Last year there was no tragic crashes of planes and although one can easily argue it took a little too long to ground the plane, the planes across the world were landed and have been parked ever since. Planes are more complex than we all thought they were, for it has taking about a year to fix the problem and more importantly to achieve the regulators’ blessings to fly again. In the world of domestic airlines, two manufacturers dominate the sky – Boeing and Airbus. The Boeing MAX 737 was supposed to be the cash cow or profit generating plane for Boeing for the next 10 plus years, the plane crashes has changed everything.

In late January, Boeing posted a lost as reported by Ankit Ajmera and David Shepardson of Reuters. The costs to fix the plane has doubled to $19 billion. Even with that type of loss, analysts were predicting a greater loss, so the shares although down 25% since March of last year remain stable. The company is diversified, which has limited the decline in the stock price.

Deliveries of hundreds of jets remain frozen while Boeing updates the flight control system and software to address the issues in the crashes. New Boeing President and CEO David Calhoun said he believes Boeing can achieve regulatory approval by mid year. That timeline was expected last year and that is part of the reason for the new President.

Costs related to the 737 Max grounding reached $14.6 billion in 2019 and Boeing has warned of another $4 billion in 2020, originally Boeing estimated the costs at $9.2 billion. In 2019, Boeing core operating loss was $2.53 billion or $2.33 a share compared to a profit of $3.87 billion or $5.48 a share a year earlier. Part of the loss was paying customers who have planes sitting on the ground.

Linking to dividend paying stocks, Boeing has a diversified portfolio of planes – commercial, military and space. In the commercial division there is really only one competitor – Airbus, once the plane is approved to fly again, the company should easily return to making profits. The MAX 737 shows what happens when there are few competitors and when things are relatively normal, the cash flow will easily pay dividends. The stock should move upwards once regulatory approval is given.

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

Most of us thankfully live our lives within the law and that is a very, very good thing. However, it is possible to see how community works with the world where gangs dominate. One area of the world, where gangs dominate is in the largest slum in Rio de Janeiro, Brazil. In the book, Nemesis – the Hunt for Brazil’s Most Wanted Criminal by Misha Glenny published by Anansi Press, Toronto, 2015 how community exists can be seen.

Brazil is a complicated place, there are multi millionaires and the wealthy originally from Portugal, there are immigrants who came to the country; Brazil had one of the largest slave trades in the world; there are pecking orders depending on the color of your skin and the country has great potential. In Rio because of the mountains, the best neighborhoods are near the beach, but the upper and middle income groups have domestic help. Similar to around the world, domestic help does not pay well so the working poor settled on the mountains, because the land was free for the taking. Over the years with more services the buildings become developed to livable housing. The commute to work is relative easy.

In the slums, the officials do not clear it out, so an unofficial government exists as the people of the slums have the same need for law and order and services any other community needs. Someone who can provide that becomes the unofficial Mayor. Prior to the drug trade and gun violence that comes with it, the slums are essentially left alone by government. As the drug trade develops, through Brazil’s infrastructure to move the cocaine to Europe and the US, some of the product stays in Brazil, including in the slums. As the money grows and the desire to have more money, different rivals come up and fight for control. The longer the battle, the more young men between 16 and 35 die of gun violence. The battle for control and the money is a reason to fight. The book is about one of the leaders Antonio Francisco Bonfim Lopes or Nem of Rocinha.

Linking to dividend paying stocks, fortunately when you invest in a company and it fights for share of the public, the battle is done with someone buying a good or service. Lives are not lost, in the drug trade there are organizations with people – some willing to “work” with authorities, some wanting it all no matter the carnage and some in between. Management matters in the organizations of the drug trade and in organizations of legal business. Hopefully, your investments are in legal nature but you can learn from all sorts of organizations.

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

We all know index funds and passive investing is taking more and more money from investors. There are very good reasons why that is happening – if you invest over the long term, all indexes remove badly performing companies and replace them with better performing companies. If all the companies are winners, over the long term the index will trend upwards. If you have a reasonable long term time line to invest, ensure your portfolio includes index funds.

The other side of investors is companies, who now have strategies to be included in the index funds. In an article by David Milstead of the Globe and Mail, he outlines the strategies of the company which was known as Encana. The company is in the oil and gas business and recently relocated its head office from Calgary to Denver. It addition, the name has changed to Ovintiv.

The issue with Encana is as a Canadian company it was in the S&P/TSX Composite Index and S&P/TSX 60 which held between 90 million and 120 million shares of the 1.3 billion outstanding or about 10% of the shares were in passive investments. Other analysts put the number closer to 20%.

The problem is the new company Ovintiv will be included in the S&P Mid Cap 400 and the Russell 1000 Indexes which will account for 90% of the above, it does not occur overnight. There will be a lag time between leaving the Canadian index to joining the US Index. The lag time is the Indexes will rebalance in March.

Encana had a market capitalization of $5 billion, but is too small to be in the S&P 500 which requires a market capitalization of $8.2 billion. (At the moment there are shares worth $3.4 trillion tied to the S&P 500).

Over the next few months, one of the analysts who flows the company expects the indexes will have increased the ownership of the stock from 15% to 25%

Linking to dividend paying companies, if you buy larger companies who easily fit into the indexes you do not have to worry about whether the passive indexes will sell or not, but if the company gets into trouble and can not pay its dividend, the market pressures from the indexes will push the stock down further. If the company flirts with the low end of the $8.2 billion in market capitalization, it is better to find an alternative. In the era of indexes, if the company is to be moved out of the index, do not fight the index.

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

In late January, the world of public health, the folks who protect us, were in high alert because of virus coming out of China. In an interconnected world, where flights to get to anywhere are relatively inexpensive and demand for flights continues to grow, every once in a while something happens. The news from China is they are trying to shut down the country at a time, given the Lunar New Year demands for travel. One of the beliefs of the Chinese is the value of ancestry which includes once a year, you go back to your hometown. This has meant China has the most advanced infrastructure system in the world and on this holiday most of the country is on the move.

China is also the second largest economy in the world after the US, the virus affects their economy and it affects China’s economy, it affects the world’s economy. Given this is written in late February, hopefully the solution to the virus is settled and the world has gone back to normal.

If you are interested in other virus – there are good books and movies about the Black Plague and how the world reacted to the virus.

Linking to dividend paying stocks, most of us are optimistic in nature, but there are news events that affect the markets. If you listen to Ray Dalio of Bridgewater Associates be diversified, it is good advice to advice to listen to. If you are reasonably diversified with different streams of income, you should be okay but remember the streams of income include dividends.

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

In late January, Sean Pugliese of Wicham Investment Counsel, decided to examine some stocks which you would not be happy to own, they lost value. Although most investors own some dogs or losers or poor performers, it is hoped your portfolio does not contain many of the names listed below. There is always a theory, last year’s dogs are this year’s stars. Before you buy, ask yourself why did the stock lose value and what has changed?

Mr. Pugliese used the following criteria:

Companies in the S&P 500 with a 52 week total return of negative 10% or worse.

Dividend yield is the projected annualized dividend divided by the share price. The list only has dividend paying companies on it.

Debt/equity is the total debt outstanding divided by shareholders equity. A lower number is preferred, in the case of the list below, all have enough equity to pay off their debts.

Price/Earnings or P/E is the share price divided by the projected earnings per share. The lower the number the better the value.

Earnings Momentum – the change in annualized earnings over the past quarter. A positive number means something is changing for the better as earnings are getting better, the opposite is true if negative.

Company Mkt Cap 52 Week Div Debt/ P/E Earns Recent

$ bil Tot Rn% Yield % Equity % Mo % share price

Macy’s 5.4 -38.2 8.7 73.8 7.2 -5.4 17.42

Occidental Pete 42.2 -28.2 6.7 48.4 40.7 -34.6 47.26

Gap Inc 6.7 -28.0 5.4 35.2 10.8 -7.0 17.92

DXC Technology 8.9 -27.9 2.4 65.0 5.2 -7.8 34.64

Mosaic Co 8.2 -25.3 0.9 43.6 18.2 -29.1 21.52

Kraft Heinz Co 38.6 -21.1 5.1 60.3 12.3 0.0 31.60

Cabot Oil & Gas 7.1 -20.8 2.3 58.7 14.7 2.1 17.34

Kohls Corp 7.3 -19.2 5.7 63.3 10.1 -4.5 46.72

Tapestry Inc 7.9 -16.1 4.7 45.6 10.3 -3.1 28.56

Concho Resources 17.8 -14.3 0.6 23.2 21.5 -21.5 88.44

Dupont De Nemours 45.3 -14.0 2.0 13.4 14.8 -15.1 61.14

Cimarex Energy 5.3 -13.6 1.5 44.7 9.3 -18.0 51.64

Walgreens Boots All 48.2 -11.0 3.4 71.6 9.2 -1.5 54.43

Linking to dividend paying stocks, all the above pay a dividend which means if you own some shares you can still own them for they are paying you a dividend. The questions is should you buy more share or as long as the business is still good – you are protected and they have a manageable debt it is possible to hold on. A couple of the above are in the energy industry, the good news is we have a glut, the bad news it is not going away soon – what is your view on oil prices? some of the above are in retail – Amazon has changed many notions about retail, but if you go into the stores you can see how the stores are trying to adapt and whether you want to find a exit strategy. We buy to increase our wealth, but when do you sell?

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

A Minsky Moment happens when asset values collapse with little or no warning. The term was named after Hyman Minsky, the American economist who noted that financial systems can move from apparent stability to mayhem in a very short period of time.

In an article by Eric Reguly, he connects climate change concerns with the markets.

In 2018, Pacific Gas and Utility, the California utility was one of the biggest electricity companies, it had a value over $25 billion, it was investing in clean energy, it was paying higher dividends each year. All looked from the outside to be a normal electrical company in a growing state, the future looked good. Then disaster happened, PG&E had been slow to upgrade its transmission system spanning over 30,000 miles. One of its cables fell to the ground sparking the forests. The problem was the area where the forests were had been very dry, it was a fire waiting to happen. The fire did happen near the town of Paradise and 14,000 homes were destroyed and 88 people died. Because the fire was the fault of PG&E rather than an lighting strike or human error; the value of PG&E went from $25 billion to $3 billion in 3 months or 90% of the value of the shares was gone. Worse the company was forced into Chapter 11 bankruptcy and only recently came out of it.

Another example is coal companies, although the President loves coal, investors do not. Climate change and the role coal plays has Peabody Energy values down 77%, partly because utilities who were some of the biggest customers switched to gas and more solar and wind energy.

Another example is the fires in Australia. People must have known about the on going drought had made the forests highly vulnerable to fires. What systems were there in place? There is hope – The Mulloon Institute is doing some very good things, with increasing support.

Linking to dividend paying stocks, the Minsky Moment will have an affect on companies who dismiss climate change because something is happening. As small investors, we expect management to be able to stay current with their maintenance programs, to examine how the weather is changing their operations. If management does not acknowledge climate change in their operations, watch over for a Minsky Movement and you will be wondering what happened?

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

A number of years ago, Billy Crystal starred in a movie called City Slickers about 3 people that lived and worked in New York City going out west to be Cowboys. In the movie, Jack Palance who is the trail boss says the Secret of LIfe is to do one thing. You have to live your life to figure out what the one thing is.

If you ever seen Dave Ramsay on TV or YouTube you would know he offers advice: much of it good advice. In one of his shows: he offered from a survey of millionaires how did they get to the point they were at? There were 5 things:

1. Have a written plan or budget – know what you spend your money on. It is hard to make choices if the answer is it goes.
2. Get out of Debt. Try not to pay Mastercard and VISA interest.
3. Live on Less than You Make.
4. Have Savings – this is the key and regularly invest the savings. In the future compound interest will do most of the work
5. Be Generous because you can be.

In terms of the debt particularly customer debt, Warren Buffett says own shares in the credit card companies, try not to pay the credit companies. (Full disclosure, through both indirectly and directly, the writer owns shares in the companies and they have done well for the past few years)

Linking to dividend paying stocks, Dave Ramsay has many things to say, including take your time to make your big purchases. Many people worry about a dollar difference, but make quick decisions on the items that cost you the most – buying a home or a vehicle. Take your time, do your homework or research and then make a decision. If you buy a dividend stock, taking your time is to earn a dividend and very often a capital gain over a period of time. Low risk, high reward.

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

If you are in the northeast, you are are thinking of warmth for it is the middle of February. One way to do this is go south or look at travel pictures of warm climates or read books that have settings in warm climates, while you are indoors. A book that helps with the warmer climates is Aloha Rodeo written by David Wolman and Julian Smith published by William Morrow, NY, 2019.

In the book about the cattle ranches and some of the cowboys in Hawaii, the authors also write about the founding of the Rodeo in Cheyenne, Wyoming in 1897. Cheyenne’s business people like the idea of putting on a rodeo for a day and ensured the marketing was directed at the folks in Denver which is a short train ride away. Frontier Days tapped into the changing western frontier and people came to the event which ended in the profit for the city. Frontier Days were on the calendar forever, in 2020 the event runs from July 17 to the 26th.

In addition, the popularity of the rodeo owed its popularity to Bill Cody or Buffalo Bill Cody and the Wild West Show which toured the world in the 1880s. There was Buffalo Bill, Annie Oakley and 500 hundred performers and animals filled 82 train cars. The show ran for 30 years and there are a variety of movies and Broadway plays based on the performances.

In the rodeo, all types of events are tried and at the bigger rodeos draws Cowboys from all over the country including Hawaii. In 1908, 3 Hawaiians arrived at the biggest Rodeo in Cheyenne, were the underdogs because who had heard of Hawaiian cowboys? The Hawaiians left champions and eventually some of the Cowboys were inducted into the National Cowboy & Western Heritage Museum’s Hall of Fame.

Linking to dividend paying stocks, in a competition all things seem to be equal and everyone has the same opportunity. In reality, with investing over the long run it is better to invest in year over year profitable companies who can pay a dividend and likely increase it. The dividend is a good method to know whether to continue to hold or sell the shares. The profitability allows the investor to see how well the company continually adapts to the challenges before it.

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