One of the President Trump’s claims the economy is doing great, is low unemployment rates. In many ways it is a good news story and most of us agree that low unemployment is a very good thing. It is good because there are many jobs and many people have some level of choice in their lives to move from “dead end jobs” to jobs that people love doing and pay reasonably well.

Linda Nazareth recently wrote a book called Work is Not a Place: Our Lives and Our Organizations in Post-Jobs Economy which says using unemployment rates as a leading indicator is not as valid as it used to be.

Unemployment rate has always been a lagging indicator because of unemployment insurance which means after a plant closes down or people are laid off, they are given money to look for work, but it means they have some level of income coming in. They do not necessarily have to take the next available job, generally it pays less than what they were receiving.

Demographics are the aging baby boom population is one of the reasons why unemployment is low and we are seeing signs of more opportunities in the workplace. The baby boom is retiring and millions of people will continue to retire for another 10 years, these people typically came from families of 7 or more, the next generation the families were 4 – two adults two kids; now the average family is even smaller with one child. Simple math says either increase immigration or there will be more jobs than people. If the structure of the population stayed the same as 1976, the unemployment rate would be 4% higher.

The low unemployment rate does not tell you about the quality of the jobs. If you look around at older workers, many of them had full time and benefits including paid vacations and retirement pensions at the end of their work. The workplace now is full of contracts – from one month to one year. Depends on the income or pay, many people have 2 or more part time jobs rather than one full time. People can pay the bills but …

A paper from the Dallas Federal Reserve examined gig workers who are either self-employed or contractors but who ended up lumped in the broader “employed” figures, even though they had less bargaining power and lower wages than full time workers. It is one of the reasons, many people are $250 from having to juggle their bills or savings rates are low.

Linking to dividend paying stocks, the lesson to be learnt is benchmarks change over time. Older people will hear unemployment is low, that is good, which allows people to spend money in the consumer economy. Younger people might say, unemployment is low but what spending do we have? As you think about the spending for the holidays and retail stores, who do the stores cater to and what type of spending will happen. If you can, one beneficiary buy the charge card companies they make money no matter the average income is, people need to spend money including interest.

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

In October Charles Schwab Corp announced it was slashing fees for online trading of stocks and exchange-traded funds (ETFs) and options. As an investor you were delighted because some of your fixed costs came down. In the marketplace, Ameritrade matched Schwab’s prices to keep their business at Ameritrade. Schwab had announced price decreases because of many new startups which had low prices. This reduction in prices has changed the business model for trading stocks and bonds.

According to Devin Ryan an analyst at JMP Securities, the moving to zero on commission pricing removed a big barrier to consolidation.

In an article by David Berman and Clare O’Hara of the Globe and Mail, they examined the possible actions of TD Bank which owns 43% of Ameritrade. The lowering of the fees has reduced the profitability of the division, as they figure out a new model. The pricing of the parent relative to other large banks has lagged behind the competition. What are the options for TD? In theory, a merger would allow for some cost savings from closing branches and reduced marketing costs.

If a merger happens, TD could lower the percentage of the company they hold to 10 to 15% if the deal is all stock, and potentially sell the holdings to buy a regional bank.

The difference between Schwab and Ameritrade is Schwab is more diversified into wealth management at received 7% of its revenues from online trading; while Ameritrade had 23% of its revenue from online trading.

Linking to dividend paying stocks, the key to the story is when you hear an area of the economy is undergoing possible restructuring because of price changes, it is time to investigate alternatives. Price changes which reduce profitability means the company has to do something to increase it or merge with another company, whatever happens there will be a time lag. If the company mergers, it will take 6 months to a year; if they have to find new revenue sources, it will take 1 to 2 years, whatever happens means you can move the bulk of your investment to other alternatives and wait to see what happens.

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

For a long time, the United Auto Workers or UAW had a very public negotiating strategy, it tried to pick the weakest of the car companies (GM. Ford and Chrysler or FCA) and with the deal it received, “walk across the street” to the other companies to match the agreement. In this fashion, no matter which company its union members worked at, the pay and benefits were similar.

All 3 companies have gone up and down in the financial progress, but in an article by Nick Carey of Reuters, GM filed a lawsuit against FCA (Fiat Chrysler Automotive) that its contracts forced higher costs on GM. GM maintains the FCA contracts were not the same as the GM contracts and thus Chrysler was secretly allowed to use more temporary workers and lower paid second tier workers than GM was allowed. The contacts at the auto companies lowered full time wages depending on when a person was hired. FCA says they did not, but the lawsuit goes on.

FCA is in talks with PSA which includes the Peugeot, Citroen and Opel brands based in France.

Linking to dividend paying stocks, companies which are profitable have the ability to use the courts to combat the competition and to keep a fair system from their advantage. It is not unusual for profitable companies to use the court system or be sued by the competition, so lawsuits are on going. How they turn out is another issue, but one should expect profitable companies to use the courts to solve problems and keep competition at bay.

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

Every week there are people on the covers of magazines and for some of them they have a following on social media. One of the families which as capitalized on social media is the Kardashian-Jenner family. There family has been in the spotlight for years and still going strong. The youngest daughter is the Kylie Jenner and she has 270 million social media followers. The demographics is they are young people and generally young people spend money.

Among other things Kylie Jenner has a Cosmetics side and Coty Inc bought 51% of the business valuing Kylie Cosmetics at $1.2 billion. The company was launched in 2015 with a make up line of lipstick and lip-liner. In an article by Nivediat Balu of Reuters, Coty said Kylie Cosmetics had sales of $177 million in net revenues over the past 12 months.

Retail Analyst Linda Bolton Weiser of D.A, Davidson said the Kylie brand is a big brand, but Coty remains financially leveraged (has lots of debt). Coty has been adding to is skin care and fragrance products and spending more on marketing to boost sales.

Linking to dividend paying stocks, in the retail world, there are people of influence to following of social media. Most people do not have 270 million followers, but if they do companies see great potential in tapping those people. How sincere and authentic they are while lusting over increase sales, time will tell how successful they are.

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

President Trump has said he is a the tariff President and is pleased with himself. The President also says he prefers bilateral or trade treaties between 2 countries rather than more than 2 countries, think the Paris agreement on climate change. There are also two issues with trade deals – one access to each other countries and what happens if one side believes the other is cheating or bending the rules. One has to remember all countries around the world want economic development of one sort or the other, very few countries go about it exactly the same method. This is why a body ideally independent, will hear the facts and make a determination if one side gives more or less incentives than the other and when the industries now have access to the market is it fair?

The primary dispute mechanism in the world is called the World Trade Organization based in Geneva, Switzerland. Many countries submit disputes to the WTO as an independent body to determine which side is correct. The Trump administration has lost a few cases and now says the WTO is something more than it was supposed to be and has been blocking appointments to the top body which rules on trade disputes.

In an article by Philip Blenkinsop of Reuters, the process works as follows about 70% of initial WTO rulings are sent for review by a 3 person panel of the Appellate Body. The Trump administration has decided to block new people coming onto the Body and the normal 7 possible choices has been reduced to 3. The problem becomes on December 10, the terms of 2 of the 3 are set to end. Since the rules need 3 people and only 1 person will be functioning, for all intensive purposes the Body will cease to function or will cease to function in the new year.

The WTO meets monthly on the third Friday and the latest meeting was in Mexico. The WTO was set up as a consensus body, however if there is one objection nothing happens. The US was expected to raise that objection.

Similarly to all countries, the US has registered big wins, but tends to focus on its losses, chiefly those limiting its right to counter what it sees as dumping or unfairly subsidized imports.

Linking to dividend paying stocks, most dividend paying stocks have some sort of protection against competition, in the utility business is a monopoly or semi-monopoly. There are valid reasons of it, however what would happen if it raised its rates too much? All companies want access to markets where there are customers to pay for their goods and services, most want fair access, but what is fair and how can companies compete both at home and in the international space? A reasonable dispute mechanism is needed or some company cheats. if there is no penalty why not?

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

When President Trump was campaigning in 2016, he campaigned on bringing some industries back to growth mode and they included the coal industry and steel industry. People in those states reacted positively to the President and his expected policies. In reality, both of those industries are not where the President thought they would be. In the coal industry, because of the price of natural gas, the demand has fallen and 5 large companies are in Chapter 11 bankruptcy.

In the steel industry, Bani Sapra and Paul Wiseman of the Associated Press examined the industry in a recent article. The first policy the Trump administration imposed was a tariff of 25%. The stocks went up, steel prices went up and then crashed for steel prices are down, stocks are down in price and steelmakers employ 100,000 fewer workers than they did 5 years ago.

Prices are down because of lower demand and the industry added production capacity because after tariffs were introduced prices went to $1,006 in JUly 2018, in November of 2019 prices were $557, according to the SteelBenchmarker website.

Although steel making is a high profile industry, prior to President Trump, there were 142,000 jobs and most steel mills are highly automated. In addition, steel producers had enjoyed protection from imports because of the potential problem of dumping steel. Chinese steel had been virtually banned from the US market. Any tariffs would thus affect the US allies, where US companies have operations – Canada and Mexico.

Since the introduction of steel tariffs, the NYSE Arca Steel Index is down 32% and the combined earnings of US Steel, AK Steel, Steel Dynamics and Nucor is down 50% in the first two quarters of 2019. Capacity which had a bump from 73% to 80% is in the 70’s again.

In the world of steel making, China accounts for 54% of the world’s steel production, the US 5%. The World Steel Association forecasts that US demand for steel will slow from 2.1% growth in 2018 to 1% in 2019 and 0.4% in 2020.

For the US companies that need steel some 800 manufacturers (who employ greater than 2 million people) have asked for exemptions from the tariffs so they can buy imported steel products that are not made in the US according to Mercatus. Some companies have moved some of their operations offshore; others have sought alternatives such as plastic or composite materials.

Linking to dividend paying stocks, government policies may work for a year, but after a year companies will adapt to either new alternatives thus the policy will have to be changed. If the government targets policies towards where you have investments, you will benefit in the short run, but in the long run you should keep an eye to alternatives when the old rules of supply and demand dictate the market.

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

The second most important rule in investing is to understand how compound interest works. The first rule is put your money in investments that help you compound interest.

Compound interest is the 8th wonder of the world. Albert Einstein said He who understands it, earns it: he who doesn’t, pays it.”

Your success an an investor is a function of 2 things:

Your net investment return over time; The length of time you remain invested.

In an article by R.B. Matthew and Doug McCutcheon of Longview Assest Management noted What determines your long term rate of return? Studies have shown that by far the most important factor is the asset class you invest in.

Investing in a portfolio of growing businesses, through ownership of publicly traded or private companies, will produce the highest unleveraged return.

The long return that matters is your long-term return, and for most asset classes, your long-term investment return is reasonably predictable. History teaches that over 20 or more years, your average return from investing in a portfolio of listed companies (stocks) is likely to be 7 to 10% before taxes.

Compound interest works: example $100,000 compounded at 10% per year.

Year 0 100,000

Year 5 161,000

Year 50 11.7 million

Year 60 30.4 million

Linking to dividend paying stocks, the key is to buy companies that are in a growing business over many decades, thereby allowing their value to compound over time on a before tax basis. (note there are many strategies to reduce taxes, but first earn it). A growing company earns a profit and if they consistently grow the dividend, it is very easy to hold for a long period of time.

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

The large data computers such as Amazon, Microsoft and Google generate billions of dollars in cloud computing and Google signed a large deal with ramifications beyond storing the data. Google is involved in health care and its biggest customer is Ascension – one of the US leading non-profit health systems. Ascension is headquartered in St. Louis and operates 150 hospitals and 50 senior living facilities in 21 states.

In an article from Reuters, the partnership between Google and Ascension will explore artificial intelligence and machine-learning applications to help improve clinical effectiveness as well as patient safety.

From Google’s perspective, Google Cloud chief executive Thomas Kurian has made it a priority to aggressively target 6 businesses for Google’s services including health care, financial services, insurance, retail, media, government services.

Google brings the ability to analyze data to identify diseases and make predictions aimed at improving outcomes and reducing costs.

In the future, patients will be given tests such as they are now, but AI will do the predictive analysis first, then the doctors will determine if the AI is the course to follow. It is possible Big Pharma will have to change its normal patterns.

Linking to dividend paying stocks, there are many stocks in the health care field, because we all will be medical patients at one time or another. For the administrators cutting costs is a good thing, because medicine in general is expensive. There is a fine balance between keeping costs down and patients being advocates for themselves. From an investor point of view, keeping costs down makes the industry more attractive as an investment.

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

On of the most important aspects of government is to be able to trust them in times of emergency. There are departments which are supposed to be non political and when they give out information in times of emergency people need to react. One of these departments is the weather service and the National Oceanic and Atmospheric Administration or NOAA. The department is under the Commerce Department.

The story is when Hurricane Dorian was off the coast of Florida after creating havoc on the Bahamas by doing something very rare, it stalled and sent winds, rain and storm surges on the island leaving very little behind. The Hurricane moved towards Florida and NOAA forecast it would may hit Florida or would stay offshore but definitely run into North and South Carolina, before it went up the east coast and go towards Europe. Fortunately for Florida, the hurricane although very large, stayed 100 miles off the coast, before it ran into the Carolinas.

Before it went up the coast, President Trump during interviews suggested Alabama was going to be affected. NOAA did not see that and even though President Trump tweeted the good people of Alabama to be ready to leave the state, the Hurricane was not seen to be either crossing Florida or reaching Alabama. Naturally, people in the Alabama area started calling the weather service at NOAA to see if their communities should be ready to leave. NOAA said the Alabama area was not affected, do not leave your home because of the Hurricane.

The President had the maps in the White House where a Sharpie market (drawn by him) added the state of Alabama to the width of the hurricane. The President was wrong and damage control by press agents was needed. The President does not admit he is ever wrong, for even though the facts show he was wrong, he thinks it would be weakness to say so. The Commerce department sent press notices that NOAA was wrong and every citizen who followed the Hurricane path on TV wondered what is going on in Washington?

In an article by Jason Samenow and Andrew Freeman of the Washington Post, it was revealed even thought the Commerce Department knew or quickly found out NOAA’s weather people do not follow the President’s twitter account, NOAA press release was they were reacting to people’s concerns who are their customers. The Commerce department rebuked the department to show their loyalty to the President and undermining the public trust in NOAA, which is needed to be trusted in emergencies.

Linking to dividend paying stocks, one of the reasons companies get into trouble is there is no one to say no to the President or CEO. 100% of us make errors and Presidents of countries are no exception. The President’s job is the allocation of resources and many times the best laid plans are not successful, someone needs to be able to say no or stop. In Washington, it looks like few do, the ones that should would rather throw their people or their departments under the bus rather than defend them. Hopefully there is someone in your companies investments that can say no.

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