One of the world’s great trade routes was from China to Constantinople (Istanbul) – the myth is great goods moved on caravans around the great mountains (Himalaya Mountains) and Deserts (Taklamakan) across the Steppes (Plains) eventually the goods made it to Europe. The term silk was used because coinage was heavy (there were very few banks and lines of credit) but silk bolts came in a standard package and was lighter than coinage, so silk bolts was used as money or the ability to exchange for goods and services. In the book, Silk Road by Valerie Hansen published by Oxford University Press, New York, 2012, the author examines the archaeology evidence of how average people living in the towns along the road lived their lives to determine the effect of the road.

It turns out the volume of shipments – goods and services were mainly local to serve the community and the next community along the way. There were very few long camel trains, because one it was relatively expensive and two thieves would intercept long, so the average train was less than 10 animals – horses or camels. It also turns out, when the Chinese Emperor decided to move its army into an area – needing to pay the army soldiers – greatly increases the amount of commerce in the region. When the army moves bases as administration changes or emperors change, that has an effect. The real value of the silk road is besides goods being transported, people are transported and in multi cultural settings ideas, technology and artistic motifs are introduced and incorporated into the communities to make them better.

One of the technologies being introduced is paper. Originally paper is expensive – the alternatives are writing on sticks (think popsicle sticks tied together) the back of tree bark or leather from tanning animal rawhides.

Linking to dividend paying stocks, there are many myths in the marketplace and some of them are based on some sort of truth, but each type you have to examine the myth to see if it is reality. One of the better myths  is it is better to do nothing than something. This is true if you buy income producing stocks. The income or dividend allows you to do nothing while the company produces profit and because it is successful over a period o time the stock price rises. Markets fluctuate and when they do, it is always good to consider why did you buy the company’s shares?

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

 

 

 

 

 

In mid February, the CEO of Hydro Quebec which is Canada’s largest electrical utility was interviewed by Nicolas Van Praet of the Globe and Mail Report on Business. In the article Eric Martel he talked about the future of the company including trying to double revenue to $27 billion by 2030. That was the good news, the bad news is he needs to avoid the solar death spiral. The solar death spiral is individual and businesses producing more and more of their own electricity and consuming less and less from the grid. Hydro Quebec has all the fixed costs of the transmission lines, the hydro plant and can not lower its existing very low rates but those fixed costs will need higher rates. As rates go up, more individuals turn towards going off gird.

Hydro Quebec thus has to continue to find new customers or sell more to existing customers. One of its projects is to sell greater amounts to the Massachusetts but the transmission line needs to go through New Hampshire who really does not want it. The proposal is called Northern Pass. Supplying New York State and New York City is easier.

Linking to dividend paying stocks, utilities are a wonderful core holding because people  need electrical power and those bills come every month. (most utilities now charge every month). As long as people pay their monthly bill, all is good until they think the bill is too high. Generally the regulators at the state level tend to agree with the utility company to raise rates and keep a semi-monopoly in place. The issue is when people think they can save money or feel the price is too high and look for alternatives. If you were to drive around and see vast numbers of homes with solar panels, you would need to check are they selling to the grid? or are they off grid? If they are the off grid, then the spiral would be happening; if they were selling to the grid then fewer gas, coal and oil electrical generating plants would be needed. Pricing is always delicate issue.

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

In early February, Chip maker Broadcom increased its offer for semi-conductor Qualcomm. In December, the offer was $70 a share made up of cash and stock, now the offer has climbed to $82 a share made up of cash and stock. The value of the total offer is about $146 billion. Josh O’Kane wrote it is a staggering figure given Qualcomm’s fight with Apple but demonstrates the industry’s rapid consolidation and just how valuable intellectual property portfolios can be.

The world’s semi conductor business is worth $US 412 billion according to the Semiconductor Industry Association. The combination of Broadcom and Qualcomm would make it number 3 after Intel and Samsung.  Broadcom would lead in WiFi chips.

Qualcomm is trying to buy NXP Semiconductors. Qualcomm is very well positioned to take advantage of cellphone coverage of 5G wireless.

The regulators would need to approve the merger for it to be completed.

Linking to dividend paying stocks, in all markets leaders tend to emerge, in new markets eventually consolidation happens for the leaders to compete but also to raise prices to earn higher margins. As long as that delicate balance happens, as a consumer you may wonder but as an investor you are happy.

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

The King referred to in the title is Dr. Martin Luther King Jr. who was a force for change in the US during the late 1950s and early 1960s. Many people will know or heard his famous I have a Dream speech given at the million man march – when American Americans from all over the US and people who supported them, marched peacefully in Washington DC. In the book, Tavis Smiley with David Ritz examined the last year of Dr. King’s life. After reaching the mountain top with the march, what did Dr. King turn to and what were his plans? Dr. King believed in social justice and the big three were Poverty, Racism and Militarism. Those are big issues – he was trying to organize a march by those in Poverty. Racism did not change overnight after the worst laws to keep the races segregated were changed; and the 1960s was the involvement of the US in Vietnam. It was becoming an issue, why was America in the war? how long was it going to last? and what is an acceptable outcome? Dr. King was against the war.

On the Poverty side, the worst city for poverty in the early 1960s was Newark, New Jersey. If you go on You Tube and look up worst cities in 2018, Newark has kept its title for much too long.  In the book, Dr. King is asking why can Congress allocate $35 billion for a war in Vietnam and only $3.5 for its poorest 32 million citizens? In 2018, President Trump is increasing the military budget and cut agencies such as Housing and Urban Development and other Social Programs. Has anything changed?

Linking to dividend paying stocks, this is where as investors you are not looking for much change. It is a great credit for a company to exist for generations earning profits and paying dividends, with those dividends increasing over time. It takes good management to do that. On the social side and politicians, it seems little does change.

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

 

Have you ever seen the TV show the X Files? The premise was two FBI agents were investigating unnatural events. The show lasted 11 years and is still interesting although it is science fiction. In real life, two authors Mark Leslie and Rhonda Parrish wrote a book called Haunted Hospitals published by Dundurn Press, Toronto, 2017. The book focuses on hospitals in Canada and the US with a few examples around the world. Most of the hospitals deal with sanatoriums or insane now called psychiatric hospitals.

In the last 100 plus years, the treatment of patients that were housed in insane hospitals was not what we considered as reasonable. Doctors really did not understand the brain so many experiments were done and not all them worked, likely few worked. In the insane hospitals people died, but did their spirit stay? We do not know, there are signs that spirits or something unusual exist or they are easier to find in places such as insane hospitals.

Linking to dividend paying stocks, do you believe in unnatural or unexplained effects? When you buy a dividend paying stock you are looking for few unexplained events, you are looking for a steady profitable company that can share its profits in terms of dividends.  Are the unexplained events interesting? yes, but try to buy slow and steady profitable companies whose stock over the years rise. After a few years you will be pleasantly rewarded.

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

On You Tube there are many things to see, sometimes a conference video will come up and perhaps there is an idea. If you are similar to most people, when attending a conference you are looking for 3 ideas, but it might take a number of sessions to hear one. One conference took place in Vancouver and its primary interest was on gold and silver. However there was a speaker Michael Alkin who helps run a hedge fund called the Tullamore Fund. Mr. Alkin was speaking about things that could go wrong in the marketplace.

On Wall Street, things can really look good, until they do not.

History does not often repeat itself, but it does rhyme or similar patterns happen.

The industry Mr. Alkin focused on was the Auto Industry.

While the economy has changed from when what is good for GM is good for the economy; the US Auto industry represents 5% of the US workforce, 3% of the GDP and half the companies on the Dow Jones make money in the sector.

The average price of a vehicle has increased since 2009 from $27,000 to $36,000 which has meant profit margins have increased and that is a good thing.

Mr. Alkin asks for a $36,000 vehicle people need financing, how do they finance?

For the past few years, the market has benefited from a limited supply of trade ins which meant the trade in vehicle had increased in value. As consumers were trying to ensure they have a good vehicle (sometimes better than they can actually afford) they looked at the monthly payment. If you have a high trade in value, the monthly payment is less and leasing can look very appealing, depending on how much you drive (watch those miles on the contract or you will pay extra). ‘

If you look forward, you will see many vehicles will come off lease, the lease will expire and the consumer either buys the vehicle or takes out a new lease on a new vehicle. What is good for one, is not good for millions, millions of leased vehicles will come on to the market and thanks to supply and demand – the value of the leased car will fall. The next lease, the person has to finance more of their new vehicle.

At present, about 23 million consumers who pay monthly car payments have credit scores less than 640 or are known as subprime. The vehicle financing companies are beginning to tighten up the requirements to get a new loan.

Is trouble ahead or will consumers buy a vehicle they can actually afford rather than meet the monthly payment extended over 7 years? Will they be paying for more than one car when they renew (as many tend to). Ask people about their car payments.

Linking to dividend paying stocks, the auto sector continues to be a great importance to the economy and we would all love that everyone could afford the vehicle of their choice. In reality, many can not, but they need a vehicle because of the way our cities are built. Life is more difficult if you live in the suburbs without a vehicle, not impossible but difficult. It is good to hear about possible headwinds because you can do your research or understand how the industry makes money and is it sustainable?

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

 

If you own the FANG (Facebook, Amazon, Netflix and Google (Alphabet)) directly or indirectly through index or mutual funds you would be happy the companies continue to make money. On February 1st, the companies reported how they did and Josh O’Kane from Bloomberg News noted Amazon sales were up.

Amazon had its strongest holiday quarter sales in 8 years, fueled by the company’s traditional e-commerce and cloud computing. The company is expected to sell over $200 billion in sales in 2018. On these sales the company reported a profit of $2 billion its highest ever.

Linking to dividend paying stocks the FAANG group continues to do well and it is part of the 20% of stocks which are driving up the rise of the Dow Jones Indexes. If you do not own them directly you should or if you believe the market will fall, pick a number which you would venture into buying them at lower prices. The growth of Amazon continues to mean shopping has changed and if Amazon can continue to make money, the word forever is added to shopping.

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

 

If you photocopies a paper you may have referred it to as Xerox. For many years, Xerox was the leader in photocopiers and the word was interchangeable. Now more and more of us use the computer to send information that we photocopy less. The better the smart phone, the less you need to photocopy. On an individual basis that is good, but from a company wide – that makes life challenging. According to Naomi Tajitsu and Ritsuko Ando of Reuters Japan’s Fujifilm Holdings will takeover Xerox in a $6.3 billion deal.

Fujifilm and Xerox have been doing a joint venture in the Asia-Pacific region for over 50 years, and now Xerox will buy back the stake using bank debt and then Fujifilm will buy 50.1% of Xerox and become known as Fuji Xerox. The company will stay in the document solutions services. Some cost savings should result by 2022.

Linking to dividend paying stocks, all profit making companies have a profitable share of their markets until they do not. If you look at Xerox, did it do anything wrong? the answer will tend to be no because they choose to focus on document solutions. The method which people can do document solutions changed and much of the change meant Xerox does not collect fees for doing so. Looking at your investments, how does the company earn money? will it continue? easy questions to ask but harder to answer.

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

 

In late January, Boeing said the quarter was good and was looking for its busiest year ever for plane deliveries. According to Alwyn Scott of Reuters, Boeing is the world’s biggest planes maker and after cutting 20% of its workforce over the past couple of years believes most of its remaining workforce will be stable for 2018.

The competition for Boeing is Airbus who sold more planes last year, Boeing is aiming to sell more than 800 planes for 2018 up from the record setting 763 in 2017. The good news for both companies is there is still a large back order of planes as airlines are dealing with an increase demand for air travel.

Boeing is forecasting its core profit would rise to about $14 a share. The commercial aircraft division is leading the group, while defense is expected to grow at 5% and the servicing of the aircraft area grew at 7% to $4 billion. The company is expecting to generate at least $12.8 billion in free cash flow. The analyst believe the number is conservative and will likely be higher.

Linking to dividend paying stocks, Boeing has a full order book, a back log of planes, has reduced its workforce to increase efficiencies and is expected to generate profits. That is a good news story and expectations are the stock will continue to increase over the next year, on top of the doubling it did last year. Those are things worth smiling about.

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