In 2020 a new vehicle for investing raised its head on Wall Street, the special purpose acquisition company or SPAC which is essentially raising money and given a blank check to the originators. This has meant most of the money invested has not been that wonderful, even though $300 billion has been raised in 2020 and 2021. If money is raised in the billions, the established money managers can not be far behind and one of the better fund managers is William Ackman. He runs a firm called Pershing Square and raised $4 billion in July 2020.

According to an article by Svea Herbst-Bayliss and Mathieu Rosemain of Reuters, the SPAC Pershing Square Tontine Holding is in talks to buy 10% of Universal Music Group that would value Universal at $40 billion (10 x $4 billion).

Typically SPACs usually aim to buy private companies and take them public as an alternative to listing shares through an IPO. Generally the process to list shares through an IPO is both time consuming and many regulatory hurdles to manage to ensure the company meets the requirements for listing, with a SPAC the time and regulatory hurdles are much less. The SPAC can buy the company and then change its name to the company if desired.

The interesting aspect to this deal is of all the companies in the world to buy, Mr. Ackman picked a company which benefits from growing streaming revenues or recurring revenues.

Linking to dividend paying companies, Mr. Ackman found a company with recurring revenues and expects to continue to generate these funds. It is a good strategy and something dividend investors know well. There is great value in constant revenues, the challenge is what to do with the cash and how the company keeps costs in line.

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

In global politics there are faults with every country, but sometimes looking at economics tells you what countries will and will not do. China does many things, some internal things few in the world like but China has a trump card – it is the center of the manufacturing of the world. As economies open up and demand more things, China is producing and selling them. In the case of the US, the ships coming from China are in such demand that it is cheaper to send them back empty than bring back some raw material with the ships.

In an article by Winni Zhou and Tome Westbrook of Reuters, the value of foreign cash deposits in China’s banks leapt over $1 trillion according to April’s reporting. The deposits have grown so large the banks are having a hard time to loan the currency, this poses a risk to the official efforts to control the price of the Chinese currency the yuan.

The yuan is trading at 6.4 times the price of a dollar and it has a real possibility of trading at 6.2 or 6.25 times the price of the yuan according to Rohit Arora, UBS’s Asia currency specialist. Mr. Arora expects the currency level to be near 6.38 at year end.

The People’s Bank of China (PBOC) has said that in mid June, the banks have to increase their reserves.

Paul Mackel a HSBC global FX strategies said the private sector has overtaken the central bank to absorb excess US dollar liquidity generate by the corporates and foreign investment inflows.

China is running the world’s largest current account surplus and government statistics show that half the dollar deposits are held by local companies.

Linking to dividend paying companies, in global politics it is easy to pick on China, but the reality is if the US picked on China too much they could dump US dollars and create many headaches for the US government. Even though the economies are inter related, good relationships are important to be maintained, although the countries will not agree on everything. In many manufacturing companies, as the 3rd largest economy in the world, many companies have and develop strong bases in China, which means the companies tend to be for the status quo in government relations.

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

Often times when you are reading the news, you have different opinions about the affects of something negative. For exaample in early June, the meatpacking company JBS SA had to cancel shifts because of a cyberattack. The different opinions reflects how much meat you eat or do not eat. For those who do not eat meat, the opinion might have been good, people can eat plant based products. For those who eat a lot of meat, the opinion might have been somebody is targeting our right to eat meat or meat prices will go up again.

In an article by Tom Polansek and Mark Wienraub of Reuters, one of the largest company in the meatpacking industry was hit by a cyberattack. At the time, people were not positive where the attack came from, but it is important because the meat packing industry is a very concentrated one with 5 companies controlling the market. The largest meat packer in the world is headquartered in Brazil and is called JBS SA. In the US its brands include Swift and Pilgrim’s Pride and looking on its website has another 25 plus names. If you bought beef or chicken or pork in the past, you may have bought a JBS brand.

JBS runs meatpacking plants and controls 20% of the slaughter capacity for cattle and hogs. When a plant’s shift has to be cancelled for a couple days, the supply is not likely to push up prices, however anything longer than a couple of days, expect prices to rise because of supply and demand. As the summer begins, one expects meat consumption to rise

Linking to dividend paying stocks, companies such as JBS operated around the world and can move product from one country to another to keep supply moving. In terms of logistics it is an interesting thing to watch and understand. The bigger issue is consumption of meat and whether non meat substitutes will take a larger share or not. Retail companies will supply whatever consumers demand, the suppliers to the retail then have to understand and try to ensure supply and demand meet at profitable levels. Often times many industries are more concentrated than consumers tend to believe or expect, the concentration tends to be good for the companies which is good as an investor.

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

Australia is the world’s largest exporter of coking coal used to make steel and the world’s second biggest in thermal coal for power generation and industry. The Australian economy is heavily dependent on the export of commodities which Australia has many. Those in government are biased towards the commodity industries.

In that context, the Federal Court of Australia made the ruling in a class action suit brought by 8 teenagers, aged between 14 and 17 and an 86 year old nun acting as their litigation guardian. The ruling says the Minister of Environment must take into account how children would be harmed considering climate change when deciding to approve a coal mine expansion.

The Minister and the company said, that can work within the ruling of the court, the company saying most of the coal it was going to mine from its expansion is high quality coal.

Linking to dividend paying stocks, whenever there is commodity boom and prices rise, owning stocks in the commodity business are a good thing because the increased prices tend to mean profits which means dividends and stock buybacks. When prices decrease, it would not be a good thing to own them because cost cutting is the order of the day. If you do own commodity based investments, ride the boom and then seek alternatives to ensure you have locked in capital gains.

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

To judge optimism you are often asked is the glass half full or half empty, given the only time you have perfect information is looking backwards. The very good news is the degree of vaccinations is rising around the world which means more countries are allowing their citizens to gather. Whether the gathering is shopping, sporting or music events, or just being in close proximity to other people and not worrying about it. In the US over Memorial Day weekend, there was a tremendous urge to travel and eat at restaurants. That is a good thing.

All of us, look and particular numbers to gage whether the outcome of the event we are watching is a good thing or ask the question is the glass half empty or half full. Depending on your decision, it will lead to more decisions. In an article by Reuters, the writer examined a few issues in the world’s economy.

Payrolls and inflation – how fast is the US recovery? If the recovery is strong as hoped, economists were expecting 621,000 jobs in May, then the fed can ease off stimulus or bond buying. If not, then the fed has to continue what it is doing. Will inflation raise its head? we are seeing prices in retail stores increasing but there were offsets as people were not driving as much. Now that driving and traffic congestion is becoming a thing again, what is the offset?

Europe for the most part shut down and the European Central Bank or ECB had to help everyone out. Is inflation in Europe rising faster than expected? The ECB meets in June and will make a decision.

The price of oil has rebounded from its low when very low demands can about from the pandemic, the price of oil has increased. Commodity increases tend to mean more output, with OPEC open up supply?

The second biggest economy in the world is China and their monetary dollar is called the yuan. The price of the yuan has been increasing, is this forex market manipulation or will the increasing yuan mean higher prices of goods from China, adding to the world’s inflation?

Linking to dividend paying stocks, at any time in the month or year there are always many concerns which can mean the sky is falling. If you have limited or no leverage on your dividend paying stocks, then you will say stock prices will go up and down or fluctuate, but as long as the company is profitable and can pay dividends, I can sleep well at night. If you have a good sized portfolio that gives you steady income you can acknowledge there are many concerns, but there are many good reasons why the stock market is a good investment.

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

If you think about the history of the US, eventually you are going to run into the name John D Rockefeller who created the giant Standard Oil with operations around the world and controlled the oil industry from the drilling to rail cars to pipelines to oil refineries to the gas station. Standard Oil was eventually broken up and the biggest company from the group is called Exxon. For generations, not only did Standard Oil pay the most dividends of any public company on the stock exchange, it had a significant influence on foreign and domestic policy of the US. The shareholders of this widely held company agreed with management and for the most part the US was better off. Money flowed into the oil industry and returns were good.

Then along came climate change, every year more and more people see the climate changing and one of the biggest contributors is the fossil fuel industry. For a company that is used to getting everything its own way and the government agreeing to it, at the end of May something changed in corporate America.

Shareholders including the world’s largest fund managers want every company to say how they are dealing with climate change to lessen the problem. According to the Associated Press, a group called Engine No 1, spent $30 million lobbying shareholders while the company spent $35 million for the opposite vote placed 2 shareholders as directors on the ExxonMobil Board. The 2 Directors will push Exxon to transition faster to a cleaner economy.

The President of ExxonMobil Darren Woods’ said the company was moving in that direction but warned moving faster would jeopardize profits. Given the oil companies reported losses, the institutional fund managers voted against management and for more changes.

Linking to dividend paying stocks, as shareholders you have a vote for the Board of Directors of the company and if you look at most of your investments, you would see management as long as they make profits tend to receive over 90% more often over 95% of the votes. The proxy firms often make it easy to vote as management recommends. For ExxonMobil to lose 2 directors seats over the issue of climate change means society has changed much faster than the oil company. It also means the relatively easy process of evaluating an oil company – it costs x amount to drill and it sold for x plus to make plus money for shareholders will be more complicated. However society changes and demands actions, how will the oil companies respond? Will they still be as profitable? We do know the demand for oil and gas is not changing tomorrow, but will change.

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

If you think about the images of Hollywood, California movie studios will likely be in one of the image you consider. There is very good reason for that image to come to your mind, with the invention of sound, the movie industry found a home in Hollywood and still many studios are to be found in the LA area. Similar to all movie studios, MGM has gone through a number of cycles and is still a respectable studio. At one time MGM was the biggest studio in LA and America and the world lined up at cinemas to see the movies. Some of the older movies include: Singin’ in the Rain, the Wizard of Oz, Gone with the Wind. The rights to those movies were sold some time ago to Warner Bros Entertainment.

MGM has a stable of movies including James Bond, Thelma & Louise, Rocky and others you will see when the Lion roars at the start of the movie.

The owners of MGM (Anchorage Capital of New York) had put up the studio for sale because streaming service providers are the method people prefer to see movies. Many groups came to kick the tires including Apple, Comcast and the winner was Amazon.

In an article by Brooks Barnes and Nicole Sperling of the New York Times News Service, tries to answer why would Amazon pay 40% more than the competition wanted to pay?

The first reason is it can. The company has $71 billion in cash and market capitalization of $1.64 trillion.

The second reason is the Prime membership program.

According to Morgan Stanley, people pay $119 a year to Amazon or $13 a month for free shipping and other perks including Prime Video streaming service. The average household with Prime membership spends $3,000 a year on Amazon, which is twice what households without Prime spend. About 200 million people pay for Prime memberships. (200 million x $119 is $23.8 billion in cash flow for Amazon).

According to Mr. Bezos as Prime Video turns 10 years, over 175 million Prime members have streamed shows and movies over the past year which is up over 70%. Prime Video needs content and because of streaming services such as HBO Max, Disney+, and Paramount+ the movie studios are less willing to license their libraries of films to outside companies. Amazon Prime needed content and the best method to ensure content was buy a studio. Amazon also owns cloud computing giant AWS which fits into streaming movies.

Linking to dividend paying stocks, industries evolve and assets are seen differently by companies and individuals. An individual may see a movie and if they relate to it find the movie to be good. A company sees the movie as a method to sell something else to the consumer. Amazon sells Amazon Prime to people buying things needed to be shipped, they also add movies for added value. The added value becomes important to the consumer and to ensure the Amazon Prime is renewed every year, the content of the streaming needs to improve. The company wins and the consumer wins, which is a win win situation.

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

If you remember a few years ago, former President Trump at campaign rallies would say he loved the steel industry and the steel industry will come back to its 1900’s global domination. It never did but the steel industry did invest in new capacity, however every time there is an investment in capacity it tends to mean more robots doing the work or more technology and the same number of people. It is ironic that under President Biden, the steel industry is experiencing a comeback partly because steel prices are at a record high.

In an article by Matt Phillips of the New York Times News Service, steel companies are performing very well on the stock market with Nucor as the top performing stock on the S&P 500. Although it is not clear how long the boom will last. Companies are hiring, primarily because shifts are not being used.

Since the 1960’s more than 400,000 jobs disappeared as a combination of foreign competition and production processes requiring less people. However, the future prices for 20 tonne rolls of domestic steel – the benchmark of most steel prices went above $1,600 a tonne.

Goldman Sachs predicts by 2023, roughly 80% of the US steel production will be under the control of 5 companies, up from 50% in 2018. The latest mergers include Cleveland-Cliffs purchased a majority of ArcelorMittal’s American mills after buying AK Steel. US Steel bought Big River Steel by purchasing the shares it did not already own.

Steel imports are down 25% since 2017 as domestic producers are capturing prices as much as $600 a tonne above those prevailing on the global markets.

Linking to dividend paying stocks, all commodities go in cycles, although for some commodities the government tries to ensure prices do not go down too much, as an investor you like that because losses will be mitigated. Whatever industry you invest in, ensure your homework includes check up on commodity prices then you can buy low and sell high.

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

In the world of business, analysts tell the public those areas that are making high margins and as an investor you like that news. As a consumer, maybe not so much, but as a investor you are looking for those high margin areas where you can invest your money and make more money. In the case of Apple, recently analysts have been promoting the App store or services as a healthy profit center for the company, which means you do not have to pay as much attention to iPhone sales. What investors tend not to ask is how does Apple maintain the margins, as the concern is more can they?

Court cases tend to provide answers as people have to tell the truth or go to jail. A number of months ago Epic Games sued Apple and similar to most court cases time goes on. Apple’s CEO Tim Cook testified in late May over whether the iPhone maker’s App Store profits from developers such as Epic Games are justified and whether Apple faces any real competitive pressure to change its ways.

In an article from Reuters, Mr. Cook testified for 2 hours, the Judge Yvonne Gonzalez, pressed Mr. Cook to concede that game developers generate most of the App Store revenue and help subsidize other apps on the store that pay no commission.

The issue is important to Apple because the App Store anchors $53.8 billion services business. Epic Games alleges Apple had 78% profit margins.

Linking to dividend paying stocks, all companies have proprietary information that you can see the results but not how they actually earn the income, court cases shed light on the information. As an investor is a company is making margins the way that Apple is alleged to, you are delighted because the business will be a growth center for a while to come before margins begin to come down and then you will look for other areas for the company to grow from. Margins are always a double edge sword, too high and people will want to be in the business, too low and no profits will be made.

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