For the 200^th Anniversary of the United States a history of all the states was commissioned and recently the book about the state of Louisiana was read. The book was written by Joe Gray Taylor published by W.W. Norton & Company, New York, 1976. The author focuses his work on the politics and economic development of the southern state whose cities include New Orleans and Baton Rouge. The state was a colony of France, Spain, back to France and sold to the United States along with all the lands the Mississippi River watershed encompasses in the Louisiana Purchase. The early life of the colony is a buffer for other lands controlled by France, Spain or the British, as a buffer there were few riches being sent back to the homeland. Until oil was discovered in the state, much of it was agricultural over time the three biggest crops were corn, sugar cane and cotton. By the 1850’s the biggest production farms were called plantations which were working farms. If the plantation focused on sugar, because of the more capital required a typical sugar plantation with an investment of $200,000 was making 9% of their investment. If the plantation was cotton there was less capital required, just land for a $100,000 1500 acre farm the return was about 7%. In both cases, the farmer grew the crop and sent the crop to New Orleans to a factor who sold the crop for a 2.5% commission. The invention of the telegraph with more instant communication meant the farmer did not need the factor. They could sell the crop themselves. Given agricultural crops, the prices fluctuated with the weather, pests, floods, and normal everyday events.

Louisiana had its share of timber operators cutting down great forests including cypress trees which take 100 years plus to grow, but the state is known for its politics. It seems there is ethics in the political sense, but not the economic one. Most politicians left office wealthier than they came in, but were thrown out because they were politically unethical. A couple really bad stories were to limit voting of the people the politicians thought who would vote against them? the legislators passed a law saying to vote one needed a high school graduation and proof of 2 years of paying real estate tax. This had the effect of limiting the voter turnout for 90% of Louisiana’s population did not have high school grades, unfortunately given the really low teacher’s salary most were lucky to have a public school. Another awful story is one of the parties ran a lottery which gave 50% away in prizes, the other 50% went to “grease” the decision making process and the lottery ran for over 30 years. The state is known as there is corruption in politics and Louisiana style corruption. Although, maybe things have changed since the book was written?

Linking to dividend paying stocks, not matter what era you look at, there are always constants with the system we are in. People need to generate income to live and eventually as money grows you need to look at alternatives. In the case of plantations, the farm needs to generate a reasonable return on investments although to decrease taxes it was possible to buy state bonds at 50% discount (due to state debt issues) and redeem them to pay taxes. Whether you are on the farm or in the city, you are essentially performing similar functions.

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

 

 

 

 

If you think of the basis of the world’s knowledge, who came up with the theories which began to understand how the world was formed or put together? does it make a difference what religion they were? If it does not and should not, the reality is the earliest abilities to understand was made by Muslims, in what is termed the Golden Age. In the book Lost History written by Michael H Morgan published by National Geographic, Washington, DC, 2007 outlines the earliest Muslim thinkers who began to put the logic, the numbers, the theories together to understand how man fits into the world. The calendar, the size of earth, where is earth in relationship to the planets, what is in the sky? Time, distance which meant the math of calculus, trigonometry were founded and used by the Muslims in the 700s. This was a time where people believed in reason (reason is the highest expression of G-d) and were given the latitude and expectations by their religious leaders. In the Golden Age, the brightest and best and all so inclined came to universities of the time and started to theorize. The standard was each theory no matter how compelling must stand up to observation and testing. In the environment, understanding in the 700’s there was no computers, the calculations of the scientists on the size of the earth was within a half mile of what we know it in 2000’s.

The environment was the key. Each of the scientists had to research and publish their findings which were shared with the other scientists. Sometimes the theories were wrong, but sometimes the theories were correct which then would translate into building projects – irrigation, buildings, transportation which made life better for everyone. The book describes many scientists, thinkers and artists who were well advanced of where Europeans were at. If it had not been for the Muslims and their books being translated into Latin for Europeans, the European world would have developed much slower. (one of the great assets of Florence which is the city at the height of the Renaissance is the libraries of the Medici). The golden age of great leaps of knowledge ended partly because of different leaders who had a narrow vision of their lives would burn the libraries (known knowledge, because knowledge is power) and have their citizens believe in only what they can see. Leadership matters, however the history of Muslim scientists lives on. Some of the names are Jabir ibn Haiyan known as the father of chemistry; Muhammad ibn Musa al-Khwarizmi known as the father of algebra and there are many others.

Linking to dividend paying stocks, the standard of theories no matter how compelling must stand up to observation and testing to be true is something to consider while investing. Every day someone has a theory how to beat the markets, which is a good thing. Unfortunately most will not stand the test of time, however it is good to have theories. One theory that has stood the test of time is companies that can afford to pay a dividend because they are profitable are good investments, particularly over the long term. If a company is profitable, the street will push up the price earnings ratio or the stock price will go up and receiving dividends along the way will push your total return up.

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

 

 

 

Most of the stories involving banks, tend to focus on the biggest 10 banks and their second quarter made $30 billion which is just short of what they made in 2007, the best year. The 10 biggest banks are back to making money the way they use to before the 2008 economic meltdown. In an article written by Yalman Onaran of Bloomberg News this money making machines has a problem, since 2010 the banks have been asking for less regulation (regulation both it submitting the paperwork and the ability to increase leverage or make more loans). The primary focus of any bank is to be paid back the loans it makes, the less the bank has to write off the more money it makes.

The 10 largest banks hold at least $100 billion in loans and now generate $57 million of profit for every working hour.

JP Morgan CEO Jamie Dimon suggests if the regulations were less the banks would have made more than $2 trillion in loans over the past 5 years. Mr. Dimon says small business are struggling to access capital markets. Although this is partly true, the other aspect is when there is seemingly trouble the first cuts to the limits bankers can lean go to small business.

Although are the 10 biggest banks are making more money, they are not as profitable as they were. Return of assets is about 35% below than 2007; Return on equity is about half of what it was. Higher capital requirements lowers the return on capital even if the assets earn the same margin.

Linking to dividend paying stocks, it is great the 10 biggest banks are making money for the banks then can continue to provide the credit which drives the economy. As an investor, you want your investments to do well, however the long term nature of the holding wants consistency. The regulations help maintain the consistency because the banks have to remember the cardinal rule of being a banker, get paid back with interest. Regulations can help stabilize industries; keep competitors out of the market; and allow for continuing profits to be made. Sometimes as an investor you want good regulations in place which are enforced.

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

If you look at cities around the world, Amsterdam stands out for a long time of what is good in a city. Something about the city is good and asking why to do your homework leads to a book called Amsterdam – A History of the World’s Most Liberal City by Russell Shorto published by Doubleday, NY, 2013. There are many interesting facts and theories about the city and its relationship between the separation of church and state.

In reading about the economic drivers of the city, one of the more interesting stories (bias) is the founding of the Verenigde Oost Indische Compagnie (VOC) or Dutch East India Company. For many years, the Portuguese controlled the trade routes to India from Europe, for a number of reasons, the Portuguese influence was falling. The Dutch sent ships to Indonesia and although only 89 of 249 men who left returned (not in great shape) the cargo they brought back, the investors made money. Two years later another fleet was sent but this time they brought back over 1 million pounds of pepper, cloves and nutmeg and the merchants made a 400% profit. A few years later, the merchants decided to co-operate and the VOC emerged. During its heyday, the VOC sent more than a million Europeans to Asia, brought back 2.5 million tons of Asian products to Europe. The genius of the VOC was in threading itself through the highly evolved network so by the end of a century later, the Dutch were selling spices not only to Europe by to China, India and even to the Spice Islanders.

The VOC was the first global trading company sending copper and silver from Japan to China for silk and porcelain, then selling those in the East Indies for the spices that it shipped to Europe. The VOC made porcelain, coffee, tea and dozen of other things literally household words in the West. It sold Indonesian sugar to Persia and Indian fabrics to Yemen.

Through the VOC people all over the world went from local cultivators to participants in the global trade networks. All of this involved a transportation system, insurance, storage and processing. The materials were sold to Europeans or it was the beginning of consumerism. Much of the infrastructure was built in Amsterdam.

The VOC was the first company sold on a stock market on August 31,1602 when 1,143 people bought shares in the company or 57% of the stock was issued. A healthy market in trading the shares developed and as the profitability grew.  The company originally paid dividends in spices however by 1618 cash was paid and for over 200 years the company paid its investors healthy dividends.

Linking to dividend paying stocks, we often think of global trading stocks as a 21st century thing, but in reality there were global stocks paying dividends in the 1600’s.

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

In late June John Miller, Silke Koltrowitz and Michael Flaherty writing for Reuters reported Nestle plans to buy back 20 billion Swiss francs ($27.4 billion) of shares over 3 years. The reason is Third Point had bought $3.5 billion in stock and pushed management to aggressively boost performance and buy back shares. Nestle is a Switzerland based company with a global reach in foods and is the world’s largest food group with more than 2,000 brands. To do the buyback, the debt will rise to 1.5 times earnings before interest, taxes, depreciation and amortization. The corresponding figure this year is 0.8 times.

Nestle is struggling to grow as emerging markets slow, consumer habits change and people flock to smaller, independent brands they see as healthier and more authentic. Triple Point is controlled by Daniel Leob and he sees the world differently, he believes it is rare to find a business of Nestle’s quality with so many avenues for improvement. The President of Nestle Mark Schneider has met with Mr. Loeb and noted size alone does not protect you from the winds of change.

Linking to dividend paying stocks, the great thing is they pay a dividend, the tougher part is change is always focused on them, and it is testament they can continue to pay dividends. Even if your investment is relatively stable there are metrics to watch.

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

When you buy a stock, you are an owner and one of the votes you have is executive compensation. Depending on the size of the company, the ownership of the stock some votes are more important than others. In mid June, Ian McGugan examined Yahoo’s Marissa Mayer. When she was hired for the job, she was high profile and expected to turn the company around and was given generous stock options. The company was sold to Verizon Communications Inc and the stock options for the next President will be less. Ms Mayer had a $23 million severance package (which is likely more reasonable) but stock options both restricted and unrestricted of $236 million according to CNN.

The big question was she worth $236 million? The biggest reason for the rise in stock price is two holdings 15% in Alibaba of China and 35.5% of Yahoo Japan. The rest of the company the profit went from $3.31 a share in 2012 to a loss of 23 cents in 2016. However due to the two big holdings the stock price tripled while Ms Mayer led the company. Should people be rewarded for being lucky?

Mr. McGugan raises the question because there is no good reason why Ms. Mayer should leave the company with $250 million and others in the company leave with so much less. What value did she achieve? There is no good answer, but this example was one of those what seem to stick out why is executive compensation so high relative to the rest of the workforce? The compensation consultants and directors reasoning does not seem to work.

Linking to dividend paying stocks, as long as the company is making money compensation while extraordinary important inside the company is not that big of a deal to shareholders. When the company loses money, the knives come out very quickly.

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

A few years ago, one of the theories about why the markets were rigged against the small investor was high-speed trading. In a recent article by Annie Massa and Charlotte Chilton of Bloomberg News, the high frequency traders are making less money. In 2009, high frequency trading produced $7.2 billion in revenue, last year it was $1.1 billion. The basis reason is high frequency trading loves choppy markets and the markets have been relatively calm with trading volumes down.

Virtu trades more than 12,000 stocks on 235 markets around the world with relatively few people. It is trying to buy KCG Holdings which has 5 times as many employees. The pure speed trades are squeezed on two sides, by rising cost of infrastructure (computers and microwave towers) and low volatility, which gives you less reward for being the fastest said Eric Pritchett, CEO and head of risk at Boston based Potamus Trading.

Ari Rubenstein co-founder of Global Trading Systems said high frequency traders will move into areas they were not in before to find greater revenues.

Linking to dividend paying stocks, think about High Trading firms, there was a market (and still could be) where the fastest make extra money; the other firms learned to do the same thing and profits fall to while profitable it is not as profitable as it once was. For a dividend paying company to pay dividends in a very competitive markets is good thing and to do it consistently over a long period is a remarkable achievement. Learn and profit from their knowledge.

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

According to Trevor Hunnicutt of Reuters Blackrock second quarter results failed to impress Wall Street as the world’s largest asset manager cut fees to lure a wave of investor cash into its exchange-traded funds. What is great for the retail buyer is not also great for the retail seller. Blackrock has assets under administration of $5.7 trillion which means it should make money, even if it did nothing. Thanks to Vanguard and other companies, fees on ETFs have steadily going down because they are not actively managed and the less the investor pays in fees, the more money he/she makes. Large fund managers have to continually lower their fees to be competitive, but they do not make as much money because the fees are lower. Ideally, with the lower fees, the asset manager has to sell more funds. In the case of Blackrock, the ETF fees were reduced from $27 for every $10,000 to $9.

For Blackrock the hope is technology will continue to drive down the costs of executing the trades (back office costs). Blackrock made $857 million in the quarter which is an increase of 8.6%.

Linking to dividend paying stocks, for investors paying for funds, they do not mind paying high fees as long as the performance of the fund is high performance; often times there is a mismatch high fees for low performance. Because the indexes are adjusted quarterly by the exchanges, the dogs are changed for the stars, the index tends to rise over the long term. Fees should be low and over the long term your index fund will rise.

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

If you are a baseball fan, the biggest news in New York is the Yankees are near the top of their standings and Aaron Judge is hitting home runs. In an article by Billy Witz of the New York Times he examines why is Aaron Judge hitting home runs this year as opposed to his last year. Mr. Judge is a big baseball player 6 feet 7 inches, most ballplayers are closer to 6 feet, but that alone is not the reason. In the minor leagues and college baseball ballplayers are drafted they have skills to play baseball, but to stay and lead in the major leagues, the players need to work on their technique. To hit the baseball the strength does not come from the arms, it comes from the hip and legs. The arms help, but brut strength will not be consistent and through a schedule of 162 games, consistency is the name of the game. Mr. Judge worked on his technique during the winter and through video watched the really good hitters – what do they do that I can do? It also helps that Aarone recognizes what is being thrown at him and although he strikes out a fair amount, it is less than he did last year. The adage a base on balls is a good as a hit means you have to have patience at the plate to find the pitch you want. If you watch videos on baseball, there is only a few tenths of a second to do this (or it is hard). One of the methods is to determine each time the batter goes to bat, what are you looking for and what does the pitcher normally do? A good pitcher besides throwing as fast he can is doing the same thing as the batter.

Linking to dividend paying stocks, everyone has skills and a capacity to learn, doing your homework to improve your knowledge is what life is about. Take your time, there is no need to rush in, remember in the marketplace there are lots of people trying to find an edge or try not to play their game. Start with the best companies that will tend to last for 10 years or more and if they pay a dividend so much the better. Individuals can be better than the professionals but generally not for a long time, however understanding how Wall Street works allows you to stay away from the bad pitches.

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