At many press conferences, President Trump likes to point out how Wall Street is doing and while that is good, it is almost important to understand what Wall Street does not include. Most business in the US are small and medium sized and are not public, only Wall Street public companies are listed. The average person in the US does not own shares, they may own them indirectly through their pension and retirement packages which come through work, those holdings are called institutional money and as long as paychecks are paid, the institutions will have money. Some of the bigger funds are Teachers Pension Funds; Employees of the State; Insurance Company funds and Mutual fund companies both active and passive or fee or indexed funds.

In an article by Stan Choe, Alex Veiga, and Christopher Rugaber of the Associated Press highlighted the reasons:

Some business have done better in the pandemic and that include the big tech names FANG – Facebook, Apple, Amazon, Netflix and Google. Some stocks have done worse such as American Airlines but they have smaller percentages in the index (it would take 280 American Airlines to have the heft of one Apple) . The 5 big tech companies account for 22% of the S&P 500 index.

A famous saying on Wall Street is Don’t Fight the Fed. At the moment the Federal is doing all it can and more to keeping interest rates low and buying corporate debt. With interest rates low, investors are turning to stocks, gold and other investments.

Wall Street tends to look toward what will happen in 6 to 9 months, not what is happening today. There is hope for next year. There are many areas where the hope can be eroded but there is hope.

Linking to dividend paying stocks, the economy is not Wall Street and it is regrettable that the President often confuses the two. There exists 2 separate economies, one which is doing okay and having the ability to shop on line and do renovations because they are spending less money on entertainment and travel. The other economy is people are worried about rent and car payments because their income is based on people socializing. When investing, where possible ensure your money is where companies benefiting from the on going situations in the economy.

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

With public companies, when executives sell shares, they have to report their selling of the shares. It is the same when they buy shares, although the disclosure is not real time, it takes a month. Many people examine the reports to see if there is a clue to the buying and selling. Sometimes buying is seen as a smart move; sometimes selling is to diversify their holdings. If most of your assets are tied to the stock of the company, it is reasonable to sell some and hold something else – bonds, real estate, gold, or spend it on a lavish lifestyle ie pay off the debts.

In regulatory filings, Jeff Bezos sold 1 million shares to raise $3.1 billion. It should be noted Mr. Bezos still owns 54.5 million shares worth about $174.64 billion (54.5 million times $3,225).

Mr. Bezos said every year he will sell at stock worth at least $1 billion to fund his rocket company Blue Origin.

Linking to dividend paying stocks, similar to Mr. Bezos it is great to be a position to sell some of your holdings when the stock rises in portfolio management. Sometimes you sell to ensure than whatever happens in the economy, your financial position is secure. There are many reasons to sell and remember you do not have to hold a stock for a lifetime, you can and if it continues to provide you with an income which allows you to live comfortably there maybe no reason to sell. Even billionaires sell once in a while, do not fall in love with any stock.

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

Sometimes law suits give you the investor a deeper understanding of how the business works. For example, if you own Apple shares directly or indirectly, one of the reasons for holding the company is the increasing dollars spent in the service component of their revenue.

In an article by Stephen Nellis and Munsif Vengattil of Reuters, Apple removed a popular video game Fortnite from its App store for violating the company’s in-app payment guidelines. Epic Games sued to try to change Apple policy.

Apple takes a cut between 15% and 30% for most app subscriptions and payments made inside apps. although there are some exceptions. Analysts believe games are the biggest contributor to spending inside the App store which is the largest component of Apple’s $46.3 billion services segment.

Epic’s free-to-play battle royal video game Fortnite has reached massive popularity among young games since its launch in 2017. Epic Games is headquartered in North Carolina and is partly owned by Chinese internet giant Tencent.

In July 2020, Fortnite had 2 million downloads in Apple’s App Store and Google’s Play Store, but according to mobile analytics firm SensorTower, Apple users spent $34 million while Google users spent $2 million.

Linking to dividend paying stocks, all companies love subscriptions because it is recurring income which if the company is successful is renewed on a yearly basis. Then it is up to the company to increase the add ons for more income. Part of the success of Apple is the services business, however once you are in, it is hard to get out even if you want to. The ecosystem is powerful or captures people for a long time, for an investor that is good news. For the subscriber one hopes they gain value from it. If the subscribers continue to renew at high rates, then holding the stock is a good thing.

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

In a normal year, all over the world people would be getting married and going through the process of engagement rings, wedding rings, inviting people to witness and celebrate the wedding. All wonderful aspects of life. When COVID hit and people having to keep space between each other, the wedding business has collapsed. Business has also collapsed for diamond sales. The demand has plummeted freezing sales and squeezing prices.

In an article by Helen Reid, Tanisha Heiberg and Rajendra Jadhav of Reuters, the only bright spot in the diamond industry is for large, high quality diamonds from affluent investors, according to financiers and sales data. Prices for high quality one carat diamonds have risen 12%, however lower than 1 carat the prices have gone done or not gone up, according to trading platform RapNet.

The issue for diamond miners is most diamond that come from the mine are not the large high quality diamonds they are the lower quality stones. The diamonds typically travel to India where 80% of the world’s diamonds are polished. Indian imports of rough diamonds plunged from $1.5 billion in February to just $1 million in April, data from the Gem & Jewellery Export Promotion Council show.

Antwerp, Belgium long a diamond hub, saw rough imports drop 20% according to the Antwerp World Diamond Center. The city’s exports of polished diamonds fell 46%.

The large diamond miners have either not opened up or slowed production such as Rio Tinto’s Argyle diamond mine in Australia; Storoway Diamonds’ Renard mine in Canada; Petra Diamonds’Williamson mine in Tanzania and Firestone Diamonds’ Liqhobong mine in Lesotho.

A number of years ago, De Beers who once controlled the diamond retail market had an advertisement than says diamonds are forever. De Beers is laying off people.

In 2019, the diamond industry was worth $80 billion. The bright blue box of Tiffany noted during February-March engagement jewellery was the worst performing category, with sales halving. Traditionally people get engaged in the winter months and married in August.

Linking to dividend paying stocks, we all grow up with expected biases and notions and for many people buying engagement rings and wedding rings are the expected in society. With COVID, people were not meeting, things changed rapidly. Hopefully when health rules are back to normal, people will go back to the normal habits of engagement and weddings. All businesses examine their operations for a worst case scenario, most never expect to deal with it unless it is a natural disaster. How are your investments doing with the changes?

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

One of the most successful venture capital companies is from Japan and is called Softbank. It owns a large stake in technology firms and companies that are disrupting the traditional method of doing things. The company lead by Chief Executive Masayoshi Son success allowed it to raised billions of dollars in its Vision Funds. After COVID hit, one of its higher profile investments in We Work had to be written down. The company offered virtual offices for start up companies and was increasing the space it offered at a rapid rate. Could the company keep very high occupancy rates, there was a concern the founder (who has since left the company) was doing real estate deals and then getting We Work to sign contracts in his office buildings. Virtual offices came at home, but not in a office buildings in downtowns of large cities. It was obvious, the Vision Fund wrote off billions.

In the US, the merger of Sprint and T-Mobile was because of the Vision Fund.

Now it comes to the quarter, the company says we will not disclose operating profit in quarterly results, saying the measure was not useful to gauge performance and tried to highlight a gain in investment assets.

When companies change the method in which they are reporting results, it sends big flags of confusion and signals investors to find a method to exit some or all of your holdings. It is wonderful to invest in a company and it does well, there are no questions what the rules are, how close to the grey area they are and the measurement standards are adhere to and well known. When a company experiences a downturn that is when the true measure of the character of the company is shown. Everyone loves a winner, the cheerleader is good, but results on the field matter. If a company has shown success, it is given latitude to right the ship for the next quarter. When it fudges, the confidence in the company fades and as losses are made, confidence goes fast.

Linking to dividend paying stocks, when you invest in companies which pay dividends there are two basic questions before the rest – is the company profitable? and can it pay its dividend from the profits? If the answer is yes, then as dividend holder you can decided to do nothing for your first concern are the dividends then capital gains. When the company says we have lots of hope, it is time to look for alternatives where hope is a given and reality is profits.

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

If you think back to President Trump’s 2016 election he was going to do something for the steel industry. He imposed a tariff on China and some things were changed a bit, then US Steel companies invested a great deal of money to upgrade their properties which meant steel prices fell and finally we had COVID. Many things slowed down, although the President has promised an infrastructure bill to help build up roads and bridges which need steel. To make steel, the main ingredients are iron ore, coking coal and water. The biggest producer of steel in the world is still China.

In an article by Clyde Russell of Reuters, the price of a tonne of iron ore and coking coal have almost reach parity according to data from S&P Global Platts.

Iron ore was $118 a tonne, while coking coal was $118.50 a tonne, the reason this is different is for the past 10 years iron ore has been 57% of the cost of coking coal. Since the establishment of a viable spot market for iron ore around 2008 and setting up coking coal futures on the Singapore Exchange in 2014, the price of 62% iron ore has never risen above coking coal.

The reason for the change is the demand in China. China imports the bulk of the iron ore needed from Australia and Brazil. China imported 546.91 million tonnes in the first half of 2020, up 9.6% from the same period in 2020.

China steel output hit a record high in June with 3.05 million tonnes a day or a monthly total of 91.58 million tonnes up 4.5% from the year earlier. That amount of steel requires 384 million tonnes of coking coal to produce working on the industry standard of 770 kilograms of coking coal per tonne of steel.

China imported 38.1 million tonnes or imports were meeting 10% of China’s coking coal needs or domestic output provided the rest. In contrast, China imports 70% of the iron ore needed or buys 2/3s of global seaborne iron ore volumes.

Linking to dividend paying stocks, in the Rocky Mountains there are tonnes of coal found and exported. Millions of tonnes used to be sent to electrical utilities to make electricity, to steel mills domestic and internationally. Utilities are generating more electricity by solar and wind (about 14% of needs), natural gas is cheaper than coal, and the demands for coal in China has fallen. Sometimes a great asset is no longer the first choice as alternatives come forward. The change was slow and then it seemed to accelerate. No one did anything wrong, but change happens. Always look at alternatives, what are they and how do they affect your investments?

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

In all countries, people run for office for a wide variety of reasons, but it helps to have a background in the finance portfolio before taking that job. Giving the financial report to the country is exciting, but it is only good if the country can pay its bills. For a wide variety of reasons, the country of Argentina debt increased, then it increased more and the feeling with a government is they can always raise taxes. At some point it is hard to get money from a rock or stone, the country says to its bondholders we need to restructure the debt.

In early August, according to an article by Tom Arnold and Adam Jourdan of Reuters, President Alberto Fernandez announced the relaunching of the Argentine Credit Program.

The Economic Ministry said an agreement had been reached to restructure about $65 billion in sovereign debt. The deal ensures the ghost of the last time Argentina had to restructure does not happen again. The last time, the country said essentially we are broke, you debt will only be paid out in pennies on the dollar. The creditors went to the courts, the time dragged on, the politicians were hoping the economy would improve. Unfortunately, Argentina is in a recession and it is estimated a 12% economic decline will happen. This plus all the COVID costs.

Bondholders were grouped into 3 groups, the Ad Hoc Group, Argentina Creditor Committee and Exchange Bondholder Group. Some of the normal large funds were and are involved: Blackrock, Ashmore, BlueBay Asset Management.

The deal is for 54.8 cents on the dollar. In addition payment dates on the new bonds were changed from March 4 and September 4 to January 9 and July 9. The new bonds mature in July 2029 and changes were made which ensure creditors have a say if Argentina wants to make changes.

In 2018, Argentina borrowed $57 billion from the International Monetary Fund and will try again.

Linking to dividend paying stocks, sometimes when companies are successful for a long period of time we begin to think they are automatically going to make profits, they are almost institutionalized similar to countries. The reality is all companies have to be managed well and management counts. Is there adaptability to change? does management want change? how does management continue to make profits? As you do your homework, you can determine if you need to look at alternatives.

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

I was reading the book London by Edward Rutherfurd, and on page 177 there is an interesting passage about debt.

Two people are talking:

Who, generally is stronger, a man with cash or a man with debts?

Answer a man with cash.

Suppose that man owes you a debt and can not pay?

Answer He will be ruined.

But then you lose what you lent him.

Unless I seize all he is payment, but if that is worth nothing, then I lose.

So as long as he owes you money, you fear him?

I agree, consider this what if this man can in fact pay you what he owes, but chooses not to?

Now you fear him because he has your money, but since he can pay, he does not fear you.

I agree

Suppose you need that money badly. He offers to settle for less than he owes. Do you take it?

I might have to.

Indeed, you might have to. And now, do you agree, he has made money out of you? Because of the debt owed, he was stronger.

It will depend on whether he wants to do business with me again.

No it will depend on many things. On timing, on whether you need each other, on other opportunities, on who has the more powerful friends. It is a question of hidden balances. Remember this: Men trade for profit. They are driven by greed. But debt is about fear, and fear is stronger than greed. The true power, the weapon that defeats all others is debt.

Fools search for gold. The wise man studies debt. That is the key to all business.

Eastman Kodak at the turn of the 19th Century was one of the most important companies in America and for generations millions of people turned to Kodak to see pictures. Kodak made cameras and developed the pictures for countless homes across the US and the world. Then came the smart phone with its ability to take pictures, who needed Kodak? Kodak has tried many things since then most of them unsuccessful. In 2013 it came out of bankruptcy and has been worth about $100 million. In late July it signed an agreement with the US government for production of key pharmaceutical ingredients and the company is now worth about $1 billion.

Along the way, Jim Continenza the Executive Chairman was granted by the Board of Directors options for 1.75 million in shares, 30% which vested immediately. This means due to the government contract the shares traded higher and Mr. Continenza can sell 30% of the 1.75 million shares at a profit. The difference was Mr. Coninenza’s gains were $83 million versus the $53 million if he did not get the additional shares. The Board gave him a $30 million bonus, Mr. Continenza says he has not sold any shares. (what likely has happened is the options are used against bank loans or lines of credit for other activities)

Many Executives receive options, that is not the story. The story is the understanding with the Board had previously never been listed in his employment contract nor made public. Every company has to make filings with the SEC and the understanding was not in the filings. The company says the options were granted to shield Mr. Continenza’s stake in the company or he would not be diluted by a $100 million convertible bond deal which prior to the government contract kept the company in business.

A convertible bond works the company pays interest to bond holders and they have the right, depending on the price of the stock at the end of a set period of time to change the bonds for stock or more shares would be issued. The effect of the issuing of the shares is diluting existing shareholders percentages held. For example if Mr. Continenza held a 10% stake after the bonds being converted he would hold a 9 % share unless he bought more shares or owned some of the bonds. The options keep his shares at 10%. The unusual aspect is why would the shares vest automatically? Why not at the time of conversion? Is Mr. Continenza that valuable to the company? The company was in bankruptcy and came out of it with new strategies why are more options given – what is the risk – reward equation? If the options vested in 5 years, one might understand the rationale better.

On another front, an article by Michael Liedtke of the Associated Press noted the SEC has opened a file examining Kodak’s stock performance, it was trading at the $2 range, the government contract announcement lead to shares trading at $60 and then Kodak issued 30 million additional shares to dilute existing shareholders and in early August the shares traded at $14.

Linking to dividend paying stocks, in the management circular is executive compensation and for most shareholders as long as the company is profitable and if it can pay a dividend, if the options expire in a reasonable length of time or the long term aspects of the company, most shareholders vote yes to increase the shares for executive compensation. When the company does not make money, and it seems options are there to reward executives the decision making process should be why? what is in it for small shareholders and people who work in the company who are not executives? The company should not be a cash register for executives.

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

If you think about the public image of Apple’s advertising, you would think people needed to go to an Apple store to buy the latest iPhone to take great pictures and send them to friends and family. Due to COVID the stores are shut down and people have not been able to gather in groups. Is this good for Apple? one could make the rationale argument that no it is not good and Apple should have lower sales.

However, in large July Apple reported its quarterly results, and in every category and across the globe, people were buying its products and services. Apple reported great results.

iPhone sales were about $4 billion above analyst expectations, with 60% of sales coming from international markets and sales were $26.42 billion.

The next large segment of sales was services which is growing every year. The quarter brought in $13.2 billion up 15% from last quarter. Services has over 500 million subscribers (think Amazon Prime and if Apple were to raise fees) It is not surprising that the company has over $30 billion in cash.

Apple’s fiscal third quarter revenue and profits were $59.69 billion and $2.58 a share beating expectations of $52.25 billion and $2.04 a share.

Apple will be split its shares 4 for 1, the last split was in 2014.

Linking to dividend paying stocks, when you think about profitable companies you think money that comes in no matter the economy, which is the reason there are utility stocks in dividend portfolios. The recurring money allows management to meet their goals and when the plan is executed very well all investors are happy for the moment. If a company has recurring money, sometimes it does not matter as much who is the President as long as they do not mess things up, it happens.

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