy market share inside a growing market. The combination of Disney and Reliance bodes well for better returns as the companies own a 40% plus market share. If the cost of bringing on a subscriber goes down and the ability to generate more fees per subscriber goes up, the merger should work very well for the companies.

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

If you ask the average person on the street, do they love technology, the answer is yes. Every technological improvement can mean or has meant some type of change. In the manufacturing business this is very good, companies are able to do things that years ago, they had to outsource because it was too expensive as an option. One of the issues of new technology is the change in processes, people have to adapt to. In the example of car manufacturing, the internal combustion engine vehicle requires lots of parts and a supply system has developed to ensure each and every part is better each year. For electric vehicles, the supply system is developing, but there are less parts needed. Less parts needed means new competition.

In an article by Nick Carey of Reuters, the European Union has adopted less use of carbon as a policy and using less is good for the environment in general. One of the biggest users of carbon is the internal combustion engine or gasoline from cars, using less is good. From a policy perspective that is what politicians do, from a boots on the ground perspective, the industry is going through many changes. All car makers in Europe and America, assemble the vehicles they do not make the parts, it is outsourced. The issue is making EV parts, because there are fewer of them is not as profitable to the outsourced firms as making parts for the internal combustion engine. As a result the big 3 of Forvia, Continental and Bosch have all announced or expecting to announce layoffs in their internal combustion engine parts supply systems. Recently Germany’s Allgaier filed for bankruptcy.

Unlike the European automakers that are reliant on external suppliers with separate supply chains for fossil fuels and electric, their Chinese rivals are highly vertically integrated, producing almost everything in-house and keeping costs down. (when Henry Ford make the Model T for the US market, all the parts were done at the Rouge plant where at its peak over 100,000 people worked, outsourcing came years later). According to Nick Parker, a partner and managing director of AlixPartners, the vertical integration allows the Chinese to undercut their European rivals.

In times of change, companies face a delicate balancing act between cutting costs to fend off Chinese rivals and avoiding pushing their suppliers too far. In a movie called Margin Call, the Jeremy Irons character was asked did we do right by our clients? He said no, but we live to fight another day.

Linking to dividend paying stocks, most of us believe technology is a good thing, until it affects our jobs or income stream, then we say it was better before the technology. However, there is always opportunity in the markets and as an investor you must be aware of it. Government policies can push companies to doing actions for the good of the country, but not necessarily for the good of margins of the investors. The players have done nothing wrong, but change was not on their side, as an investor you want to ensure change is on your side.

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