In the world of Mergers and Acquisitions (M&A) there are rules which companies must follow otherwise the Securities Regulators and the public will think it is a shame. The rules say to announce a M&A is to have the available funds. If the company does not have the funds, one could easily think of scenarios where a company would buy shares in a company, announce a takeover at a higher price, the shares go in price and the first company dumps them or a pump and dump.

In an article by Laureen Hirsch of the New York Times News Service, although Elon Musk is technically the richest person in the world, most of his wealth is tied up in shares. Mr. Musk has made a offer costing $43 billion to take the public company Twitter private.

Earlier in April, Mr. Musk was going to join the Board of Directors but constitution or rules of the company say directors of the Board have a 15% cap on the amount of shares they can own. Mr. Musk bought about 9%.

Mr. Musk owns 1/5 of Tesla’s shares, but Tesla’s rules or constitution limits its executives to using no more than 25% of their stock as collateral for borrowing, and according to company filings, Mr. Musk has pledged a portion of his Tesla shares for other loans. If you follow or own shares in Tesla you would know the shares have fluctuated between $766 and $1,145 in recent weeks. Would a bank lend Mr. Musk on the valuation of the top value or the lower value?

Many Wall Street Banks offer bridging loans for M&A. Analysts estimate Mr. Musk would need between $15 to $20 billion, which would be added to Twitter’s balance sheet. Morgan Stanley typically does not do that size of loan, but could ask Bank of America, JPMorgan Chase to help. The downside besides interest costs is Mr. Musk and JPMorgan are not getting along. JPMorgan sued Mr. Musk over a tweet which Mr. Musk said he secured funding for the taking of Tesla private.

A third option is for Mr. Musk to ask private equity groups for help. One group that comes to the forefront is Silver Lake. The concern is the co-CEO of Silver Lake joined the Board and it can only acquire 5% of the outstanding shares.

Mr. Musk could try other private equity firms, however private equity typically want to buy companies with steady cash flow so debt can be arranged and the private equity can pay the debt with the cash flow of the company. Twitter has a negative cash flow of $370 million of the last year and very few cost cutting opportunities.

In the US markets, when people see one sided deals there are a variety of law firms which specialize in suing companies for money for all shareholders. The firms are watching the auction process.

In addition to the above, the company Twitter has the ability to adopt measures which do not help Mr. Musk unless he offers significantly more money.

Mr. Musk did receive funding from Morgan Stanley and other banks. He asked some billionaire friends to invest as well for $7 billion including Larry Ellison of Oracle and Al Waleed Vin Talal Al Saud of Kingdom Holdings and others who were early investors in Tesla.

Linking to dividend paying stocks, all companies have constitutions and rules which allow they to act to possible friends and enemies among shareholders, if the Board can not count 50% of the vote plus one. The steady cash flow of profitable companies is what makes they attractive to existing shareholders and new ones which is a very good position to be in. The steady cash flow allows existing shareholders to continue to have a reasonable rate of total return as well as other companies examining their operations to see what could and can be better. As long as there is high interest, there is high value in owning the shares.

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

On a typical day, many people can be seen looking out the window into space and thinking. What they think about is as individual as their people, but they look up into space. In the TV series, Star Trek space was considered the final frontier. Every year we as a society learn more about space and there will always be more to learn and there are many areas to learn about.

In a book called The Space Barons by Christian Davenport published by BBS Publications, New York, 2018 describes some of the dreams coming slowly to being fulfilled by billionaires Elon Musk, Jeff Bezos, Richard Branson and Paul Allen. All have been interested in space, inspired by the 1969 moon landing of Neil Armstrong and Buzz Aldrin with Michael Collins in the capsule but all 3 fulfilled President John Kennedy’s speech where he said I believe before the decade is out to landing a man on the moon and returning him safely to Earth.

In the book, all 3 had different journeys or paths to their interest in space and hopefully it will mean more can and will be done in space. In the book, all the billionaires used their own money to start the business, but it took government grants from NASA to sustain it. As well as the satellite industry and telecommunications to ensure the companies could do what they dreamed about. Both Elon Musk and Jeff Bezos believed in recycling and reuse – if you have seen the Apollo launches a stage falls off to land in the ocean, the billionaires wanted to rocket to take off and land where it had taken off to be reused again.

From the book is a wonderful passage most of us believe that there is something new and exciting to be found. For example, the heavy lifting in the internet world was to put the infrastructure in place. Once the infrastructure or the ability to use the internet is in place, the dynamic entrepreneurial explosion of thousands of companies happened and will continue to happen.

For example, Amazon had its path laid out for it. Cables for the internet had been laid. The postal system delivered packages to its customers. There was a payment system called credit cards. All Amazon had to do was take the infrastructure and reassemble it in a new way, and do something new and inventive with it. On the internet today, 2 people in a dorm room can reinvent an industry because the heavy lifting infrastructure is in place, in space it is only beginning to be.

Linking to dividend paying stocks, often times you want to invest in the companies after the heavy lifting has been done because heavy lifting tends to mean high capital costs. Once the infrastructure is in place and government grants have paid for part or the whole for the good of the nation, the money is to be made from using the system. It is similar when President Eisenhower had the interstate freeway system built. Then not only people but goods and services could be moved on the roads – many trucking companies benefited from the highways. Sometimes government grants are very useful to business.

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

If you buy stocks, invariably there is in your portfolio a stock which has seen better days, but you have kept to because you believe there is value in it. At one time, the company was a leader in its industry and you bought it anticipating it will still maintain its leadership. The industry changed , but you did not sell because there must be value to someone and it could come back in a different form. It is possible, but rare for companies to come back for you to sell at a profit.

In an article by David Porter of the Associated Press, many people will remember shopping at Kmart. For there once was over 2,000 Kmarts across the US and at the moment 3 still exist Kmart was home of the blue light special, product lines by Martha Stewart and Jaclyn Smith (Charlie’s Angels fame) and many other staples which people regularly bought and people spent time in the stores.

Kmart’s decline has been slow but steady over the years with falling sales, changes in shopping habits and the competition of Walmart (with its low prices) and Target ( with its trendier products). In recent years the competition also includes Amazon.com and shopping on line.

Kmart filed for Chapter 11 bankruptcy in 2002, it was later bought by Sears which saw value in its real estate, not everything bought by private equity, in this case Hedge fund manager Edward Lampert, is successful. Sears filed for Chapter 11 bankruptcy in 2018.

Professor Mark Cohen, director of retail studies at Columbia University in New York City, said trying to compete against Walmart on price was a foolish strategy. In the case of Kmart everything they used to sell, people were buying from Walmart and Target.

Linking to dividend paying stocks, when you buy a stock you see value and hopefully the market sees value to. One method to ensure you always see value is having relatively simple metrics which tell you, whether you love the stock or not, does in mean the criteria to continue to own. A simple method is does it make a profit to pay a dividend? if yes continue to hold, if no find alternatives or sell it and buy something else. You can easily watch companies try to come back and be a dominant force and that is a wonderful business story. The reality is many do not, as an investor you need to know when to sell equally as important as what to buy.

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

In every industry there evolves a standard and once the standard becomes accepted it is treated as the normal. The standard can be reached for a wide variety of reasons – think about the light bulb from Edison vs Tesla, why was Edison the one picked? However once it was chosen, Edison’s light bulb was used for the next 100 plus years. In the era we are in now there is a shift from using fossil fuels to a renewable fuel. Is the correct choice rechargeable batteries or hydrogen? Is there a market for both? Time will tell the answer.

In an article from The New York Times News Service, truck makers are divided into 2 camps. Volkswagen AG truck unit is called Traton SE and they are betting on batteries. The other camp which includes fellow German company Daimler Truck AG and Volvo Trucks, which are the 2 largest truck manufacturers, are betting on fuel cells that convert hydrogen into electricity.

The nature of the trucking industry is it takes years to design and produce new trucks and the sales are 5 to 10 years down the line. The buyer has cost in mind – why everyone likes stylist trucks, the buyers are more interested in how much is the rig going to cost them to buy, maintain and refuel.

At the moment, battery powered trucks cost 3 times as much as a diesel model although there are savings in fuel costs. Hydrogen costs 1/3 more than battery powered, however the savings in fuel and maintenance could make them less expensive to own than diesel.

What ever the industry decides is best, that method will dominate the industry for years.

Linking to dividend paying stocks, one of the reasons why you want to invest in these companies is they are established and part of the normal method of doing things. Things can change and will change, but often times these companies can buy the new company and incorporate within its structure or profitable companies have options, as an investor you need to ensure it makes the correct decision or you can look for alternatives.

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

In every industry, but particularly in the financial system there are alternatives to the way money flows from one institution to another. Although there are alternatives, the reality is some systems dominate the others with scale, reliability and confidence.

In an article from Reuters, Russia has been trying to implement new systems that can go around the normal way of doing things. Russian Finance Minister Anton Siluanov was at a meeting with BRICS group which stands for Brazil, Russia, India, China and South Africa.

Russia has set up its banking messaging system known as SPFS, as an alternative to SWIFT. Russia also implemented its own card payment system MIR in 2015. The system known as SWIFT is a foundation of the existing monetary and financial system based on the US dollar. The card payment system is the one used by VISA and Mastercard, both suspended operations in Russia due to the war with Ukraine.

Russia had experiences with sanctions and expected more sanctions (although not to the degree they have been placed on the country during this war) and have trying to implement systems to go around although one can expect they are similar to small businesses and would need to ramp up volume and dependability.

Linking to dividend paying stocks, in every industry somewhere there are alternatives to doing something differently, most are small scale but they exist. If a company gets overconfident thinking they have the only solution, customers will find other solutions. If you use the sports analogy, the LA Lakers won the championship 2 years ago in basketball, this year they did not make the playoffs. Hopefully your investments stay competitive for years to come but always remember there are alternatives around the corner.

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

When you receive extra cash you have a number of choices – pay down debt, buy something new – add to the house or vehicle, purchase more stock. A company has similar choices and many companies are flush with cash – give extra money to shareholders (special dividend), give money to workers, buy other companies, purchase their own stock (stock buybacks).

In an article by Noel Randewich of Reuters, S&P companies purchased $880 billion in stock last year, up from $520 billion in 2020. In 2022, Goldman Sachs expects the number to be over $1 billion.

When a company purchases shares, the number of shares outstanding falls which has an effect on the P/E ratio or price to earnings per share. The lowering of the number of shares has an affect on the earnings per share which means the Earnings per share will increase and the P/E ratio will fall. The attraction of possible value helps increase the price of the shares as investors bid up the stock to where the ratio was before the company bought the shares. For example if the normal P/E ratio is 20 and the company buys stock, the ratio falls to 16. Investors will tend to bid up the stock to 20 P/E which translates into higher stock price.

EPFR Informa Financial Intelligence analyst Winston Chua who tracks new buyback announcements, said companies are aggressively repurchasing their shares. New buybacks in March reached $74 billion compared to $54 billion in March 2021.

Linking to dividend paying stocks, there are many methods to benefit when a company is profitable, dividends and increasing dividends is one way, reliable stock buybacks allows for a total return to increase over the years. There are many options when a company is profitable, owning shares is a relatively low risk as long as the company is profitable.

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

When Russian invaded Ukraine one of the responses of the west was to impose sanctions which is a good thing. Sanctions are a double sided sword because the companies are encouraged to diversify their operations and be global companies.

In an article by David Shepardson and Karen Freifeld of Reuters wrote about Boeing and Russian air fleets. The world of airlines is a monopoly betweein Airbus and Boeing. The 3 big Russian airlines are Aeroflot, Azur Air and UTair with over 170 Boeing planes. The big cargo airliners are Volda-Dnepr Group, AirBridge Cargo and Atran.

The US Department of Commerce is ensuring that parts and maintenance to the Russian operated Boeing planes do not happen. If that does not happen, the planes are unsafe to fly and are grounded. The Secretary of the US Commerce is Don Graves and he believes the export controls are working. New export licensing requirements have decreased 99%.

Linking to dividend paying stocks, in relative normal times, Boeing is one of the US largest contributors to the exports from the US and generally that is a good thing for airlines around the world as goods, services and people move freely. At special times, the government imposes sanctions and exports fall. Does the government help its domestic companies or do they take the hit and hope the government helps them in other ways. Often times the government works with and for companies, sometimes the risk is high but that is how the industry works. If you invest in a company such as Boeing you should understand some of the risks.

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

In everyday life everyone is influence by someone and on social media you can follow people that are known and receive money as influencers. The more followers a person has, the more various clothing labels will give to the person to wear and that should translate into sales. Influencers have been with us for generations and will be with us for a long time to come.

On Wall Street, one of the biggest influencer is Elon Musk of Tesla fame because his stock has done very well and when you done well once, people believe you can continue to do well.

In an article by Krystal Hu of Reuters, Elon Musk announced he owns 9.2% of Twitter shares and millions of people bought shares sending the price up 25%. According to Vanda Research most of the buying was done by retail investors and the $152 million inflow into the stock was the largest of all stocks and ETFs on US exchanges for the day.

Elon Musk besides of Tesla fame also owns SpaceX and his net worth according to Forbes magazine is worth abut $290 billion.

If you think about Twitter, the issue is can Twitter attract more advertising dollars to be profitable given its short number of characters that defines Twitter? Can Twitter generate more revenue from subscription services? Some retail buyers believe Mr. Musk can help monetize the platform and Mr. Musk has joined the Board of Directors to have input.

Linking to dividend paying stocks, every industry has its influencers and as long as they are successful, people will pay attention. In investing unless you have a very short time period, over the long run it is good to invest in profitable companies that can pay dividends. Everyone is influenced by someone but it is helpful if the person you are influenced by has gone through some cycles of the economy and still be successful.

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

Diversification is a wonderful thing until it is not. A month or so ago, China which has the second biggest economy in the world and 270 Chinese companies have a listing on US exchanges. For many people and institutions, the joint listing were both a good method to invest in China and provide diversification. It worked well as Chinese companies made money in the Chinese marketplace in the global marketplace. Then the regulators made noises.

In an article from Reuters, China has proposed revising confidentiality rules involved in offshore listings, removing a legal hurdle to Sino-US co-operation on audit oversight while putting the onus on Chinese companies to protect state secrets.

The US and China have a long running audit dispute and Washington put a line in the sand to fix the issue or delist from US exchanges in 2024. The big issue is who could conduct on-site inspections of Chinese companies – China said Chinese regulators, the US said US regulators.

The Chinese Regulatory Commission (CSR) will facilitate cross border regulatory co-operation including joint inspections which will safeguard interest of global investors.

In mid March, Vice Premier Lin He said talks between the regulators were making progress. (some issues go to the highest levels of government).

Linking to dividend paying stocks, one of the reasons, but not the only reason investors in invest on the stock exchange is because of the rules behind the scenes in the markets. Many believe the western countries stock exchanges have greater regulation which makes the rules reasonable for all investors. On some exchanges the rules are written down but not enforced which makes investor beware. If things go well and the investor makes money, the regulations are less important. If the investor loses money because the system seems rigged, then investor beware and it is better to go to more regulated exchanges.

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