As with everything else in the world, it depends is a good answer. Since 2008, government treasuries, the most secure debt instruments (the government can raise taxes to pay the interest) have been close to 0%. With that yield, almost everything else looked good that was positive. If you lost money then even 0% looks good. US Treasuries interest rates and yields have been to move up to 3% which makes the depend answer more tricky. Typically, dividend stocks return about 3%, but there was the good aspect of higher stock prices to produce a total return often above 3%. Now that US Treasuries are 3% do you shift to begin buying bonds?

According to Ian McGuggan writing in the Globe and Mail the Federal Reserve is expected to hike interest rates up at least twice more in 2018 as it combats rising inflation. Although with elections being held in November, maybe the second hike will be later. For the second hike the politicians want to ensure the low interest rates which helped fuel the economy is not being hurt. It is important to note as interest rises, neither stocks or bonds thrive. Bond prices move in opposite direction to yields. Stocks are hurt because higher interest rates means higher corporate interest payments. Then the issue of how much debt a company has and should have are raised again.

Linking to dividend paying stocks, while buying stocks, it is better to buy a company with growth rates plus pay dividends as interest rates go up, there is a risk. If you do not know what to do, you can little for as the cash comes in from the dividends there is no reason why you have to spend it. You can wait until a great opportunity from the homework you have done comes forward. This makes it all the more important to be aware of the alternatives and what alternative would you buy and at what price?

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

One of the things small businesses tend to have the most problems with is pricing strategies. There are a multiple reasons because pricing is a process however if you can determine the right price for your product or service it will improve the bottom line of your company. For the importance of pricing, there are a remarkably few books about it and one is from the Self Counsel Press Business Series written by Andrew Gregson written in 2008 published by the International Self-Counsel Press Ltd – Vancouver, BC and Bellingham, Washington.

One of the important elements is do you compete on price or value? If you compete on price understand the margins will be low, but you have to make it up in volume. If you compete on value – you have to help your customers understand and tap into the value they see in your product. There will variables along the line – customers who want to pay the lowest price but are one off customers; there are customers who see value in your product or service and willing to pay more – and you need to find out why they see value and price accordingly.

What makes pricing successful – the company has a decent profit; the owner is paid a reasonable wage; the company and owner can pay their taxes; the company has no difficulty finding the cash to pay bills; the company attracts the best quality of customers who are willing to pay for the value added by the company; the company generates a reasonable return on investment; and bids on jobs are planned to leave no money on the table.

Your prices are too low if you do not generate a profit and liveable wage for the owner; you hate customers because they beat you on price every day; you just spin on the wheel but do not create profit.

What to do – your company needs a unique selling proposition in order to find value in the products and services you offer to your customers. Without it, you will be see as a commodity in the eyes of the customer and no different between you and the competition and because of the internet they are all over the world. Once you have the unique selling proposition you can go through the steps who are your customers; which ones see value and which ones need to better reason; and then you can look at your costs. The process continues every time you open for business.

Linking to dividend paying stocks, when you invest in company which earn profits you can see their value, but you have to ensure customers see the same thing. You expect profitable companies have a very good idea in terms of their pricing strategies and it is something you look at their gross and net margins. Are they consistent, what changes, who are the customers and do they see value they will pay for? The questions never go away.

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

If you own a mutual fund or index fund and it does not have Alphabet in it, then you should be looking for an alternative fund. One of the reasons to own it is Alphabet which owns Google made $9.4 billion in profit in one quarter. In an article by Paresh Dave and Arjun Panchadar of Reuters, Alphabet achieved better pricing on ads and saw unrealized income from start up investments.

Alphabet makes its money from advertising and point and click ads. The ads come after the clean page search engine, YouTube videos, millions of partner apps and websites. World wide ad sales increased to $31.1 billion. In terms of the mobile app store such as cloud computing services and consumer devices the number was $4.4 billion.

Another aspect to Google is through its venture capital arm with investment in companies such as Uber Technologies and Waymo – the self driving car ideas.

Linking to dividend paying stocks, Alphabet continues to generate billions of dollars in revenue and most people expect what we consumers are doing now, we will continue to do next year. If we do similar things, use Google to search and find information we can use, then advertisers will continue to use Alphabet as a primary adverting. Along with the ads, Google does many other things and most of us will use one or more of their services. If you examine the number of people the company has and the few fixed expenses, it is one of the reasons why owning Alphabet is needed in your portfolio.

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

For every company to make money somebody must sell their goods and services. The company can do and make very needed things, but somehow they must be sold. For manufacturers it is often easier to have distributors sell their product and the company can concentrate on the next improvement. For Hasbro which has been around for many years, the biggest seller of their toys was Toys “R” Us and for many years this has been a very good relationship. It was reported by Nivedita Balu of Reuters,  Hasbro reported nearly $100 million less than expected because of the bankruptcy of Toys”R” Us. The good news is the company has found ways to grow margins by 2019 and is expected to  generate between $600 and $700 million in operating cash flow for the year. One of the strategies is to ensure their toys are in Disney and Marvel movies and this year there are 6 major releases.

Linking to dividend paying stocks, every company eventually becomes dependent on others and that is a good thing until it is not. It is the reason in large organizations there is someone worried and makes plans if things do not go correctly, what should the company do? how does the company adjust and how long should it take? It is easier to adjust if their are plans on how to adjust. As you look at your investment in companies see who they are dependent upon and how could they adjust if something goes off for a quarter or two.

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

As political season gears up for the midterm elections, you will hear an argument for tough, cost-conscious management to bring the correct results to the electorate. The argument works in politics and in the private sector. At the moment one of the best companies known for its cost cutting is 3G – a Brazilian investment firm. Warren Buffet teamed up with them in the merger between Kraft and Heinz. According to Ian McGuggan of the Globe and Mail only a couple of years ago, 3G was being applauded by analysts for their ability to slash costs and trim corporate fat. This was the best recipe for squeezing new profits from aging consumer brands.

The approach worked for a time as critics argue management focuses on streamlining operations but they have less time to spend on product development, corporate innovations and brand building. The danger is efficiency increases but sales and earnings per share do not. In the era of highly commoditized categories it is hard to grow consumer brands as Robert Moskow of Credit Suisse noted. The model is very good at cutting non-essential overhead, focusing on price realization and running an efficient plant and distribution network. The model is not so good at driving sales growth through marketing new products and strategic investments.

Linking to dividend paying stocks, the lesson to be learned is if a company goes through cost cutting hold for 2 or 3 years and then look for alternatives because the price of the stock will likely fall.

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

In the drug world, if a company can produce a drug which people believe they need they can make millions of dollars. If they have a good monopoly for a number of years, shareholders like the fact the companies can pay dividends and share prices can move upwards. In the drug industry there has been a number of mergers because sometimes it is less expensive to buy a company with a good pipeline of drugs than do the research and development. Shire PLC has a significant share in the rare drug business and had two companies wanting to buy it Japan’s Takeda and Dublin maker of botox Allergan. According to reporters Greg Roumeliotis, Ben Martin and Ben Hirschler of Reuters Allergan has a little problem with its existing shareholders – the debt the company carries is $30 billion, thanks in part to buying other drug companies.

Takeda according to Shire has not offered enough money or management wants more and Shire is larger than Takeda. The Japanese company is profitable and continues to pay dividends.

Linking to dividend paying stocks, when a takeover comes as a shareholder you have a number of choices – do nothing, accept the offer or sell – hopefully at a higher price but then you need to find an alternative. It is important that you keep a number of companies on your homework list to buy when the time is right for you.

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

President Trump occasionally announces all kinds of proposals, some of the them most of us consider good, some are questionable. However, as President we assume rightly or wrongly he has very good reasons to announce his ideas. One of the ideas was to impost tariffs of steel and aluminum. Naturally, the announcement made the front pages of the world press but inside an average US company actually using steel and aluminum there is different story. The story is rising costs, delayed shipments, and a baffling bureaucracy.

In a story by Paul Wiseman and Christopher Rugaber of the Associated Press, a new organization has been founded – the Coalition of American Metal Manufacturers and Users who are small and medium sized businesses which are trying to have the Commerce Department exempt them from the tariff. The reason the companies can appeal for exemptions is they can not obtain the metals from US producers. It is one thing to announce tariffs, it is another thing to have the steel and aluminum producers provide the kind of steel and aluminum desired. There is a reason why they went outside the US.

The Commerce department has 90 days to review and make a decision, unfortunately there was little resources put in the area and time has come and gone. The Commerce department traditionally reviews each potential exemption individually and does not wish to do across the board reviews.

Companies are finding while their customers are satisfied with their past work, they still need to be in business and they can access the materials from alternative sources.

Linking to dividend paying stocks, the headlines in the newspaper generally makes poor financial results. Companies tend to like relative stability not the headlines attention. What may be good for politicians, seemingly to do things disrupts supply chains which have existed for a number of years. It is the reason why all companies need to have backup plans and deal with a number of suppliers. It is the reason why companies deal with more than one bank. Having choices or alternatives is a good thing.

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

 

In the far north is the Arctic Ocean and for many years, it was as its name sounds cold and frozen most of the time – Arctic weather. With climate change and the possible opening of the Northwest Passage for shipping, various books have been and will be written on the history of the Arctic. We know there are deposits of oil and gas, sometimes minerals have been found and the shipping passage could be used as a short trip between Asia and Europe. A book called The Scramble for the Arctic – ownership, exploitation and conflict in the Far North written by Richard Sale and Eugene Potapov published by Frances Lincoln Ltd, London, England, 2010 helps put the issues into perspective. The first thing to know about the Arctic is it is relatively easy to look back in time – the cold preserves artefacts. There is a lack of activity in much of the land so what is left on the ground can be found on the ground. Archaeologist have found by looking for vegetation patches, they can discover sites for man. The bone leaching nutrients allows for vegetation to grow. The difficulty is the Arctic is a tough place to work – much of the time the ground is covered by snow and ice; the non ice season is short; although planes make life easier.

In the book, the authors discuss the natives – much of their tradition is oral and many are nomadic which makes property rights hard to define. The interest of the north was first for animal pelts – at one time the highest domestic tax source for Russia was sable pelts; while beaver pelts made into tall hats in London was a reason to discover Canada.

No matter which country whose country reaches toward the north pole, they have all treated the natives badly, to be generous. When it came time for resource development, because companies have an interest in shipping product out to be processed, the pipelines and roads have crossed native hunting grounds and the solution was to move the natives out of the way. In terms of animals – we have a bad history of nearly causing animals to be extinct before understanding if you kill too many, then there will be none the next year. It is significant that the companies which engaged in processing animals were very profitable for a number of years. Whether that was sable, beaver, whaling, fishing, sealing, However it only took years, not decades, before the animal population was significantly lowered.

The biggest issue of the north is the great oil and gas discoveries or potential and who owns the land. All northern countries are trying to ensure the boundaries which have existed on maps for the last 50 years remain the boundaries when it is time to harvest the raw materials.

Linking to dividend paying stocks, the history of the north is to exploit the natural resources and move on. It has been done all over the world for generations, the difference is in southern climates, nature can come back or it is possible for nature to come back. In the north, one has to think of centuries not decades when the natural resource is less than profitable. There are greater challenges but also greater rewards and for that companies will continue to want to go north.

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

The only reason to pay attention to Wells Fargo is of all the banks, the stock price has been flat or you have to be thankful for the dividend to receive a return from the company. It seems it has gone from scandal after scandal in abuses of overcharging its customers. According to Aparajita Saxena of Reuters, Wells Fargo will pay about $1 billion in fines related to auto-insurance and mortgage lending abuses. This is on top of their other fee generating schemes (every person has to have 12 fee generating services whether they wanted or needed them or not); steering minority borrowers into the most expensive loans and fees; and other such things.

Wells Fargo as a bank over was considered to be one of the better banks, had an emphasis on small business lending, but needed to cut costs – in the $4 billion area.

Total revenues fell in the quarter 1.4% to $21.92 billion. Total loans were down 1.2% to $947.3 billion.

On some good news, thanks to corporate tax cuts by the President income tax expenses fell 36% to $1.37 billion.

Linking to dividend paying stocks, many people look at the bank and it is still a profitable bank wondering when the bank will have its act cleaned up so the stock price can rise into the 60s from the $50 where it exists. The bank still has many customers who are loyal to it, while it has been hurt by the reputation of their actions. It may take time and eventually the stock should rise. You might want to put it on your list to buy after it reaches the mid 50’s. The key will be the lifting of constraints from the US Federal Reserve.

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