If you are a fan of John Grisham and many people are, some of his books have been made into movies. One book that was made into a movie was called The Firm. The law firm hired the brighest and best lawyers, it was located in the most prominent office building in Memphis and from the outside looked well established. The character played by Tom Cruise who graduated from Harvard Law reasonably quickly came to understand the owner who the law firm protected was the Chicago mob. The book was fiction and in the end, the firm was dissolved.

In real life, there are many firms working for those with money how they received it, is not discussed, but they have it and the firms ensure the money is working in the economy. In an article by Matthew Goldstein, Kenneth Vogel, Jesse Drucker, Marueen Farrell and Mike McIntire of the New York Times News Service, there are numerous firms around New York City managing money for Russia oligarchs.

One firm is called Concord Management LLC which manages between $4 and $8 billion and the money goes into hedge funds and private-equity firms.

On one hand politicians talk about the rich hiding assets, on the other side they help them. In London and New York and many other cities, there is a thriving industry of lawyers who specialize in hiding assets.

The firms have to decide if the fees they receive from Russian oligarchs or Russian companies on the sanctions list is high enough to deal with the bureaucratic hurdles and reputational risks. Over the past month many high profile law and public relations firms have said they no longer represent their Russia clients or operations.

The firms include law firms Skadden Arps, Linklaters, Norton Rose Fulbright, Debevoise & Plimpton, Ashurst. Accounting giants PWC, KPMG, Deloitte and EY have all provided extensive services to oligarchs and their networks of shell companies.

Linking to dividend paying stocks, legally speaking there is nothing wrong with working for sanctioned companies as long as certain rules are followed. Somebody needs to work with them to follow the rules. Often times, firms are drawn to work with the oligarchs because they pay their bills and do not worry about the fees, it is price of doing business. A couple of months ago, working for oligarchs was under the radar of most of the population and the fees were good. With sanctions, changes happen and maybe when the sanctions are off, the old practices will return. For now, it is often very difficult to be on the right side of the law all the time, ideally when a company makes a profit selling its goods and services over a long time, all its relations both good and bad can be seen and generally the public is good with it. If the public is good, then as an investor you can be good.

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

Imagine if you were an analyst looking at the state of Russia a few months ago, while the politics may not be your cup of tea, the leading corporations and government does generate cash from the oil and gas prices. Slowly prices have been going up as the world reopened from the pandemic. Russia bonds paid in dollars, euros, British pounds or Swiss francs and Moody’s had rated the bonds as BBB. Then President Putin sent the army to Ukraine and western world imposed heavy financial sanctions.

In an article by Guy Faulconbridge adn Karin Strohecker of Reuters, Russia said sovereign bond payments will depend on sanctions imposed by the west, raising the possibility of a major default. Russia’s Finance Ministry said it would service and pay sovereign debts in full and on time but that payments could be hampered by the international sanctions.

Russia has $630 billion in reserves but it is held at western banks and is frozen by sanctions.

Russia in 1998 defaulted on $40 billion in domestic debt and devalued the ruble.

In 1918, the Bolshevik revolution under Lenin defaulted on Tsarist debt. At the time, Russia was one of the largest foreign debt in the world.

The Soviet Union under Josef Stalin stopped servicing loans to the US and Sweden after WW I.

Russia has $40 billion in international bonds outstanding across 15 dollar or euro denominated issues. However corporate debt is much higher. On March 16, Russia is scheduled to pay $107 million in coupons across 2 bonds. The next full payment is $359 million on March 31 and $2 billion maturity on April 4. The total bond market in Russia is worth about $200 billion.

Gazprom has a $1.3 billion dollar bond due for repayment on March 7.

With the imposition of sanctions, Moody’s changed Russia ratings from BBB to Ca or junk status until sanctions are over.

Linking to dividend paying stocks, people around the world are doing analysis on a regular basis and normally for an organization that has reasonable ratings, cash in the bank and expected higher revenues in the future, that would be a good thing. You would risk your money because of the long term return, but some events are revenue changing and some are not. The western world imposing sanctions on Russia is a good thing for the world in generate, but there are consequences and hopefully if the war is over sooner than later, it is price to be paid.

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

As we move into the summer months you may have or think about having a beer on a patio. As you consume the beer you think what are the ingredients and which states did they come from? If you thought about the states of Iowa, Nebraska, Kansas, Missouri and other states in the Great Plains area, you would be correct. The states of the great plains grow the grains which is needed for the beer and the bread you are consuming. In Europe, the vast fertile farmlands of the Black Sea are known as the breadbasket of the world. The farmers of the Ukraine and Russia feed Europe, Africa and Asia.

In an article by Joseph Wilson, Samy Magdy, Aya Batrawy and Chinedu Asadu of the Associated Press, when Russia invade Ukraine, the farmers are no longer working the lands and ports to send the wheat to the marketplace are shut down, what happens?

Russia and Ukraine combine for nearly a third of the world’s wheat and barley exports. Ukraine is a major supplier of corn, the global leader in sunflower oil used in food processing. A prolong war will cause shortages.

In Egypt, the world’s largest wheat importer millions rely on subsidized bread to survive, with about a third of people living in poverty. Egypt’s state procurer of wheat, which normally buys heavily from Russia and Ukraine had to cancel 2 orders in less than a week, one for overpricing, the other the lack of companies to sell their supplies.

African countries imported agricultural products worth $4 billion from Russia in 2020, and about 90% was wheat, said Wandile Sihloo, chief economist for the Agricultural Business Chamber of South Africa. (Russia was trying to break into new markets in Africa, first through food).

Ukraine was Indonesia’s second largest wheat supplier providing 26% of wheat consumed. The wheat is used in instant noodles, bread, fried foods and snacks.

Russia and Ukraine combined for 75% of global sunflower oil, accounts for 10% of all cooking oils according to IHS Markit.

Farmers in the US, the world’s leading corn exporter and a major wheat supplier are watching to see if US exports spike. Ukraine supplies the European Union with 60% of its corn. Much of the corn is used to feed livestock particularly pigs. Russia provides the EU will 40% of its natural gas needs and is a large supplier of fertilizer. In Spain during the first 2 days of fighting, the price of animal feed jumped 10% in the open market.

Linking to dividend paying stocks, all people need to eat to survive and the world producers even though there is competition, loosely work together. After the domestic market is secured, producers look to export markets and it may take years to establish all the relationships in the supply system which seems seamless. At a moment the chain is broken and the stable supply system will take time to fix, if it can be fixed at all. A world at peace is easier than the consequences of a war.

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

Risk management is the insurance you thought you had. The last time Russia invaded Ukraine, the world for all intensive purposes was willing to let Russia control the Crimea without much hassle. Russia needed access to the Black Sea and port of Sevastopol and by hook or crook they will likely going to take the region. One could have offer counterpoints to many of the issues, although the Crimea was part of Ukraine and Russia took their land. When the world offered little consequence to Russia, the President of Russia must have started the process to have more – the whole of Ukraine.

The military commanders would have gone through the logistical problems and what they needed to do and be willing to do. The diplomats would have made the rounds to ensure that Russia only wanted Ukraine. President Putin would have meant with the head of Russia Central Bank and be assured that although there would be fall out, the normal business of Russia could continue.

In an article by Patricia Cohen and Jeanna Smialek of the New York Times News Service, the Russians miscalculated on the west resolve to to something about taking the whole of Ukraine. The country of Ukraine is an independent state and while it has strong links to Russia, it also has links to the west including Europe and the US.

For generations the global financial system has been biased at moving money around the world and whether it was legal or semi-legal, the opportunity was once money was accepted by the system, the financial system provided quick movement to where ever the account holder wanted it to go. A example is when the writer had an account at a large financial institution, the transactions to pay bills or move around was built around using one branch. After a merger, a person could use whatever branch in the system they wanted to. The only reason a person used a branch was convenience to the account holder, not the financial institution.

Ever since the war in the Ukraine started the western has frozen hundreds of billions of dollars of Russian assets that are held by their own financial institutions. An individual goes to a bank or payments system such as Western Union to move money; financial institutions use a system called SWIFT to move money. If a country is not on the system, it is hard to receive and pay funds to the counterparty. The effect of closing down the credit system was the ruble fell to one cent on the dollar; the largest bank in Russia (where 2/3 of Russian business have accounts) meant the bank will run out of cash and Sherbank’s shares on the London Stock Exchange fell to a single penny. (companies coming out of bankruptcy trade at that level).

According to Carl Weinberg, chief economist at the High Frequency Economics, he wrote the sanctions are severe enough to dismantle Russia’s economy and financial system. Something we have not ever seen in history.

Russia had been subject to sanctions before, but they were more of an irritant than anything disruptive. However if it planned to invade Ukraine, the country was trying to sanction proof its economy by reducing its dependence on the US dollar and other common reserve currencies. It also shifted away from German, French and American holdings towards Chinese and Japanese holdings.

Although there are 180 currencies around the world, most global payments are dominated through a Western currency financial system, said Eswar Prasad, a professor of international trade at Cornell University. Thus it is hard to avoid western currencies and half of the $630 billion in foreign exchange reserves owned by the Russian central bank is under the digital thumb of central and commercial banks in the US, Europe and their allies.

Will an alternative system develop? the trouble with Russia, is its economy in reality is oil and gas based which tends to trade in dollars. Any commodity which trades in dollars will be vulnerable to sanctions imposed by the west. Perhaps, if Russia was more intertwined in the western economy, the sanctions would not work because the western partners would be taking the billion dollar write downs and who wants to do that?

Linking to dividend paying stocks, all companies try to do risk management and depends on their size, it is possible to do risk management at the basic level. When the world’s governments turn their sights on the company, the company can do little and feels the effects until the sanctions are taken off. Risk management can not do everything unless you go off the grid, but then you are off the grid.

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

After a company lists on the stock market, besides doing an excellent job for shareholders, one of the other functions is to pay attention to what the market wants or thinks it wants in the future. For example when there is a low interest environment, having debt to take advantage of the low rates is a good thing. If interest rates went up, debt would be bad and the company would be penalized for too much debt. All companies look to the future to see what the world may look like and how they will continue to look after customers and do the right thing for customers and shareholders.

In an article by Aishwarya Nair of Reuters, Ford Motor Company said it will boost spending on electric vehicles to $50 billion and run its EV unit separately from its legacy combustion-engine business.

Chief Executive Jim Farley said Ford plans to build more than 2 million EVs in 2026 or EV will be about 1/3 of the production and rise to 50% by 2030. The EV unit will be run by Doug Field.

The stock market has put a premium on Tesla stock and Ford splitting into 2, while making practical sense also allows some of the premium the market gives to Electric Car manufacturers to Ford stock. The reason why it makes sense is the component makeup of vehicles is different as electric vehicles use less parts than combustion engine cars.

Linking to dividend paying stocks, while the first priority of any company is to run the business to make a profit and then pay dividends, all companies examine their share price relative to the competition. Company management sometimes wonder how to ensure the stock price is very comparable or why the market values one company more than another. Could it do what the market is rewarding while making common sense for management?

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

A month or so ago, if you had diversified your money around the world, besides your home country, you likely thought investments in Europe, China and Russia was a good thing. In terms of Russia, the country does have about 150 million people, besides the Middle East has oil and gas reserves and is close ready markets in Europe and China. The big companies such as Gazprom and Sherbank (2 out of every 3 businesses has accounts at Russia’s biggest bank), are profitable and stable as investments.

Then Russia invade Ukraine and now according to an article from Reuters, because of the sanctions, foreign investors can not sell their holdings. The Bank of Russia put a temporary halt on payments and major overseas’ settlement systems stopped accepting Russian assets.

Foreigners (non Russians) held about 3 trillion rubes $28 billion worth of OFZs or ruble-denominated sovereign debt out of a total market debt of 15.5 trillion rubles. Foreigners held 19.7 trillion rubles in Russian shares as on July 1.

The world’s largest settlement systems, Euroclear and Clearstream are no longer accepting Russian assets. Settlement systems are a key part of the global financial system, holding trillions of dollars of assets for banks and investors and settling on their behalf.

Linking to dividend paying stocks, the shut down of the financial systems to force Russia to stop the war in Ukraine maybe a once in a decade or more lifetime event. It is the reason, even though diversification is a wonderful thin. There are risks going outside of the country, but there is always a risk inside your country. In a functioning economy, access to credit is necessary otherwise the system breaks down. As investors clearly the ultimate goal is peace and stability.

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

For generations and maybe centuries, if you wanted to deposit excess cash, gold, etc a tax haven such as Switzerland was the place to go. The banks loved money and the government encouraged once the money was deposited into an account, it was off limits to any other country. During World War I and War II, the country remained neutral which meant both sides went to Switzerland to deposit assets. The growth of tax havens around the world were modelled on Switzerland.

If you think about countries around the world, some have been well run for the mythical average person and some the leaders have used the treasury as their personal bank accounts, much of the money headed to Switzerland, it was safe, secure and the laws meant the other country would have a very difficult time to receive the money back. It was a surprise to Russia and the world, the Swiss government has a line in the sand.

In an article by Nick Cumming-Bruce of the New York Times News Service, Switzerland noted it was departing from its usual policy of neutrality because of the unprecedented military attack by Russia on a sovereign European state. Switzerland cherishes a reputation for neutrality that has established Geneva as home to the United Nations, including the UN Human Rights Council and as a place where countries around the world can negotiate peace in their conflicts.

Swiss national bank data showed that Russian companies and individuals held assets worth more than $11 billion in Swiss banks in 2020. As a hub for the global commodities trade, Switzerland also hosts numerous companies that trade Russian oil and other commodities.

Linking to dividend paying stocks, Russia, China and the US are the three most powerful countries in the world which means they have both military and economic activity. When in comes to taking sides, for most of the world it is very hard because it is important to have economic activity with al the countries. Goods and services flow, In the war with Russia and Ukraine people have to take sides and causes pain on both sides. Often times, people do not have to take sides and hope for peace as economic activity continues. Do you have a line in the sand for your investments outside of not making profits or paying dividends?

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

If you run a business, one of the decisions you have to make is prices of goods and services, while consumers expect prices to bounce up and down in a supermarket, generally companies only have one opportunity to raise prices. The decision process involves what the company thinks the market will bear, their profit margin; the costs of the product and when the prices were raised the last time. If a price has been stable for a number of years, often there is a change to increase prices and the market share will remain because the customer has little choice.

In an article by Jeanna Smailek of the New York Times News Service, at the present time corporations are discovering people are willing to pay for the goods and services they want to buy. Most people have heard about the supply system bottlenecks and expect prices to go up. How much before it bothers the consumer, only the market will tell you. At the moment, corporate executives have a window of opportunity to increase prices to cover costs and to expand their profit margin.

Rental car costs

Everything related to automotive seems to be increasing in cost and rental cars are the vanguard of that trend. Joe Ferraro, president of Avis Budget group said the rental a car market has more demand than supply. The margins are increasing and the group is competing on the quality of service not the price.

Tire demand

Richard J Kramer, CEO of Goodyear noted, it is a really very very good constructive pricing environment that we have seen right now. Goodyear tracks 9 competitors and 7 of the 9 have announced price increases. Goodyear expects profit margins to be up because of price increases.

Sizing up beef costs

The restaurant chain that includes Outback Steakhouse is planning to raise prices by 5% across its brands to cover labor and food costs as well as find efficiency improvements to increase its profits. Christopher Meyer, CFO, said the 3% increase was too small. Prices were stable since 2019. The efficiency includes simplifying its menu and cutting food waste.

Recovering profits in food

Shake Shack’s Katherine Fogertey CFO, said prices increased in October and another price increase is expected in March. Normally prices increase 2% a year, but this year it is 7%.

Pricier hotel rooms

If you are planning to go to Vegas, Wynn Resorts CEO Craig Billings believes the company has strong pricing power on rooms, food and beverage.

Donuts

Josh Charlesworth. CEO of Krispy Kreme, increased prices with double digit price increases. The cost of labor may go up, but the company had locked in prices for key ingredients such as sugar and oil for the year. If prices go up it will tend to add to margins.

Linking to dividend paying stocks, one of the elements you look for in a company is does it have the ability to raise prices. It seems this year, many companies are in the position to raise prices and that is good for the company. The price increases cover costs but it also increases margins which translates into profitability and that is a good thing for investors. From an investor viewpoint, you like when the CEO or CFO says sales will increase at higher prices and higher margins.

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

When a country goes to war, it has to ensure the people who live in the non evading country attempt to go about their normal lives. Russia troops moved to the Ukraine, but in the rest of the country – the regular things that need to be done are continued. The garbage is picked up, the water works, groceries are bought, children go to school and parents go to work. The idea for the country in this case, Russia, to tell the people the normal things need to be done, while the members of the military sacrifice for the greater good of the country. When the war is over, something better will be the outcome. (whether it is, is always debatable)

In an article by Carolyn Cohn and Lawrence White of Reuters, when Russia invaded the Ukraine, the stock market fell, the Russia ruble (their currency) fell and the government put a restriction on Russia people taking all of their money out of the bank. For the large institutional players, the Russian government is trying to ensure they do not sell assets and take the money out of Russia. This means billions of dollars worth of securities held by foreigners in Russia are at risk of being trapped.

If you think about the S&P 500 index funds we can invest in New York, the Russia stock markets have similar index funds and millions of people own them.

In a matter of weeks, Russia has turned from a lucrative bet on surging oil prices to an uninvestable market with a central bank hamstrung by sanctions, major banks shut out of global payments system SWIFT and capital controls choking off money flows. The west is hoping not to send troops but make life very hard for the mythical average Russia.

Linking to dividend paying stocks, on one level as an investor you are thinking it is very good the west is using financial measures against Russia for in the past there was a limited price to be paid by the country. Perhaps these measures will be the new normal and leaders of the countries will need to think twice before they act. As an investor once the war is over and the financial controls come off, the assets of Russia will be low and with high oil prices money can be made.

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