In the southern US, everyone knows about hurricane season, as the climate changes the hurricane season has seen more powerful storms. The government thought it had a good idea, using the ever increasing funds from offshore drilling to pay for projects to protect the states. According to an article by Nichola Groom of Reuters the idea was to have a 37.5% share of federal oil and gas royalties, but oil prices go up and down as commodity prices tend to do. Previously the arrangement was 27% of royalties within 5 miles of shore. The decline of the oil price has meant less royalties to the states to pay for the projects.

In 2013, the states of Alabama, Mississippi, Louisiana and Texas were told they would receive $375 million annually to 2055. Plans and projects were started, the federal government delivered $188 million

Linking to dividend paying stocks, projections linked to commodity prices will have a range, ideally the companies you invest in are protected from commodity prices but as an investor, you need to ensure profits are reasonably protected if prices fall. If not be diversified and be willing to buy as commodity prices rise.

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

One of the experts of the valuation of stocks the media uses is a New York University Professor Aswath Damodaran. If you have not seen his You Tube videos you should, you will learn something. One of the methods of valuation is to determine how much the company with grow, for years if nothing else, companies would point to China. We will capture market share in China.

China tightly controls its reporting, but by all indications the economy is slowing. According to a report by Kevin Yao and Stella Qiu of Reuters, the industrial output fell to a 17 year low. China is increasing assistance to the economy, even though it said it was not going to as Premier Li Keqiang announced hundreds of billions of dollars in addition tax cuts and infrastructure spending. Growth in China is still growing at 5.3% but not the double digit gains of past years. Companies shut down earlier for the Lunar New Year holidays and those that export may open later as orders were curtailed.

In addition, Alexandra Stevenson and Cao Li of the New York Times New Service reported the slowdown is affecting office workers as well as factories. Job fairs have jobs at lower salaries than expected for knowledge workers. At job seeking websites such as Zhillian, the postings have fallen 10% or more. The layoffs suggest that solutions previous offered by the government need to be adjusted. In the past the party allowed the state banks to offer more loans and new highways and infrastructure were built. Other measures will be needed to help office workers.

Linking to dividend paying stocks, for a number of years the world looked to China to grow the world’s economy and resources from around the world have gone to China to the benefit of many companies. With growth in China slowing, companies need to look domestically and to other countries for the magic solution.

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

 

 

 

In the health care world, one of the best and worst drugs is OxyContin which is a pain reliving drug. The drug has the side affect of many people becoming addicted to it and in the year 2017 over 48,000 deaths occurred according to the US Centers for Disease Control and Prevention. Health care professionals have tried to mitigate the effect and lately many lawyers which relates to 1,300 cases, so the company Purdue Pharma is considering declaring bankruptcy.

Purdue Pharma is owned by the Sackler family and according to an Associated Press article by Geoff Mulvihill and Matthew Perrone, the family has received more than $4 billion from Purdue in the years 2007 to 2018. The family has donated some money to museums around the world.

The lawsuits claim Purdue Pharma people sold the drug suggesting it had a low chance of triggering addictions despite knowing that was not true. In its defense, Purdue Pharma lawyers noted its products were approved by federal regulators and prescribed by doctors.

Linking to dividend paying stocks, all companies are regulated to some degree, some industries are more regulated than others and the industry expects the regulators to oversee the business. Although the reality is there are few times when the regulators say no. As investors, you expect to when the President uses the words of integrity and trust, there actually be on both sides. This is the key when something goes wrong, how well the company reacts when something goes wrong is a sign if you should be looking for alternatives.

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

In mid March a plane went down flying to Kenya, the operator was Ethiopian Airlines and all the people were killed. The first concern is the people that were killed. The second concern is what was the cause and who made the airline. It turns out the cause is software in the plane and the maker is Boeing. Boeing’s stock went down.

The next question is how important is the plane to Boeing’s future. Was it an old plane? new plane? It turns out the plane is called 737 Max and Boeing fights with Airbus in the very lucrative mid-sized market. The 737 Max to Boeing is the future and it was designed to be a better aircraft in multiple ways and Boeing has pre-orders for 5,000 of the planes. The planes are made in Washington State, Boeing was making 50 a month and were trying to push that up to 85 a month, orders of the Max 737 make up 2/3s of future deliveries and 40% of the expected profits for the next 5 years.

According to Barrie McKeenna, in late October there was a plane accident with Lion Air which Boeing’s people believed was partly pilot error, the pilots did not follow an emergency checklist to override the software. Boeing had continued to make sales of the planes. The weak spot was China, which the US is involved with a trade war and the Chinese have stopped buying planes from Boeing.

Boeing as a stock has been the poster boy of the rally since December and due to its increases was comprising 11% of the Dow Jones 30 Index. If you invest in index funds ensure you know what you are investing in. For best view of the market the S&P 500 is a broad based index. Due the accident, there have been many articles on the airplane market and if you are an investor read the articles from that perspective you can learn things.

Linking to dividend paying stocks, accidents often give good information from different perspectives, after you are concerned with the people, you can better understand the industry and if you wish to invest in it. How do companies make money? who are the major players? what does the company have to do to earn and maintain trust to have sales? many people when they book flights the last thing they are concerned with is the maker of the plane. When a company has an accident and the shares correctly fall, when is the buying time? Patience is a virtue, but there was a reason why the shares were up and will they reach their old highs? Fortunately with investing there is no right and wrong, only different opportunities and looking backwards you will be able to tell if you made the best decision.

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

Of all the countries in the world with access to revenues from oil, the country of Norway has likely done the most to help its everyday citizens. In the North Sea, there are still billions of oil barrels being drilled and at times the weather is very rough. In Norway, when these billions of dollars were flowing into the treasury, the government set up a sovereign fund or wealth fund and Norway’s fund is in the trillion dollar range. This means for everyone who lives in Norway, there are many free public institutions such as education, medicine, social security or the fund interest and dividends pay for many government services.

Similarly to every other country on earth, climate concerns are a big issue and the Norway wealth und has decided to gradually sell $8 billion in shares of exploration and production companies but keeps its $29 billion holdings in integrated firms that have both production and refining.

According to the article written by Shawn McCarthy of the Globe and Mail, two years ago, the fund sold off most of its shares in coal companies. While, the President Trump was talking about how coal was coming back, the fund sold off its holdings. For all funds which have exposure to oil and gas, it is hard to sell many of them because they are profitable companies which also pay dividends. In addition some of the chemical companies which use petrochemicals in their products are hard to sell because they rank high in profitability.

Linking to dividend paying stocks, as an individual choices can be made that are seeming black and white and it is relatively easy to stay away from companies you do not like. In investing, if you do not like them, use the money for better good. As you evaluate good long term companies, non are them are perfect, the use of petrochemicals in our society is hard not to invest in.

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

Change is a constant in our society, but change in the stock market as long as companies make money takes a little bit longer. Recently there was an Associated Press article likely written by Stan Choe about which companies are in the top 10 now and which ones were in 2009. The year 2009 is important is this is the 10th year of the bull market or which stocks should you have bought in 2008? Since most of us do not have unlimited funds, if you own an index fund tied to the overall market such as S&P 500 index over the years it would have changed to reflect the new stars on the street. If you did own one, then you still owned profitable companies, but you missed some growth.

The most valuable companies a decade ago were ExxonMobil, Wal-mart, Microsoft, Proctor & Gamble (P&G) and AT&T Inc.

In 2009 names such as Microsoft, Apple, Amazon, Alphabet, Berkshire Hathaway and Facebook are the top six.

Fortunately the only company that has gone down is GE, but the signs were there for a long time. The profitable companies still are profitable and even ole AT&T has change with the merger with Time Warner.

Linking to dividend paying stocks, the only thing certain about the stock market is profitable companies will be a good investment. One does not always know who and what companies are growing and stock indexes are a great help for your portfolio, but as long as companies each profits and can both reinvest in the business and pay stock holders, you may not receive all the value from the market but your total return will be attractive.

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

On March 1, the current US tariffs on Chinese imports were scheduled to jump from 10% to 25%, but a few days before the President announced an extension of the 10% because talks were going well. As of the first of March, according to an article by April Joyner of Reuters furniture and accessories such as handbags and luggage are subject to the 10% tariffs. Apparel and footwear are excluded. Hopefully by the time this blog is seen the talks went very well and tariffs do not apply.

A significant portion of US consumer goods including 72% of footwear and 84% of accessories originate from China according to the American Apparel and Footwear Association.

Given the tariffs, no company sought to bring back production to the US, rather they have looked at other countries such as Vietnam and Bangladesh which have their own costs associated with them.

Companies have incorporated the cost of tariffs in their guidance for the year, said Charles East, equity strategy analyst at SunTrust Private Wealth who covers retailers.

If there is a rollback of tariffs, which would be a good thing, companies have tried to mitigate the tariffs by increasing production and storing the goods, now they will have a cost for storage. In a just in time supply chain, the retailer tries to do as little storage of supplies as necessary. Retailers had increased the amount of goods they have in storage which lead to US ports handling almost 2 million containers, an increase of 13.7%. This increase in warehousing will cut into profit margins.

The US Commerce Department reported retail sales decreased for the first time in 9 years and warehouse inventory increasing. Companies such as Macy’s and TJX have hinted at the potential for an uptick in discounted goods.

Linking to dividend paying stocks, just in time inventory systems work until they do not and then there are few options to reduce costs. All companies try to determine what works best for them, examining the supply systems allows you to determine some factors that will affect the margins. When the systems all work, it is hard to fault it, but when they do not, there are few alternatives for changes except for different government policies and that takes time.

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

In the library of every town and city are some wonderful reference books, an example is The Great Trade Routes by Jean Duche published by Collins, London UK, 1969. It was written as a reference book for likely teenagers or school aged children but for adults it has significance.

As you examine our economy most of it is related to trade of goods and services. If you focus on the goods part, for a long time the trade routes determined who technically controlled the world or was a big influence. When money or bills of exchange were formalized, countries which had raw materials sent them to countries which would add value to the goods and sell them to those who could use them to create money to keep the world working. If you focus on the known world of Europe, the Mediterranean Sea was the workhorse. Ships were built to move goods and services around the Sea and generally people could find what they needed.

As time went on, goods such as silk and spices would come from Asia, but it took a long time for ships to travel around Africa towards India and Southeast Asia. The Chinese were using different routes such as the silk road.

Eventually, people wanted to find a cheaper route to Southeast Asia and found North and South America. In some ways they were happy, Spain found gold from Mexico and silver from Peru, while England settled North America.

With the buildup of agricultural and manufacturing surpluses, the world changed to move goods from one area to the next. The book was published in 1969 and distribution or supply systems continue to change, but the reason is the same.

Linking to dividend paying stocks, we all are subject to some change, some we like, some we do not because it changes something. The trade routes will move to were someone can make money supplying to people who are willing to pay. Change happens to help that along.

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

At the end of February there was a conference in Berlin, Germany called the SuperReturn conference. The conference was aimed at the world’s largest private equity investors. According to an article by Joshua Franklin of Reuters, the investors were worried about the same thing same investors are worried about – overpaying for the company.

The average leveraged buyout cost about 11 times a company’s 12 month earnings before interest, taxes, depreciation and amortization. The number in 2009 was 8.6% according to Bain & Co.

Ideally the goal is earn an internal rate of return (IRR) of 20%, but Cambridge Associates notes the average IRR was less than 10% in 2015.

Private equity managers earn lucrative fees on investor capital, typically 1.5% management fee on the money committed and a 20% cut o the profits as a performance fee, subject to a returns threshold.

In a typical leverage buyout private equity firms juice up returns by loading up acquisitions with debt, which is provided by the banks. The firms are hoping for high rates of growth to drive returns.

Note close to 30% of deals by private equity firms lose at least some money.

Since 2012, the private equity industry has raised nearly $3 trillion from investors.

Linking to dividend paying stocks, if private investors take an increasing large position in the companies you own, they may be just trying to increase their fees so you should look for other alternatives and consider selling.

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