In mid January, California’s largest power utility PG&E Corp (Pacific Gas and Electric) filed for bankruptcy protection. The company is facing tens of billions of dollars of lawsuits in potential liability over the massive wild fires over the past 2 years.

The company did not purposely set the fires but the transmission lines are suspected of sparking as many as 1,500 forest fires. What has changed over the past couple of years is climate change has brought hotter and drier conditions which translate into dead trees and very dry brush.

In California and Alabama, there is a legal doctrine called inverse condemnation, utilities in the state must cover insurance claims for damages from fires caused by their equipment, even if they have not broken any safety laws. (It is thought the lawmakers saw the utility as cash cows, except for investors who likes utilities and essentially made PG&E as the default fire insurer for the state.

Geisha Williams who resigned as CEO had long complained about the law and while the company has some blame, they are not to blame for climate changes or the new normal. In his column Barrie McKenna noted PG&E is one of the environmental good guys. It has a smaller carbon footprint than most US utilities. It was spending close to $1 billion a year on wind, solar, and electric vehicle infrastructure.

Linking to dividend paying stocks, most people who own these stocks will have a utility or two in the group because of the reliable and safe dividends. When an utility is seen as the bad guy and has to pay for the sins of the country, it is not good. As climate changes continues to increase, who should pay and who does pay will all be questions to be answered.

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

 

 

 

Linking to dividend paying stocks, utilities are some of the best go to investments for dividen

estors. While PG&E is an exception, climate change is happening and people will look at their utilities – how do they generate the electricity needed to fulfill the demands the same people have?

 

Just about everyone who works in the private sector thinks a government shut down tends to be of lesser importance than the work they do. In reality, all segments are important to the economy and in mid January Christopher Rugaber of Reuters wrote about how the US economy was suffering.

It is important to remember the people working and not getting paid; and the people not working and not getting paid because of the shutdown. It is better for all for government to work.

Delta Air Lines noted air traffic is down, both because the air traffic controllers are not getting paid and government personnel are not travelling.

The economy has 161 million workers, a million and half does not stop the economy but it does suggest a half percentage of growth is being lost. Hopefully when the people are paid they will spend a little. The White House believes annual growth is slowing by a tenth of a percentage point a week.

Much of the economic data the government collects and offers to the public and economists is not being collected.

IRS centers are closed which is means no money is being collected or given out.

Planning that needs a federal government approval is not being done and there will be a backlog.

Linking to dividend paying stocks, for large companies government and the rule of law matter greatly. Large institutions like to see governments running well for they always have many interactions with the government – both to keep competitors away and to keep their near monopolies.

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

In the world of finance, the big banks of JPMorgan, Citigroup, Bank of America, Morgan Stanley and Goldman Sachs are watched carefully because credit moves with the banks. On one hand everyone is happy to see how much, on the other hand they are large institutions who trade for their own accounts and advise companies around the world. Goldman experienced a 56% increase in M &A, higher revenue on equity trading but a slower bond market.

Goldman’s plan in 2017 was to generate an extra $5 billion in annual revenues by growing its consumer operation, wooing new institutional customers and persuading existing customers to do more business with the bank.  In an article by Aparajita Saxena and Elizabeth Dilts of Reuters, Goldman is doing just what they set out to.

Goldman reported a profit of $2.3 billion or $6.04 a share, the street was looking for $4.45 a share. Total revenue was $8.1 billion with $1.2 billion in M&A fees.

Goldman tends to be more sensitive to market fluctuations than peers that have large, stable revenue streams from other services.

Linking to dividend paying stocks, when a company has large stable revenue streams it is always a double edged sword. On one side is the profits generated from it ensures dividend payments; on the other side is many nimble players are trying to ensure the money comes to them and the company is sometimes is less risk than its peers. It tends to be a balancing act and sometimes companies get it right, sometimes they miss out.

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

In mid January, John bogle the founder of Vanguard Group Inc passed away, his company had $4.9 trillion under management. He is truly one of the people who changed how people invest their money for the better. In an article by Amie Tsang of The New York Times News Service are 5 investment tips:

1. Stay the Course

The nature of index funds, particularly when the funds rebalance themselves by eliminating losing companies, means over the long term index funds do well. An index fund can lower risk and with the number that now exist offer diversification.

2. Beware of the Experts

In Investing, everyone knows what has happened, no one knows what will happen. We think we have a reasonable idea but it can be wrong. Most people and experts called for the same action at the top of the market as when it slides.

3. Keep Costs Down

Costs matter, if you own a typical mutual fund and the fee was 2 – 3%, it is great if the fund has double digit returns but what if the returns are 4%. Then after fees you have only made 1-2% or less? were you further ahead? Indexing allows fees to be less than 1% and close to 1/4%. You will make more money with those fees.

4. Do not get too Emotional

If you invest in solid companies and know why they make money, you do not have to change the portfolio, just worry about reinvesting money.

5. Own the Entire Stock Market

If the big funds use the entire market as a bell weather to measure how the funds are doing, does it not make sense to own the S&P 500 yourself?

Linking to dividend paying stocks, invariably one of the most important lessons in investing is try not to lose money. We know over the long term, the stock market tends to go up because the companies in the index are changed – the losers are replaced by winning companies. Ideally keeping fees to a minimum is something you should do, it increases your returns and gives you more choices.

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

When you are investing there are two aspects – when you buy shares what are you buying – growth or income? If you are buying growth, then you analysis or valuation of the company has to be did it deliver on growth? at what rate do you believe the growth will continue? In how many years will the company be profitable? If you are buying a company for income – did it make a profit and is it sustainable? If you buy an utility company then it should be relatively easy to determine the answer. If you read the report from the President and he or she says there are many headwinds? you have to ask why? the utility goes before a regulatory body to gain an increase and the economy of the region where it operates has to continuing operating, where are the headwinds?

For a company such as Netflix, the company spends a great deal of money on production to ensure there are many subscribers for the company to continue to grow. In mid January, Netflix drew a record 8.8 million paid steaming subscribers to watch the movie Bird Box. For the quarter ending in December, revenue was $4.19 billion slightly less than Wall Street expectations of $4.21 billion. The company reported earnings of 30 cents a share.

The company has 8.8 million subscribers which was higher than the 7.6 million forecasted and the number excludes the free-trial memberships. Wall Street was expecting 9.2 million subscribers.

Linking to dividend paying stocks, Netflix does not pay a dividend and is not expected to, to buy the shares is to continually look at the new movies and TV productions to see if they have the appeal to keep subscribers paying their membership fees. If and only if memberships were decreasing or Netflix shows were not the most popular, then you would have to change your growth projections and pay less for the stock. Unlike a dividend paying company, the growth is over the long term as your dividends every year decreases the cost of owning the shares. Over time with a great franchise with low risk your net worth increases and that is a good thing.

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

When the President speaks he sounds optimistic and whatever event he has worked on to make a change. Then the lights go down and reality or fact check comes out. The President often talks about how the steel industry is coming back and more people are employed. Alan Rappeport of the New York Times News Services recently examined the steel industry, in light of the tariffs imposed and the President’s claim the industry is vibrant.

Hiring in the steel sector remains stagnant in part every new mill is increasing automated. Overall the numbers was 146,300 in November which is 4% lower than it was 4 years ago. Perhaps when a company makes an announcement the President thinks it is operational the next day, the reality is of the 50 announcements made, 35 were built or restarted.

The President imposed steel tariffs which pushed up prices 50%, the problem was the users of steel struggled to absorb the cost of steel and increase prices in their supply chain. Caterpillar said it would face $200 million in addition costs’ GM slashed its profit forecasts: and many companies tried to find alternative materials or delayed which has caused steel prices to fall. In the steel world, prices for US made hot-rolled coil steel went up 41%, then has fallen 21% this year.

If you bought steel companies because the President thought the industry was vibrant, you would have lost money – AK Steel Holdings are down 56%, US Steel is down 46%, Steel Dynamics is down 29% and Nucor is down 18%.

It should be noted John Ferriola of Nucor says he had the best year ever and many of his customers had record years.  Nucor is considering building a new $1.35 billion plant in the Midwest although analysts believe unless something changes it would only add production forcing prices to go down.

From the government the steel mills are looking for the President to pass infrastructure funding to fix America.

Linking to dividend paying stocks, when we look and listen to our leaders we want to believe them. They should be saying the right things and for some it is music to their ears; on the stock market there is a great deal more skepticism – shows us the results. How did you do? What is the Cash Flow? the Growth? the Risks?. Listen to the President but do not necessarily follow his advice for the most important lesson in investing is try not to lose money.

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

 

If you are optimistic about the future and that is a good thing, chances are likely that you are something of a globalist. Part of the reason maybe you see tremendous positive change that technology and automation can bring. Part of the reason is you are paid above average or expect to be paid above average. In the coming years, there will be plenty of people who are on the opposite side of the coin, for no fault of their own they do not see themselves doing better than their parents. They may and in our economy there are many different ways to earn money that did not exist.

Us Vs Them is book by Ian Bremmer published by Portfolio/Penguin, New York, 2018. In the coming years, many of the existing jobs will be automated. There is always good and bad, but in the US 47% of all jobs; 65% in Nigeria; 69% in India; 77% in China. No one knows how people will make the transition, but if the expectations turn out to be true then there will be lots of people looking for income. The issue is related to if a manufacturer in the US can replace a  middle income worker with a no wage robot than sending the work out of the US, what does that mean? Will 3D printing change the dynamic even more?

If you wish to watch countries put these on your top ten list – South Africa, Nigeria, Egypt, Brazil, Mexico, Venezuela, Turkey, Russia, Indonesia, India and China. Together these 10 countries contain over half the people on earth and equally important a high percentage of the world’s youth. For example in South Africa there are 20 million people between the ages of 15 and 35, only 6.2 million have jobs. Most of them were born after apartheid, perhaps the ANC will not be the dominate political party.

One reaction to the coming changes will be protectionism, there is a long history of trying however other countries will react to the changes or make changes which end up hurting the original one. President Trump has asked for a physical barrier or wall, but there are walls on information – China apparently watches its citizens more than most countries. They are experimenting with a social credit system. – a good credit score helps you win a promotion, a better apartment, better schools and list goes on. The credit score is essentially does the state trust you? yes – one path, no – in the movie Casablanca the police officer says round up the usual suspects.

Linking to dividend paying stocks, as an investor you have expectations the company will continue to preform the same or better in the next year and that is a good think. There are many challenges which face countries but companies although part of the solution are not the solution. Governments have to help out and rather than dividing people must bring them together. One example given in the book was John Hopkins University and hospital in Baltimore. After some civic problems in the city, the institution hired people from the worst affect areas with a $69 million HopkinsLocal program.  If government is not helping, one hopes you company has a very solid monopoly like hold on the marketplace.

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

 

 

If you look around the suburbs of cities around the US, malls dominate the landscape and many people go shopping. Although every year there is more and more choice, people still go to malls to shop. Retailing and retail sales tells us whether people in general are confident about their future. If they spend, they expect to be able to pay the bills. If they do not spend, sales go down and everyone has to tighten their belts.

Nandita Bose and Saishwarya Venugopal of Reuters wrote an article about retail companies to see how the all important Christmas season did. The expectation is January and February are going to be slower months, but November and December can generate profits for the year. Macy’s slashed its full year profit and sales forecast on an anemic holiday season. Kohl’s also reported slower sales, Target reported higher sales.

Macy’s expects 2% growth rather than 2.3 to 2.5% growth. Kohl’s reported sales growth of 1.2% down from 6.9%. Target report 5-7% growth compared to 3-4% a year earlier.

Linking to dividend paying stocks, one of the best methods to measure confidence in the economy is retail sales. Although the companies own or lease at low rates of retail space it is easier to buy the card shoppers use to shop – Mastercard and Visa.

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

Reuters noted China will launch a series of subsidy free wind and solar projects this year to take advantage of a rapid fall in construction costs since 2012. Las year, the government suspended all new subsidized solar capacity approvals after a record 53 gigawatt capacity increase in 2017.

The new subsidy free projects will generate renewable power for sale at the same prices as non-subsidized coal fired power plants, the National Development and Reform Commission announced.

Since 2017, solar construction costs have fallen 45% in China and wind projects are down 20%.

This was good news for both the sector and the world.

Linking to dividend paying stocks, all companies have to deal with changing climate and increasing solar and wind and decreasing coal is better for the environment. 3 Utilities in the Midwest are trying to eliminate coal in the coming years. With prices declining more can be done, which is good thing.

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