In investing, sometimes you are drawn to companies which are based on commodity prices, when prices reach a particular level all activity after the price is very profitable. The issue is if the price goes down past the breakeven level, the act of bringing the commodity from the grown is unprofitable, what do you do if you own shares. The first issue is to know what the breakeven point is for your investment. If analysts project higher prices, wait till the prices come because the stock will be very profitable.

In the world of oil, in an article by Dhara Ranasinghe of Reuters, oil prices may be headed towards $100 a barrel (oil prices are determine by a barrel of oil). If oil prices go to $100 a barrel, inflation will result.

At the start of the pandemic, governments around the world locked down their countries for health concerns, this had the effect of lessening the demand for oil. Low demand for oil meant prices fell. As the world has opened up again, Brent crude futures, which were up 50% in 2021) are up 14% in 2022 to $89. Where will the price of oil go? Goldman Sachs is predicting $100 by mid 2022; JPMorgan predicts oil this year at $125 a barrel and increasing to $150 by 2023.

If oil prices go up, policy makers in the Euro will have a difficult time as they had assumed Brent crude prices will be $77.50 in 2022 and declining to $69.40 by 2024.

If oil prices start hurting consumption and slows down economic growth, energy demand tends to self-correct. If you want another viewpoint, Massimiliano Castelli, head of strategy, Global Sovereign Markets at UBS Asset Management expects oil to stay in a range of $60 and $80 a barrel.

Link to dividend paying stocks, for all commodity based companies, the defining element is the price of the commodity. Do your research for all companies tell you what will be the effect if the price of the commodity moves to a particular level, find it or ask the company. If the price of the commodity is high enough to be profitable and you like the outlook for the commodity, then you can buy and and hold for as long as the price keeps the company profitable. If the price falls, you can easily look for alternatives. Often times when commodity companies are very profitable they quickly look to returning money to shareholders in special dividends, stock buybacks or dividend increases.

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

In every thriving economy, access to credit is the a key metric. If banks do not give credit, although it can make wonderful common sense on some personal accounts, the actions cascade throughout the economy and people spend less which means the economy is heading downwards. If more credit is given, people tend to want to spend money which helps the economy. Central banks are always trying to balance what is good for the economy and what is good for individuals.

In an article by Matt Scuffham of Reuters, ever since COVID shut down sectors in the economy for health reasons, the central bank has levered up liquidity and trading activity to ensure Wall Street is running well. The banks with large trading desks such as Goldman Sachs, JPMorgan Chase and Morgan Stanley have been the biggest of market volatility. Trading revenues have increased, but the Fed is changing which means revenues will fall.

There is good news for the trading desks with the Fed decreasing its injection, interest rates are expected to increase which helps the bond markets. On the trading floor, as long as there is volatility in one area of the economy, the trading desk can make money which translates into large bonuses. Analysts are expecting the overall environment to remain positive for trading activity, albeit below the levels of the past 2 years.

Linking to dividend paying stocks, for investors you want a relatively non volatile market where the companies you invest in continue to sell their goods and services to make money and able to increase prices to maintain margins. It is an easy ask, but over 90% of the market does not do it. Quality is a good thing for investors.

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

When you think about electronic gaming, do you think about the $175 billion industry? Microsoft has and it announced its intention to buy Activision Blizzard for $70 billion. If you have not heard of the company, you might know some of its games – Call of Duty and Candy Crush.

In an article by Karen Weise, Kellen Browning, Michael J de La Merced and Andrew Ross Sorkin of the New York Times News Service, Microsoft is paying $95 a share roughly 45% premium before the announcement.

Phil Spence, the chief executive officer of Microsoft’s gaming business, believes the metaverse is a huge potential, but gaming will be at the forefront of making that mainstream.

Microsoft owns the Xbox system, but is not in mobile gaming and Activision Blizzard will give the company a strong foothold in the mobile gaming world. Microsoft would become the 3rd largest gaming company by revenue behind Tencent Holdings and Sony.

In addition, Microsoft has 25 million subscribers for its games, Activision has 390 million monthly subscribers. One would expect most will continue to subscribe.

Microsoft has about $130 billion in cash reserve to expand the consumer business.

The reason investors buy Microsoft is the company has largely focused on corporate users for software such as Office and Azure which is the cloud competing division. It competes with Amazon and Google in cloud based solutions.

Linking to dividend paying stocks, one buys a company such as Microsoft for its Office 365 and Azure cloud computing, the gaming is something the company does to stay current with the trends in the industry. As long as resources continue to flow to Office and Azure, the gaming business is a good on add to the company. The issue in the gaming business is everyone is looking for the next blockbuster game to generate excess cash.

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

In the world of macro economics, after you examine the growth in your local area (micro economics), then you want to know what is happening in the US, Europe and China which are the three biggest economic blocks in the world. All countries post updates and often one suspects the updates from the US and Europe are more open, but updates are posted.

In an article by James Griffiths and Alexandra Li of Reuters, China announced its economy grew 8.1% in 2021 above the official target of 6%, however a slowdown in the 4th quarter led to the slowest growth since early 2020.

The year of 2021 was off to a strong start after the pandemic induced slump but lost momentum because of a property downturn, debt crisis and strict COVID 19 restrictions which have hit consumption.

China’s industrial output grew by 4.3% in December after a 3.8% increase in November. Consumer spending showed a 1.7% increase.

China is hosting the Winter Olympics this year and whenever there is an outbreak of COVID, officials lock down the area until the disease is more manageable.

Zhu Tian, a professor of economics at the Shanghai based China Europe International Business School said if things go well for China expect to see between 5 and 7% growth.

Linking to dividend paying stocks, a stock trading on the exchanges has to meet the regulatory agreements of the exchange and tell investors how they are doing. Thus the reason for quarterly reports and earnings season, the ability to have information reasonably open means investors can review the data and see how companies are doing. Are they meeting their targets, exceeding targets, what are the headwinds, why is the company continuing to make money and/or grow. Investors and analysts examine the numbers the companies release and make decisions. In China the government controls the information, but somewhere in the data is the real story. For investors an reasonably open system works best.

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

If you examine the history of the world since oil became a fuel of choice to help run our lives, the history is mixed with big oil. Originally it was Standard Oil and John D Rockefeller which was broken up to into 7 very large companies. The ones based in Europe have always had a government backed portion which meant finding and developing oil was in the national interest. The big oil companies in Europe are BP, Royal Dutch Shell, TotalEnergies, Equinor and Italy’s Eni. All the companies went all over the world to discover oil and influence the governments where the oil was discovered.

In Europe, climate change is more ingrained into the politics of Europe than it is in America and according to an article by Ron Bousso and Sabrina Valle, the big oil companies in Europe will become less dependent on oil and more on greener companies.

In the oil industry, similar to every commodity based company, once oil is discovered in a commercial pool, the cost of finding the oil and the cost of selling the oil is based on the commodity price. For the oil companies, the price of oil has gone up over the years and the big oil companies still have reserves discovered at low prices. Typically, the oil companies would determine long term projects than would cost billions to discover more commercial oil.

Times have changed and the big European companies are now doing a different strategy which includes giving shareholder the lion’s share of cash. For example, Shell sold its Permian shale oil business (Texas holdings) for $9.5 billion, promising to return $7 billion to shareholders. BP has said it will cuts its output to roughly one million b/d by 2030 from 2019 levels.

In contrast, the American based companies such as ExxonMobil and Chevron, encouraged by the White House are spending more money on oil projects.

In 2022, European firms are set to return to investors, a record $54 billion in dividends and share buybacks, according to analysis by Bernstein, while Exxon and Chevron are set to pay out more than $30 billion.

Linking to dividend paying stocks, the big oil companies around the world for generations have been some of the biggest dividend paying companies to own. Given high oil prices it is hard not to have money in the sector, the issue an investor should consider is if you own European big oil the dividend payout is likely higher or own US based companies which pay dividends and find new discoveries.

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

In all businesses there are changes in who uses the services and when they become mainstream. For many years, gamers were considered a minority subset of people who played in their parent’s basement, however that has changed. Listen to the new generations of people and ask them have they ever gamed and likely they will say yes. If they say yes then you can ask them what games they play and wonder who makes the games. How do the games make money for their companies and how much do people spend on gaming? In turns out the money spent on gaming is comparable to the amount spent on going to the movies.

In an article by Nivedita Balu and Tiyashi Datta of Reuters, two bigger gaming companies are merging – Take-Two Interactive bid $11.04 billion for Zynga. The merger of the two companies would produce a gaming powerhouse for people using console, PC and mobile devices. The real growth is mobile devices.

D.A, Davidson analyst Franco Granda noted many console developers are finding out that creating mobile devices is very hard. It may be easier for companies to buy other talents to capture mobile devices.

Take-Two Interactive biggest blockbuster is Grand Theft Auto and Zynga has FarmVille.

Linking to dividend paying stocks, in all industries they build and develop and many times as investors you either do not pay attention to them for personal reasons or they are not in the industry you are in and that is ok. It is important to realize in the world of consumers, there are many consumers doing many things but once they become mainstream it means there is serious money at play and you should examine the industry. You can invest in everything, but there is never a lack of homework to do when investing or not investing.

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

If you own an insurance company, you would want to pay out something, but not too much. You business is giving peace of mind for an annual premium and hopefully you would not pay out. A perfect client is one who paid, used preventive measures and never claimed. However with climate change, it is the climate changing all over the place and extreme temperatures often lead to extreme desire for claims at the insurance companies. In the world of insurance company company, the company underwrites the risk and then shares the risk with reinsurer companies and the biggest in the world is Munich Reinsurance of Germany.

In an article by Tom Sims and Alexander Huebner of Reuters, Munich Reinsurance gave their annual briefing on the world on reinsurance.

Insured losses from natural catastrophes totalled around $120 billion in 2021, second only to $146 billion in 2017 which many hurricanes caused damages.

Ernst Rauch, chief climate and geo scientist at Munich Re said the 2021 are striking because some of the extreme weather events are the kind that are likely to become more frequent and more severe as a result of climate change. (or the 100 year story is likely to come again before 100 years).

The result of the frequency means insurance companies have begun to raise rates and in some places that damage is coming too often stopped coverage. The issue for the government is what to do with the people that live in the area?

Linking to dividend paying stocks, every industry has a business strategy, in the insurance company case it is to pay, but do not pay too much and have a clear definition of what too much is. It is one of the reasons many consumers do like insurance companies (a great example is the movie The Rainmaker based on a John Grisham book – in the book the Tom Cruise character cross examines the insurance executive and claims manager about procedures at the company). The point is to understand how your investments make money and how they do not. Then you can determine if the company how the company is doing in every business cycle.

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

In every industry there always tend to be some standouts and people examine the company to determine what is their secret sauce? It can be a variety of items from the boardroom to operations, what makes the company successful?

In an article from the New York Times New Service, in the automobile business one of the biggest concerns has been computer chips because the average vehicle uses 200 computer chips and that is only going up. The chips allow the vehicles to have more features and the owners can maintain their vehicles better. Ever since COVID chips have been harder to get because of the demand from other sources – more gaming at home, more people working from home (they need work station(s), more household services have chips and the list goes on. However Tesla has somehow been able to produce vehicles at record levels, what gives?

The answer is the company had a superior command of technology and its own supply system. When Tesla could not get the chips it wanted, the engineers at Tesla rewrote the software on the chips it could receive to suit its needs. The larger companies could not do that because they rely on outside suppliers for much of their software and computing expertise.

Professor Morris Cohen of the Wharton School at the University of Pennsylvania noted Tesla controlled its own destiny by writing their own code.

Linking to dividend paying stocks, most companies who sell items to the public have embraced the supply systems which are in place. In most companies outsourcing is a way of life and that works very well until it does not. Sometimes doing everything inhouse works, sometimes it does not, the issue is how does the company react when the supply system does not work well?

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

When you are the number three in the category, it is very difficult to move up to number one however it is certainly possible to do many strategies to ensure your survival. Often times people look towards the leaders of the industry, but there will be many other participants who can and do make money, they just are not the market leaders.

In the case of the auto world, Chrysler was always number 3 and a number of years ago merged with Fiat to become Stellantis.

In an article by Joseph White and Gilles Guillaume of Reuters, Stellantis and Amazon have decided to work together to develop cars and trucks with Amazon software and deploy electric vans in Amazon’s delivery network.

When you think about the Amazon trucks that deliver packages around the world, in the future many of them will be made by Stellantis. The truck’s software will have Amazon’s digital cockpit requirements for navigation, vehicle maintenance, ecommerce marketplace and payment services.

Stellantis will use Amazon or AWS as its preferred cloud provider, the trucks should roll out in 2023.

Linking to dividend paying stocks, every industry has many players although most of us focus on the leaders, just remember there is money to be made if a company has good margins even if it is not the top market name.

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