Every company in the world , once they are successful are offered the ability to buy into other companies. Smaller companies tend to say no, larger companies are buying and selling companies as they no longer fit their core holdings. Many people have worked for an organization and then the parent decides to sell and they have to find new work, it is part of the corporate process.

When companies buy and sell companies for strategic purposes, one of the reasons is they say their skill set can help grow the company, execution is what investors have to examine.

In an article by Niall McGee of the Globe, AMC Entertainment – the company which runs movie theatres is buying a stake in struggling Nevada mining venture called Hycroft Mining Holding Corp. The amount of money is $27 million which is not a great deal for the company but what do they know about mining?

The high cost, low production and heavily indebted Hycroft says it will pay off some its debts with the money.

Adam Aron, Chairman and CEO of AMC, says that he sees Hycroft with a lot of debt and a year ago, AMC was in the same position and now AMC has the experience and skill to help Hycroft realize its potential.

The Hycroft mine has 15 million ounces of gold and 600 million ounces of silver, but it is not in the proven and probable category, it could be there. The mine is refining small amounts of gold and silver (open pit mining) which is high in cost and money losing. At the end of last year, Hycroft was holding $12.3 million in cash and $159 million in debt. The name before Hycroft was Allied Nevada Gold Corp was went into bankruptcy and was reorganized.

Linking to dividend paying stocks, there are a great many opportunities for profitable companies to buy a division in the name of diversification. Not all will work out but companies with money often want to spend it, some will work out wonderfully. If your company buys a division and you do not think it will work out for a number of reasons, it is best to look at alternatives.

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

For generations or 145 years the prices of basic commodities have been set on the London Metal Exchange or LME and if you own a company in the industrial trade often you will hear about prices on the LME, how they are hedging to ensure a steady price.

When Russia went to war against the Ukraine, prices went up because Russia is a major producer of aluminum, copper, nickel and oil and gas.

In an article by Andy Home of Reuters, the industrial metals were in a bull market because when the world shut down metal prices dropped when the world opened again demand surged.

In the world of commodities, after the price surges, one would expect more companies to go short or expect prices to flatten out or even fall. One company which shorted was China’s Tsingshan Group which is a major producer of stainless steel and nickel production. Nickel was a new high of $48,078 a tonne and when Russia invade Ukraine a short squeeze happened in which Tsingshan Group and all the other companies who were short needed to buy or offer more margin. The price was around $25,000 a tonne. The LME which strives for an orderly market suspended trading to calm the market, otherwise many firms would be out of business. (since the news, the price jumped to $100.000 a tonne, the LME closed down, cancelled all trades and went it opened the price fell).

The LME’s core contracts are not cash settled futures but forwards with positions financed by credit lines secured by collateral.

Nickel was not the only commodity affected, zinc went to a new high of $4,896 a tonne and lead went to a 10 year high of $2,700 a tonne.

Aluminium dropped from a high of $4,073 to $3,498; Tin went down from $49.500 a tonne to $39,080 a tonne. Copper was flat.

The Russian company Norilsk Nickel was not sanctioned but it does provide 63% of the market for refined nickel in Europe. The company also is a strategically significant global supplier of pallaium and the price has reach a high of $3,441 a tonne.

Russian copper supplies 4.4% of European consumption according to the firm Natixis.

UC Rusal supplies 4 million tonnes of aluminum to Europe annually.

For now there is both a supply and demand crunch and the LME is trying to have steady stable markets.

The good news is the LME has announced a probe about the events and why trading was cancelled.

Linking to dividend paying stocks, if you own a company involved in the commodity exchanges the price can fluctuate as the world circles around the sun. All companies try to diversify where they receive their product from, but war is a unknown variable and prices will react. Hopefully the war is over soon and stability comes back to the markets.

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

One can think of a country’s electric planning commissions, everyone in an urban area needs electricity to function, we need to turn on the lights. The electricity companies started with tapping the water resources and dams can last for hundreds of years; then coal was used, however the reality is the exhausts are not good for the environment, (read a Dickens novel – the weather was always foggy but reality it was both fog and coal dust or look at the weather in Beijing – the city is in a bowl similar to LA and sometimes the coal is in the air till the wind blows it out). then companies move to oil and then gas. Italy did all those moves when natural gas was lower priced, as a result they moved from 27% to 43% dependence on Russian natural gas. It will take 2 years to replace noted Italy’s Energy Transition Energy.

In an article by Colleen Barry of the Associated Press, even before the war Europe’s was facing a serious energy crunch that drove up costs for electricity, food, and supplies for people and businesses.

One example is Vento-based paper and packaging company, Pro-Gest. Gas prices moved from $125 megawatt hour to over $420 a megawatt hour. To remain profitable, they would have to double prices from $947 a ton to $1,670 a ton. Pro-Gest sells recycles paper which supplies 1/3 of all Italy’s packaging needs.

Acciaierie Venete shut down 3 of its steel mills for a few days during March as spiked to 10 times above normal. Francesco Semino an executive with the company which makes high quality steel for automotive and agricultural machinery says never ever has this happened.

Linking to dividend paying stocks, there are always prices that companies can not control, most of us believe that technology and innovation will help make business adapt to the changes. Sometimes elements out a companies control happen and everyone hope it is short time, but changes need to be made and how the company adapts and comes out stronger is why you would want to invest or find alternatives.

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

All countries all over the world, once they have satisfied their domestic market look to export goods and services to over countries. Of of the biggest employers of the world is the movement of goods and services across borders or the import-export business. For those companies who export, they want to be treated the manner in which the home country treats them, for other countries they want the goods and services. Every once in a while the local politician will say why do not we make the item within our borders, but consumers tend to trust some countries products over others.

In an article by Adrian Morrow, the Group of Seven countries and the European Union are moving to revoke Russia’s most favored nations trading status and exclude it from the International Monetary Fund and World Bank as the West continues to impose sanctions on Russia.

The US will ban imports of Russia vodka, seafood and diamonds, while the EU will block iron and steel goods from the Russia. The US has imposed an embargo on Russian oil, gas and coal.

Most favored nation status means permanent normal relations allows a country to trade with low tariffs or low import taxes.

The EU is Russia’s largest trading partner buying nearly 38% of its exports in 2021. The US does about $35 billion in annual trade with Russia or about 1% of US imports.

Linking to dividend paying stocks, often analysis will talk about stability in the marketplace and that often comes with trade deals. The former President talked about the US – Mexico – Canada deal a great deal, although in reality he was tinkering with it rather than redoing it. Ever since two countries had a border, trade is a political issue. We want it but we want the benefits one way, unfortunately trade goes 2 way. After politicians sign trade deals, companies react to the trade deals to send goods and services and sometimes choose the least expensive place to produce the goods, and send the goods both ways. In the Ukraine Russia conflict we have seen countries willing to break long standing contracts over the war. On balance that is a good thing and hopefully we will have peace and stability which is good for business.

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

When people think of Wall Street, investment bankers will come high on the list. One of the most profitable firms is Goldman Sachs. In the world of investment bankers, where there is money to be made, you will find an investment banker making a pitch. When the money dries up, they are off to the next deal. For some of the deals are going to be wonderful and profitable to shareholders but many are profitable to the dealmakers. The issue is often times the investor does not know which is which, because a company could be the break through one.

In the US, the IPO market was booming and billion dollar offerings were coming every month. When the market started valuing real profits not just higher sales, one of the consequences is last month no IPO came to market. What is an investment banker to do?

In an article by Niket Nishant, Matt Scuffham, and Sinead Cruise of Reuters, Goldman Sachs is closing their Moscow office employing 80 investment bankers. The bankers will be working out of Dubai. The reason for leaving Moscow is the sanctions the western governments have imposed on Russia and that means very little money is flowing through the economic system in Russia. Overseas funds are frozen and Russian companies are banned at exporting. There is little business to do.

When Goldman Sachs was operating in Moscow, the bank held Russian securities and reported it has a $650 million credit exposure. Goldman was the 7th largest investment bank generating income behind Russia’s VTB Capital is number one, JPMorgan second with $32.8 million, Morgan Stanley with $27.3 million and Citigroup at $22.8 million. Citibank has a $10 billion exposure as it operates a Russian consumer business.

Linking to dividend paying stocks, investment bankers played an important role in the capital markets and they will be anywhere fees are generated. For dividend paying companies, they do not have the need for the IPOs, but a healthy IPO means stock prices are generally up; the companies will have bond issuance and sometimes selling more stock, and selling under performing divisions or divisions deemed not to be core business or buying companies to enhance existing businesses. It is very helpful if there is a strong IPO market, because someone will believe turn arounds are possible, and sometimes they are.

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

If you are a fan of John Grisham and many people are, some of his books have been made into movies. One book that was made into a movie was called The Firm. The law firm hired the brighest and best lawyers, it was located in the most prominent office building in Memphis and from the outside looked well established. The character played by Tom Cruise who graduated from Harvard Law reasonably quickly came to understand the owner who the law firm protected was the Chicago mob. The book was fiction and in the end, the firm was dissolved.

In real life, there are many firms working for those with money how they received it, is not discussed, but they have it and the firms ensure the money is working in the economy. In an article by Matthew Goldstein, Kenneth Vogel, Jesse Drucker, Marueen Farrell and Mike McIntire of the New York Times News Service, there are numerous firms around New York City managing money for Russia oligarchs.

One firm is called Concord Management LLC which manages between $4 and $8 billion and the money goes into hedge funds and private-equity firms.

On one hand politicians talk about the rich hiding assets, on the other side they help them. In London and New York and many other cities, there is a thriving industry of lawyers who specialize in hiding assets.

The firms have to decide if the fees they receive from Russian oligarchs or Russian companies on the sanctions list is high enough to deal with the bureaucratic hurdles and reputational risks. Over the past month many high profile law and public relations firms have said they no longer represent their Russia clients or operations.

The firms include law firms Skadden Arps, Linklaters, Norton Rose Fulbright, Debevoise & Plimpton, Ashurst. Accounting giants PWC, KPMG, Deloitte and EY have all provided extensive services to oligarchs and their networks of shell companies.

Linking to dividend paying stocks, legally speaking there is nothing wrong with working for sanctioned companies as long as certain rules are followed. Somebody needs to work with them to follow the rules. Often times, firms are drawn to work with the oligarchs because they pay their bills and do not worry about the fees, it is price of doing business. A couple of months ago, working for oligarchs was under the radar of most of the population and the fees were good. With sanctions, changes happen and maybe when the sanctions are off, the old practices will return. For now, it is often very difficult to be on the right side of the law all the time, ideally when a company makes a profit selling its goods and services over a long time, all its relations both good and bad can be seen and generally the public is good with it. If the public is good, then as an investor you can be good.

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

Imagine if you were an analyst looking at the state of Russia a few months ago, while the politics may not be your cup of tea, the leading corporations and government does generate cash from the oil and gas prices. Slowly prices have been going up as the world reopened from the pandemic. Russia bonds paid in dollars, euros, British pounds or Swiss francs and Moody’s had rated the bonds as BBB. Then President Putin sent the army to Ukraine and western world imposed heavy financial sanctions.

In an article by Guy Faulconbridge adn Karin Strohecker of Reuters, Russia said sovereign bond payments will depend on sanctions imposed by the west, raising the possibility of a major default. Russia’s Finance Ministry said it would service and pay sovereign debts in full and on time but that payments could be hampered by the international sanctions.

Russia has $630 billion in reserves but it is held at western banks and is frozen by sanctions.

Russia in 1998 defaulted on $40 billion in domestic debt and devalued the ruble.

In 1918, the Bolshevik revolution under Lenin defaulted on Tsarist debt. At the time, Russia was one of the largest foreign debt in the world.

The Soviet Union under Josef Stalin stopped servicing loans to the US and Sweden after WW I.

Russia has $40 billion in international bonds outstanding across 15 dollar or euro denominated issues. However corporate debt is much higher. On March 16, Russia is scheduled to pay $107 million in coupons across 2 bonds. The next full payment is $359 million on March 31 and $2 billion maturity on April 4. The total bond market in Russia is worth about $200 billion.

Gazprom has a $1.3 billion dollar bond due for repayment on March 7.

With the imposition of sanctions, Moody’s changed Russia ratings from BBB to Ca or junk status until sanctions are over.

Linking to dividend paying stocks, people around the world are doing analysis on a regular basis and normally for an organization that has reasonable ratings, cash in the bank and expected higher revenues in the future, that would be a good thing. You would risk your money because of the long term return, but some events are revenue changing and some are not. The western world imposing sanctions on Russia is a good thing for the world in generate, but there are consequences and hopefully if the war is over sooner than later, it is price to be paid.

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

As we move into the summer months you may have or think about having a beer on a patio. As you consume the beer you think what are the ingredients and which states did they come from? If you thought about the states of Iowa, Nebraska, Kansas, Missouri and other states in the Great Plains area, you would be correct. The states of the great plains grow the grains which is needed for the beer and the bread you are consuming. In Europe, the vast fertile farmlands of the Black Sea are known as the breadbasket of the world. The farmers of the Ukraine and Russia feed Europe, Africa and Asia.

In an article by Joseph Wilson, Samy Magdy, Aya Batrawy and Chinedu Asadu of the Associated Press, when Russia invade Ukraine, the farmers are no longer working the lands and ports to send the wheat to the marketplace are shut down, what happens?

Russia and Ukraine combine for nearly a third of the world’s wheat and barley exports. Ukraine is a major supplier of corn, the global leader in sunflower oil used in food processing. A prolong war will cause shortages.

In Egypt, the world’s largest wheat importer millions rely on subsidized bread to survive, with about a third of people living in poverty. Egypt’s state procurer of wheat, which normally buys heavily from Russia and Ukraine had to cancel 2 orders in less than a week, one for overpricing, the other the lack of companies to sell their supplies.

African countries imported agricultural products worth $4 billion from Russia in 2020, and about 90% was wheat, said Wandile Sihloo, chief economist for the Agricultural Business Chamber of South Africa. (Russia was trying to break into new markets in Africa, first through food).

Ukraine was Indonesia’s second largest wheat supplier providing 26% of wheat consumed. The wheat is used in instant noodles, bread, fried foods and snacks.

Russia and Ukraine combined for 75% of global sunflower oil, accounts for 10% of all cooking oils according to IHS Markit.

Farmers in the US, the world’s leading corn exporter and a major wheat supplier are watching to see if US exports spike. Ukraine supplies the European Union with 60% of its corn. Much of the corn is used to feed livestock particularly pigs. Russia provides the EU will 40% of its natural gas needs and is a large supplier of fertilizer. In Spain during the first 2 days of fighting, the price of animal feed jumped 10% in the open market.

Linking to dividend paying stocks, all people need to eat to survive and the world producers even though there is competition, loosely work together. After the domestic market is secured, producers look to export markets and it may take years to establish all the relationships in the supply system which seems seamless. At a moment the chain is broken and the stable supply system will take time to fix, if it can be fixed at all. A world at peace is easier than the consequences of a war.

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

Risk management is the insurance you thought you had. The last time Russia invaded Ukraine, the world for all intensive purposes was willing to let Russia control the Crimea without much hassle. Russia needed access to the Black Sea and port of Sevastopol and by hook or crook they will likely going to take the region. One could have offer counterpoints to many of the issues, although the Crimea was part of Ukraine and Russia took their land. When the world offered little consequence to Russia, the President of Russia must have started the process to have more – the whole of Ukraine.

The military commanders would have gone through the logistical problems and what they needed to do and be willing to do. The diplomats would have made the rounds to ensure that Russia only wanted Ukraine. President Putin would have meant with the head of Russia Central Bank and be assured that although there would be fall out, the normal business of Russia could continue.

In an article by Patricia Cohen and Jeanna Smialek of the New York Times News Service, the Russians miscalculated on the west resolve to to something about taking the whole of Ukraine. The country of Ukraine is an independent state and while it has strong links to Russia, it also has links to the west including Europe and the US.

For generations the global financial system has been biased at moving money around the world and whether it was legal or semi-legal, the opportunity was once money was accepted by the system, the financial system provided quick movement to where ever the account holder wanted it to go. A example is when the writer had an account at a large financial institution, the transactions to pay bills or move around was built around using one branch. After a merger, a person could use whatever branch in the system they wanted to. The only reason a person used a branch was convenience to the account holder, not the financial institution.

Ever since the war in the Ukraine started the western has frozen hundreds of billions of dollars of Russian assets that are held by their own financial institutions. An individual goes to a bank or payments system such as Western Union to move money; financial institutions use a system called SWIFT to move money. If a country is not on the system, it is hard to receive and pay funds to the counterparty. The effect of closing down the credit system was the ruble fell to one cent on the dollar; the largest bank in Russia (where 2/3 of Russian business have accounts) meant the bank will run out of cash and Sherbank’s shares on the London Stock Exchange fell to a single penny. (companies coming out of bankruptcy trade at that level).

According to Carl Weinberg, chief economist at the High Frequency Economics, he wrote the sanctions are severe enough to dismantle Russia’s economy and financial system. Something we have not ever seen in history.

Russia had been subject to sanctions before, but they were more of an irritant than anything disruptive. However if it planned to invade Ukraine, the country was trying to sanction proof its economy by reducing its dependence on the US dollar and other common reserve currencies. It also shifted away from German, French and American holdings towards Chinese and Japanese holdings.

Although there are 180 currencies around the world, most global payments are dominated through a Western currency financial system, said Eswar Prasad, a professor of international trade at Cornell University. Thus it is hard to avoid western currencies and half of the $630 billion in foreign exchange reserves owned by the Russian central bank is under the digital thumb of central and commercial banks in the US, Europe and their allies.

Will an alternative system develop? the trouble with Russia, is its economy in reality is oil and gas based which tends to trade in dollars. Any commodity which trades in dollars will be vulnerable to sanctions imposed by the west. Perhaps, if Russia was more intertwined in the western economy, the sanctions would not work because the western partners would be taking the billion dollar write downs and who wants to do that?

Linking to dividend paying stocks, all companies try to do risk management and depends on their size, it is possible to do risk management at the basic level. When the world’s governments turn their sights on the company, the company can do little and feels the effects until the sanctions are taken off. Risk management can not do everything unless you go off the grid, but then you are off the grid.

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