Governments have the ability to direct investments and when the economy is slowing down, they often want to provide incentives to assist companies to revive the economy. The problem from a taxpayers point of view it takes a number of years to see if the incentives work and they should be taken off the books or sunset laws do not exist.

In an article by Hiroko Tabuchi of the New York Times, the Government Accountability Office, a nonpartisan agency that works for Congress, reported the government has “lost” billions of dollars to oil and gas companies because of a loophole in a decades-old law.

The loophole dates from 1995 in an effort to encourage offshore drilling in the Gulf of Mexico companies were offered a temporary break from paying royalties produced. The problem is for some wells the royalties were made permanent.

The National Oceans Industries Associations which represents the oil companies says there is no mistake, if the law did not exist, the oil companies would not have drilled to the extent they have drilled.

The politicians who wrote the bill including former Democrat senator from Louisiana Bennett Johnston says that was not our intent. He said there should have been a threshold that the law did not apply when prices went over a certain price level.

Royalties from offshore oil and gas bring in $90 billion from 2006 to 2018, but they could have brought in $18 billion more.

The companies which hold the leases, royalty free are Chevron, Anadarko, Equinor, Shell, ExxonMobil, BP and CNOCC.

It is noted in 2006, the government tried to impose the royalties, however an oil producer sued and won the case. The oil and gas wells are royalty free until they are closed.

Linking to dividend paying stocks, while most people believe that incentives are a good idea when the economy is slowing or in a downturn, what happens when the economy improves. In the case of the oil and gas leases, it was only the majors or dividend producing companies which could take advantage of the incentive. Laws are made and companies allocate resources to react to the law, who can blame them for taking advantage when the economy changes so that no incentives are needed?

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

In Texas and other parts of the US, one of the great success stories is the use of fracking to increase production of oil and gas to a point where technically the US is not dependent on any other countries oil and gas. The success has increased employment and taxes and allowed a swagger to be shown.

Other countries around the world have looked at America and said we should try it here. One of the countries that went all in was Britain or the UK. For other a generation, oil and gas for Britain has come from the North Sea but that resource is slowing down and will come to an end. In an article by Paul Waldie of the Globe and Mail, Britain currently imports 60% of it s gas. In 2013, the government was projecting 40 wells, over 60,000 jobs and $55 billion worth of investment. Stock promoters could learn something from the government.

At the present time, 3 wells were drilled and they all had to shut down due to minor earthquakes of 2.9 on the Richter scale. The public of the UK does not like fracking and the many protests cause government’s security cost to soar.

More importantly is there is a global supply problem, there is plenty of gas and in the world of market demand, prices have dropped. Why go ahead if is less expensive and easier politically to import gas? For now Britain imports gas.

Linking to dividend producing stocks, anything that works will be repeated, if it works to make consistent profits, you should see the same model all over the world. Fracking worked in the US, but there is more land in the US so the problems are not seen to the same degree as problems. In closer environments where people are easily found, they object, there are many stories in the Penn State area. Before you accept the concept ensure local conditions match closely.

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

In late October, Amazon reported in remains the number one online retailer with over $70 billion in sales. However according to an article by Jeffery Dastin and Akanksha Rana of Reuters, the shares fell because of missed estimates from the cloud computing business, which is a very profitable business.

Amazon has a goal for its Amazon Prime members, they would receive the parcel the next day. Partly this has to do with the competition, Walmart has two day shipping; partly because Amazon believes one day shipping would spur greater sales. The downside is the expense, it is very expensive because the inventory needs to be near customers and the distance from the Amazon warehouse to the customer is a logistical expense. In addition Amazon loses revenue because members do not have to pay the premium fees for one day shipping. The logistics mean the the greater than 100 million Prime members are catered to.

According to Morgan Stanley analysis a typical order for items shipped in 2 days is $23.33 and Amazon spends $5.05 to fulfill it and deliver it. For the one day order, the order is $8.32 and costs is $10.59 or the company loses money. Do all the Prime members want 1 day shipping or just free shipping? are they Prime members for the music and TV streaming? and other perks? it is a judgement Amazon makes and needs to comply. Perhaps one day shipping should be at higher amounts, ie over $125? Amazon is going to spend $800 million to accomplish the one day shipping mandate.

In terms of the Amazon Web Services or AWS, the unit handles data storage and computing operations for other enterprises, revenue increased 35% to $9 billion, but it was the second quarter the growth rate was less than 40%. The operating margins for AWS was 25%.

CFO Brian Olsavsky expects holiday operating income to between $1.2 and $2.9 billion, analysts were expecting $4.19 billion according to research firm FactSet. Is Amazon lowering expectations to beat them the next quarter?

Linking to dividend paying stocks, a company similar to Amazon has taken over the retail side of the on line world and it is important to understand how they make their money. The AWS division has provided most of their profits. Amazon Prime memberships which were increased from $99 to $125 has over 100 million members that is good cash flow; and Amazon receives money from third parties to be the backoffice or warehouse inventory experts. They are now trying for one day shipment. There are many solid dependable repeatable income in their revenue structure based on consistent execution of service.

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

In keeping with the defensive theme from yesterday, another great stock for your portfolio is Proctor and Gamble or P&G. In mid October, P&G announced they had another quarter of strong sales growth. According to an article by Richard Naida and J Soundarya of Reuters, among the highlights of the sales was an increase in toothpaste sales of Crest and expensive face cream.

P&G was able to raise prices and consumers continue to buy their brands and invest in new products across most of its brands. P&G is a brand leader with many of its brands billion dollar sales leaders. Given the focus on the consumer, you likely have a brand or two in your home. The brands include Tide, Crest, Oil of Olay, Old Spice, Gillette, Ivory, Charmin, Pampers, Always and Head and Shoulders.

P&G is expecting growth of 5% in sales and the only division not doing well is Gillette but on the exciting news for investors, P&G has 63 years of consecutive dividend increases. The company is well managed and there is no reason to expect the increases will stop.

Linking to dividend paying stocks, a terrific stocks is one in which it is possible to both increase market share and raise prices on a yearly basis. Most companies can not, but there are some which can increase prices. For a dividend investor, the ability to raise prices makes it a wonderful stock to own for a long time.

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

67% of the US economy is driven by consumer spending and through the economic cycles of the economy spending will still happen. How much and what is a need, what is a want and how they intertwine is the information provided by economists. As investors you want to know what companies have gone through multiple cycles and still make a profit. If they are making a profit, the stock will have a strong multiple and more importantly they pay their diviidend.

Ian Tam of Morningstar Research used his companies information bank to uncover some of the best companies to own if you are going to be defensive.

Mr. Tam started with 114 companies in the US consumer defensive sector and then began to narrow the field.

Dividend yiedl – needs one

Free cash flow FCF yield (operating cash flow in excess of capital expenditures over enerprise value, higher figure preferred)

Expected annual dividend growth rate (calculated from announced future dividends but not yet paid)

Return of Equity

Other qualifications: market capitalization greater than 1.3 billion

A dividend payout ration against earnings and cash flow of less than 80% and 60% respectively.

The top 10 on Mr. Tam’s list are:

Company Mkt Cap Div Yield FCF Expected div ROE Payout ratio Payout ratio

$ Bil % % Grth Rate % on EPS % on oper cf %

Molson Coors 12.263 4.0 6.1 39.0 7.5 50.9 18.1

Clorox 18.636 2.9 3.7 10.4 116.0 68.8 50.1

Walgreens Booth 49.234 3.4 7.0 4.0 21.7 30.5 25.2

Hershey 31.969 2.0 3.7 7.1 88.3 50.4 35.4

Keurig Dr Pepper 38.727 2.2 4.2 33.3 7.2 42.9 39.7

Kroger 19.487 2.6 3.0 14.3 21.1 27.4 10.0

Flowers Foods 4.632 3.5 4.4 4.1 15.9 73.8 43.1

NuSkin Enterprises 2.328 3.5 6.3 0.7 24.6 42.7 28.1

JM Smucker 12.240 3.3 4.7 3.5 10.7 42.3 36.5

Colgate-Palmollive 58.687 2.5 4.0 1.8 57.3 48.2

Linking to dividend paying stocks, if you look at the companies, consumers across the US and around the world will buy products for their homes. People may cut back or dilute but they will not make from scratch, we are the generation who buy stuff. It is important to have at least one defensive stock in your portfolio but the idea of investing is not to lose money in both good and bad times on the market. For the consumer stocks, the easiest thing to do is what companies do you buy from. Since you are not the exception, you can see if others are using the same products every time you shop.

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

In mid October GM announced the month long strike is almost over, union members will have to vote to accept the offer made by GM. The GM strike shows how the US economy has changed over the years. Back in the 1950’s, a GM executive said to the affect as GM goes so does the US economy. A strike back then would have slowed down economic growth and many would be worried. Now, while GM is important, the rest of the economy continued on its pace.

In an article by Tom Krisher of Associated Press about 49,000 workers have been on strike for the past month and the strike has cost GM about $2 billion. The workers will receive pay raises, lump sum payments and a signing bonus of $11,000. In return GM will proceed to close down factories in Lordstown, Ohio, Warren, Michigan and a plant near Baltimore, Maryland.

The Detroit Hamtramck plant which GM was considering closing will remain open as it shifts to producing a new electric pick up truck.

GM was using different wage scales depending on the years hired with new hires making about $5.00 less money for the same work. If a worker has 3 years continuous service they will be making full wages of $32 a hour.

One of the reasons why GM’s stock was not affected, it has about 50,000 workers in China. The car is selling vehicles as the US was having problems with US operations.

Linking to dividend paying stocks, economies change as much as the auto industry ruled the economy it does not anymore, although it is an important part of the overall economy. The auto vehicle industry is changing to electric which requires less parts and can be even greater robotized or need fewer workers, but the auto is needed for people to move around.

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

China’s 3rd quarter economic growth slowed more than expected and is on its weakest pace in almost 3 decades primarily due to the US tariffs. In an article by Kevin Yao and Gabriel Crossley of Reuters, the Gross domestic product or GDP rose 6%.

If you consider President Trump says the American economy is doing the best in years it is growing at 4%, China’s 6% is higher.

One of the reasons for the slowdown in China, because of the tariffs companies have shifted operations from China to another country such as Vietnam. If you shop in a grocery store, the produce bags you put your broccoli into used to come from China, now they are coming from Vietnam. This is good news for Vietnam, bad news for China and the US. The purpose of putting tariffs on is to shift production from one country and bring it to the country imposing the tariffs in this case the US. If the companies just shift production from one country to another, it helps neither the former host country or the country imposing tariffs. Will the President now impose tariffs on Vietnam and other countries which manufacturing has been going to?

For China 6% growth rate is still a healthy growth rate and was no the lower end of expectations. In order to increase the growth rate, China will invest more money in infrastructure. China unlike the US still has a healthy share of its GDP from manufacturing in the US it is 11%; while the US depends on consumer spending to drive the economy.

In China, the government has relied on a combination of fiscal stimulus and monetary easing to weather the slowdown including tax cuts and local government bonds to fund infrastructure projects and efforts to spur bank lending.

Linking to dividend paying stocks, countries have set tools to deploy to continue growth, for a non democratic country similar to China, it is easier to do infrastructure projects, the government picks the projects and any objections are overruled and the projects go ahead (there are pictures on the internet where someone owns a house and tried to defy the government, so the government built the highway around them) In democratic countries the politicians talk about infrastructure but at the moment have not passed the bills to do the infrastructure. After the money is passed, the people have a say in what is good and not so good and just before the election something is announced. Efficiency is not always a great thing, but democracy can work.

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

One of the most competitive aisles in the supermarket is the drinks aisle although looking at the aisle two companies dominate – Coke and Pepsi. The two companies Coca-Cola and Pepsi are billion dollar companies which advertising budgets to match and because they are so big, people try to invent new drinks every year. If you examine the industry, none of the giants can sit back and relax for they will lose market share to the latest trend. Both Coke and Pepsi are essentially sugar and water plus extra, although for people who buy one or the other, there is a difference. When one of the ingredients is sugar and issues with growing people’s weight, the companies have to come up with semi solutions.

In an article by Reuters, Coca-Cola has come up with Coca-Cola Zero Sugar and reduced the size of its cans. You can enjoy your can of Coke, it a smaller can and be healthier. It is also healthier for Coke because the margins on the smaller cans are greater than the large cans. It should be noted, many years ago when John Sculley was President of Pepsi, he tried larger bottles of pop, at the time Coke had one size and only one size (similar to Ford and the Model T in black). Consumers loved the larger sizes and we have had large sizes since the 1980s. Coca-Cola had to match Pepsi, did not change the formula just the bottle size and the company was competitive once again.

Linking to dividend paying stocks, while it looks like companies have advantages when the consumer is the driving force for the product, it means the company has to remain connected to the consumer and over time consumer tastes change a bit. The bit is the large profit and you can measure if consumers still like the product by watching the grocery aisle when you shop.

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

In mid October the International Monetary Fund IMF released a statement which said countries around the world should urgently begin accelerating efforts to reduce greenhouse gas emissions and the best way to do that is through implementation of carbon taxes and global co-operation.

In an article by Lindsay Dunsmuir of Reuters, the IMF warns of global warming causes major damage to the global economy and the natural world, and engenders risks of catastrophic and irreversible outcomes.

The reason why the statement is important is the IMF is a banker to many countries around the world. If the banker says on global warming do something, it means if your country is not doing something you will receive no funding for your projects. Do something beyond plans and the IMF will continue to bankroll projects.

Linking to dividend paying stocks, if organizations such as the IMF are expecting countries to do something about global warming; it stands to reason citizens as well as investors will be expecting companies to do something about global warming. No one knows what needs to be done except no one wants a world wide recession which limits any output. We are all are in this problem together and trust the solution will come sooner than later.

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