If you think about the Rockerfellers and its founder John D., in the 1900’s he was America’s richest man and his company was called Standard Oil. The company was eventually broken up into pieces and the largest piece has become Exxon Mobil. For generations, the oil from around the world has produced profits and dividends, in terms of a business success, there are fewer places to have consistently earned a dividend. The power of Standard Oil and for the most part Exxon (there is a book called Exxon and American Power which discusses how Exxon runs the business) have gone hand in hand with foreign policy of the US. Sometimes it seemed foreign policy and Exxon’s interests were a little too close, but that is different story.

In an article by Jennifer Hiller, Ron Bousso and Dmitry Zhdannikov of Reuters, Exxon was expecting to report a loss of $2.63 billion (it actually did better than expected with a $1.08 billion loss). The loss was first back to back losses in 36 years, which has resulted in the shares being down 35% in the year to about $42.

Exxon has an annual payout of $15 billion in dividends and management is firmly committed to ensuring dividends are not cut. This has resulted in a 8% yield, if you believe people will drive a little bit more, than 8% looks very good and safe.

The problem is Exxon is not generating the cash to pay the $15 billion in dividends from production operations. This has resulted in the company cutting back both capital expenditures and expects to raise cash through asset sales. (not all the large oil companies are doing asset sales, as well as many small and medium sized companies).

Exxon is a company run by engineers and they have changed their employee review system internally referred to as forced ranking. If someone lands in the bottom ranking, they have 2 choices determine how they are going to meet the manager’s standards or leave with 90 days pay. The company has 74.900 employees worldwide but the standards are only for professional employees.

In April, Exxon cut their capital spending program by $10 billion to $23 billion. The spending was in new and expanded chemical and refining operations which would increase earnings by $4 billion to $21.5 billion with a $40 a barrel for oil. Asset sales between 2019 and 2021 were hoping to bring in $15 billion, so far sales are $3.7 billion and this year $86 million. Hoping 2021 will be better.

Linking to dividend paying stocks, for generations oil companies have been a very strong performer and in many dividend portfolios is a oil company. Management in all the oil companies are committed to paying dividends and shortly after a vaccine is available to the public, commuting should begin again. The dividends will not be a risk anymore.

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

If you have been by an airport, it is interesting to spend time watching planes land and takeoff and there are places to watch planes at every airport. You might think of the passengers going somewhere or landing in the place where you are watching; the family reunions; which carrier or the name on the plane is landing; what type of plane and how much jet fuel is needed. Most of us do not think about the jet fuel, but traders in jet fuel do.

In an article by Stephanie Kelly, Koustav Samanta and Bozorgmehr Sharafedin of Reuters they looked at the jet fuel traders or energy traders.

According to Rystad Energy, international flights remain down more than 80% compared to a year ago.

Fuel stocks in Asia have decreased from 4 million barrels in early May to 1.1 in July. The exports come from South Korea, Japan and India. The exports were to Europe. In Europe, according to Dutch consultancy Insights Global, fuel stocks which had set a record of 984,000 tonnes were down to 937,000 tonnes.

Not surprising, the airlines are not carrying holiday travellers and in mid July the week over week rolling 7 day average for passenger growth in the US fell below 0 for the first time since April 20.

Jet fuel imports to the US in July increased to 190,000 barrels per day, still 45,000 bpd under year ago data, but up 33,000 from June.

Linking to dividend paying stocks, we all look at great amounts of data, but you need to narrow your focus and concentrate on to make a decision. At the moment, if you look at airports, airport traffic, airline companies and what they are doing, it is easy to see there has been a drop in passenger traffic. Often times we are looking connections between what we see, what we think we know, and what is really happening. When there is a boom or a bust, we all know what is happening, but what if there is something in between? where do you look, homework is important.

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

If you are a baseball fan, you will likely know the name Billy Beane, you may not know many other former General Managers, but Billy Beane is one name you may know. The reason you might know the name is Billy Beane was the General Manager of the Oakland A’s, the team did the correct thing in terms of farm system of players, but once a player demonstrated above average talent, the wealthier teams would sign the player. The A’s were owned by an owner who besides the money from the league, had the misfortune of playing in Oakland. The big TV contracts were with the city across the bay – the San Francisco Giants. The Giants stadium is beside the head offices of city and more people cheered and supported the Giants. Oakland A’s for a number of years ranked as the lowest payroll costs in the major league, which is not a bad thing, however for most teams to win the championships you need a few quality players who are a better than their peers. Oakland was competitive but it would be luck if they were going to compete.

Billy Beane found a new way to analyze baseball players and how to think about wins and runs. At the time, baseball scouts used to look for intangibles which they believed lead to success. Sometimes it did, sometimes it did not (a baseball movie you might want to watch is Trouble with the Curve with Clint Eastwood). Organizations such as those with little money have to be creative and open to new ideas and Billy Beane was the first to embrace the use of data-driven analytics, mainly because he had no choice. The success of the use of data to look at baseball differently, allowed the team have success on the field. The success meant every team in all major leagues has a data analytics group. If you want to watch the movie starring Brad Pitt it is called Moneyball and/or you can read the book by Michael Lewis titled Moneyball: The Art of Winning an Unfair Game.

After a career in baseball, Mr. Beane is teaming up with former Goldman Sachs banker Gerald Cardinale to raise $500 million in a public offering. Redball Acquistions, a special purpose acquistion company (SPAC) will issue 50 million units which include shares and warrants.

SPACs typically raise money in an IPO to pursue an acquisition without telling their investors in advance which specific company they will buy.

According to an article from Reuters, SPACs have raised more than $19 billion in 2020. Recent raises were by Churchill Capital Corp IV lead by Michael Klein raised $1.5 billion and Pershing Square Tontine Holdings Ltd lead by Bill Ackman raised $4 billion.

Linking to dividend paying stocks, if an investment bank has a record of beating the stock market, everyone believes they have a great system. If they do it for 5 years, the bank will raise more money and there are enough institutions to give them money to do it again. For smaller investors, we have to look at companies making consistent profits and believe they will do it again. The risk reward is much less as smaller investors but buying into profitable companies allows you to increase your wealth and that is a good thing.

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

Prior to COVID, people had a very distinctive routine and eating out was part of their routine. Many people due to a host of factors, tended to buy food on their way to and from work. Given the many choices it was not a bad thing to do. A company such as McDonald’s originally catering to the those eating hamburgers which tended to be lunch and dinner. Over time, they recognized breakfast was a profit opportunity and they were in a great position to capitalize on people having less time to themselves. Many folks eat at McDonald’s. Then COVID happen and routines for many commuters changed. Restaurants had to change and it was believed a large restaurant chain such as McDonald’s would be adaptable to the changes.

In an article by Nivedita Balu and Hilary Russ of Reuters, in late July McDonald’s released their quarterly results and there was a broad drop in global same-store sales and lower profits. The store due to health regulations was only able to offer take out and delivery. Globally the same-store sales were down 23.9%, which was in line with analyst expectations of 23.34%.

In the US, same-store sales were down 8.7% better than what analysts had expected 9.97%. About 96% of the stores are operating and marketing dollars were cut 70% in the second quarter. According to CEO Chris Kempczinski as lock downs eased, sales improved which provided optimism.

Linking to dividend paying stocks, the expectation is companies which have a continuous record of being profitable can make changes when negative things happen. Large chains typically have to deal with a disaster or two, ie hurricane which allows them to bounce back. However in the restaurant world, discretionary income is key and with Congress allowing the extra $600 a week to lapse, those government actions will not help the quarter. Government policy can be helpful.

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

In every market there is competition of one sort or another. In the news China for reasons of its own decided to bring Hong Kong into its orbit of influence. This typically means less freedom and more control from China – some of its facial recognition capabilities are amazing to see, terrifying to be in. When China set in motion its desires, Hong Kong had many demonstrations and other countries put out a welcome to firms in China to move operations to their country.

In an article by Alun John, Scott Murdoch and Anshuman Daga of Reuters, countries such as Japan, Australia, Singapore and South Korea have been readying incentives to attract banks and asset managers. The typically incentives include: visa support, streamlining approvals of investment management licences, tax breaks, rent free offices the rule of law and democratic values.

Jason Salim, a Singapore-based analyst at risk consultancy Control Risks believes Singapore is most similar to Hong Kong and is a little higher on the prospects side.

In psychics there is a Newton’s law which says for every action there is corresponding reaction. In political control of any government, all firms have options. If the principals of the firm find their way of life to be changed, they will look for alternatives. Money may keep people, but if the circumstances change, people will find alternatives.

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

In business such as the airline business, where there are 2 major players, governments see the airline companies as employment generators, skilled workers value added, ribbons to cut and university graduates to be employed. The plane is more than a plane and when it does, government subsidies go into the negotiations. As long as the 2 companies in this case Boeing and Airbus sell about the same ratio of planes, no one really matters. In the case of Airbus A380, the situation was different. Boeing’s planes were better and had greater sales so governments offered the plane at lower rates or subsidized them.

In an article by Tim Hepher of Reuters. the US went to the WTO or World Trade Organization and filed a complaint, it has now been 16 years and Airbus said it would increase loan repayments to France and Spain to settle the complaint.

The issue has been the WTO examined both sides and both the US and the EU were helping their airline makers Boeing and Airbus respectively. Airbus is increasing payments and now feels it is compliant with the WTO and besides it stopped sales of the A380 because of low sales.

The US had imposed a tariff on spirits and the EU wants the US to take off the tariff.

Another issue with the WTO is President Trump has blocked appointments to the appeal process. Typically a person has a set term and those on the Appeal Process of the WTO are coming due and the US will not allow replacements which means no appeals can be heard. Then the President can say the WTO is not working for the anyone including the US.

Linking to dividend paying stocks, all governments around the world subsidize some businesses for a multiple reasons – the firms hire university graduates, why have a school system if everyone leaves? the firm is is the correct industry for the future? people know the leaders better than others? and you can come up with other reasons. Sometimes dividend paying stocks are in the mix just because they are reasonably successful. Government policies matter and changes in them, can and do affect companies. Ensure you vote in the next election.

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

In late July, Goldman Sachs and the government of Malaysia announced an agreement to end a criminal probe over the role of Goldman in the 1MBD multibillion scandal.

In an article by Rozanna Latiff, Joseph Sipalan and Elizabeth Dilts Marshall of Reuters, the 1MDB principles who included former Malaysian PM Najib Razak stole at least $4.5 billion from the government.

Steven Chubak, an analyst at Wolfe Research wrote. We view this as positive as Goldman Sachs is closer to removing a key overhang for investors, and this provides added comfort that the total settlement amount should be manageable.

Goldman is paying a fine of $2.5 billion and returning at least $1.4 billion in proceeds from assets linked to the sovereign wealth fund 1MBD. Fortunately, Goldman had put away at least $3 billion for legal maters. No one goes to jail, but a number of senior people have left the firm.

Linking to dividend paying stocks, we have seen many times when errors are made at large companies, eventually a cash settlement is made and life continues, albeit governance issues are examined. Till the next time, the company can reap billions on the shady side. Just because a company is large and profitable does not make it ethical, however if it is large and profitable it can pay its dividends.

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

In late July, there was very good news with COVID, the US government signed a $1.95 billion contract to buy 100 million doses of a COVID-19 vaccine being developed by Pfizer and German biotech BioNTech if it proves safe and effective.

In an article by Michael Erman and Ankur Banerjee of Reuters, the Trump administration has agreed to spend billions of dollars for the development and procurement of potential vaccines under its Operation Warp Speed program.

At the moment, at least 160 drugs are underdevelopment and everyone is hoping for the same results, however what is good in Phase 1 is not necessarily good in Phase 2 because the sample size increases and the likelihood of side effects shows. Normally there is a Phase 3 which is a larger sample size and even the smallest side effect of the drug shows up. This time around if a drug passes Phase 2, then it will likely go into production and we will see.

In the US, who pays is important and if the vaccine is successful, will be made available to Americans at no cost, although their health insurance may be charged, the US Department of Health and Human Services said. The drug by Pfizer, in Phase 1 received 2 doses or 50 million Americans would be given the vaccine at a cost of $39.

There are variety of companies which are producing vaccines which the US government have signed agreements such as Moderna, Astra-Zeneca and Novavax.

Linking to dividend paying stocks, which the vaccine is declared good and available for the public, all companies share prices will rise and the world will move towards normal. The issue will be what will be normal before the shutdowns by the government and after the opening will have changed. It is highly expected for the next 6 months people will be using e commerce rather than walking into a store. We shall see, but will occur again are Festivals and Entertainment which help bring people together. When we hear politicians talk about government deficits you will know normal has returned.

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

A few years ago, it was easy to read a newspaper report about someone going into a house and trying to steal copper wire. Sometimes the people were hurt and that is why it made the newspaper, the issue was the price of copper or the price of the commodity.

In an article by Andy Home of Reuters, the price of copper went from a 4 year low of $4.371 a tonne to over $6,500 a tonne. The reason for the price increase is the classic supply and demand curve. China has been buying on a large scale as the economy increases; given the low price – the larger miners had cut global production, also COVID played a role, and the recyclable market is in disruption.

Copper scrap accounts for 35% of the global market according to analysts at Roskill. China is the world’s largest scrap buyer, but they wanted cleaner scrap. In 2018 Chinese scrap imports fell 32%, in 2019 the number fell again by 38%.

The big scrap generators such as the US and EC are sending their material to Malaysia for processing and upgrading before going to China. Lower scrap generation owing to price weakness and reduced manufacturing activity has been compounded by locked-down collection and recycling networks and disruption to international shipping logistics.

Linking to dividend paying stocks, there are always more than one market for every product and the COVID-19 has highlighted for example in the food business there are shipments to the grocery store for individual families and the restaurant and larger venue segment. When the shutdown happened and the restaurant and larger venue size was not good, the shipments to the grocery store could not be changed overnight. In the commodity business when the price rises, not only production increases, the recycling market becomes larger. Price matters, but profit is more important.

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