In every industry, the new challenges people to stay current and offer something that people want or desire or think they want and desire. The challenge for the management group is to ensure its shareholders they are aware of the new thing and the company is active adding to its products and services. If the company can show it has the new thing, then its customers can stay loyal, the shareholders are happy the company is being innovative, and results will be rewarded in the future. At the present moment, the new thing is AI because of OpenAI released ChatGPT. Many companies have been using AI for a number of years, but it was in the background. OpenAI brought the ability to use AI to forefront and very soon it will be a standard feature.

The biggest and most profitable technology company in the world is Alphabet which includes Google, the world’s most used search engine. We know the big technology companies were spending research dollars on AI for the past decade, but there was no consumer application or readily available consumer application, then came OpenAI, what was Google to do?

In an article by Nico Grant and Cade Metz of the New York Times News Service, Google stepped off the sidelines and released its version of AI called Bard. Google noted the rollout will take some time, users in the United States and the UK will have access to it first. Bard has been in the works since 2015.

Google announced that AI was coming to applications such as Docs and Sheets, which businesses have to pay to use. The underlying technology will also be on sale to companies and software companies who wish to build their own chatbots or power new apps.

Linking to dividend paying stocks, when companies are profitable and paying dividends, they are doing good things, however Wall Street looks forward or what will the company do in the future? One method to do this is how does the company react to what is new? Is the company working on the new to incorporate in their operations? how does it manage its change, and does it adapt and change? If you see the company adapting, then that is good thing and one more reason to continue to own the stock or do nothing. If you do see the company adapting to what you think is important, it is time to seek alternatives.

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

Banks are the life bloods of an economy and credit makes the economy run. On individual basis credit is both good and bad, too much and you are in trouble, but some helps make your lifestyle better for the moment. For companies, credit is very useful and is used on a normal basis in the operations of the company. Only if the company goes too much debt and it becomes too expensive, then credit is not so good. Banks because of their importance in the community and state and national level become very important for the government. Depending on the size of the bank, for the largest 6 banks in the US they are semi declared as too big too fail. The same principle applies across the world.

In Switzerland the largest 2 banks are UBS and Credit Suisse, of the two, UBS is better run. Credit Suisse as a tendency for the past number of years to be the banker of choice of companies losing billions of dollars. When there is a crisis, the international banking community thinks how is Credit Suisse involved?. Credit Suisse has some very profitable divisions and was 10% owned by a Saudi Arabian agency.

Given the banking crisis since SVB in the US, Credit Suisse has been in trouble as the international banking community began to withdraw money from the bank. The Swiss government stepped in to merge the two biggest banks in the country, but there were conditions. One of the issues was the hand of the Saudi agency was asked if he was going to buy more equity? he said no, because we already own 10%. The line no was heard around the world, the other part a few days later, if an investor owns more than 10% equity, different rules apply to the investor.

In normal circumstances bond holders have greater security than stockholders in bankruptcy or Chapter 11, but for some bondholders the regulators changed the normal method.

In a podcast by Patrick Doyle on You Tube, since the 2008 banking crisis, one of the tools in the central banks’ toolkits are bonds called addition tier 1 bank debt. Banks will have issued multiple types of equity and bonds in their operations, and some are classified as Tier 1 debt, some of the debt is Tier 2 and list goes on. The more Tier 1 debt, the better capitalized the bank. Credit Suisse had $17 billion in additional Tier 1 debt with its holders including Pimco (one of the largest holders of bonds in the world or should be sophisticated investors) and Asian funds. The additional Tier 1 was carrying a 9% interest rate and that should have sent alarm bells that if anything went wrong with the bank, the bonds were supposed to convert to shares or an equity position which would help the balance sheet. At the time of the issue, experts were thinking that the additional Tier 1 bonds would take the place of preferred shares.

Linking to dividend paying stocks, when things are going well few are concerned with the what if something goes wrong? how am I protected? when the tables turn and something goes wrong, they those who believe in the normal course of events suggest lawsuits with come. They may, but in the case above the language was written if the regulators wished to wipe out the bondholders they could. Ideally your investments go up and you are above your share purchase price which means if the shares fluctuate it is ok as long as the company can pay a dividend. When the company cannot pay, as much as you like the stock it is time to find alternatives, let the company sort itself out and then revisit it later.

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

At one time, whenever a disaster happened, both sides rushed to published newspapers or magazines to get their stories into the public. Then came TV and newscasts which lead to news documentary shows and TV news programs that investigated the stories. With the internet came social media and everyone could have a swap including those from a far. There are really good reasons why social media is wonderful and lots of reasons why you need to be careful with what you read

In an article by David Klepper of the Associated Press, there was a 36-car derailment near East Palestine, Ohio. The train was carrying toxic chemicals and they were released into the air and water which lead to concerns because similar to most toxic chemicals, the results do not show up overnight. The chemicals which go into the water will eventually cause problems but most of them take time – the easiest to see will be problems in pregnant women. The women will miscarry and have a host of other problems because of the chemical affecting the newborn and giving life process.

The disaster means social media will be abuzz with news and because governments and the train corporation reacted slower than expected others will step in to air their views. Some will be accurate, be of concern and some of the news will be junk. In this case, anonymous pro-Russian accounts started spreading misleading claims and anti-American propaganda about the the derailment on Twitter.

The pro-Russian tweets suggested Biden was helping Ukraine but not its own citizens.

Organizations such as Reset, a London based non-profit that studies social media’s impact on democracy and Zignal Labs which conducted a study for the Associated Press came to the same conclusion. Millions of mentions were done on Facebook and Twitter.

In addition, because the derailment moved into the political circles, the disinformation came from both pro-Russian accounts and those will American pro conservative accounts. One example is Truth Puke which is connected to conservatives in the US. Truth Puke regularly reposts Russia state media Russia Today or RT.

Linking to dividend paying stocks, when a disaster happens, the company is going to say we need time to evaluate the information and equally important to get out the facts. The issue will be other voices will fill in the space while the company offers its solutions. It is vital the company has considered what happens in a disaster, what should be done and can the company control as possible, otherwise the company will lose its narrative. For the companies you invest in, are they reasonably prepared for a disaster?

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

Whenever something goes wrong there are tendencies to throw the blame around or throw the spaghetti at the wall till it sticks. The first blame is management because people are paid to manage and when there are losses, what was management doing? In the famous scene from the Roman empire – Nero was fiddling away with Rome burnt. Management has responsibility in both good and bad times. The next blame to go around is the government through government regulations. All companies have a regulator of some type and the issue is what did they know and equally what did they do or not do given government bureaucrats are paid to do some type of regulations. Anyone who needs to fill in forms and send the information to the government believes some information is good, but the government asks for too much and lobbying groups for the industry try to lessen the flow of information. Was the lobbying for the regulations without any penalties part of the problem? or is it a combination of the above?

In an article by Jeanna Smialek of the New York Times News Service, Silicon Valley Bank’s risky practices were of the US Reserve’s radar for more than a year.

The Fed repeatedly warned the bank that it had problems. It 2021, a review found serious weakness in how the bank was handling key risks. The Fed issued 6 citations.

The bank did not fix its vulnerabilities, the Fed placed the bank under a set of restrictions that the bank could not do any mergers and acquisitions until it fixed its governance and control.

Senior leaders at the Fed went to Senior management at the bank to talk about their ability to gain access to enough cash in a crisis and possible exposure to losses as interest rates rose. It became clear to the Fed, SVB was using bad models to determine how its business would fare as interest rates rose. The models at the SVB showed higher interest rates helped the bank, this was different from reality.

To the fed, SVB had issues which were very troubling, 97% of its deposits were uninsured or above $250,000 which meant at the first sign of trouble – the depositors were likely to move their money. Most of the depositors were in the technology sector which after years of investing in potential earnings, investors wanted to see real revenues to make profits. In addition, SVB had a large long term bond portfolio which the market rate had declined as interest rates were rising.

The House Financial Services Committee meetings are scheduled for March 29 and the Fed is doing an inhouse review scheduled to be released to the public in May. Does the Fed need more authority to ensure the bank measures up to its standards?

Linking to dividend paying stocks, large corporations have a love hate relationship to regulations, they would love to have less, but sometimes more ensures competition can be stifled. Companies want to have more if they get into trouble to ensure the government helps them out of the rough times. There is a reason why the management team is involved in politics at the local, state and national levels. When you invest in a profitable company, one of their many expenses is lobbying. As an investor sometimes you like it, sometimes you prefer less. Do you know the relationship the management team has with the people it lobbies?

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

If a developed country wants to save fossil fuels, the easiest and hardest aspect is the urban environment. Buildings were built for many reasons but saving energy was the least important because fuel was relatively inexpensive. In the northeast a number of years ago, visited a friend whose house had almost no insulation from the cold. Once they renovated to put the insulation the house was livable during the winter. In the northeast, winter lasts at least 4 months and seemingly can last longer. There in lies the problem, to fix houses, renovation has to be done and to renovate means to move everything around, live through construction dust and debris and move everything back again.

In an article from Reuters, the European Parliament looked at the figure of buildings account for 40% of the European Union’s energy use. Most of that energy use is either directly by oil and gas or indirectly through the making of electricity. If buildings use less energy, the energy bills should be less and dependence on oil and gas imports will decrease.

The EU countries would need to renovate non-residential buildings to an E grade by 2027 and D by 2030. Residential buildings would follow later deadlines of E by 2030 and D by 2033.

Few disagree with the desire, how it be financed is a different issue.

Linking to dividend paying stocks, in the above case construction renovations will have to be done to ensure buildings are energy efficient. There are many companies in the renovation business but they will need supplies – in the US you could point to Home Depot and Lowes as larger suppliers. It is possible to go through which companies’ products would be needed to achieve energy efficiency and determine how they should benefit from government regulations. As long as government convene, they will pass regulations or laws which means some companies benefit, looking at regulations as a positive is one method to like regulations.

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

We all have preconceived notions of how things operate and that guides us to making quick decisions. Often the real world is more complex and it takes time to digest the information and change our notions. For example in the banking sector. we think of a local bank whose prime functions are to take in deposits and lend out in mortgages and personal loans. There are many other functions at a bank, but we often think that is the normal because in fact in 99% of the time, it is the normal.

In mid March, a bank specializing in the tech sector collapsed for a bad business model and over concentration of prime depositors. The bank is the Silicon Valley Bank (SVB) and the business model was to cater to Venture Capital firms who invested in startups and the tech infrastructure. The process of Venture Capital firms is to lend money to startups and when they show their products can be regional or national or international in scope to invest more money and then to bring the companies to the stock market where they can sell some of their shares at a high premium. If the company is successful and the stock rises, the venture capital firm sells off more shares, earns a bigger profit and can look for the next company. The model depends on a healthy new issue market for companies to go public. In the last 6 months, investors did not want potential, they wanted real sales which translated into profits.

While the IPO was vibrant, companies tended not to need a great deal of cash to run their business, money was coming at higher valuations of the company and when the IPO was issued the shares, companies could sell shares or equity into the market and have a very healthy balance sheet. When the change happened and their were fewer IPOs, companies needed to go the bank or SVP to receive their cash.

At the bank, SVP was swimming in cash and decided to buy bonds with long maturities. Most of the bonds were US government bonds and the US has not defaulted on any of its bonds. The bank believed they were safe and secure and life was ok. When the federal reserve decided to raise interest rates, although the bonds would pay at maturity the principal and interest, the value of the bond fell. If the bond rate on a 10 year bond is 2%, and interest rates past 2%, no investor is going to pay 100% to buy the bond, it is worth less or when interest rates go up, bond prices fall and the reverse is true, when interest rates fall, bond prices go up. Giving the change in the IPO market, the venture companies each with multiple companies banking at SVP needed cash to maintain operations as start up companies burn through lots of cash or the burn rate. The bank needed to sell bonds to meet the cash flow requirements of the companies and announced it sold $20 billion in bonds at a loss of $1.8 billion. The bank was going to sell equity to investors to meet a shortfall on their balance sheet. The venture capital companies decided to move their primary banking relationship to bigger banks and the run on SVB was on. What the facts are and what the public perceives can be two different things. Will the fed continue to raise rates or is that off the table for now?

Linking to dividend paying stocks, we all start with what we think we know, but is there a difference? What is the difference that makes the stock unique and good to own forever? Do you understand the business model and what can change in the business model? If the answer is yes, then you can understand how the company will react to changing conditions, if and when they happen. How specialized is the company’s you invest in? For example many companies are dependent on China for their supply system and went the ports backed up, what were the alternatives for companies?

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

In the last decade we have seen the rise of ETFs and low cost funds, this was great news for investors because of the nature of the holding. If a fund mimics the index of the stock exchange and at least twice a year, the losers are replaced by the winners, over the long period of time the index will tend to rise. The key is long term, low cost, but no one knows when the stock market will rise and fall, but we do know the fund will tend to go up over the long term. Blackrock has the ishares and the other big players are State Street and Vangard. For Blackrock, every year CEO Larry Fink writes a letter about where he sees the financial world moving towards. A few years ago, seeing weather changing, he help develop ESG tools to evaluate companies.

In an article by Jeffery Jones of Reuters, Mr. Fink has been taking heat from Republicans because moving to ESG means to lessen reliance on fossil fuels. For many Republicans, fossil fuels have been very good for the economy for decades and they do not want to change. even at margin. However, the insurance companies which pay for damages to infrastructure after climate change has or is happening, want to pay less. The best way to pay less is prevention or ensure the problem becomes less of a problem.

Mr. Fink believes ESG is important and the company has developed metrics to evaluate how companies are doing but he said it is not his company’s role to drive the agenda for how society should deal with climate change. It is up to government to make policy for how companies will disclose and cut emissions. Investment firms such as Blackrock are not the environmental police, their purpose is to understand the risk management of the company they invest in.

In his letter, which is available to read on the Blackrock web site, Mr. Fink notes the costs of climate related natural disasters is rising and was $120 billion in 2022 of insured losses. Insurance companies are passing on costs to consumers with higher premiums. This means that some will take less insurance and be less covered by the next natural disaster in their region and the storms are getting both bigger and cause more damage.

An investment firm similar to Blackrock’s job is for analysts in the company to determine a range of scenarios to determine the impact on clients’ portfolios.

Linking to dividend paying stocks, we know prevention of natural or man made disasters is the best route, but prevention often comes at a cost because if companies do something and nothing happens, is the money not put to its highest and best use. As investors one expects profitable companies to act the most responsibility because the company makes a profit and can pay a dividend. If a profitable skips on preventable items, what do you think a non-profitable company would do? One can hope that increasing natural disasters are on a cycle, but the cycle seems to be more normal than before so you can ask your senior management of your investments – how do they see increasing natural disasters and how are they coping with them? If you like the answer, then you can hold otherwise searching for alternatives is a good thing.

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

When the average person on the street thinks about oil companies, they tend to think of the remains of Standard Oil. The public companies tend to the companies drilling for oil and they are ExxonMobil, Chevron, BP, Shell,Eni and TotalEnergies. Exxon and Chevron are US based, the other companies are based in Europe. The reason people tend to think of these companies is they own gasoline stations where people fuel up their vehicles. When people tend to think about big oil they generally refer to the upstream operations of drilling for oil and sending the oil down pipelines to a refinery. The downsteam operations is all the products which come from the refinery including gasoline. However, there is a bigger company in the oil business and it owns the oil in Saudi Arabia, the company is called Saudi Aramco.

In an article by Jon Gambrell of the Assoicated Press, the company reported $161 billion profit. In the last 3 years profits have gone from $49 billion to $ 110 billion to this year’s $161 billion.

Saudi Aramco put its production at 11.5 million barrels of oil a day in 2022, it hopes to raise levels to 13 million barrels per day in 2023. To increase output, the capital budget will be $5 billion.

Saudi Aramco declared a dividend of $19.5 billion to be paid in the 1st quarter of the year. Most of the profits will go to the government of Saudi Arabia which owns 98% of the shares.

The oil in Saudi Arabia is still some of the least expensive to drill and pump out which translates to big profits when the price of oil soared from an $82 per barrel to $120 per barrel. The price in mid March is around $80 per barrel.

Crown Prince Mohammed bid Salman has plans and the financial resources to built infrastructure to help diversify the economy and this is where the profits are allocated to.

Linking to dividend paying stocks, if you own a commodity based company such as oil companies which the past couple of years have made very good profits, the key is always what is the difference between removing the mineral from the earth and selling it. As long as the price of the underlying commodity is above that number, you can own it for as long as you desire. If the price drops, then it time to seek alternatives.

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

On a day to day basis most people tend to believe in reasonable equal opportunity will bring the best results. However, to get ahead, you need an edge and often it is to have more or better information. Generally, most people will know or tend to know where the boundary is between legal and non-legal, leaving aside whether it is right or wrong. One method to gain an edge is to be a detective. You are wondering why your opponent is successful, how does he/she do it? One method of gaining success is partnerships – work with terrific people who are successful and some of that will flow to you, but are they good people to work with? The answer is for you or you to hire people to do detective work.

In a book written by Tyler Maroney called The Modern Detective – How Corporate Intelligence is Reshaping the World, published by Riverhead Books, NY, 2020 some of the ways detectives are used are outlined.

Before the 1960’s, the world operated on a moral code and people were to be inside that code. If you were outside and caught, if could and would affect your career within organizations which operated on the moral code. If you think about World War ears, if someone in government was gay, then they could be blackmailed. In the present time if someone is gay, there are much fewer blackmarks in an organization. The sex lives of Hollywood stars helps sells magazines.

In business, people make decisions on allocation of resources and where to allocate them. In public companies, investors expect while there are some slush funds, most of the business is legitimate revenue sources. In the book, there are a number of stories which allows the reader to see how the modern detective works. One aspect is to bring in skilled people to be able to copy a hard drive to see how senior partners believe a partner is structuring deals for their benefit rather than all the partners. Unfortunately, in this case the partner moved to another competitor rather than face jail time.

Often the modern detective is engaged in trying to find hidden assets from people who declare bankruptcy and flee the country. A great deal of business is done through the use of credit and successful companies tend to have access to larger credit lines until the economy changes and payments have to be made. During the good times, the owner likely has a very good lifestyle and bought many luxury items. When the downturn happens, people take their items and run, and detectives have to track them down to find hidden assets. The hidden assets can be both those in plain sight, where they are living, safety deposit boxes and accounts in banks around the world.

If companies are investing overseas, they need reasonable intelligence about what is happening in the country the company invests in. Detectives play a role in providing that information. Who are the players, what is the end game, is our investment safe and reasonable secure?

Detectives play a role in companies that are built by founders become public which allows shareholders however in reality are run by founders for themselves. In one chapter, the founder set up companies to pay members of the family rent from the use of warehouse. The issue arose the rent being charged was twice that of the surrounding buildings, who was benefiting? If the company is doing that, what else were they doing? It turned out there were many aspects of the company that were done to benefit the family but not shareholders. Eventually, the shareholders changed the auditors which alerted prosecutors that there were many other concerns. This resulted in the founder being charged with insider trading, fraud and tax evasion.

Linking to dividend paying stocks, large companies have many variables, and one continuing job is to allocate resources to the benefit of shareholders. While most shareholders expect the companies to make a profit to pay dividends, how it is does this subject to questions. Within the category of consulting fees, does that include detective agencies, should it?

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