When we look back, we can see perfect information, how a beaten up stock or sector which has lost investor confidence regain its composure and the shares increased. We see with perfect information, if someone had invested in the stock or the group, they would have made relatively easy money. However, at the time the risk was very high, how do you buy low and sell high?

In an article by Emily Flitter of the New York Times News Service, a beaten sector was the regional banks. We all expect and want the bank you bank with to be stable and secure, and many were scared when Silicon Valley Bank went bankrupt. Many people moved their deposits as well as their share holdings to other banks. There was a practical reason, Silicon Valley Bank traded at $755 in November, 2021, it was trading around $500 when it needed capital. The 16th largest bank in the US had a mismatch of deposits to loans and was losing money. The bank catered to the software companies and the large funds pulled their money very quickly from the bank. If you owned shares in a regional bank, are you safe particularly when you see the share price fall by 50% plus. Would you buy more? What has changed?

The KBW Nasdaq Regional Banking Index, a proxy for regional banks after falling 35% is up 27% or those that kept their holdings are almost even. Those that took a risk and bought the index are up 20%. Alexander Yokum, an analyst with CFRA says the worries about the future of regional banks has evaporated in the second quarter.

What has changed? and how do you know it has changed?

The macroeconomic luck of the regional banks is the US did not go into a recession. Sometimes you need to be lucky.

The more practical reason the banks are stabilized is the growth of deposits. However, to lure the depositors back and attract new ones, regional banks offer higher interest rates on deposits. Some of the money came from money market deposits switching to the banks. Attracting deposits by paying higher interest rates means interest expenses grow, but many regionals are profitable. Watching the interest rates at the regional banks helps.

Another step was to get rid of unprofitable loans. This was the biggest focus of the banks to improve the quality of bank loans. Most regionals have cut back on less profitable products such as auto loans. (There are You Tube videos about how auto loans work and the people in the industry say there are fewer choices). The reason auto loans can be cut back is customers often deal with car sellers who arrange the buying and selling of cars which means the customers have less or no customer loyalty to the bank. Companies have to stay to fundamentals of their business.

Another approach was to avoid renewing loans to companies that did not use other bank services. Although no bank should go the way of Wells Fargo and 13 products per customer, even if you do not need them. If a customer has one product per bank, if the bank lost the business, they would not miss it too much. Many banks want 2 or 3 products to keep customers.

Another aspect of the improvement is if you hear because office workers are not going back to offices, then real estate developers has a problem with their cash flow, you might be worried. The regional banks have emphasized their exposure to office real estate is 2 to 4% of total outstanding loans. Most of the loans to office buildings in the big cities come from the large banks and alternative investments. Communication of the worst negatives is important and why not here.

JPMorgan Chase Jamie Dimon talks about fortress banking which means higher capital ratios than the regulators required is a normal way to do business. Regional banks have increased their capital ratios to cover surprise losses, while explaining they have gone through every portfolio we have in the bank. The banks report these ratios and analysts show them in their reports.

Linking to dividend paying stocks, many people own bank shares because they are profitable and pay dividends. When there is a crisis, it takes times and many aspects to go right to get through the crisis. If you watch from the sidelines and you need to understand what needs to go right and see if the signs are pointing to what the company is on the right track. Knowing the signs is part of your homework and then you have the ability to buy low and sell high with limited risk.

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

Often times you will hear the stock market is rigged or bias and to some degree it is. It is also a wealth generator for patient money. However if you want to follow the get rich quick crowd, you have to rig it, to some degree. The easiest is to trade on inside information, however the problem for most of us is if you had insider information, how much could you borrow to buy the shares and how much would you make? If you are most people the answer is not all that much. If you were a billionaire, the numbers become much larger.

In an article by Luc Cohen, Jonathan Stempel and Jody Godoy of Reuters, British billionaire Joe Lewis whose most public investment is the Tottenham Hotspur soccer team, pleaded not guilty to what prosecutors called a brazen insider trading scheme.

The SEC prosecutors said in 2019, Mr. Lewis lent his pilots of his private jet, $500,000 to buy stock in Mirati Therapeutics before it released favorable results. The health care company stock went up 16.7% in one day. Both pilots repaid the loans and profited from the higher price of the stock. In normal times, when a health care company releases good results, the expectation if and when the product comes to market, it will sell well and the stock prices increases till people discover how long they have to wait till the product comes to market and then the stock decreases for a while. If Mr. Lewis wanted his pilots to be wealthier, he could have given them a raise.

Mr. Lewis, who is 86 founded an investment firm called Travistock Group and is the board of a number of companies which give him insider information.

Linking to dividend paying stocks, in the stock market are the people who want to get rich quick, most to the time they do not, there are also people who buy profitable stocks for the dividends and as economic cycles go through the stock market the price of the stock goes up and down, but over the long term the price tends to be higher because the stock is profitable. You can easily avoid those who want to get rich quick and their schemes with patience.

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

In every industry, trends develop in society, the issue for each company is to decide if it is a fad that will peak or will it be on going. For an individual you can do something or not, but for a company, a rational business case must be made to investment millions of dollars to ensure the investment repays millions of dollars. If the company is wrong, then millions of dollars of investments must be written off and careers change.

In an article by Martha C White of the New York Times News Service, the issue during the COVID is work from home. If you can work from home, then potentially you can work from any city or place. It is possible to work and enjoy the community you are visiting for longer period of time and if you are staying for longer periods of time, you will want a setup you have at home.

In the lodging industry, extended stay hotels are popular. Visitors tend to stay longer and need less housekeeping, extended hotels are less expensive to build and operate than their full service hotels. If they are less expensive, it tends to mean the margins are higher and higher margins mean hotel operators are adding new brands to their portfolios.

Hilton Worldwide, Hyatt Hotels and Marriott International have all introduced extended stay brands. Last year, Best Western International, Wyndham Hotels and Resorts as well as Choice Hotels introduced an extended stay chain.

Jan Freitag, national director of hospitality market analytics firms CoStar, said the action is hot as it can get.

Issac Lake, a brand manager at Project H3 by Hilton, noted economical construction is a top priority for hotel operators and the design is superefficient the way the design is built. For example, H3 rooms are designed so the bathrooms require only one fire sprinkler, light fixtures can be plugged in behind the bed to minimize the number of electrical lines and a single type of vinyl floor tile is used rather than multiple flooring surfaces. (next time you are in a hotel room really look at how the room is put togther behind the walls).

The extended stay rooms are a little larger, but there are no palatial lobbies, full service restaurants. Weekly rather than daily housekeeping is the normal, fewer daily check ins and outs reduces the number of front desk employees needed.

According to a study by Actabl, a maker of hotel management software, labor costs at full service hotels rose 24% in 2022, while costs rose 12% at extended stay hotels.

The kitchen in the extended stay hotels, means there can be cost savings on restaurant meals because people can make their own meals rather than eating out.

Extended hotels also cater to construction workers working on the infrastructure which is being built out.

Linking to dividend paying stocks, all companies look at trends and have to make a decision to add the trend to their products and services. If the trend becomes the normal, then there will be more additions as time goes on. However the key is always trends change, it is harder to change once the infrastructure has been built to service the trend. For your investments, how does your company capitalize on trends? which trend lost money? what did the company do?

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

In our world, there are only a few events which draws people together because they bring they transcend the event. Most of us are a little cynical, but once the event starts, we begin to watch and get excited and by the end of the event we shared the event. The biggest events tend to the World Cup of football (soccer) and the Olympic events. In 2024, the Olympics will be held in Paris, France. What are the biggest companies in the world doing to participate?

One of the world’s richest men is Bernard Arnault, who is Chairman and CEO of LVMH of Paris, France. In an article from Reuters, LVMH agreed to sponsor next year’s Olympic Games in Paris. LVMH has many top brands including Louis Vuitton, Moet Hennessy champagne and spirits, jeweler Chaumet and they will be involved in the Olympics.

The promotions include sponsoring French athletes, beauty retailer Sephora will sponsor the torch relay across France, the opening ceremonies will be on the banks of the river Seine and not in a stadium and a whole host of other sponsorship.

Linking to dividend paying stocks, all companies have a headquarters somewhere and in their home city sponsor an event or two. If a big event is held in their city, people outside and inside the city look to see if the company is sponsoring part of the event. Which events does you company sponsor?

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

For the past number of decades, the growth story in the world was the one country as it transformed itself. China was the answer for everyone – for less expensive manufacturing, for commodity prices increasing, for a growing middle income group in China to stimulate consumer spending, for infrastructure projects that made the rest of the world envious, many things were happening in China. COVID happened and normal cycles happened which means China is an recession and wants to get out. The term recession has been a thing for years in China, but it happens and now the world can see what the economy is based on. Part of the economy was based on real estate (25% of GDP), but since 2008 most developed countries around the world can tell you real estate goes up in price and sometimes goes down.

In an article by Ellen Zhang and Kevin Yao of Reuters, China’s top leaders pledged to do implement policies to boost domestic demand or more stimulus is coming. China will focus on expanding domestic demand. boosting confidence and preventing risks.

China will strive to achieve its annual development targets of 5% growth, but there are risks that will be missed for the 2nd year in a row.

Capital Economics noted the lack of any major announcements of policy specifics does suggest a lack of urgency or that policy makers are struggling to come up with suitable measures to shore up growth.

The central bank is using policy tools such as the reserve requirements ratio (RRR) to whether the challenges facing the world’s 2nd largest economy.

Linking to dividend paying stocks, we all want to invest in stocks that continually grow both organically and buying other companies, but the reality is economic cycles happen which means both up and downside risks. The issue is always how well does the company perform when there are more downside risks than upside? does the company have the ability to rise prices and maintain and grow profits? As you do your homework, asking about the biggest risks to the company is a good thing to do.

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

During the summer, the theory is more people will go to patios and occasionally drink beer, the restaurants encourage it and cities around the world help ensure patios exist. If you did, what brand of beer did you order? It seems there are thousands, more likely hundreds of brands, how did you choose a cold one? What will other people drinking? Research is an ongoing effort.

In an article by J. Edward Moreno of the New York Times News Service, a new brand has emerged with the top share in the beer market in the US – Modelo. For decades, the top share was owned by Bud Light, but Modelo Especial has emerged with a 8.7% share compared to Bud Light at 6.8% according to Nielsen IQ data analyzed by consulting firm Bump Williams.

In an interview, Bill Newlands, the CEO of Constellation Brands which owns Modelo, said the beer’s rise happened sooner than expected. Constellation Brands also owns the beer brands Corona and Pacifico.

Americans are drinking less beer than they use to and the beer they grown to like is more expensive than Bud Light. Craft beers and imports lead the way.

Nadine Sarwat, an alocholic-beverage analyst at Bernstein Autonomous, a market research company, noted teenagers tend not to drink the beer their parents drink. Younger drinkers want something new or different, and slightly more expensive.

Mexico exports more beer to the US than any other country. In 2022, it shipped 7 times the volume of 2nd highest source of the Netherlands.

The interesting thing about the growth of Mexican beers is the further you go from Mexico, the higher the growth rate. States north of the Mason Dixon line tend to have fewer Hispanic populations has seen the highest growth of Mexican beers.

Constellation has owned Grupo Modelo since 2013 and promoting the beers since with a fighting spirit marketing campaign. The company has positioned Modelo as game day beer as well as being a sponsor of UFC that is in the low 8 figures according to Sports Business Journal.

Linking to dividend paying stocks, if you are an occasional drinker of beer, you may not know how the beer market functions. Sporting events brings viewers and viewers bring sponsors and it is possible to be in the markets that are popular which helps beer sales. Through being a fan and paying attention to the sponsors, it is possible to link it to sales of products and which companies own the brands. Doing your homework on how the market functions, can make you money or justify watching the sporting event at a different level.

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

In mid July, Russia decided to put pressure on global countries that back Ukraine, by not allowing ships to leave the Ukraine filled with wheat. In Europe, the Ukraine is the breadbasket of Europe and Asia and for the last 6 months, Russia has allowed grain shipments from the Ukraine to go to Africa and Europe. Russian decided to stop and has fired rockets and drones with rockets at grain handling structures in the Ukraine.

In a related story, In an article by Rajendra Jadhav, Mayank Bhardwaj and Shivam Patel of Reuters, India which in a normal year accounts for 40% of the world rice exports, has ordered a halt in the export of rice. Rice grows in water and last month the monsoon rains caused heavy damage to many areas of India.

The non-basmati white and broken rice account for 10 million of the 22 million tonnes India exported last year. Parboiled rice has not included in the ban.

Rice is the staple for nearly 3 billion people and 90% of the water-intensive crop is grown in Asia. The top buyers of rice from India are: Thailand, Vietnam, Benin, Senegal, Ivory Coast, Bangladesh and Nepal.

Linking to dividend paying stocks, food security is a number one concern for billions of people on the planet and when climate changes, there will be effects. No one knows if the weather affects are permanent or when and if they will change however the fact is there was change and it takes time to adjust to the new normal. If the companies you invest in is trying to do something to stop further changes, perhaps the world will see it and continue to use the products and services the company offers or will people see how Russia made a bad situation worse?

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

When you want to know how the economy is doing, one easy method is examine how the banks are doing. The banks make most of their money taking in deposits at one rate and lending the money at a higher rate. If people pay their bills on time, the bank will make money. Deposits will include both government money and employees money, while lending their money is primarily mortgages but does include personal loans, loans to go on holidays and credit card fees. The larger banks will have an investment bank division that makes profits on trading and issuance of stocks and bonds. If the stock market is doing well, there will be a desire to buy shares of companies not making money but they could be soon because of their potential growth.

In an article from Reuters, in mid July, the US banks reported on the 2nd quarter and generally it was a good quarter.

Bank of America, Bank of New York Mellon which are 2 of the nation’s largest lenders earn money from charging clients higher interest rates as the Federal Reserve raised borrowing rates. Bank of America made net interest income (NII) rose 14% to $14.2 billion. BofA expects full year NII to up 8% or about $37 billion.

BNY Mellon had a 33% increase to $1.1 billion. PNC was up 15% to $3.51 billion.

State Street which caters to institutional players of mutual fund companies, hedge funds, etc and could not pass on higher rates showed a decline of 12-18% of NII.

Morgan Stanley which has a very large wealth management division, said NII of $2.2 billion was virtually flat.

All the banks noted there were headwinds in the economy – possible pullback in consumer spending, slower loan growth, increased deposit costs. The banks are hoping investment banking which was $15.7 billion, which is the lowest since 2012, in the quarter increases.

Linking to dividend paying stocks, it would seem from the banks’ performance that people have been adjusting to the higher interest rates from the Fed and that is a good thing. The Federal Reserve increases interest rates to slow down the economy to fight inflation. If people are adjusting and that means loan losses are stable or falling which means more profits to the banks.

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

In every industry there are leaders and large players who seemingly could be leaders but every once in a while something goes wrong. The company has to write down assets, make less money and then rebound for a few years when it seems they make a different mistake but the results are same. In the banking industry, the large player is Citibank and looking at the history of company from being an investor you wonder why? In a book called Borrowed Time by James Freeman and Vern McKinley published by HarperCollins, NY, 2018, the authors help answer the question why?

When Walter Wriston retired, the new President was John Reed. Prior to Mr. Reed, much of banking was paper based, Mr. Reed believed in technology and Citibank was the research and development shop for the industry. Mr. Reed worked on all areas of operations including speed of credit card purchases, expanded the ATMs and made them user friendly, which many Citibank consumers believed was a very good thing. When Mr. Reed was appointed President, he had not worked in the credit department and made loans. He had not thought about what happens when companies and countries do not pay back loans. For the first 6 years as Chairman, he spent half of his time of those issues with little progress made.

In 1990, the biggest creditor to the banks was former President Trump with Trump International Hotel in Atlantic City and Trump Shuttle. Both went bankrupt and Citibank and other banks were owed $2 billion in bank dept and $1 billion in bond debt. Citibank took assets including the Plaza Hotel in Manhattan.

In 1991, Prince Alwaleed bin Talal Bin Abdulaziz al Saud bought a $500 million preferred stock and 4.9% stake in the common stock.

In 1998, Citibank merger with Travelers Insurance to form Citigroup. The merger would serve over 100 million customers worldwide with Citibank for consumers and businesses, Travellers for insurance and mutual finds, and Salomon Smith Barney for investment banking and securities.

Sandy Weill became Chairman and although his reputation is a swashbuckling empire builder, he actuallly is someone who is disciplined in not taking on too much risk during the boom times and controlling expenses in both cycles. The discipline allow him to buy distressed companies and reorganize them. For decades when Wall Street was down, Mr. Weill was looking for bargains and had the ability to buy. When Mr. Weill left Citigroup the total shareholder equity was 8% of total assets. By 2007 it was below 6%

By 2008, Washington had come up with the $700 billion Trouble Asset Relief Program (TARP) and Citibank took $25 billion. The quarterly report announced a $4.4 billion write-down in securities and banking segment; the quarterly loss was $2.8 billion.

Citigroup’s Global Transaction Services unit which manages cash, facilitates trade and executes payments for large organizations worldwide experienced a $14 billion decline in available funds or 5%. The next day significant fund withdrawls came from the US and Europe. Confidence was going down and money was being moved. On November 23, Treasury bought $20 billion preferreds at 8% dividend. By January 31, 2009 Citigroup had used $517.3 billion of the governments money.

Why? Fed Chair Ben Bernanke said the system could not have handled the sudden collapse of a $2 trillion institution that provided much of the world’s financial plumbing.

Those on the other side point out Citibank holds about 5% of US bank deposits.

When the book was written there was a change of CEO from Vikram Pandit to Michael Corbat, a long time Citi veteran who is by most accounts a competent executive who understands the business. He seems more interested in operating a solid firm than in pursuing a grand vision or rapid growth.

Although it is important to remember, the history of Citi is every 20 years they manage to lose money.

Linking to dividend paying stocks, as a dividend investor you love solid operating firms that can implement new ideas, just not starting them. Innovation and technology are wonderful, they can change processes and industries, and with the change the solid dependable become much risker and money is lost. It is a balancing act between growth and slower organic growth, there are advantages and disadvantages to both, as an investor you must make a good judgement.

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