If you go into a department store or pharmacy, one of the biggest departments for floor space will be the cosmetics department. There are an arrangement of colors and perfumes typically marketed towards women to make them more attractive. As a male, most of them help enhance, but sometimes less is more. However, if you read the financial reports from the companies, the beauty segment is often a safe, secure driver of revenues as well as having healthy margins.

In an article by Keith Bradsher and Elizabeth Paton of the New York Times, after 3 years of shutdowns due to COVID, Chinese consumers are splurging on lipstick, perfume, moisturizers and other personal care products.

China is the 2nd largest beauty market in the world behind the US. For French cosmetic companies, China represents about 1/3 of their total revenues.

The bad news is under the pandemic, China imposed regulations to slow down the imports of cosmetics. One of the rules is companies must divulge every ingredient in their product and precise quantities used. The information is loaded in a Chinese government database along with other information. The result is most manufacturers do not want to because they fear a low-cost Chinese manufacturer company coping their products.

The French companies through the trade associations ensured French President Macron raised the issue when he met with Chinese leaders.

In China, retail sales of cosmetics rose 8.7%, but overall imports fell 13.7%.

China’s customs data shows imports of cosmetics, toiletries and perfume from France to China were down 6.2% to $5.4 billion from a year earlier. Cosmetics from the US and South Korea were down 19.8% and 22% respectively.

According to data from Euromonitor International, Chinese beauty brands have grown in the last 3 years to take 27% of skincare and makeup retail sales among the top 10 brands.

The Chinese beauty market is expected to grow, McKinsey expects China will account for 1/6 of global beauty retail sales.

Linking to dividend paying stocks, companies are encouraged to diversify beyond their border, and many do because consumers want and need choice. Over time, the country where the companies have diversified begin to develop their own products and given the use of technology everywhere, the products will be better and be competitive with the imported ones. What does the foreign company do? lobby for an even playing field? change the name to reflect the company’s language? look for other markets? buy a piece of the domestic companies? there are many options because the company does not want to give up those revenues with high margins. From an investor point of view, you are concerned about the margins and the maintenance of them. If they go down, ask what is the best strategy and is the company doing it?

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

In mid September Apple launched the iPhone 15 and similar to all launches there were positive and negative aspects to the launch. In the past, when Apple launched an iPhone the stock bounced upwards because of expected sales and the company was seen as a growth company. Now the company is not seen as growing that much because people have iPhones. It was a good idea until researching the company and then you might have a different idea.

In an article by Tripp Mickle of the New York Times News Service, in the consumer electronics field there is a general rule: the older a device becomes, the more competitors come in and prices fall. Remarkably the iPhone is at least 15 years old, its share of smartphones has increased.

In the big 4 markets of China, Japan, Europe and India iPhone has increased market share and in the US market share has increased from 40% to 50% according to Counterpoint Research. In the rest of the world the market share has increased from 13% in 2019 to 20% at present.

Apple sales are similar to US auto sales, if you own a car and want to buy a new one, the dealer gives you trade in value for the old one. The telecom carriers which carry Apple do the same thing. If you have an older phone and want a new one, the carriers accept trade in value. The carriers offer discounts and monthly payment plans to make it seem more affordable to the customer. Similar to auto buyers, smartphone customers tend to be brand loyal rather than switching to other companies.

If you think about Apple’s 2 biggest competitors – Samsung and Huawei, both had major challenges that kept Apple people loyal. There was a problem with the battery at Samsung and the US government has imposed restrictions on Huawei and Chinese technology.

For teenagers, the smartphone of choice is the iPhone and according to Piper Sandler, an investment bank, the iPhone has 90% of the teenage market. One of the reasons is many teenagers’ text and Apple’s messaging service iMessage turns the text of non-Apple texts from blue to green if it is a non-Apple message. This blue to green item is a status item that few teenagers want.

Other reasons for the market penetration are the ease of Apple products to use such as AirPod and ease of use. Apple also a wide range of services such as music, videos which are easy to access. It would be a pain to change. As well as the camera works very well.

Consumer Intelligence Partners reports that 94% of iPhone customers are likely to buy another iPhone. For Android phones it is 91%.

According to Dan Ives of Wedbush Securities, 60% of existing holders of iPhones are 6 years or older. At some point they will change to the latest model.

Linking to dividend paying stocks, all companies have products or services that generate the most cash for their companies and the issue is will it continue? after you do your research and you believe the answer is yes, you can continue to hold or follow the company until the next quarter or year when the issue comes back. In the case of Apple and the iPhone it will continue to sell very well. Listen to the news clips, but do your homework and then you can make good decisions.

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

In the US and other developed countries, the economy is tied to the mythical average consumer spending on a constant basis. 2/3s of the economy is based on consumer spending. Although on a personal level, keeping debt low and ensuring it is paid off is a very good thing to do and if you can you will easily build savings, the reality is over 40% plus of households live paycheck to paycheck. One of the many reasons could be trying to pay off debt. If they have no debt, savings are possible.

In an article by David Randall of Reuters, one of the indicators that fund managers used to examine the future of the economy is household debt and consumer stress. One method is to examine credit card delinquency rates and according to the Apollo Group, the rates among credit cards issued by smaller banks are the highest on record.

For the past couple of years, economists have talked about the savings that the general public was able to generate because of COVID payments, those savings are gone. The new reality is department stores such as Nordstrom said its credit card delinquencies is now higher than pre pandemic levels. Macy’s says its late payments to reduce credit card revenues by 41% from the previous quarter.

While credit cards payments go higher, it seems the consumer is still spending because consumer discretionary stocks are up 34% this year.

Linking to dividend paying stocks, there are always signs the worse is going to happen as well as the best is going to happen, it depends. On an individual level, credit card rates were never low when interest rates were near 0% and they are higher now that the Fed has raised interest rates. It is a great idea to have no debt on your credit card. From an investor point of view, it is better to own the big stocks of the big 3 credit card companies – VISA, Mastercard and American Express. They all have great margins, wonderful infrastructure that debit runs on and pay dividends. Warren Buffett told a high school audience one of his best financial advice is to stay out of debt, do not pay interest to credit card companies, but own their shares. While everyone listened, few did and credit card companies have a good future ahead.

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

A number of years ago, Harvard University professor wrote and did You Tube videos about Disruption in the Steel Industry. The Professor’s name was Clayton Christensen and he talked about how in every market including the steel market some products have higher margins than others. If the competitors go after the lowest price portion of the market, often times the larger companies invariably decide not to compete on the lowest margins. That is good for the larger company, however in time and thanks to continuing changes in technology, the lowest cost manufacturer begins to compete in the higher margin products. In time the largest producers due to the established fixed costs, can no longer compete in the high margin items. The largest producers essentially have to do Chapter 11 bankruptcy, restructure their company and then they can compete. With this happen in the car industry?

In the automobile industry, there is a change from gasoline to electric vehicles. If you look to the future in 2050, more electric will be sold than gasoline. This is partly due to government regulations, partly due to the planet being warmer and partly due to consumers because it is expected the price to charge electric is less than buying gas. The change is not a flood because car makers do not have very inexpensive electric vehicles, at the moment the cost is on the high end.

In an article by Victoria Waldersee of Reuters, in Europe, as well as America, but more so in Europe, the carmakers have a fight on their hands to produce lower cost EVs and erase China’s lead in developing cheaper, more consumer-friendly models, executives at Munich’s IAA mobility show said.

Renault’s CEO Luca de Meo told reporters it has a new vehicle called R5 EV that will be 25-35% less expensive than the Scenic and Magne models.

Chinese EV makers, including BYD, Nio, and Xpeng are all targeting Europe’s EV market where thanks to government subsidies the sales of electric soared 55% to 840,000 units or 13% of the total market. (in China it is possible to buy a new EV for $5,000).

Some readers will remember or have read in the 1970’s, Japanese imports came into the US at the low end of the market, but they were reliable. Ford, GM and Chrysler all had smaller vehicles, but they were unsafe at any speed to quote Ralph Nader. Consumers moved with their feet to buy the Japanese models. Soon the Japanese models were on the roads and on the driveway of many family homes and they improved to the point where consumers believed Toyota was the most reliable smaller vehicle. Ford, GM and Chrysler thanked consumers that trucks and SUVs were considered made better and the margins are higher than their Japanese counterparts.

According to auto consultancy Inovev, 8% of new EVs sold in Europe were Chinese brands. This is up from 6% in 2022 and 4% in 2021. More EVs from China are coming to Europe. At the show, Chinese auto executives urged global co-operation in EV segment or they want access to markets.

VW CEO Oliver Blume told reporters through its partnerships in China, it expects to cut battery cell costs by 50%.

Linking to dividend paying stocks, as investors we like high margin profitable companies that can consistently pay dividends. However, the competition loves the prospect of receiving high margins which means every industry is always under threat of changing technology. How the companies in your investments deal with it is the secondary concern after it affirms it still maintains those high margins.

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

In the world most of us like people, sometimes we want to be around people, sometimes we are equally satisfied being around few people. The common thread is we are social, but which people do you want to be around? In North America we all live a somewhat gated community in the sense depending on your income, depends on a regular basis who the people are and just because some have higher incomes it does not mean they are better people. Sometimes the people who have less income are better people because they want less from us. How do you know?

One of ways is to learn and practice from people like Robin Dreeke who wrote the book Sizing People Up published by Portfolio Penguin, NY, 2020. Mr. Dreeke worked for the FBI and headed up the Counterintelligence Behavioral Analysis Program and he deals with people who have interests in changing the American system of democracy to something else.

Most of us do not have those high of stakes, we deal with our jobs and homes and families. But can you learn from Behavioral Analysis, the answer is YES. In a book about Steven Cohen and SAC Capital (now called Point 72) and he had or has former people from the department to teach his traders. They come into contact with a great deal of information, some of it you need to do something with, how do you know what is good or what is not so good? People are pitching ideas and asking for money, do they stretch the truth and what are signs they are not truthful as possible?

In Mr. Dreeke’s book one of many examples is after his FBI experience, he was invited to a security firm to give a talk and offer assistance. In the world of mergers and acquisitions, prior to the announcement, companies’ analysts examine the financial details, but they also call on security consultants to “look for the dirt underneath the fingernails”. What details did the analysts miss? what is hidden behind the numbers? who is not telling the truth? what are the true costs which a competitor would love to know? just because someone is prominent, sometimes they lie. Why would you trust them? Management wants to know did we miss anything that will result in write downs or losses? or will the stock price go up with the announcement and stay up?

The 6 signs for Behavior Prediction are:

1. Vesting – creating symbiotic linkage of mutual success
2. Longevity – believing your word is your bond
3. Reliability – demonstrating competence and diligence
4. Actions – displaying consistent patterns of positive behavior
5. Language – creating connections with masterful communications
6. Stability – transcending conflict with emotional accord

In the book there are multiple questions or check boxes that you need to do before you have a long term mutual association, but they happen and it makes life rewarding

Linking to dividend paying stocks, often times people gravitate towards this group of companies because they lost money in the lower stock price of get rich quick. Once in a while it happens, more often people lose money. Hopefully you learn or have learnt when it happened to you. Sometimes the best method to get involved is lose money, then you are ready for education, learning about value and dividends. Whatever your approach is you will need to deal with people – those running the companies, those in your social network and professional network hopefully your relations are long lasting and rewarding.

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

If you invest in big pharma or the large pharmaceutical companies, invariably you will want to see which drugs are billion dollar drugs, that are reasonably good for patients, and what the companies in the pipeline. If you ever watched a western movie, you might remember the sight of a travelling wagon where the owner/driver rolls into a town and sets up on main street to suggest to all that the drugs he is carrying will cure all your concerns. One of the biggest healthy concerns the developed countries have is weight loss. It seems it is ingrained in our normal conversation and there are multiple of ways to tackle the subject. The big promise from health care is to take a pill and you will lose some weight. This may be what more and more people will be doing besides eating reasonably healthy, doing exercise and getting enough sleep, but if you can take a pill, will you?

For anyone interested and it seems, the FDA is going to approve it and more importantly insurance companies will pay the bills, the most important player is a Danish firm called Novo Nordisk.

In an article by Eshe Nelson of the New York Times News Service, the company has suddenly grown so big it is reshaping the Danish economy. The magic pills are called Ozempic and Wegovy.

The price of the shares of the company has gone from $500 to over $1,300 and the overseas sales of the drugs has allowed the Danish Central Bank to keep interest rates low rather than raising them. The share price has made the company second to LVMH as the 2nd most valuable company in Europe.

If you know someone that has diabetes, you may have heard about the company. The US FDA approved Ozempic and Wegovy as diabetes medication, but they seem to have good news on the weight side of the business. The company’s profit has surged to over $7.7 billion in the first half of the year and this has created more revenues for the country’s tax revenues as Novo Nordisk is the number one contributor of corporate taxes to the Danish government.

According to the Centers for the Disease and Prevention Control over 100 million Americans adults are obese. This suggests there is room for Novo to grow as more doctors prescribe the pill. There is an old commercial of ordering a large pizza and a diet coke, now consumers will add the chips and a Novo pill.

Linking to dividend paying stocks, we saw in the Oxycontin drug that a pill that can help with pain had tremendous side affects. If the side affects of the Novo pills are very manageable then given the population who could be using the drugs, and the FDA approvals, then owning the company for a long term can be a very good investment for big pharma companies can be very profitable.

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

Often times perception is just as important as reality, but reality is the facts. Most of us know something about everything, but if it does not relate to our jobs, it is based on perception. That is fine, if we knew about everything what would you do?

An example of perception was an article by Vladimir Soldatkin of Reuters about Russia’s internal fuel concerns. In the big picture, Russia’s economy depends on the oil and gas exports, prior to the war with Ukraine, the oil and gas was going to Europe and China. Since the war, the exports to Europe have been drastically cut back. Russia has strong ties to China, but their economy is using less.

On the domestic side, Russia has faced shortages of fuel in the agricultural areas of the south and the situation is expected to get worse in the coming months.

The fuel shortages are due to a number of factors including: regular maintenance at oil refineries, infrastructure bottlenecks at railroads (Russia similar to the US uses railways and pipelines to move oil), and a system which incentives the oil and gas companies to export the fuel to secure foreign dollars to help the Russian ruble.

Given the expenses of the war, the Russian government cut some subsidies including to refineries. This has led to a shortage of AI-92 gasoline and diesel fuel, said traders.

Russian Deputy Prime Minister Alexande Novak, said there were no fuel shortages.

Similar to the US, Russia has been dealing with inflation and one of the things the government did was to cap oil and gas price increases to the official inflation index.

The train company said the reason for delays, if there were any, was the high congestion of traffic due to the tourism season. However, all requests for the transportation on domestic routes are given priority and most are delivered 100% of the time.

Linking to dividend paying stocks, in the above case, your perception is Russia as one of the largest oil and gas exporters in the world should have no internal problems of supplying the domestic needs of the country. The reality is Russia needs foreign currency to ensure the economy is coming to generate surpluses given the expenses of the war in Ukraine. Government official comments are hopefully optimistic so it is important to follow up with the reality of what is happening on the ground as seen by everyday citizens. In some countries one expects optimistic statements, which is why as an investor you want perception to meet reality.

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

Owning a diversified company can and often does mean revenues are reasonably consistent and profits flow like clock work. The usually means not all the time because a diversified company can mean more opportunities for a division not to do the right thing and lawsuits follow.

In an article by Brendan Pierson and Kannaki Deka of Reuters, 3M which is headquarter in Minnesota, said it has agreed to pay $6.01 billion to settle lawsuits by US military veterans and service members who suffered hearing loss from using the company’s earplugs.

About 240,000 people plus lawyers will be eligible for settlement. At its height, the litigation accounted for 30% of all federal court cases nationwide. The lead lawyers were Chris Seeger, Byan Aylstock and Clayton Clark.

The Combat Arms earplugs were made by Aearo Technologies, a company 3M acquired in 2008. The earplugs were used by the US military in training and combat from 2003 to 2015.

The lawsuits had claimed the company hid design flaws, fudged test results and failed to provide instructions for proper use.

3M said it was not admitting liability and the earplugs were safe and effective when properly used. The money will be paid out from 2023 to 2029 and $1 billion will be in 3M stock.

There were some analyst’s estimates that projected a $10 billion liability or $6 billion was good for the stock price.

Linking to dividend paying stocks, as investors you want the company to not only make consistent profits but do the right thing. Lawsuits are expected with a large organization; however the payouts are not. Litigation takes years to go through the court system and companies have set up a fund to payout claims. The smaller the claims, the more the company can pay to the shareholders. As an investor you want to know how big a claim your company has and if it makes you uncomfortable, look for alternatives and come back to the company after the lawsuit is over.

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

Everyone has a bias, and those of us who went through college or university are the worst. Our bias is the knowledge gained from attending the college or university translates into a higher than average paying job in the economy. If you go back before WWII, it has a given because few people went to post-secondary education. When the GIs came back, Washington helped with discounted mortgages, access to post-secondary and the economy changed to a service economy which helped many of them to achieve higher than average paying jobs. The economy is continuing to change and while the goal of post-secondary education is a noble one and if you can go you should pursue the education, the high paying jobs are not the only jobs with a post-secondary education. (Hint, if you go by a heating and cooling contractor, count the number of trucks, if the number is 10 or more the owners are likely millionaires.) However, the people who write the news did receive a post-secondary education.

In an article by Claire Cain Miller and Courtney Cox of the New York Times News Service, AI is being used in the office and fewer people will be needed, the research has found. ChatGPT and Google’s Bard are tools that can rapidly process and synthesize information and generate new content.

Erik Brynjolfson, a professor at the Stanford Institute of Human Centered AI says to be brutally honest, we (society) had a hierarchy of things that technology could do and we felt comfortable saying things like creative work, professional work, emotional intelligence would be hard for machines to ever do. Now that has is upended.

A range of new research has analyzed the tasks of US workers by the Labour Department’s O’Net database and hypothesized which of them large language models could do. The results indicate between 1/5 and 1/4 of all occupations. A similar study by OpenAI of 923 occupations found that large language models could do up to 80% of the work. There is a good reason to expect jobs will decrease.

It is not always a bad thing, Morgan Stanley uses a version of OpenAI’s model made for its business that was fed about 100,000 internal documents, more than 1 million pages. Financial advisors can find information to help answer clients’ questions quickly. This allows more time to talk to clients about wealth management. Often times an advisor is reading or in meetings about companies, now the information is closer to their touch.

Most resume services use some type of AI to go through the applications.

Law firms deal with a great deal of information and the research time and preparation time goes down with an AI program, such as Harvey. Even with the program, you still need a lawyer to determine strategy, opening remarks, what to negotiate on.

A study of customer support agents found that AI increased productivity by 14% overall and 35% of the lowest skilled workers.

Linking to dividend paying stocks, as an owner you are expecting the use of AI to go throughout the company resulting in increased productivity and lowering of costs while selling more goods and services. This will result in the steady profits and the ability for the company to pay dividends. To the overall economy there will be dislocations, but as an investment you are only worried about the company(ies) you invest in.

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