In 2022, things were going well for the executives at First Republic Bank, the bank had assets of over $200 billion or was the 18th largest bank in the US with 18 branches. In the GOBanking Rates Best Banking ratings it was considered a very good bank to deal with. Then a change happened, the San Franciso Bank SVB went bankrupt and people both institutions and individuals starting taking money from the regional banks to put in the largest banks of the country.

In an article by Manya Saini, David French and Saeed Azhar of Reuters, First Republic Bank reported it had $100 billion moved from its holdings to other banks or about half of its deposits. The bank was trading at over $142 a share in February, now it trades at $6 a share. What should the bank do?

First Republic said it was pursuing strategic options to help expedite progress on strengthening the bank. (the bank is studying all options open to it, said someone speaking on the condition of being anonymity).

Christopher Wolfe, head of North American banks at Fitch Ratings, told Reuters if someone were to acquire the bank, there is going to be big write downs that would have to be taken against some of the assets given the rate cycle. Mr. Wolfe was referring to the bank’s mortgage book and securities portfolio.

Analysts at Wells Fargo said the reported deposit outflows were much worse than Wall Street estimates and at a level that could prove very hard to come back from.

In March, the big banks put together a $30 billion rescue deal to ensure First Republic would continue to be a going concern and ease market concerns.

First Republic will be shrinking its balance sheet, slashing expenses, cutting office space and laying off a quarter of its employees. It will likely be merged with another bank in similar fashion as SVB was or was merged with a bigger bank – JPMorgan Chase.

Linking to dividend paying stocks, at the start of the year, there were many reports saying First Republic was a good stock to own at $140, then the banking world changed and its soft under belly was exposed and now the bank stock is $6. It is likely worth more than $6 but the fall came swiftly and seemingly out of the blue. After the fall of SVB, people asked are there any other banks which have mismatched assets and loans? First Republic was on the list and down it went. It would be normal if you were a shareholder to hold until the price went less than $100, then it was time to get out. People still liked the bank stock and bought it on the way down, but will it come back up? No one knows, but the likelihood is no, because of the fundamental reasons why it was considered on the list to be in trouble. Asking the worst case scenario is a good thing, for if you have considered the worst and something like it happens, you will have a better idea when to find alternatives.

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

When you invest in a company, you expect and hope it will grow and the company will be profitable for years to come, but that is easier said that done. If the company is at the top, your investment has grown by multiple percentage, you are delighted you made a good decision and because you are ahead you tend to hold and not worry about the company. You can check the metrics the company has to ensure you they are doing well, the stock will go up and down, but you can hold on. Then a change happens or is noticed by the investment community and all of sudden, competitors that you think the company did not have, they are alive and looking like they will gain market share. How does the company react?

In an article by Nico Grant of the New York Times News Service, the complacency at Google has been changed to panic to we can come out ahead.

Google owns Android and that system is in many smart phones including Samsung. If you have a Samsung phone, the default system for checking the internet is Google. The contract is worth about $3 billion a year to Google. For Apple users, the contract is worth about $20 billion. According to the article, Google’s employees were shocked when they learned Samsung was considering going with Microsoft’s Bing as a default. The reason or the elephant in the room is Microsoft announced Bing was going to work with AI to make it better. After the shock reaction, Google felt panic and now they have announce Android will come with AI features.

The new features are under the project name Magi. The designers, engineers and executives are working to ensure the new search engine would offer users a far more personalized service, attempting to anticipate user’s needs.

Billions of people use Google’s search engine every day which translates into business worth $162 billion a year.

Google has been doing AI research for years. Its DeepMind Lab in London, UK is considered one of the best research center in the world. Jim Lecinski, a former Google of VP sales and service said, the company has been goaded into action and now has to convince users that it was as powerful, competent and contemporary as its competitors.

Linking to dividend paying stocks, staying at the top and being a profitable company is a difficult job because the competitors are after year. There is always a new trend in every industry and people have to believe the company can and does adapt to what is contemporary every year. Why does X company have this feature and your company does not? If the company updates its features but its customers do not like it, will they switch? It is wonderful to have a moat to protect or keep out the competition, but all moats are eventually passable. As an investor you want dull and boring on the financials, but excitement in the product offering. Dull and boring is the company had good margins to make a profit to pay dividends to reward shareholders. If the financials are not dull and boring, find alternatives sooner than later.

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

When a company goes national, one of its attributes is the goodwill it brings to the chain. People see it and eventually some will be semi-regular buyers. If you travel from your hometown, eventually you will see the chain and you will think it is doing well. During the past few years, companies that were in standalone or big box store were in trouble because the government was encouraging people not to go shopping. There was hope when things returned to semi normal or even normal, retail would bounce back, and all would be good again.

In an article by Anne D’Innocenzio of the Associated Press, Bed Bath & Beyond had 360 stores and 120 buybuy Baby stores, has filed for bankruptcy in a New Jersey court. The company is based in Union, New Jersey, listed assets and liabilities in the range of $1 billion to $10 billion.

The company said it had secured $240 million in financing from Sixth Street Specialty Lending to allow it to keep operating during the bankruptcy process.

The store was founded in 1971, but since 2013 has struggled with weak sales. The biggest competitors were Target, Walmart and Wayfair. During the supply crisis of 2021-22, Bed Bath and Beyond was missing many of its 200 best selling items including kitchen appliances and personal electronics. For stores that depend on the holiday season, it was disaster for financial results. If a store misses the holiday season, it has to wait 9 months to sell again.

A year ago, people had home in the company and the shares were trading at $17, recently they had traded at 30 cents.

Linking to dividend paying stocks, everyone has a bias towards looking at things they do and can see other people doing. In the case of Bed Bath & Beyond yes it had its troubles but it owned the real estate and was worth something. All industries have competitors and it is important to know which are the ones for the investments you have. In general, how is the company doing against its competitors? In retail you can sometimes see for yourself as a shopper, often times sales per square foot are reported or other metrics which define the success of retail. If you are a regular shopper, you can look around and see how often does the inventory move, is it the same as last year or more. If the metrics do not look good, then there are other questions and the important one do you have an alternative investment when you sell?

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

If you were an automaker, you want to be in the 3 big markets for the US, Europe and China. The Chinese market is tied to government policy and at the moment, for a number of reasons, the government of China wants the Chinese to buy electric vehicles or EV vehicles. Fortunately in China, the government allows for a wide variety of prices from $5,000 to plus $100,000.

In an article by Keith Bradsher of the New York Times News Agency, after the New York and Detroit Auto Shows, the Shanghai auto show is one the world’s largest and since 2019 the biggest one in years. It is very interesting to note in today’s markets, half the cars sold in Shanghai are electric. The projections are within 2 years, half of the vehicles sold in China will be electric, up from 6% in 2020.

Brian Gu, the President and Vice-Chair of Xpeng, said his company planned to reduce the cost of building a powertrain – primarily the battery and electric motor – by 25% at the end of the year. Powertrains represent about 2/5s of Xpeng’s overall cost of building an electric car.

Ashwani Gupta, the CEO of Nissan said the latest designs from his company would cut powertrain costs by 30%.

Most of the cars on display were using lithium batteries, although companies are developing vehicles that run fully or partly on batteries made of sodium.

Linking to dividend paying stocks, if you ever listen to the Ramsay show, Dave Ramsay often suggests people buy a beater or second hand car or gently used vehicle for $5,000 or less. If people could buy an electric for that would they? In China you can. In all markets, there is a leader and at the moment the innovation and development leader in electric vehicles is in China, although the large European and American companies are well represented in China with their own developments and joint ventures. The larger companies have resources and time on their side to ensure what type of components become the standard and they can mass produce the standard equipment and sell vehicles. Innovation is fun, interesting to watch and you can use your dividends to buy companies doing the innovation. They will likely be taken over by the larger companies and you will make your money back. In the meantime, ensure the bulk of your investments is in dividend paying companies to sleep better at night.

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

Are you the type of person who wants to know what is inside the computer? There was an old advertisement which says intel inside, but besides knowing that piece of information, how is the computer put together? If you are the least bit interested there is a wonderful book to read about the insides of the computer. The book is called Hardware Hacker by Andrew Huang, published no starch press, San Francisco, 2017. If you are similar to me, then the answer to the questions was not really, but there are lessons to be learned about the process of how the computer is made.

At the moment, there is a cry by politicians to bring back manufacturing to the US and most of us understand the sentiment but there is reality. The reality of manufacturing including components for computers is the ecosystem which has grown up. The ecosystem in China is highly developed, if you were to bring manufacturing to the US, which scale would you be talking about?

The book starts with Mr. Huang arriving in China in 2007 and going to the SEG Electronics Market in Shenzhen. Mr, Huang was the lead hardware engineer for Chumby, and found every part plus more of what he needed at volumes that made sense from a start up company. At SEG he was available to buy books and components for very inexpensive prices, he essentially saved the cost of the flight to China from the US buying in China as opposed to the US.

Mr. Huang describes in his book the ecosystem from the electronic parts, to the molding, to the factories, to quality control processes. In pages 190 -200 he puts in an interview of lessons learned, which most are not taught in school.

dealing with merchant buyers – brick and mortar retailers hire teams of buyers assigned to monetize shelf space. They think about products in terms of revenue per shelf space. How many times will the product turnover? if it does well, they reorder, if it does not, there are other alternatives.

margin – everyone in the supply chain has a hand out: the distributor, the merchant and the factory. The shelf cost of a product is about 3 times your BOM cost. This means adding a $0.50 part turns into a $1.50 retail price impact.

This is aggravated by the fact that prices are quantized into magic numbers (like $19.99, $49.99 and $99.99) that you have to hit. If a product retails for above $99.99, it is psychologically binned with the $149 or $199 products. When your product price reaches the magic numbers, to add a $0.50 part, either it comes from your margin or risk pushing your product into a higher price tier.

cash flow – retailers are notoriously bad at pay on time. You may negotiate 60-day terms, but that often turns out to be 90 and 120 days. If the product does not sell, you will be strung out even more. This can partially offset by factor insurance.

reverse logistics and returns – many retailers offer no questions asked return guarantees. Who pays? the retailer passes the buck to the entrepreneur. What to do with the returns – some are damaged and need fixed, some did not meet the customer expectation

VC funding – software funding is innately scalable. Hardware funding is much more difficult. In hardware, the first question is the distribution channel and how hard is getting your product to the end user. You might be very surprised how often people called support who forgot to plug the product in.

Mr. Huang recommends a maker try to first fund research and development out of pocket. Every time you turnover your inventory you can buy more and this will be good discipline to learn. If you are growing your capital base by 20% with every inventory turn, it only takes 4 times to double your money. The magic of compound percentages – $100 turns into $120 which turns into $144 which turns into $172 and the fourth turn is $207.

If you are selling a consumer electronic – up to 90% of your business can happen in the 4th quarter. If you miss Christmas, you miss the year for there will little revenues for the next 3 quarters. For hardware companies it is ship or die.

aim high with pricing – hardware startups typically want to set the price low to drive buzz and improve initial sales. The margins can be good but what happens when sales drop? If you sell higher, the margins are great but sales are average, however the retailer loves to use sales to make units move and they can reduce a $99 unit to $69 and still make a 29% margin.

Apple in 2017 was spending $ one billion a year on tooling. An injection molding tool may cost $40,000 and take 2 to 3 months to make; Apple is known to build 5 or 6 molding tools and then only use one while they were testing the other possiblities. Apple spending $200,000 in tooling to save 2 month’s time to market is a very small investment for them. For a startup that would be suicide. If you compare yourself to Apple’s design either have the money in the bank or try a different strategy.

Linking to dividend paying stocks, often times there are sound reasons why companies make profits to pay dividends. Some of that is the ecosystem which they are part of and use. For a competitor, building a better mousetrap is not the most important aspect, the most important aspect is does it sell at margins and volumes that produce profits. It is important to understand why the companies you invest in make money and the competitors are not as good, understanding will allow you to have tools to evaluate how the company is doing. There are generally good reasons why the ecosystem works the way it does, does your company investments work within it or trying to disrupt it?

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

In the world, once something goes into the public, the public and vested interests have the right and duty to react to the news. It could be a public company is planning to do something, it could be a government is planning to do something, but once announced it is expected the public will react to it. Once a decision is made, the reactions can and hopefully are favorable and the world continues, or it could be the decision is not looked on a good thing to do and the reaction is less than favorable. In an open society, people have the ability to act and that is good.

In an article by Steven Scheer of Reuters, the Government of Israel wants to overhaul the judiciary to help the economy and to help themselves. Many people in Israel see the overhaul as a power grab and would do little to help the economy. The issue has spread beyond the borders to the rating agencies of the credit of the country. Moody’s Investors Services lowered the outlook to stable from positive while affirming its sovereign credit rating of A1.

The government of Israel is planning on overhauling its courts to give politicians greater sway over selecting judges and limit the power of the Supreme Court to strike down legislation.

Many groups are calling for a middle ground including Israel’s Business Forum, which represents 40 of Israel’s largest companies. Anat Guetta, the Chair of the Israel Securities Authority joined with a number of top economists, including those from the Central Bank and Finance Ministry who have warned against an economic backlash to the government’s moves. In addition, the opposition members and protests in the streets do not like the legislation.

Prime Minister Benjamin Netanyahu does not have a majority of seats but has formed a coalition to govern, his coalition as well as the opposition coalition are trying to reach a consensus to go forward.

Linking to dividend paying stocks, all governments and companies have the ability to make decisions and people have the ability to make a decision about the possible outcome. If you own or have interests in a company, one hopes the decision is the best one for the future. Annual Meetings are a time to reaffirm your belief in the management which is why you should vote one way or the other, although most times it will be for management. If you do not like what management is doing, then selling or finding alternatives is a good option.

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

If you were to win a lottery either with a lottery ticket or bought a very undervalued stock and it became enough for you to be worth a great deal of money, after your basic needs are taken care of, what would you do? It is an age old question, ever since the invention of the lottery or sweeps ticket, to some degree almost everyone gambles a little and only a few get to answer the question. If the answer of the lottery win was $10,000 or less, the average person would say bills or take a vacation. If the win was higher, there is usually an element of shopping involved. Sometimes it is a house, sometimes it a vehicle, sometimes it is clothes but it includes shopping.

In an article by Mimosa Spencer of Reuters, wherever there are people with money to spend, you will find the brands of LVMH. Most of the brands are termed high fashion, which includes both people who can afford the brands and those that want the brands because of what they mean to the person. In the article, the writer writes luxury shoppers in the US are curtailling purchases of high-end fashion and leather goods, according to LVMH’s first quarter sales report.

The owner of LVMH is either the richest or second richest person in the world, and LVMH brands include: Louis Vuitton, Dior, Chanel, Hermes, Hennessy cognac and Tiffany which it bought for $16 billion in 2021.

US revenues grew 8% over the quarter, but LVMH’s finance chief Jean-Jacques Guiony said most of the growth was in the less-exclusive Sephora beauty chain. Sales have fallen after a big push from the end of COVID and a desire to own designer labels.

Credit card data from Citi showed US luxury spending in March declined to its lowest monthly rate in nearly 18%.

LVMH luxury division has almost doubled their global market share to 22% from 12% between 2018 – 2023.

Linking to dividend paying stocks, in every market there are the high profile, highly marketed items that appeals to a small segment but wanted by a bigger audience. If you are a dividend buyer of stocks, sometimes the quality is worth it espically if those consistent dividends pay for it. In every market there are cycles and given the decrease in sales, perhaps now is a good time to buy with even more discounts. The point is always, in your personal finances you always want to have choice to buy or not buy; to sell or not sell; to use the dividends to pay for luxuries or buy more stock; patience is the key and time is on your side.

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

If you are an investor, you should like reading for all the reasons why reading is a good thing to do. Most of read a specific type of writing – if you are an investor and the theme is something to do with investing or ideas you are thinking about, so much the better. Once in a while it is good to read nonfiction, because it is often loosely based on reality.

An example of nonfiction is a book by Jeffery Archer titled Hidden in Plain Sight, published by St. Martin’s Press, NY, 2020. Mr. Archer is a well known writer some of his books were turned into movies and his specialty is courts and the law. Millions of people have read Mr. Archer and hopefully millions more will read him into the future, they are a good read. The book Hidden in Plain Sight is about the police, art and illegal grow ops, mingled together. In many countries, the product of grow ops was illegal, but now some of it is legal, however the theme is still very plausible to write about.

In the book, the police wanted to capture the king pin of the grow up, who lived a very comfortable lifestyle as the President of a small import and export firm. How was he living the billionaire lifestyle on a millionaire income? The kingpin was using a grow op to grow, distribute drugs and collect the money. How do the police close the operation when it is located in an urban high rise surrounded by lookouts? After determining where the grow op was, they studied the movements and the easily way was to blend the police into using public transit which happened to stop outside the high rise. It took time to determine the easy way, because if the police were first examining the way they could do it using their special forces expertise the high level criminals would have escaped though other routes, was there an easier method?

Linking to dividend paying stocks, we all are trying to determine which stock to buy and hold and increase our wealth and we look at multiple alternatives. Sometimes the answer is as simple as what is in front of you, what do you know about and study on a normal consistent basis? Sometimes the answer is how do you make your money and examining linkages to that industry or there is no correct method. The best method is to find profitable companies that make money and can pay dividends, if they do not pay then find alternatives. Sometimes the best investments are the ones everyone missed because they are hidden in plain sight for everyone to see.

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

Everyone is involved with negotiation and for the average mythical person the biggest negotiations they will have are their house and car purchase. The buyer sees something they want, they make a bid and the seller decides to say no or yes. If they say no, the buyer can walk away for a different alternative or offer more money.

In the world of corporate mergers, everyone wants more money. In an article from Reuters, gold prices have risen which means the large low-cost producers have extra money on their balance sheets. If a company has extra money, they can either give it to their shareholders, buy back their own stock or do a merger. In the case of Newmont Corp, they wanted to do a merger of Newcrest Mining. The cost is $26.3 billion and the deal would be the 3rd largest deal for an Australian company and the 3rd largest deal of 2023 according to data from Refinitiv.

Under the revised offer, Newcrest shareholders would receive 0.4 Newmont share for each share held up from 0.38 that the Newcrest Board said was not enough, offer us more or go away. Newcrest’s largest shareholder is Allan Gray Australia and chief investment officer Simon Mawhinney said he will roll his shares into Newmont which is a positive sign the merger will go ahead.

Linking to dividend paying stocks, part of the history of every company is mergers and acquisitions. and generally, if a company offers top dollar they will win, but if the earnings power of the company is cyclical, the trick is the successful integration of the companies. Mergers happen for a great deal of reasons and if you own stocks invariably one or more will be wanted by another company.

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