In England, similar to every other country in the world, part of the economy is based on trade with other countries. For a long time, England had a number of colonies around the world within its orbit India, Australia and Canada were some of the biggest countries and British merchants had the ability to sell at preferred status. Eventually India had its independence and Australia and Canada lessened their dependence on England. England moved to the European Union and many British companies sold their goods throughout Europe. Then Brexit vote happened and England decided to drop out of the European Union for various reasons.

In an article by Eshe Nelson of The New York Times News Service, the question is how has the process been going. For it is one thing to say you want to drop out, it is another thing for reality to happen.

For the first months after Brexit, the system collapsed because no one knew what the rules were. Perishable goods got stuck at ports, retailers discovered their supply chains were obsolete and trucking companies stopped delivering to Ireland. It took a couple of months to become somewhat back to normal. But what remains is higher costs, time-consuming paperwork and countless lost opportunities.

An example is Netherton Foundry run by Neil Currie. Prior to Brexit he could sell his black iron pans and cookware from Shropshire, the birth place of the Industrial Revolution to customers in Berlin as easily as Birmingham which is located about a hour away. Post Brexit, every item leaving his shop needs a 4 page customs form which takes up to 20 minutes a shipment. In addition, every item is $15 higher in price to cover the additional administration of customs checks and taxes. Plus it will take longer to arrive at the independent shops in Europe. The shops are asking themselves it is worth it to stock Netherton Foundry’s products?

In the first 7 months of the new trade deal Britain’s exports fell by 14% and imports by 24%. The UK Trade Policy Observatory research group estimates that means $44 billion in lost trade.

For Netherton Foundry, one of their biggest customers in Germany does not want to deal with all the paperwork so their solution is for Netherton to send the products to a distributor in Belgium who then distributes to Germany.

Marks and Spencer, a large British retailer operated a chain of stores in France and decided to sell them because of supply chain complexities.

A company called Luceco which makes and imports lighting and wiring products from China and sells them to retail stores. Between $3 and $4 million in sales were stores in Ireland but tariffs have to be paid twice – when they enter Britain from China and leave for Ireland. (Ireland remain in the European Union). Similar to customers around the world, container prices have increased. Luceco used to spend $2 million on containers from China, that has increased to $16 million. Prices have increased.

2022 promises more custom checks from products brought into Britain.

Linking to dividend paying stocks, every company has to deal with supply chain operations. Where do the raw materials come from? where and how is the product manufactured? how is sold? Some products it is easier to cross borders such as software, but when a product has physical characteristics it is subjected to more restrictions because people can see it. We have seen supply chain problems happen because of the weather, COVID, and a host of other concerns. The issue is can the company retain sales and grow them as well as pass on costs to retain their margins? If the answer is no, then find alternatives and come back to the company in 6 months to evaluate how they are doing. Although it is ideal to buy and hold, love people not your stock holdings.

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

When people invest money, they often are asked what do you want and the answer is more. Partially it is a good answer, but in reality it means sometimes losing your money because some investments are too good to be true. It happens to many, it often happens to a close net association or ethnic group because the victims tend to trust the person at the top.

In an article from the Associated Press, about 500 investors mainly from South Florida’s Venezuelan American community were taken in by Efrain Betancourt sales pitch of high-interest returns on their investments in his short-term loan operation Sky Group USA, the Miami Herald reported.

Mr. Betancourt raised $66 million in promissory notes, much of it went to his lifestyle including a large waterfront condo and a wedding to his 4th wife in Monaco. Mr. Betancourt paid out $19 million in interest using a Ponzi scheme or the first people in received money but that did not last long.

The scheme lasted January 2016 to March 2020 which countless borrowers defaulted on their payday loans. Sky Group had a cash flow problem and unable to make interest payments on investor’s promissory notes.

The defence lawyer argued the promissory notes are loans, not securities so the company did not break the law when they failed to pay back the lenders.

Linking to dividend paying stocks, companies which make a profit over a long period of time can pay dividends. If you receive dividends you do not expect high returns, it is a wonderful bonus if you receive greater than 10%, but the expectation when buying should not be very high returns. In the story about the rabbit and the turtle – slow and steady wins the race and people do not lose their principal investment. If you get pressured to send money quickly, slow it down.

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

We have recently survived the holidays and with the holidays people tend to use and smell more flavors that normal. We allow ourselves to try different foods, add flavor to the food and part of the holidays is enjoying the food. After the holidays, we tend to settle back into what our normal routine of foods are. If you think about Christmas and in particular the wise men bringing gifts, what type of gifts did they bring? Some of what they brought were flavors from other parts of the world.

In the middle ages, before Europeans discovered America, the known world for the average person in Europe was the Mediterranean Sea countries, different languages were spoken and depending on where you were born, you thought your language was the best. Depending on where you were born and how much money you and your family had accumulated, most of what you ate was local. There were practical aspects to the eating, if something is local, it tends to be less expensive. But if you were a little wealthier, it was possible to buy spices to make the meal more flavorful. But where did the spices come from?

If you lived in Italy, you likely would be a Catholic because at that time all of Europe was Catholic, it was much later before Christians broke into many direction of faith to what exists today. You would know that the wise men brought spices to Jesus but where did the wise men come from? Your map would not show you and because they came from outside the known world. The merchants who bought and sold the spices told stories which you tended to believe. Once you believed the stories, the reality really did not make a difference.

The reality was spices such as cinnamon came from a tree south of India or the island of Ceylon or what we now know as the island of Sri Lanka. The cinnamon tree also grows south of China. The process is the bark is removed, the inner bark is dried and cinnamon is the result. In the middle ages, traders sent the cinnamon to India then to the middle east up the Red sea and Nile River to Cario and then by ship to Venice where it was distributed across Europe. The merchants wanted to ensure the price remained high so they would tell stories how the plant was grown in Africa to ensure their supply and price was protected and lead people astray.

It was not until the Portuguese sent ships around Africa to India and then to the South China Sea that trade routes would be changed. The Portuguese were bringing back large quantities of spices and making lots of money. Making lots of money led to the other European countries including Netherlands and England sending their ships to the spice lands to make money. The desire to make money changed the politics in the South China Sea countries. The journey from England to the spice islands and back took 2 years which lead to Columbus sailing to the Americas looking for a short cut. Spain found gold and silver from Mexico and Peru and for a time that was more important than the spices.

Linking to dividend paying stocks, all companies have some sort of myth attached to them, why the founders decided to do what they did? why them as opposed to the competition? All companies love monopolies because they can raise prices and sell their products, but the myth is the competition from somewhere. Companies tell politicians they must protect them with regulations and it can make a great deal of sense to do so. Companies can grow and prosper and the myths will grow with them. When you buy a company which is profitable and can pay dividends, it tends to be in business for a number of years and the founding myths have grown up. Often the myths have some sort of truth attached to them, but as an investor you are concerned about the reality of the profit to pay the dividend.

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

In every market there are always glass half full and glass half empty situations and only in hindsight or looking back do we see what is reality. For example in the glass half empty situation, the virus Delta and Omicron is spiking, it doubles every few days which means the prudent thing to do from a public health perspective is shut things down and encourage vaccinations. The glass half full is many people have learned to shop on line and shopping drives the economy.

In an article by Echo Wang of Reuters, at the end of last year, a report released by Mastercard showed shopping increased 8.5% over the previous year’s holiday season. This means many people shopped and if they were working from home and technically saving money on the commute, they spent money on themselves and their families. According to Sylvia Jablonski Kampaktsis, chief investment officer of Defiance ETFs, personal consumption makes up to 70% of our GDP.

With Delta and Omicron racing through the world, airlines and cruise operators have a problem which caused about 1,000 flights to be cancelled and as much as a cruise is wonderful, would there be a problem getting off the cruise ship? If the answer is yes, then cruise ship stocks were down.

If you examine the overall market, the benchmark S&P is having its best 3 year performance since 1999.

Linking to dividend paying stocks, ideally when you buy a dividend stock portfolio the idea is you do not need to worry about trading on a daily basis, you can examine your portfolio weekly or bi-weekly or monthly whatever is best for you. The stock market similar to all markets will have signs of optimism and pessimism at the same time and it is up to you to determine what you are. If you are waiting on the sidelines, most of the time you will wait a long time and not participate. If you buy, it is helpful to have the overwhelming majority of stocks in profitable stocks that can pay dividends. If the market goes down, you will receive dividends. If the market goes up, capital gains are wonderful and that allows you to do portfolio allocation and continue to buy companies you have researched which helps to keep time on your side.

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

In every industry, there are different measurements and margins to produce profits. Most of us have little idea of the many aspects to industries, although in general we have an idea.

In an article by Koustav Samanta, the jet fuel refining margins in Asia are on track to double by the end of 2021 from the previous year, analysts and traders say. Although before you jump out of your seat in joy, there is a long way to go from the prepandemic levels.

Richard Gorwy, managing director at consultancy JBC Energy Asia said it will take for jet fuel demand to recover to 2019 levels. Maybe look at late 2024 or early 2025.

Every time the Delta or Omicron or something raises its head, airlines trim capacity which means they use less jet fuel. Airlines are also purchasing more fuel efficient planes.

Asia’s jet fuel margins have averaged $6.82 a barrel over Dubai crude, which is up more than 12% compared to the their 5 year seasonal average for December. In 2020 at the worst of the pandemic the margins were $3.02 a barrel.

The big event in 2022 is the Beijing’s Olympics which is expected to increase demand on fuel.

Linking to dividend paying stocks, in all industries we tend to know the general but with all industries there is a specific margins and commodities link to their end consumer. For example we all know about higher demand for passenger and business travel leads to higher demand for jet fuel. How that is determined, most of us do not know, but we can find out. Often analysts and when senior executives in a company outlined their expected performance they will reference data they are very familiar with. If you invest in a company it is a good thing to learn what analysts are looking at and for, to determine given your holding is better to hold or sell?

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

Dividend investors like pipelines in general, because once a pipeline is in place, there is very little competition and the pipeline companies will use their influence with the regulators to ensure a competing pipelines are not built. All the reasons that were put forth by the opposition to the pipeline will be enhanced with a second pipeline,

In Europe, most of Europe receives its gas from Russia which is both good and bad. It is good because Russia is next door, it is bad because Russia has used its clout of being the provider of gas to influence government direction to what it considers helpful to it.

In an article by David McHugh and Vladimir Isachenkov of the Associated Press, Russia and Germany want the pipeline, but Ukraine, Poland and the US have not signed off. The US has not signed off because Russia has about 100,000 troops on the border with Ukraine doing training.

German spokesperson Wolfgang Buechner said Nord Stream 2 is an undertaking of a private business that is largely complete and that regulatory approval has no political dimension.

The pipeline would double the amount of gas Gazprom sends to Germany. The pipeline would go under the Baltic Sea and help bypass Poland and Ukraine which would save fees. Gazprom says the pipeline would add to the long term reliable supply and be affordable.

The regulators in Germany says they can only regulate a company based in Germany which means Gazprom is forming a company. At the present time Nord Stream 2 is based in Switzerland.

Linking to dividend paying stocks, once the pipeline is in place, investors like pipelines because they have a semi-monopoly and regulators tend to raise prices every year. This means the company will have guaranteed revenues the ability to make a profit and pay dividends. Similar to pipelines around the world, the gaining of political approval is the hard part, the easier part is the building and operation of the pipeline.

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

When COVID hit the economy and things were shut down, everyone suffered and many traditions were stopped. However this past year, people wanted to maintain their traditions because they could. However trying to maintain traditions and companies having enough product sometimes are two different things.

In an article by P.J. Huffstutter and Marcelo Teixeira of Reuters confectionary companies were having problems meeting demand. The largest wholesaler of candy canes is a company based in Denver called Hammond’s. According to Andrew Schuman, Hammond’s CEO, the company is not taking extra business because they can not keep up. This year labor costs are up 30%, yet staffing is a problem, normally a 250 person crew is down 100 people.

Cincinnati based Doscher’s Candy Co received an order from Sam’s Club and Doscher was able to produce 70% of the order.

Total seasonal confectionary sales are up 20% over last year for the 5 year period ending December 5 according to the National Confectioners Association.

Spangler Candy Cane, the largest US candy maker ran an extra shift this fall to meet demand. Usually candy canes are made with cherry flavor, the past year some have been made with raspberry.

The US imports about 25% of its annual sugar needs but Hurrican Ida went through Louisiana the 2md largest sugar cane producing state. The world’s largest producer of sugar are Brazil and Thailand and they have been hit with smaller than expected revenues.

Linking to dividend paying stocks, most of us follow some sort of tradition. Whether its is decorating for the holidays, what we eat for holidays and when we do them in large number numerous industries benefit. When you are investing, it is wonderful if you use the product or service, however consider do other people do what you do? If the answer is typically yes, then are people doing what you do. From there it is possible to find good industries which have sales on a regular basis to make profits to pay you dividends.

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

Most of us enjoy music of one sort or another and when the music is enjoyed across many age groups it becomes valuable. The music is valuable in itself on how it makes an individual feel, sometimes a song marks a year or a generation, and the more popular a song is, the more opportunities to do more with it. The song can be used for advertising and when it is used along those lines it generates sizable royalties which means controlling the ownership of music can be very profitable.

In an article by Ben Sisario of New York Times News Service, Bruce Springsteen sold his recordings and songwriting catalogue to Sony Music for $550 million. The amount is likely the highest ever paid for the work of one musician.

According to Barry M Massarsky, an economist who specializes in calculating the value of music catalogues on behalf of investors, last year more than 300 valuations for $6.5 billion was done.

Prior to streaming services such as Spotify, Apple Music and You Tube the music industry was considered a dying business, now it is doing very well. Investors have poured in billions as they see music as a safe commodity – an investment with predictable rates of return and relatively low risk.

According to MRC Data, a tracking service that powers the Billboard charts, 66% of all music consumption is for material greater than 18 months old.

in the 1950’s and 60’s, musicians had great voices but did not own the recordings and many did not do well financially. In the 1970’s and beyond there was a push to obtain more power and leverage and to own their own work. Stars such as Taylor Swift are passionate about owning their music.

Linking to dividend paying stocks, when you hear music, the music brings you to a particular mood – hopefully a happy one. If you are happy then the music company can use the music in other areas of your life. When you hear the music, you may not buy right away, but you will listen to the advertising message and the royalties from the music flow in. A number of years ago, Disney used to advertise coming out of the vault for a short time – buy your copy now. Music and movies often work hand in hand and investors see those recurring revenues.

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

In the coming need to do homework, it is often good to read books about finance because they offer a summary and a perspective that you will not likely receive by reading the newspapers and blog posts. Recently picked up a book called King of Capital by David Carey and John Morris published by Crown Business, NY, 2012.

Leveraged buyouts are based around cash flow. The cash flow determines how much debt a company can afford to take on and thus what a buyer can afford to pay. Cash flow is the deal maker’s raw “show me the money” measure – the amount that remains after operating expenses are paid.

One way that buyout firms make profits is to use the cash flow to pay down the buyout debt. In the early day’s of industry, the models were formulated with the aim to pay every dollar of debt within 5 to 7 years. This was an average time of holding the shares and when the debt is repaid, the buyout firm reaped the benefits of the sale. A second way to generate a gain is to boost cash flow, through revenue increases, cost cuts or a combination. If a company has repaid its debts, the owners can reborrow against its cash flow and pay its owners a dividend. This is known as dividend recapitalization.

Sometimes private equity plays an important role in the health of a company. In the case of Safeway, when KKR bought it, KKR discovered Safeway’s executives had never scrutinized how it used its capital. whether its investments were paying off, or where it made money and lost money. KKR set to work on analyzing Safeway’s real estate to determine which properties were so marginal as grocery stores that the company was better off disposing of them. Often times in large organizations, they have many assets but not all them make sense where the industry is expected to head. They made sense looking backwards. In the Safeway example, KKR eventually brought the number of stores from 2,400 to 1,400 reducing the size from $20 billion in sales to $14 billion. However cash flow rose 250%, the company reduced its debt and planned expansion in profitable markets. KKR eventually made more than 50 times the money they put in over the 14 years of ownership.

There are wonderful stories about regional companies or medium sized companies growing to become national companies and they are many examples. However Blackstone has 3 rules. In a cyclical industry do not overpay. You never know when the top will be. Second if you buy a medium sized business do not have ambitious turnarounds. Third, if an investment calls for reengineering operations, do not have a Blackstone manufactured plan. Develop a plan with seasoned executives and consultants knowledgeable enough to judge if the plan will fly.

Leverage buyouts work well when the system works well, if there is a healthy IPO market; corporations strategic plans are fluid; access to bank loans and credit is low; institutional money wants to be involved in the alternative investments; ideally prices are rising. There are many variables and most will not always be in sync which is the reason smaller investors – capital preservation and not losing your money should be high on the list.

Linking to dividend paying stocks, there is always much to learn from reading about leveraged buyout firms but remember everything they touch does not make money. There are many variables and leverage buyout firms worry about risk management, however they need to risk more otherwise their investors will go elsewhere. As an investor, you can decide what not to do.

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