Before COVID, the Chinese economy has been on a growth rate seemingly forever as the economy grew 10% plus a year. Anything less was a bad year, and that is one of the reasons there are ghost cities in the China. (cities built for 100,000 people but only 5,000 live in them). China also some of the best infrastructure in the world in terms of high speed rail, roads which cross the country, and connections to ports through various countries which China helped build and finance. The building of infrastructure around the world has meant Chinese demand was a prime determination of the price of raw materials.

In North America we expect the data released by the government to be accurate, although political parties will spin the details anyway they wish, but the data is accurate. We do not know 100% what the
Chinese data is, but if the 4 of China’s 5 largest state-owned banks said they have increased their provisions against bad debt to brace for future losses, one can reasonably say the Chinese economy is slowing down.

With China, there are many reasons, some have to do with trade with the US; some have to do with some plants have left China, not to locate to the US but to other South Asian countries; with COVID there was a global shutdown and people and companies stopped or slowed down shopping while we came to terms how to proceed.

In an article in Reuters, the Agricultural Bank of China (Ag Bank), the China Construction Bank (CCB), Bank of Communications (BoComm), Bank of China Ltd. (BoC) and Industrial and Commercial Bank of China (ICBC) all reported increased loan losses.

The ICBC is the world’s largest commercial lender by assets; the CCB is the second largest lender by assets.

Net interest margins ranged from BofC at 1.82% to ICBC at 1.98% and AgBank at 2.14%.

Non-performing loans were generally increased by 1.5%

Chinese commercial banks overall posted a 9.4% drop in first half net profit to 1 trillion yuan or ($190.8 billion) according to the China Banking and Insurance Regulatory Commission.

Linking to dividend paying stocks, in the US the big banks have taken billions of dollars in write downs for possible losses, but in China they may not be able to do that as the shareholder is the state and the state does not want to report perfect numbers. At some point all investors have access to the same numbers and what you see or do not see is your view for the future. As an investor you need to be somewhat cynical, but if profits come in which translates into dividends optimism will reign.

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

If you listen to some of the economic advisors to President Trump, particularly at the Republican convention, you would may think the economy has turned around and we are going to have a V shaped rebound. In every economy, credit and access to credit makes the economy forward or backward. In a recession, bankers stop giving loans to small and medium sized businesses, even those that could be expanding. This action causes the economy to contract even more, which suggests one method to determine how the economy is doing is looking to the big banks of the country and access to credit.

Generally the big banks, which are the banks too big to fail, have a great impact on the economy both in the cities where their headquarters and back offices are, for those jobs tend to be steady. Most of the time working for a bank means a job for a number of years. The banks make money, the determination is how much and relative to each other.

COVID came along and the heads of the banks said as best they can, they will not lay off anyone in 2000 because it is the wrong thing to do. However, with people working for home bank executives and other executives around the economy are determining people roles or staff can be cut. Management has been surprised that people working from home can be productive as they come to the office. Sometimes more productive because the lack of commuting, people work longer hours for the same salary.

In an article by Elizabeth Dilts Marshall. Anirban Sen and Imani Moise of Reuters, it is expected that banks will trim their payrolls by 5 to 10%. Most of them will say it is part of a strategic plan but in reality the reason is they can. In a related article Coca-Cola is offering buyouts as it slashes jobs. Expect more large corporations to cut payrolls because they have more people than we need, which is the opposite effect if the recovery was a V shaped. Banks are suggesting the recovery will be more of a L or W, time will tell.

Linking to dividend paying stocks, in the service economy the biggest expense tends to be people and all companies are using or examining artificial intelligence and digital solution to cut costs to use less people. (one bank uses AI to predict based on income and expenditures to their accounts who will make and those who will likely miss a payment). Everyone at the institution thinks it is the correct thing to do because the layoffs will affect the other person. As an investor, you want the company to continually examine costs to keep them low to ensure profits come on a regular basis to pay for the dividend. The investor in you and the social person tends can conflict particularly if you know someone, but life goes on.

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

When you are looking for dividend paying stocks, you are looking for utility type stocks which has the ability to pay dividends every year and if the stock has growth that is a bonus. One area of focus is waste disposable companies because they sign contracts to pick up and dispose garbage. The contracts do not say how much, but we do know if people recycle more, that aspect the city can gain some of its money back from the garbage contract. The waste disposable company picks up both – recycling and garbage.

In an article by Paolo Satnalucia and Nicole Winfield of the Associated Press, they examined the amount of garbage collected in Italy. Italian researchers estimate that during the month’s of Italy’s lockdown in March and April, production of garbage fell 500,000 tonnes or 10%. The bad news is given the use of masks and gloves, garbage is expected to rise 300,000 tonnes. The Italian Institute for Environmental Protection and Research expects the new garbage will offset the old garbage.

If you think about shop and delivery at home, the packages come with plastic because that is a good way to protect the goods inside from the handling which must be done. The bad news is the plastic ends in thee garbage and some of it gains entry into the water systems. If you think about the some of the pictures of the Italian coastline and the Mediterranean Sea, Keiron Roberts, an environmental research fellow at the University of Portsmouth in England, says because of rain and runoffs at garbage sites, no area of the Mediterranean Sea where plastic has no impacted the shoreline.

In 2018, Italy’s National Center for Research reported the presence of microplastics on surface seawater off Italy’s coasts was comparable to the Great Pacific Garbage Patch. (there are You Tube vidoes to see people try to clean up the plastics in the Pacific).

Global sales of face masks is estimated to increase from $800 million in 2019 to 166 billion in 2020.

Linking to dividend paying stocks, in one of the classic movies The Graduate, Mr. Robinson says to Ben while he is in laying on a raft in the pool says the future is plastics. With more home deliveries plastic plays a role and cleaning up plastics will have to play a bigger role when people want to go to the sea again. One day, one of the chemical companies will figure out how to make plastic breakdown naturally, but for now there will and are companies that need to pick up garbage and clean the garbage from the oceans. Recurring income is the connection to a profitable investment.

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

We have just passed the summer months of July and August and for most people in the US it has meant relatively good weather, most of the time. It might be too hot or too dry, but not too cold. At some point people want to travel for day trips or weekend trips or a week or two. Most of the travel would have been by a car or truck. It is wonderful to have a car to travel the open road.

If you work in the auto industry, the desires for travel have not changed, but how travel is done is changing. If your family lives in the suburbs, one of the needs is a car because transit is not very good or one has to give yourself extra hour commuting both ways. But the closer you live to the city, the car may be nice but not necessarily a must. There are options to use car sharing apps – Uber or Lyft and at the present time comparing costs, there is very good reasons not to own a vehicle.

If you think of the iconic names in the car business, Ford comes near the top of the list. Most people will have heard about Henry Ford who started the company, and maybe the great grandson Bill Ford is the Executive Chairman and the Ford family owns the Detroit Lions NFL football team.

In early August, Bill Ford announced a new Chief Executive Jim Farley will lead the Ford Motor Company. Besides the COVID situation which has reduced commuting and demand for new vehicles, there is a change from internal combustion engines to electric vehicles going on in the industry. At the moment, the biggest competition is in higher priced vehicles. This leads a problem for the older vehicle makers, the internal combustion engine takes more parts to build than does the electric vehicle or they can not be built in the same factory. If you think about vehicles today, often the company could produce more than one car on the factory. The base was the same but the interiors were different, which lead to different pricing of the cars. To build electric vehicles will need new plants and they have to keep producing the internal combustion vehilces.

In an article by Tom Krisher of the Associated Press, Mr. Farley worked for Toyota, joined Ford to run its marketing division in 2007, had been promoted to the chief operating officer and equally works well with Mr. Ford.

There are many challenges for Mr. Farley: he is trying to achieve a 10% profit margin in North America; seeking immediate material and warranty cost improvements, fixing under-performing businesses, maximizing opportunities in commercial vehicles and outperforming the industry in rolling out new models.

Ford is a 117 year old company and Mr. Farley said its competitors are Amazon, Baidu, Tesla, Apple and Toyota. He did not say GM and Fiat Chrysler.

In recent years, Ford had gone to selling trucks, SUVs and cars under the Lincoln brand but fewer cars one would see in the suburbs. Mr. Farley wants to add a more affordable products in a profitable way.

Last year Ford profit went down $3.6 billion as it lost $2 billion in the first quarter, but did better in the 2nd quarter with a $1 billion profit. Mr. Farley has his work cut out for him.

Linking to dividend paying stocks, as individuals you can like or love the story of the automobile companies and hopefully over the years you have driven as many brands as possible and you like one more than others. Vehicles are part of life and will not be changing, it was ironic the price of gas fell to some of the lowest levels in years and the public did not buy because of the public health order to stay at home. There are many challenges to every industry and the competition changes in ways most of us do not think about. Did you think Amazon was a competitor of Ford? When you buy dividend paying stocks, you have the luxury of buying time before changes impact the company, but changes do come so that is why doing your homework and staying abreast of alternatives is a good thing.

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

In times of summer and COVID, one of the books being read is one titled London written by Edward Rutherfurd published by Fawcett Crest, NY, 1997. The book is a history of London, England through the fictional lives of a family. Generally the family is not the main characters of the chapter but through their profession is on the edge of power.

The context of the characters are both are merchants, for in 1066 England most people did not have money, the non rich were a combination of slave, serf, freeman who pays rent and generally living in the country. The nobles tended to own the land, the merchants need loans to buy goods, in order to sell them to repay the loans and make money to do it all again. That was a normal part of business and always will be.

In the chapter, the author adds a piece about chess and debt. The characters are playing chess and in chess you have to think 5 moves in advance. The writing goes as follows:

Two people are talking:

Who, generally is stronger, a man with cash or a man with debts?

Answer a man with cash.

Suppose that man owes you a debt and can not pay?

Answer He will be ruined.

But then you lose what you lent him?

Unless I seize all he is in payment, but if that is worth nothing, then I lose.

So as long as he owes you money, you fear him?

I agree, consider what if this man can in fact pay you what he owes, but chooses not to?

Now you fear him because he has your money, but since he can pay, he does not fear you.

I agree

Suppose you need that money badly. He offers to settle for less than he owes. Do you take it?

I might have to.

Indeed, you might have to. And now, do you agree, he has made money out of you? Because of the debt owed, he was stronger.

It will depend on whether he wants to do business with me again.

No it will depend on many things. On timing, on whether you need each other, on other opportunities, on who has the more powerful friends. It is a question of hidden balances. Remember this: Men trade for profit. They are driven by greed. But debt is about fear, and fear is stronger than greed. The true power, the weapon that defeats all others is debt.

Fools search for gold. The wise man studies debt. That is the key to all business.

Linking to dividend paying stocks, at the moment debt for companies can be had for very low interest rates, should a company add more debt? If they can afford it is the answer. If the debt is to pay shareholders, that is a one time event, how will the debt be repaid? Debt is always a double edged sword – it can be very useful and not to use debt is silly. However, too much debt means Chapter 11 bankruptcy hearings. Debt can and does change relationships, use it wisely.

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

For many years, the global supply system has been focused on China doing the manufacturing and loading the products in containers that can be shipped by ocean, then rail and finally truck to the distribution place and finally go to retailers and eventually the consumer. The supply system has made more efficient and billions of dollars in infrastructure are seen in ports around the world. The supply system allowed companies to save money or spend less, do their design and engineering in Europe and the US and manufacture in China. President Trump did not like it and wanted more manufacturing in the US and set out to change the supply system Has it worked? Did companies rush to set up operations in the US?

In an article by Sumeet Chatterjee, Yimou Lee, and Anthony Esposito of Reuters, the supply system is changing but not the way the President Trump talks about the changes. One of the most popular devices is the iPhone by Apple. Apple does not do manufacturing, they contract it out to other companies such as Foxconn Technology Group and Pegatron Corp of Taiwan.

The companies could have move operations to the US, but they chose to go Mexico to increase their operations. The Trump administration is exploring financial incentives to encourage firms to move production facilities from Asia to the US, Latin America and the Caribbean. The USMCA which the President talks about during the election promotes more locally sourced inputs for tariff-free exports to the US.

In 2017, the President said Foxconn would build a $10 billion plant employing 13,000 in Wisconsin making LCD panels. In 2019, the company downgraded the size of the plant. In April it said it would make ventilators in a partnership with Medtronic.

In Mexico, Pegatron are expecting to announce billion dollar expansions to their plants to build chips and other components. Foxconn is expected to make TVs, servers and parts for the iPhone.

Foxconn is also building a billion dollar plant for iPhones in India.

Foxconn Chairman Liu Youngway told an investor conference on August 12, the world was splits into two and his firm is working on two sets of supply chain to service the two markets. The world factory no longer exists and 30% of its products are made outside of China. That number could rise.

Linking to dividend paying stocks, all over the world if any company is very dependent on one market for the bulk of its revenues there is always a risk. Whether the risk is natural disasters (hurricanes, etc) the economy, government stability, and the list goes on. Diversification of revenues is a good thing unless the company has a monopoly or monopoly like structure such as a utility where it can pass along extra costs every year. During the election campaign, there will be many statements about a perfect world, the world is not perfect but try to separate reality for fiction.

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

In November, the country votes for the President and during a Presidential election someone or some country has to be the badman. For President Trump, he suggests China is the bad company, what will be the result if he wins. Will he impose sanctions on China that actually work? or will he say he will be outside of a few plants being announced global supply chains will be basically what they are now?

In an article from Reuters, the China Banking and Insurance Regulatory Commission (CBIRC) has approved a wealth management joint venture between US asset manager Blackrock, Singapore state investor Temasek Holdings and China Construction Bank (CCB) as China gradually opens up its financial sector to international firms.

China is the world’s second biggest economy after the US and top global financial players have long sought to increase their presence in the growing Chinese economy. France’s Amundi SA, Europe’s largest asset manager and Bank of China Wealth Management won approval to set up a joint venture. UBS and JPMorgan Chase are setting up majority owned China ventures.

Chubb Insurance has increased its stake in Huatai Insurance Group to 46.2% becoming the biggest shareholder of the Chinese firm.

Linking to dividend paying stocks, elections in every country are important but they come and go. Where can companies grow their business remains and where growth is happening, large companies will be enhancing their operations. In your investing, look beyond the elections for they are short term blips, what is the growth of the company and how does it make profits? Focus on the important things and life will be easier to handle.

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

If a medium sized business wants to go the next level, to be national in scope, part of the process with be to find more capital or more money. For a long time, part of the process included listing your shares on the stock exchange through an Initial Public Offering or IPO. At the moment, there is another vehicle called SPAC. In an article by Neal Boudette and Kate Kelly of the New York Times News Service, an example of how SPACs are being used to change the traditional method.

SPACs or Special Purpose Acquisition Company or similar to Venture Capital Funds except with a SPAC the issuer raises funds from investors with no set goal other than to deliver a return on investment or give the money back. If you invest in the SPAC you are essentially investing in the manager of the fund and hoping they do a great job. The time frame is the manager has the funds for 2 years.

One of the hottest stocks on the stock market is Tesla. If Tesla is hot, then maybe investing in other electric vehicle makers is also a very good idea. In the article, Lordstown Motors of Lordstown, Ohio is developing a electric pickup truck. The model is out and they need funds to bring it to production. If the truck works well, the company does have orders. The President of the company is Steve Burns. Mr. Burns has team up with a SPAC for $650 million in financing and a listing on the Nasdaq exchange, without the SPAC the listing on the exchange would have taken 1 and half years, with the SPAC the listing is happening in months. Mr. Burns is focusing on fleet sales of the commercial truck market and says orders have climbed from 15,000 to 27,000 since the announcement of the SPAC. If the company made and sold 27.000 vehicles it would have potentially $1.4 billion in sales. Does a company buy from Lordsdown Motors or the competition of Ford, GM- Chevy or Chrysler Ram trucks? Why would the big 3 not have electric vehicles?

SPAC transactions with the automobile business have so far raised over $10 billion according to Kristi Marvin who runs the data site SPACInsider.

Remember, the SPAC makes back its money when it sell some or part of the shares during the IPO, when the market is not hot, the valuations fall. Some companies will succeed, some will not. It is the nature of change in an industry.

Linking to dividend paying stocks, it maybe the Lordstown Motors is able to start production and produce vehicles which is a good thing. The issue will how many vehicles can and will it sell to be profitable, understanding the costs to build an electric vehicle is much less than an internal combustion engine vehicle. When you purchase a dividend paying company, you should have an idea of what the number is and how the company can do the sales volume on a consistent basis year over year. Once you know some simple benchmarks you can determine do you keep your shares or look for alternatives.

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