One of the high flying financial technology companies in Germany has come crashing to the earth. Wirecard joined the German blue chip Dax index in late 2018 and trade above E200 and is now trading at E20 or E10 billion ($11.17 billion) value has been wiped out. The shares are now trading at pennies.

Wirecard is a payments company and is missing $2.85 billion which according to a whistle blower is not surprising because there is a web of sham transactions. Wirecard is trying to keep the company together however its auditors Ernst & Young would not sign off on its accounts. The accounting company did sign off on previous years. Lawsuits have been filed was Wirecard legit or a house of cards?

Linking to dividend paying stocks, we have seen Enron and others do accounting fraud, high flyers come down to earth and you think why did I buy some of its shares? The important part if you did keep the position weighted so the stock may go up and down but your total portfolio is in balance or can weather any storms. If you the bulk of your portfolios you sometimes miss the high flyers, but when they come down to earth you miss that too. Rule number one of investing is try not to lose your money.

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

PepsiCo is a giant food company whose brands include Pepsi soft drinks, Doritos and Lays potato chips, Quaker foods and Gatorade drinks. It is a well run company, however among the Quaker brands is Aunt Jemina mix and syrup. In the northeast, my family was raised on maple syrup, so personally there is no connection to the syrup. In modern times, all companies go through an extensive process to determine the correct name to try to not offend anyone, which is why Altria was named when it spun off from from Phillip Morris Tobacco.

Ever since the death of George Floyd and the demand for change of policing, the rest of how African Americans are treated and symbolized have come up for discussion. In an article by Marinne Geller of Reuters, Aunt Jemima has been the logo of the syrup for 130 years and is rooted in a stereotype of a friendly Black woman working as a servant or nanny for a white family.

Kristin Kroepfl vice president and chief marketing officer said we recognize Aunt Jemima’s origins are based on racial sterotype. (one wonders about that statement – they recognized but did nothing till now, why?) Other companies such as Con-Agra Brands Mrs. Butterworth and Mars brand Uncle Ben’s rice are reviewing their brands.

Linking to dividend paying stocks, if it works and earns profits why change? if it does not earn profits, change is on the way. It is sometimes difficult to look back and see brands that should have never been considered but they were by reasonable rational people. Often when a brand makes money and becomes a billion dollar brand, change whether for the environment or for decency is very hard to do. A number of years ago, one of the case studies examined in school was to add or subtract phosphate from the laundry detergent, the cost was in the millions, either way to either retain or add sales? Choices are hard to make and need the necessary push.

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

One of the biggest cruise ship operators Carnival based in Miami, Florida reported a $4.4 billion in quarterly losses because of COVID as reported by Reuters.

Carnival said it had $7.6 billion in the bank, but it was spending or burning $650 million a month. Consider $650 million x 10 is $6.5 billion, if there is no virus or ships do not sail then Carnival is not looking good. The cruise company said it was waiting for regulatory approval for the redemption of some of its lines in the hope that customers will come back later this year.

The problem for Carnival is many of its customers are over 60, which are the people who should be social distancing and not necessarily safe of the ship because of the HVAC systems and the way air is normally circulated.

Carnival has sold 6 of its ships as it scales back. In terms of of its credit line it has drawn down $3 billion and issued $6.6 billion in debt and equity. Carnival has debt that is maturing within a year and is hoping its creditors waive some of the conditions over wise what was a high rating bonds will breach some of the conditions of the bonds.

The company normally receives bookings 6 to 1 year in advance and customers have canceled, refund or rebook thousands of tickets. Carnival customers are loyal and about half want refunds and half decided to rebook.

In the second quarter, Carnival reported a net loss of $2.4 billion or $3.30 a share.

Linking to dividend paying stocks, with the COVID it depends on how you see the future. If you see a future with a cure in the near future, then people will be cruising, consider half rebooked their tickets. Having gone on a cruise, if the weather is calm it is a wonderful way to enjoy the sea and other countries. If you see the cure coming in 2021, then Carnival will not survive but go into Chapter 11 reorganization to come out as something else. Is the glass half full or half empty?

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

When a company goes public, one of the upsides for the general public is it has to show its transaction more transparent. As a state company it follows the directions of its political masters, otherwise the leadership will be replaced. In the case of Saudi Aramco it is the world’s most profitable company because it owns all the oil and gas in Saudi Arabia. Much of the oil being drilled from a relative standpoint is inexpensive oil to drill which means oil that is sold on the world markets has a very high profit margin. The country of Saudi Arabia knows at some point in the world’s history there will be a transformation from oil to an energy source. Some of that energy sources is solar and wind, but the time line is still decades away. in the meantime, the country is trying to diversify its economy by being slightly less dependent on oil and gas. In an article by Marwa Rashad and Rania El Gamal of Reuters, Saudi Aramco bought 70% of Saudi Basic Industries (SABIC) which a giant petro chemical industry. In the oil industry – there is money in the discovery of oil and the refining of that oil into the millions of products that our society uses. When oil prices are down, the refinery is more valuable.

When Saudi Aramco sold shares to the public, it had to report its dealings. Saudi Basic Industries was own by the Public Investment Fund (PIF) and sold its 2.1 billion shares to allow PIF $93.9 billion to spend on diversifying the economy. Prior to going public all the companies were essentially agencies of the government and before it was internal shifts. Now that Saudi Aramco is public, all must be seen going through the stock exchange (Tadawul) at market values.

Linking to dividend paying stocks, one of the reasons investors liked the companies is the ability to see what transactions take place and can question why or congratulate the company for doing its business. If you like the direction of the company and management seem to be transparent, then you can feel better about holding the company for a short or long term. The longer you hold a dividend paying company the less it costs you to hold the company and the wealthier you are in the long run.

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

Before the outbreak of COVID and the shutdown of governments around the world, there was many people working in companies which required close contact of people to earn revenues. The entertainment world has many examples and when you think of the entertainment world you might as think about movie theaters. Last year a large British company called Cineworld was interested in a Canadian company called Cineplex and because people were not going to the cinemas as much as they used to, the shareholders of Cineplex jumped for you and accepted the offer by Cineworld. The agreement was suppose to close and Cineworld would bring their management to Cineplex.

In an article by Jeffery Jones of the Globe and Mail, the $2.2 billion merger is off, the shares of Cineplex are down and court cases of who can break the agreement and how much will it costs are slowly going through the court system. In the case of Cineplex, they have vowed to carry on, although when they can open all their screens it will be 30-50% capacity and the popcorn sales which adds added value for the company are expected to be lower. It is a little hard to eat popcorn with a mask on.

Linking to dividend paying stocks, all companies go through cycles which affects them differently. In the COVID situation, some companies benefit from social distancing, some companies do not benefit and it is hard to imagine how they will make money if people have to social distance. When the government shut down the economy, most of us expected 3 months and essentially we would be back to roughly where we were, it will be longer. How much longer dictates your investments, when there are many unknowns, what is most likely is the correct answer. Perfectly good sound judgement a short time ago, may have quickly changed. Having a reasonable diversified portfolio helps you get through to you can make decisions under the new rules.

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

Economies move from agriculture to manufacturing to service economies and there are very good reasons for the transition. The movement to service economies means people can do a wide variety of jobs to earn an income and many of them will involve crowds of people. In economies that are service based, COVID strikes and social distancing becomes the norm. Everything that involves crowds shuts down, in the United Kingdom the numbers are catastrophic for the economy. Remembering behind the numbers are people, in an article by William Schomberg and David Milliken of Reuters, the British economy went down 20.4% in April as compared to March. That is 24.9% smaller than a year ago. Essentially the British economy is the same size as was in 2002.

British Prime Minister Boris Johnson says it was no big surprise, the big question is what happens next? PM Johnson believes the British economy is very resilient and dynamic and will bounce back.

The Bank of England (similar to the Federal Reserve in the US) has kept interest rates low and is buying back corporate bonds of $170 billion. The Finance Minister Rishi Sunak is considering further measures.

In England, roughly 1/3 of the private sector workers are on temporarily laid off, shops are expected to open soon and hopefully consumer spending increases. What we are seeing is the entertainment part of family budgets is much lower, because everything is closed. Meanwhile the British economy is also beginning to leave the European Union or EU as it Brexits.

Linking to dividend paying stocks, the economy moving to a service based economy tends to ensure more people have higher wages or earnings with less physical work, that is a good thing. For a company, being diversified is a wonderful thing until the very things that are diversified are not making money. We do not have a crystal ball and there was rational thought put into the diversification. Change is hard, just as a company making profits through all the cycles of the economy is hard. Ensure time is on your side as you invest in profitable companies.

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

In COVID we know there will be one big winner, one of the big pharma companies will invent something, have something on the shelf that can be adapted or find a method in which social distancing while being a good thing, will not be the normal thing to do. Many of us look forward to crowds again. Scott Clayton of TSI Network examined the big Pharma stocks for the long term, because there is more than one drug needed for the general public. There are many billion dollar drugs now and in the future. His criteria was:

TSI uses a point system to allow you to rank the companies, then do further analysis.

1 point for 5 years of continuous dividend payments, 2 points for greater than 5 years

2 points if the company has raised the payment in the past 5 years

1 point for management’s commitment to paying dividends

1 point for operating in non-cyclical industries

1 point for limited exposure to foreign currency rates and freedom from political interference

2 points for a strong balance sheet, including manageable debt and adequate cash

2 points for a long term record of positive earnings and cash flow sufficient to cover dividend payments

1 point for being an industry leader

Companies that have 10-12 points are the most secure; 7-9 above average; 4-6 points average and less than 4 below average.

Company Points Div Yield Mkt Cap 1 Year Total Recent Price

% ($ bil) Return

Pfizer 10 4.2 201.1 -16.6 35.92

Merck 10 3.0 207.6 -0.9 81.77

J&J 10 2.8 384.5 6.3 147.80

Eli Lilly 10 2.0 142.7 32.5 151.00

GlaxoSmithKline 9 4.7 105.1 5.7 42.41

Gilead Science 9 3.5 97.3 16.6 77.07

Amgen 9 2.8 132.3 29.4 227.12

Bristol-Myers Squibb 9 3.0 137.9 30.8 60.12

Novartis 9 2.3 202.4 -0.3 88.00

Linking to dividend paying stocks, big pharma stocks will be part of the solution to finding a method which people can enjoy entertainment with others. We will be able to go festivals, concerts, theater, sports, street festivals, and other good things. Each of the above stocks have billion dollar drugs and everyone will be helping when a cure or partial cure is found. You can also investigate ETFs which have are focused on health care, for it is expensive to own all the companies and gain a meaningful return, having said that health care should be part of your portfolio because that is where governments are spending the money.

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

For all those who watch the Federal Reserve and interest rates, the theory says if too many dollars are chasing after too few goods inflation will be caused and interest rates will have to be raised so fewer dollars are chasing after the goods. In an article by Lucia Mutikani of Reuters, the good news on inflation is US consumer prices fell for a 3rd straight month. The weak demand caused by the COVID response and recession has kept the Federal Reserve from even thinking about raising interest rates.

In mid June, the officials from the US central bank had a 2 day policy meeting and it is expected the Federal Reserve will maintain a very accommodative monetary policy for some time to come.

The Labour Department said the consumer price index dipped 0.1% in May after going down 0.8% in April which were the largest declines since December 2008. Since most states had a stay at home restrictions, gasoline prices fell 3.5%.

The National Bureau of Economic Research, the arbiter of US recessions, declared the economy was in recession in February.

Linking to dividend paying stocks, as long as inflation is lower the dividend on profitable companies looks very attractive and low risk. The objective is to ensure the investments you make are in profitable companies that can easily sustain dividends as you wait for the economy to come back to near normal. If interest rates go higher than dividends, it makes sense to diversify your holdings into fixed income, as long as dividends are higher, stay with profitable companies and the total return will be worth holding onto.

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

China is the second largest economy in the world and 180 million people or one third of its workers are tied to the trade sector. If you have shopped in a retail environment either on line or in a store, many of the items are made in China. As trade goes so does the Chinese economy.

In an article by Reuters, overseas shipments in May fell 3.3% after a 3.5% gain in April. The economists polled by Reuters expected a 7% drop. Imports were off 16.7% compared to a year ago, the previous month saw a 14.2% drop. Reuters economists expected a 9.7% drop.

Wang Jun, chief economist at Zhongyan Bank explained exports benefited from the ASEAN market and exchange rate depreciation while imports were affected by low domestic demand and lower commodity prices.

China had a $62.93 billion trade surplus, compared to Reuters’s poll forecast of $39 billion and $45.34 billion surplus in April. China’s trade surplus with the US widened to $27.89 billion.

President Trump may talk about lowering the trade numbers with China but reality is a little different.

Given the COVID demand for medical supplies, China shipped $12 billion worth of medical supplies, Reuters calculations from customs data showed.

Linking to dividend paying stocks, politicians make announcements, but that does not necessarily translate into reality. Most supply systems are more complicated and not easily changed, it was estimated it takes a couple of years to make changes and by that time something better can be found or it is complicated. The reality is larger organizations can deal with the changes, even though they are not as nimble as they think they are, but generally they have larger resources to ensure changes can be made and profits to continually roll in. As an investor you like the extra resources to make changes.

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