If you carry change in your pocket, you will likely have a nickel or 5 cent piece, unlike the other coins the nickel is actually a mineral that is mined and worth billions of dollars. In many manufacturing productions you often see the use of nickel. Partly because when there was great discoveries made in North America, the companies that grew from the discoveries had to find more uses for the mineral or prices would not go up. The companies did and there is steady demand for the mineral. Nickel is one of the minerals in use for EV vehicles which means every time governments mandate cleaner energy, nickel prices have risen based on supply and demand, but something is changing.

In an article by Niall McGee of the Globe and Mail, the expected demand has materialized but the price of nickel has fallen 30% to $17,500 a tonne, what is happening?

Chinese companies own mines in Indonesia and are producing nickel as if the demand is even greater than expected. According to data from the Bank of America, Indonesia’s share of the nickel market has risen from 7% to 55%.

The rise in production is hurting the Australian mining industry. The government is offering a rebate to companies – over the next 18 months mining companies in the state of Western Australia will be eligible to receive 50% of the royalties paid if the price of nickel trades below $20,000 a tonne.

The large mining companies are suggesting the Chinese companies are not following environmental regulations and are not following good stewardship of the land.

In the mining business or any commodity business when the price falls, there is a desire to decrease production till the price rises again. The Australian companies are following that procedure. The Chinese have stepped up production because they have a different strategy. They want to establish dominance in minerals related to EVs such as lithium, cobalt, graphite and nickel.

The Chinese have a very highly vertically integrated supply chain with Chinese producers owning mines in Indonesia, refining the nickel in both Indonesia and China and selling processed nickel to the EV industry. It is noted Chinese company BYD became the largest EV seller beating out Telsa.

The other aspect is over the past decade, the Chinese revolutionized the steel manufacturing process by producing alloy cheaply using low grade Indonesian nickel (nickel pig iron or NPI) instead of the high-grade nickel found in Australia and Canada. The Chines have found a method to use NPI for use in EV battery manufacturing.

The downsize of Chinese innovations is to the damage to the environment. Steel made with NPI is more carbon intensive than steel produced with high-grade nickel. In addition to process the NPI takes a great deal of power and Indonesia is using vast amounts of metallurgical coal. This has resulted in the mining companies pushing the developed countries to penalize the Chinese with tariffs and ESG scorecards on how the final product is actually produced.

Linking to dividend paying stocks, in the world economy, while everyone believes in free markets, the reality is all companies hope for reasonably stable prices which will allow companies to make profits to pay dividends. There is always a grey area when the competition begins to change the industry, whether it is for the better or worse. It is good innovation allows NPI to be used, however that changes the demand for high grade material, which can be sold at higher premiums. Large organizations tend to use government regulations to hurt the competition and help themselves, which is why sometimes it is a grey area.

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

For the past 30 years, the number one country for a growth story was China and it delivered. The country has change, there are more people making money or raised from poverty to the lower and middle income groups. The rise in income brings many new service jobs along with the manufacturing companies and the government has and continues to spend billions on new infrastructure to move people around the country. The world has decided China’s manufacturing is too expensive and has moved operations to other countries, one of those countries is India. If what happened in China happens in India, India will be growth story for the next 20 years.

In an article by Alex Travelli and Sameer Yasir of the New York Times News Service, the large companies are focusing their efforts on trying to ensure some of the growth goes into their pockets. Disney announced a joint venture with India’s biggest conglomerate – Reliance Industries in a $8.5 billion deal that will create a media powerhouse in the world’s most populous country.

Disney will merge its Indian operations with those of Viacom18, a part of Reliance Industries. Reliance and Viacom18 will hold 63% of the company and Disney 37%. Reliance will pay Disney $1.4 billion to consolidate its control. At the present time, Disney and Reliance hold 40-45% of the market share of advertising and streaming, according to Karan Taurani, a research analyst at Elara Capital.

Disney has been in India since 1993, started as a vehicle to show movies. In 2019, Disney bought 21st Century Fox which included the rights to the Premier cricket league. Disney gain subscribers but not profits and its global operations lost $11 billion since the Fox and launch of Disney+. Reliance Industries outbid Disney for cricket rights at $3 billion. Disney lost 11.5 million subscribers.

Reliance Industries as a conglomerate besides the media operations is involved in retail, telecom and credit operations as well as infrastructure companies.

Linking to dividend paying stocks, for these types of companies which you want is a very healthy market share inside a growing market. The combination of Disney and Reliance bodes well for better returns as the companies own a 40% plus market share. If the cost of bringing on a subscriber goes down and the ability to generate more fees per subscriber goes up, the merger should work very well for the companies.

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

If you ask the average person on the street, do they love technology, the answer is yes. Every technological improvement can mean or has meant some type of change. In the manufacturing business this is very good, companies are able to do things that years ago, they had to outsource because it was too expensive as an option. One of the issues of new technology is the change in processes, people have to adapt to. In the example of car manufacturing, the internal combustion engine vehicle requires lots of parts and a supply system has developed to ensure each and every part is better each year. For electric vehicles, the supply system is developing, but there are less parts needed. Less parts needed means new competition.

In an article by Nick Carey of Reuters, the European Union has adopted less use of carbon as a policy and using less is good for the environment in general. One of the biggest users of carbon is the internal combustion engine or gasoline from cars, using less is good. From a policy perspective that is what politicians do, from a boots on the ground perspective, the industry is going through many changes. All car makers in Europe and America, assemble the vehicles they do not make the parts, it is outsourced. The issue is making EV parts, because there are fewer of them is not as profitable to the outsourced firms as making parts for the internal combustion engine. As a result the big 3 of Forvia, Continental and Bosch have all announced or expecting to announce layoffs in their internal combustion engine parts supply systems. Recently Germany’s Allgaier filed for bankruptcy.

Unlike the European automakers that are reliant on external suppliers with separate supply chains for fossil fuels and electric, their Chinese rivals are highly vertically integrated, producing almost everything in-house and keeping costs down. (when Henry Ford make the Model T for the US market, all the parts were done at the Rouge plant where at its peak over 100,000 people worked, outsourcing came years later). According to Nick Parker, a partner and managing director of AlixPartners, the vertical integration allows the Chinese to undercut their European rivals.

In times of change, companies face a delicate balancing act between cutting costs to fend off Chinese rivals and avoiding pushing their suppliers too far. In a movie called Margin Call, the Jeremy Irons character was asked did we do right by our clients? He said no, but we live to fight another day.

Linking to dividend paying stocks, most of us believe technology is a good thing, until it affects our jobs or income stream, then we say it was better before the technology. However, there is always opportunity in the markets and as an investor you must be aware of it. Government policies can push companies to doing actions for the good of the country, but not necessarily for the good of margins of the investors. The players have done nothing wrong, but change was not on their side, as an investor you want to ensure change is on your side.

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

Branding and you are the brand, you likely have heard or seen these words before. Branding for consumer goods is for the consumer to identify with that particular brand for reasons that benefit the consumer. For the company, if consumers love the brand, they will pay and continue to pay a premium. If it works, companies make and continue to make billions. If it does not, companies have problems.

In an article by Christopher Rugaber of the Associated Press, consumers are changing the way they shop. After the COVID 19 pandemic, packaged consumer companies increased their prices and consumers paid, they love the brands and were willing to pay extra. This resulted in consumer-packaged companies reporting higher sales, higher profits as margins stayed the same or were increased. Something is changing at the grocery stores.

Consumers are switching to store-branded items or buying less snacks. Consumers have noticed shrink-flation which is the price remains the same, but the package contents have been reduced.

Samel Rines, an investment strategist at Corbu, in 2021 and 2022 many companies including PepsiCo, Kimberly-Clark, P&G, raised prices stemming from supply chain disruptions and the Ukraine-Russian war. Fortunately, many consumers received extra money from the government to tackle higher prices. That money is long spent, and an example is Unilever. The company had raised prices up 13.3% of average across its many brands (Hellman’s mayonnaise, Ben & Jerry’s ice cream, and Dove soaps). Its sales volume fell 3.6%. In 2023 prices were raised 2.8%, sales rose 1.8%.

In instances, consumers have alternatives and more are using them.

Linking to dividend paying stocks, in your homework to determine whether to buy a stock or not, you want to know can the company raise prices to reflect inflation, without losing market share and maintaining margins? It seemed in the packaged food companies the answer was yes, now we are seeing maybe not. If companies cannot raise prices, then they have to cut costs in the manufacture and distribution of their goods. Is there enough costs to cut? How will the companies boost sales – typically more advertising is required or a cost. When you see companies not being able to pass on higher prices, look for alternatives where they can.

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

Sometimes people believe investing in the stock market is similar to gambling and in reality, parts of it can be. There are parts which require doing your homework to try to ensure you do not lose money, but sometimes the terms of gambling are often used in sound bites because they seem to fit well. Outside of the stock market, legal gambling is a method for governments to collect taxes.

In an article by Wayne Parry of the Associated Press, the American Gaming Association noted the total gambling was up to over $110 billion.

Going to a casino remains the bread and butter of the gambling industry. Slot machines brought in $35.51 billion, table games brought in $10.31 billion up 3.5%. Sports betting was up 44.5% to $10.92 billion. Americans legally wagered $119.84 billion on sports up 27.8% from the previous year. Part of the increase was more states allowed legal betting.

The top states for sports betting was New York at $1.69 billion followed by New Jersey and Illinois where over $1 billion was bet.

Internet gambling generated $6.17 billion up 22.9%. The top state was Michigan with $1.92 billion followed by New Jersey and Pennsylvania.

Casinos paid an estimated $14.42 billion in taxes up 9.7%. Nevada is the top gambling market with $15.5 billion in revenues, followed by Pennsylvania at $5.86 billion and Atlantic City at $5.77 billion. The strip in Nevada are the largest casinos, the next largest casinos by revenue are Resorts World in New York, MGM National Harbor in Washington, DC, Encore Boston Harbor and Borgata in Atlantic City.

Linking to dividend paying stocks, while there is a significant element to gambling on the stock market, gambling means win or lose and in a casino the house always wins. If the house always wins, think about buying the owner of the casinos. One method to ensure you win more than you lose is buy profitable stocks which pay a dividend. The stock market will fluctuate, but the dividend and the P/E ratio of profitable stocks tends to be higher than non-profitable stocks. When non profitable stocks have the same P/E ratio or above, most analysts believe a correction will result or the price of the non-profitable stock will fall. One of the best methods to avoid this is try not to buy these types of stocks, for this is when deploying money on these types of stocks is gambling.

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

In the spring of the every year, people are graduating from post secondary institutions with dreams of landing their first job in the workplace and hopefully have a long association with work. Many years ago, having very few employers was a good thing and people tended to stay within a company although their jobs likely changed every 2 to 5 years. If you were not changing jobs in an effort to move up, your career was likely to stagnate. Whether that was good or bad, was an individual choice. Now days, if you have not worked for a variety of companies, there might be something amiss, till you find the correct one. One of the prime jobs has been a consultant with the large consultant companies McKinsey, Bain, Monitor, LEK, AT Kearney and Oliver Wyman. How do you pass the interview and work for the company and then for its clients directly?

One method is to understand how the interview process works and how to succeed at it. Recently read a book called Case Interview Secrets written by Victor Cheng published by Innovation Press, Seattle, 2012. You can also view http://www.caseinterview.com.

When you are evaluating a company to buy or not, there are processes to go through and they do not change. Profits = revenues – costs does not change no matter the size of the company. Sometimes asset values increase and that can make up for revenues not being higher than costs, but that is rare. For example, a business maybe in an area that went into decline and now 20 years later the real estate is worth more because of a decision by a government agency to build a convention center type building, but that was likely 10 years of hope to make a profit.

In Mr. Cheng’s book, various decision trees are made available and how to make assumptions. If you listen to Aswath Damodaran on stock valuation, what assumptions you make are the key to the answer. The important aspect is defending your assumption, what is the growth rate and why? what the comparable and why? Since we do not know what will happen, what your assumptions are will be a key to projection in the future.

What you can do is breakdown how the company makes money? what is the competition? and can the company raise prices?

In Mr. Cheng’s book starting off with a hypothesis and having the ability to make changes or recognize changes in the hypothesis is a key. In the corporate world, asset allocation is important, does the company spend money on A or B or C? what growth rate is best? what growth needs to be achieved? can the company do a better job than the competition? should we buy the competition? is it better to do it internally? There are always multiple questions that can lead to a decision or deciding not to do something. Only in hindsight do you know the true answer, based on what has happened in the marketplace however decisions need to be made.

Linking to dividend paying stocks, there are many people who analyze stocks and the wonderful thing is people come to different conclusions. The market says who is correct. For the average person, it is best to start with and try to stay with profitable companies than can pay a dividend. The reason is overtime the market will value profitable companies with higher multiples or you will be worth more, in addition you will be paid a dividend along the way. Which industry you should start with generally depends on your source of income for it that industry you can easily watch the players. As your wealth increases, you can easily diversify.

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

Recently a YouTube video was seen with the topic of how indebt the average American was. The person said according to the Federal Reserve statistics, the average credit card debt was $6,000 and climbing because the average person was making minimum payments. There are many things you can do with a statement, one the person asked why are savings so low? another person might say whoever owns the debt is likely a good investment because the average person is making minimum payments. This article is about the owners. The 3 big companies of credit cards are VISA, Mastercard and American Express or Amex. They all have slightly different business models.

Amex is a closed loop company which both issues and processes its own information. They charge merchants a higher price to accept which is why very popular retail companies tend not to accept Amex, but high spend retail places do. VISA and Mastercard issue their cards through banks. It used to be banks had to take one or the other, but now days, in many banks you can have either.

VISA and Mastercard provided the infrastructure to run the process, which is why debit cards work, the banks pay a fee to VISA and Mastercard for their infrastructure.

In an article by Anirban Sen and Michelle Price of Reuters, Capital One Financial announced they will acquire Discover Finanical Services in an all stock transaction valued at $35.3 billion. Discover shareholders would receive 1.0192 Capital One shares for each one Discover share.

Capital One is valued at $53.2 billion and is the 4th largest US credit card market by volume in 2022 and Discover has a market capitalization of $27.6 billion is number 6.

In turns of assets, Discover was the 27th largest bank with $150 billion in assets according to the December Federal Reserve data ranking insured US banks, with Capital One was the 9th largest at $476 billion. The combined entity would jump to 6th largest US bank.

Discover Financial model is closer to Amex as it process its own cards. If merged with Capital One and Capital One switched from Mastercard and VISA, it could process its own cards and that would be worth $600 million a year in potential savings. ($300 billion x 0.2 percent fee). Capital One believes the number would go to $1.2 billion by 2027.

According to Jeremy Kress, a University of Michigan professor of business law, the merger would be the first test of bank merger regulation since the Biden administration’s executive order on promoting competition in 2021.

The agency titled the Consumer Financial Protection Bureau noted in mid-February, small banks and credit unions tended to offer cheaper rates than the largest 25 credit card companies across all credit score tiers. The agency has a view on bank mergers.

Linking to dividend paying stocks, as an investor you like near monopolies because the company can regularly produce profits to pay dividends. However, the political world likes the illusion of choice or competition. In some industries the barriers to entry keep the near monopolies, in other industries other viewpoints need to be taken into consideration. In the meantime, Mastercard and VISA offer terrific margins.

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

If you think about the airline business, there are 2 global giants which control 95% of the market and they are Boeing and Airbus. Boeing is based in the US and Airbus is based in France and the UK. At the moment, thanks to COVID, airlines are flying more people and ever before and have the need to expand and update their planes. Both Boeing and Airbus offered the new improved version and both companies have a 10 year plus backlog of orders to build planes. As an outside looking in, you might think there is opportunity in the marketplace, but a giant bank account will be needed.

In an article by Lisa Barrington of Reuters, there is an outsider looking to break into the market and it is the Commercial Aircraft Corporation of China (COMAC). The company has unveiled the C919 which is certified within China and 4 planes are flying with China Eastern Airlines.

COMAC will invest tens of billions of yuan over the next 3 to 5 years to expand C919 production capacity. At the same time, the company is going through the process of being certified with European Union Aviation Safety Agency (EASA) which started in 2018. (with safety regulators time is expected to play a large role).

COMAC has 2 passenger products: the ARJ21 regional jet and C919 which seats from 158 to 192 seats. The airliner competes against the Airbus A320neo and the Boeing 737 Max 8 models.

Linking to dividend paying stocks, whenever there is an industry with high demand and great margins there will be some competition. At first the competition will compete on the margins or offer immediate delivery rather than delivery next year. Then the competition will gain traction and maybe more market share which means the established companies will use government regulations to slow down the competitors. After that happens, which may take a few years then we see how the marketplace react.

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

When you are analyzing a company, two of the most important elements are to determine how the company makes a profit and what are the margins, then there are questions about how sustainable are the margins. When you analyze a country, it is slightly different, the most important element is how to people earn a living? In the developed countries, services is a very high component, for example in the US, about 2/3’s of the GDP is based on people shopping and all the services comprise that endeavor.

In an article by Chris Gallagher and Akiko Okamoto of Reuters, they examined the Japanese economy and similar to the US, about 70% of Japanese work for smaller firms in the services sector and people are cutting back for a variety of reasons. In general the Japanese yen has fallen in price making imports more expensive, wages are not going up, prices have gone up and people are paying their debts down. Individually for people to pay their debts is a good thing, collectively if the economy is dependent on people buying things, not so good.

Hideo Kumano, chief economist at Dai-Ichi Life noted although consumer prices have risen substantially, consumer spending has not moved in the same direction.

Economic output fell 0.4% on an annualize basis in the last quarter of 2023. This marked the 2nd straight quarter of contraction and meeting the definition of a recession.

In January, Motoyuki Shikata, Chief Strategy Officer of retailing giant Aeon, told analysts customers were becoming more sensitive to higher prices.

Ryohin Keikaku, which owns the Muji brand of clothing and household goods stores President Nobuo Domae says price increases have become a balancing act. Customers have accepted increased prices on some items but not all.

Linking to dividend paying stocks, after you have determined what makes the company money to be able to pay dividends, you can find antidotal items to help you determine how the company is doing. An example is if you own shares in Mastercard and/or VISA, if you hear people are making minimum payments on increasing size debt, then that is good for the company, if the company is not writing off higher debt levels. The ideal is for a healthy number of people to use their cards, pay the minimum plus and continue to use their cards. One way to see this is when you go shopping how will the customer pay? Often times what is good for the individual is not necessarily good for the economy, you need both the savers and spenders to be active.

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