When ChatGPT was released to the general public, it instantly became the number one subject and remains a constant for companies. Consider senior executives mentioned the terms AI or artificial intelligence an average of 3.7 times a call with analysts in the second quarter or more than double the year before. AI remains a topic which every company says they will use, but is it effective?

In an article by Sam Sivarajan, it is useful to understand the limits of AI, at least at the moment. A recent Harvard Business Review article puts it: Artificial intelligences are prediction machines. They can tell you the probability it will rain today, but not whether you should bring an umbrella. The umbrella decision requires more than prediction.

The decision requires a judgement, which reflects individual preferences and experiences. When the forecast is 10% rain, some will take an umbrella, and others will not, it comes to personal preferences.

For your investments, you see individual risk tolerances all the time. Some will buy high risk low cost stocks, others will buy dividend paying stocks. The probability of a loss (or gain) from those investments is the same for all investors. Some investors have a preference and tolerance for higher probabilities of loss than others. This is why determining an investor’s risk tolerance is not a straightforward exercise.

In the Major League Baseball World Series won by the Texas Rangers, one of the stars of the Rangers was Jordan Montgomery. Last year he played for the New York Yankees, the Yankees traded him because they did not trust him to win big postseason games.

There are limits to the prediction machine. It does not factor in individual human preferences or experiences. Nor does it account for learning, adapting or adjusting on the fly. In the baseball game the batter and pitcher are not the same in the latter innings as they were in the earlier ones. The prediction machine cannot account for that, yet.

These limits of data and prediction machine can have costly implications for companies and investors. In February, the tech based real estate company Zillow Group Inc, set up its AI to value homes and make cash bids. By November the company stopped doing it because the homes it bought could not be sold for higher prices. The company had to do a $304 million inventory write down. The stock fell and 25% of staff were laid off.

The point is AI will be and is very valuable to analyze reams of data and provide empirically testable conclusions, which save valuable time. But humans should be involved in making the final decisions. because context is important.

Linking to dividend paying stocks, there are some industries and some companies that using AI to value the company should be easy as clockwork, unless the company is doing something illegal. But more stable companies, ensuring they have consistent revenues, their margins have not fallen and they are profitable can be relatively easy. It is the growth companies that an expectation of growth is needed that requires judgement. Generally as an investor you expect the company to be using AI and making better decisions to ensure the company remains competitive and profitable.

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

The time between Thanksgiving and Christmas is traditionally defined as the holiday season for a wide range of actions. Often times people have a choice between meeting at Thanksgiving or Christmas and Thanksgiving works out a little better because of weather conditions, there are fewer of them. The day after Thanksgiving is Black Friday because after meeting the family, they needed something to do and going shopping was on the list. All the above is based on expectations and companies in the retail business will live and die on those expectations.

In an article from Reuters, Amazon believes a jump in 4th quarter revenue and profit boosted by a holiday marketing blitz, faster delivery, and improving outlook for its cloud division. Amazon’s total revenue was $143.1 billion.

Amazon is the world’s largest cloud provider and online retailer. In cloud services it recently invested in Anthropic which makes chatbots. On the retail side, Amazon has reorganized its delivery network to locate goods closer to shoppers, letting it fulfill orders faster than before at less cost. One method Amazon is using is more robots in the warehouse.

Andy Jassy, Amazon’s CEO said its cloud service or AWS continued to stabilize.

AWS brought in revenue of $23.1 billion.

Marketing events help prop up sales. Amazon had a Prime Day during the summer and it brought in its biggest sales ever. Another Prime Day (for those who pay $139 a year for free shipping and other events to be a Prime member) was scheduled for October.

Amazon is expecting holiday revenue to be above $160 billion.

Linking to dividend paying stocks, in the current environment with a possible downturn in the economy, analysts and investors are paying particular attention to expectations and did the company meet or exceed them? if no, the stock falls, if yes, the stock could rally. For a dividend paying investor whether the company beat expectations for growth is secondary to whether it remained profitable. Growth is nice, but being profitable and maintaining margins is much more important. If the company’s profits fall, then it is time to find alternatives, but chances are high the company would have told investors to lower their expectations before releasing the numbers to the public.

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

In every industry, part of the business landscape is the mergers and acquisitions which results in bigger companies. Just because they are bigger does not mean they automatically are successful; the companies still must execute to meet customer demands. As well as the commodity inputs have to remain relatively constant. In high profile mergers, after they have been announced, then it is time to evaluate what is the expectation the mergers will succeed?

In an article by Clifford Krauss of the New York Times News Service, ExxonMobil and Chevron announced mergers of $50 billion each to buy a competitor. Exxon bought Pioneer Natural Resources and Chevron bought Hess Corporation.

Exxon believes the added acreage of Pioneer Natural Resources in the Permian Basin will add significantly to its cash flow. Chevron believes Hess ownership in a well off the coast of Guyana will mean it has significant oil to produce well in 2030’s.

On the other side of the equation is a report by the International Energy Agency which says the demand for oil and gas should peak in 2030 as sales of electric cars and other use of renewable energy surges.

If you add the sales of electric cars, mopeds and bikes, 1 out of every 5 new vehicles sold this year will be battery powered, up from 1 out of every 25 in 2020. Will that be closer to 1 out of every 2 in 2030?

Daniel Yergin who wrote the book The Prize which deals with an earlier mergers in the oil industry, believes consolidation is about giving the companies the scale to be more resilient to meet various priorities at the same time.

Mr. Yergin says oil executives have conflicting signals from Washington, on one hand produce more oil and gas domestically, but not on federal lands and waters. On the other hand, the administration wants the companies to lead in energy transition.

At the moment, oil prices are in the $80 range per barrel. If it stays in that range, the companies make money, if demand falls the price is likely to fall.

When Exxon merged with Mobil, the prices were near the bottom.

For the big American based oil companies, the one thing they are not doing is straying from what they know best. Some of the European based oil companies are investing in non oil and gas production or alternative energy.

Linking to dividend paying stocks, profitable companies often buy other companies and then they have to execute to ensure the reason why they were bought, and market conditions demand they buy the company. The economy goes in cycles and in every cycle, there is plenty of money that is invested in companies that do not execute on their mergers, in hindsight it would have been better to invest in Treasury bills. However, that is only in hindsight. As an investor you can do is evaluate if the merger is good for the next year? 5 years? or should you look for alternatives for the only perfect answer is in hindsight, but we live in the present.

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

Often times when there is a strike or disruption in a company’s normal course of operations, the financial press will outlay some details as a general public you may not know. This helps you enhance your knowledge of the industry and what to focus on if you decide you want to be an investor. An example this year is the UAW or United Auto Workers contract was up with the 3 largest American car manufacturers – GM, Ford and Stellantis or Chrysler. Vehicles still play an important part of the average working family and that makes it newsworthy. Ford and Stellantis have settled and GM is the last one to settle. In the meantime, the union increased its strikes at GM facilities.

In an article by Joseph White of Reuters, the UAW went on strike at GM’s Arlington, Texas factory which builds highly profitable Cadillac Escalades, Chevrolet Suburbans and other large SUVs.

The move to shut down one of GM’s most profitable plants will push the weekly cost of the union’s strike well above the $200 million a week rate GM executives outlined for investors.

GM’s 3rd quarter net income fell 7.3% to $3.06 billion while revenue rose 5.4% to $44.1 billion. The adjusted earnings per share was $2.28 which beat Wall Street expectations and up from $2.25 a year earlier. The buyback of shares helped the earnings per share number.

GM is reworking its EV strategy pulling back a strategy to challenge Tesla’s lead. The Chevrolet Bolt EV will be launched with a lower cost lithium-iron battery. The goal to build 400,000 EVs from 2022 to mid 2024 is cancelled because of lack of buyers. While the company agrees EVs are the solution in the future, it is lobbying Washinton to change the ambitious emissions and fuel economy aimed at pushing EVs to 2/3’s of the US vehicle market by 2032.

Linking to dividend paying stocks, all investors depend on the financial press, although most of the time the financial news in not on the front page. When the news is on the front page, everyone can see and talk about the event, but most do not know the details of the issue. Most of the time in the business side you will be given some details and then you can make some decisions. For example in the above article, the highly profitable Arlington Texas plant. The implication is if that strike goes on for a longer period of time and those SUVs are not sold, GM makes less money. In all likelihood, GM makes money it just makes less money. Ass investor you can wait till the share price falls, and when the strike is over, buy the shares to allow GM to meet the demand for its vehicles and profitability is restored. Patience is needed.

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

For every commodity, there are downsides to extracting the commodity from the earth. A little bit does not matter, but to earn profits a large amount must be done. If we are discussing minerals, earth has to be moved and sorted, fortunately there are huge machines which can do the job. The downside is when the mineral is no longer profitable to be mined, the site is never the same. If the commodity is grown in the earth, additional fertilizers are added to enhance the yield but there will be some runoff into the water collection. Just about everything we do there is some negative effect, sometimes we learn that they can be mitigated. For profitable companies, there is some lawsuit around the corner, some group not liking their operations, and sometimes governments impose sanctions on other governments.

In an article by Mark Trevelyan of Reuters, when Russia invaded Ukraine and still has not left, the western governments imposed sanctions on Russia’s oil and gas industry. At the time, Russian was supplying up to 40% of Europe’s needs. The western governments were hoping the sanctions would mean less revenues for the Russian Treasury and Russian would change their strategy in the war to finding a way to stop it. Russian has not done that, the sanctions remain and Russian had to find other markets for their oil and gas.

Gazprom will supply more gas to Hungary for the winter months and send an additional 600 million cubic meters this year according to TASS news agency quoting Alexei Miller the head of Gazprom.

Russian President Vladimir Putin for the first time in 2023 left Russia and went to China to help negotiate the deal.

Hungary is the only member of the European Union and NATO who has kept friendly ties with Russia.

Mr. Miller said in a TV interview the additional gas supplies to Hungary amounted to 1.3 billion cubic meters of gas.

Linking to dividend paying stocks, in life we all want to have alternatives and sometimes they are forced upon us. For a profitable company as an investor, you want it to have more than one revenue stream to ensure profits remain at a near constant level as the economic cycles go through the economy. Every once in a while stuff happens to people and companies, while one hopes the individuals will find an way to deal with it, the expectations are people in the company will deal with the stuff quicker and more efficiently, if that does not happen, perhaps you should look for alternative companies that deal with stuff better.

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

If you are a normal person, you are interested in real estate, some of it will be residential because you need to live somewhere; some of it will be big commercial buildings because they are big and newsworthy in your community. Real estate development is based on credit and one of the critics best movies, one that comes out every Christmas season is Its a Wonderful Life. The story is George’s works for a Savings and Loan Company and his brother misses a payment. Mr. Potter tries to foreclose. George does not have the money and sinks into despair and thinks the insurance money on his death would solve the problem. He tries to kill himself (but no insurance company would pay on it), is saved by an Angel and sees the good he has done so far in his life. The community rallies around George and the payment is made and the ending is happy. The story about not making a payment and trying to find money to make it is not an unusual story. In real estate, there are multiple stories, it is usually the very large ones make the news.

In an article by Scott Murdoch, Xie Yu and Clare Jim of Reuters, the second largest developer in China is Country Garden. Similar to the largest developer, the second largest company is having problems making payments on its debts including bonds. The difference is when payments are missed for bondholders, they can and do sue to be paid something on the dollar.

Two bondholders have emerged seeking discussions about a potential debt restructuring package with either Moelis or PJT as financial advisors. The group holds about $2 billion of the debt-laden Chinese property developer’s offshore bonds.

Rating agency Moody’s said they would downgrade Country Garden’s corporate family rating if things get worse. The senior unsecured debt is at the lowest end of the scale or C.

The one thing good about developers, particularly large ones is somewhere they have assets such as land to be developed in the future. County Garden’s Australian subsidiary is selling an undeveloped housing plot of land in Melbourne to Singapore’s Fraser Property for $250 million.

Country Garden has $11 billion of outstanding offshore bonds and could trigger one of China’s biggest corporate restructuring.

Country Garden has appointed Houlihan Lokey, China International Capital Corp and law firm Sidley Austin as advisors to examine its capital structure and liquidity position to formulate a solution.

According to Duration Finance. Country Garden’s bonds were selling between 4.39 or 5.33 cents on the dollar.

Linking to dividend paying stocks, access to credit and been able to repay bonds is a fundamental part of your homework to investing in a company. If the company can repay its loans, then the bonds holders will buy more bonds. In the event of bankruptcy, bondholders get paid first, equity is last. It is wonderful to look at big flashing developments, but ask do they bring in rents or revenue to pay back the debts? If yes, then you need to do very little with your investments.

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

Many years ago, the economic texts were simple supply and demand lines using guns or butter as an example. Do you want to produce from guns and less butter or less guns and more butter. Fortunately, since WW II, most people in developed countries have not really have to make that decision, but Russia is increasingly doing so.

In an article by Patrician Cohen of the New York Times News Service, nearly 1/3 of the country’s spending next year or $109 billion will go to the war with Ukraine or in Russian speak the special military operation. If Russia spend money on the war effort, spending for health care, education and infrastructure will go down.

19 months into the war, the Russian economy has proved to be more resilient than most Western governments assumed after imposing heavy sanctions on the Russian economy.

The Russian ruble is now 100 to the US dollar, and inflation is increasing for Russian citizens. The spike in government spending and borrowing has stressed an overheated economy. Interest rates are 13% and food basics are at higher price than a year ago.

Lower standards of living can be uncomfortable even for an authoritarian government, noted Charles Lichfield, deputy director of the Atlantic Council’s Geoeconomics Center.

Linking to dividend paying stocks, with every organization examining the budget will tell you what the priorities are for the organization. What the person says is important and what the budget actually finances can be different. There is an expectation with large profitable companies that what executives say is important is actually funded the way they say. As an investor part of your homework is to confirm this and if you agree, there is little you have to do.

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

One of the reasons to invest in large profitable companies is they either have a moat (barrier to entry) or a near monopoly which allows them to raise prices on a regular basis. The increase in prices translates to increased revenues and protection of the profit margin which benefits the shareholder. When a large company does a merger, often times a government agency will be examining it to ensure the competition still exists. In the mind of the executives there is always direct and indirect competition because the public does have choices.

In an article by Diane Bartz and David French of Reuters, Exxon the biggest oil company in the US announced a merger with Pioneer Natural Resources of $60 billion for an all stock deal. The President and founder of Pioneer Natural Resources would be working for Exxon. On the political scene, the White House including the President want lower gas prices for consumers to help keep inflation down. What will gas prices do? The reporters talked to 5 antitrust lawyers and they believe the deal will go through.

The Federal Trade Commission (FTC) is likely to face an uphill battle to challenge the acquisition. The reason the oil and gas companies argue that they do set the price of the commodity (in this case oil and gas) but the price is set by supply and demand forces in a vast global market.

Andre Barlow, an antitrust attorney with Doyle, Barlow and Mazard PLLC, said the deal with Exxon and Pioneer is related to production and exploration and will be easier to defend. Exxon was to increase its production in the Permian basin, not decrease.

The FTC has not challenged a major merger of oil and gas producers since BP $27 billion acquisition of Atlantic Richfield in 2000. The FTC agree to drop its objections after BP offered to divest oil production acreage in Alaska.

The Permian basin spans west Texas and eastern New Mexico, Pioneer has 9% of gross production, while Exxon is number 5 with 6%, according to RBC Capital Markets.

The FTC allowed Chevron to complete an acquisition of PDC Energy and now Chevron has 40% of the Denver-Julesburg basin.

David Kass, a finance professor at the University of Maryland and former FTC antitrust economist said regulators have to show they have conducted a thorough analysis of Exxon’s deal for Pioneer.

Linking to dividend paying stocks, when large companies do mergers and acquisitions they have to fact in both the economics of the deal and the political reality. In some governments, the administration encouraged or did not stop mergers, in other administrations there was going to be a review by the government. Large companies and the association play a role in financing of politicians, but that does not mean they automatically approve what the large companies want to do. In politics, people want to be re-elected and sometimes political considerations can vary. With any merger, the why does the company want to do it is the issue.

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

In the world of politics it is up to the politicians to make the agenda and to implement their agenda. The agenda will help some companies, it will be neutral for some and others will see as hurting their interests or ability to make money. After the agenda is set, it is up to the politicians and Secretary of Departments to sell the agenda to the people of the country. If more think it is the right approach, they will be reelected and have another agenda. If people do not like the agenda, it is time to change governments. In Washinton, President Biden has a less than positive approach to China. Maybe that is good, maybe not so good, but Biden has a policy.

In an article by Tripp Mickle, David McCabe and Ana Swanson of the New York Times News Service, a year after the Biden administration took its first major step toward restricting the sale of semi-conductors to China, it has begun drafting additional limits denying Beijing the technology critical to modern day weapons.

Since July, the big chip makers Nvidia, Intel and Qualcomm have pressed their case that cracking down on China would have unintended consequences. The lobbyists have talked to Secretary of State Blinken, Commerce Secretary Raimondo, done the rounds with think tanks in Washington, and urged leaders to reconsider additional chip controls.

One of the topics has been: at the moment, chips are dominated by American-designed; by isolating China, you will force them to come up with Chinese-designed chips.

Lawmakers are confused because Washington committed $50 billion to the industry through the Chips and Science Act. The money helps pay for more manufacturing chips in the US and the 3 companies have announced plans to build in Arizona, Ohio and New York.

China accounts for 1/3 of the global semi-conductor market and more than $50 billion in combined revenue for Nvidia, Intel and Qualcomm. The chip makers suggested that too many controls on China will mean less revenue for them and the need to cut costs – either people, research and development or the plants in swing states.

Linking to dividend paying stocks, most dividend paying companies like to have it both ways and there is a benefit to them either way. The companies are large enough to dangle carrots in front of the politicians and allow them to say whatever they want but not do whatever they want to. With legislation there is always the unintended consequences of their actions.

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