Last year, the Trump administration cut taxes to corporations, the administration believed corporations were going to invest more in their operations in the US, likely increasing their workforce. Most did not at least not to a degree a tax break of the magnitude one would hope for. According to Sinead Carew of Reuters article Companies bought back 2.8% of shares outstanding in 2018. This was a substantial support to the market and bigger than dividends, said Jack Ablin of Cresset Wealth Advisors in Chicago. This year growth in cash flow will be slower.

The 2.8% represents $583.4 billion of their stock in the first 3 quarters. In 2007, the record was $589.1 billion according to S&P Dow Jones Indices data.

In 2018, about $295 billion of foreign profits in the first quarter of 2018. About $190 billion were used on buybacks according to JPMorgan strategist Nikolaos Panigirtzoglou.

Datatrek Research said US companies tend to spend between 40 and 60% of operating income on buybacks.

Linking to dividend paying stocks, when stocks are bought back there are fewer shares which makes the EPS higher and when applied to the normal multiplier tends to send stock prices higher. If you buy shares for the dividends over the long term the stocks tend to raise overtime and your total return on capital is higher. Your risk return ratio stays relatively low and over the long term increases. What is not to like?

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

Most of us have heard – the customer comes first. Many believe it, but is it the best policy? What if you changed the equation to Your Employee comes first. If you did that on a consistent basis, would the employee then treat all customers as important and be able and willing to go the extra mile to ensure customers have a long relationship with your company. Hal Rosenbluth does and he wrote the book The Customer Comes Second published by HarperBusiness, NY, 2002.

In a full economy, attracting and retaining people are extremely important. How happy are the people who work for the company? Many companies are in the service business, the only thing you really sell is your service and the easiest method Mr. Rosenbluth believes to ensure people do great service is hire nice people. No one has a monopoly on being nice, and being nice does not mean you do not make great deals of money, it means have a long term view to sell for the company to have repeat business. For your customers being served by nice people can be a welcome change. In the movie Glengary Glenross the Alex Baldwin character says ABC or Always Be Closing; either bite or be eaten; the lowest sales is out the door. The tactics work but maybe not for a long time. If the long term perspective is the one you want the company to have, perhaps it is better to go with nice people to start. The proof of the pudding is always a downturn or disaster happening, how will people react? Will customers rally to help you? or will they find alternatives?

Mr. Rosenbluth has many ideas to try to implement the ideas but one of his most important was Mr. Rosenbluth’s grandfather started the travel business and at one time it was 95% personal, 5% corporate. As the travel agency business changed to 95% corporate many things had to change to stay in business. To continually find value for the corporate customer or to help them save money and time on their travel. There were no easy answers, but it was a lot easier with a good culture and nice people.

Linking to dividend paying stocks, 99% of us like to deal with nice people. It is easier to be nice if the company is making money. If the company is making money and paying a dividend and the people are not nice, then they had better have a monopoly. Once that changes, then you have to find alternatives quickly.

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

It seems big Pharma is getting bigger, in an article in early January Michael Erman and Ankur Banerjee of Reuters reported two of the world’s largest cancer drug businesses want to merge – Bristol Myers Squibb to buy Celgene.

The companies believe they can save or find cost savings of $2.5 billion but analysts are skeptical because neither company is running on full. Over the past year both companies stock fell because of clinical setbacks. Big Pharma companies need to have blockbuster drugs and Bristol Myers’s drug Opdivo has lost market share to Merck’s Keytruda. Celgene big drug is Revlimid will be starting to phase out in 2022 but revenues from it would be enough to pay down debt and possibly buy another company. Revlimid generates about $10 billion in 2018 sales.

If Bristol Myers and Celgene are merging, will other Big Pharma company’s merge? Under the deal, Celgene shareholders would receive one share of Bristol Myers and $50 cash. Celgene shareholders would receive a rights payment of $9 a share if 3 treatments in the development phase become marketable drugs.

Linking to dividend paying stocks, as you look at the medical side of investments it is hard not to own Big Pharma stocks for the patents allow for blockbusters drugs and the cash that flows into the company. One hopes that you do not have to use the drugs but they do help people. With all Pharma companies, your research into what drugs are in the pipeline and the potential cash flow from them. After the patent, generic or cheaper drugs are demanded by all insurance companies.

 

 

Hurricane season always bring tragic stories about how regular people’s lives are disrupted, it is to be expected. Unfortunately hurricane season or other natural resources also shows how many of us are not prepared and that includes governments. By all accounts, except for the President who gave FEMA a 10, everyone else in the world gave FEMA a 10 out of 100; the government failed to do many things to help Puerto Rico. It really does not matter that Puerto Rico had many challenges before the hurricane, the hurricane offered the people whether they wanted to or not a chance to start again.

One man Jose Andres decided he needed to focus on feeding the island, how to do that? The book We Fed an Island by Jose Andres published by HarperCollins, NY, 2018 is his journey. He started with one restaurant focusing on food which is existing and trying to connect to local people in the food business to buy their food. For example buy the bread from the bakeries and Sam’s Club (Walmart). Trying to inject money into the economy and feed the people. In the process he learnt, in many disasters the Southern Baptist Church does the cooking, the Red Cross distributes the food and FEMA typically worries about infrastructure. In the case of Puerto Rico the Southern Baptist Church was not there, the Red Cross was handing out prepackaged food you would eat once and no one was worried about food. Mr. Andres and the World Central Kitchen stepped up and as time moved on became more creative. The solution was to ensure food could be made in a central location and then sent to other locations on the island. First jeeps and food trucks were used. Then a solution was found – many schools have kitchens and were never used but serve as a community center, can they be used. After serving over 3 million meals, it was time to wind down and wait for the next disaster.

Along the journey, FEMA failed and it has to be overhauled before the next hurricane season – besides the lack of leadership from the President, some of the contracts it gave out were to a two person outfit the most glaring one was to a group in Central Montana to fix the power grid system of the island. There were others – it seems FEMA is seen as gaining a nice slice of cash without doing any work, subcontract the subcontract and by the time anyone investigates it is too late for the people that were suppose to be helped.

Linking to dividend paying stocks, all companies should have disaster plans, hopefully most do not have to use them but disasters happen. To ensure the people know how to communicate during the plan, if the company is fortunate not to be involved in the disaster the company should send people to see how they manage. It is easy to get it wrong and people are not helped, it is hard to go with the flow and challenges of the fluid situation and what needs to be done and when it can be done. Ask about your company’s disaster plans and how did they manage the last one.

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

After you have invested in stocks and bonds, sometimes your eyes will look at commodities and wonder should I try? On You Tube you can find many videos about investing from people trying to sell you something; to information to somebody trying to tell you what is wrong with the system we have. How you see the world, will determine how you view the video – one video watched was How Commodities Exploit Cash Commodities, 2018.

The reason why you may look towards commodities is to trade is to take risks, but many traders hate risks however if you get it right you will achieve a high rate of return. Notice the ifs in the statement.

The biggest commodity trading houses are in Switzerland lead by Vitol (about $300 billion); ADM (about $90 billion); Bunge (about $60 billion), Cargill (about $136 billion), Louis Dreyfus ( about $57 billion) and Glencoe (about $250 billion).

The mechanics of trading is on a $100 million lot, you would need to risk $3 million to try to make $100 million. If you get it right you win big, but most will not.

Best trader in Switzerland was a man named Marc Rich although he had few ethics and tended to trade on the edge of the law.  The regulators wanted to talk to him regularly.

If you trade you need to know your product. On the supply side – it is likely geographic and on the price side – what are the risks?

The commodities are around the world and the questions is do you want to take delivery or doing it for changes in prices. If you wish to take delivery, the market reacts to your word is your bound. If you agree to terms, you live with the terms. You can usually sell to someone, the issue is always at what price?

In order to get the best price, you constantly need to be prepared and analyze information. The larger firms will have teams of people just to do the analysis. One of the norms is constantly check your information sources. Why is your information correct?

If you wish to take delivery to sell elsewhere, remember the time frame between the purchase of the product to delivery requires a great deal of financing. Banks have money and will give you an umbrella when it is sunny and take it away when in rains. The banks tend to be risk adverse.

If  you do not delivery of the contacts on the futures market, you are speculating. The function of the futures market is limit risk for those who want delivery. As the world continues to evolve, the biggest trading is coming from algorithm trading and much of the world is mathematical relationships.

Linking to dividend paying stocks, when you buy these types of companies you are acting similar to those traders who buy and sell commodities they have taken delivery of. You are not the speculators. There is money to be made in dividend stocks from the dividend which can constantly grow over the years and the stock price which grows because the company is profitable for increasing number of years. If you want to make money very quickly, a dividend stock may not be for you, but if you believe you have time, then the basics of trading commodities does not change,

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

 

 

In November the prices of stocks of big tech went down along with the general markets and there are a multiple number of reasons for it. In an article by David Streitfeld of the New York Times titled Big Tech bulks up, perhaps that is what you may wish to do with some of your dividends – buy more tech shares or ETFs.

What are the tech companies doing? The first point all of the FAANG stocks have great amounts of cash, Apple has $ 237 billion in the bank.

Big Tech is expanding and needs thousands of new employees to do what the companies are engaged in. Google and Amazon are expanding offices in New York City and the Washington, DC area. In the areas where Amazon has announced satellite offices, the condo prices have increased.

In San Jose, near where the Diridon Station – where the buses, light rail, Caltrain and Amtrak meet, Google is planning to build a new campus of 8 million square feet of office space for 20,000 workers.

Facebook has two primarily locations in the bay area – Sunnyvale and downtown San Francisco. In the downtown area they have leased 750,000 square feet which makes them the third biggest tech tenant in the city. The leaders are Salesforce.com and Uber Technologies Inc.

Amazon now employs more than 500,000 employees plus contractors. Amazon leads the tech group in cloud computing, with Microsoft in second place.

Facebook and Instagram is expected to earn $ 21 billion in digital ads in the US. The next largest company in digital ads is Google with Amazon as third.

In total revenues, Apple, Amazon, Facebook and Alphabet, Google’s parent generated $166.9 billion in revenue in the third quarter of 2018 alone which was up 24% from the previous years.

Linking to dividend paying stocks, clearly the tech stocks are still growing revenues and expansion remains the norm at the companies. The stocks will go up and down, but in some manner whether it be in ETFs or individual ownership tech stocks need to be part of your investment portfolio. Every year there will be new ideas of how tech can make our lives better, some will and the big companies will benefit, you should to.

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

Many people have read or watched the movie the Big Short, the author Michael Lewis wanted to know who made money on the housing crisis? In investing you can make money when the market goes up, down or sideways. In the book Boomerang written by Michael Lewis published by W.W. Norton & Company, New York, 2011 Mr. Lewis examines countries outside the United States and how they were affected by the housing market collapse. Mr. Lewis picked  4 countries – Iceland, Greece, Ireland and Germany all countries which had made the news prior to 2008.

In the Big Short and it various other books and movies, the Wall Street firms were selling Mortgaged Backed Securities to firms outside the US. Outside of the firms themselves because they all ended up owning billions of worthless securities, one of the biggest buyers were German financial institutions. Mr. Lewis tries to find out why? were they willing buyers or were they duped or what other factors were there?

In 2004, IKB was becoming Wall Street’s biggest customer. IKB had been created in 1924 to securitize German war reparation payments to the Allies and over the years had changed to a lender to midsize German companies.

The company saw an opportunity to borrow money for short period of time by issuing commercial paper and investing in structured credit which turned out to be bonds backed by American consumer loans. For a time, it was profitable that a $20 billion dollar portfolio was making $ 200 million dollars a year. This was good.

The not so good thing was computer programs to monitor the investments made no distinction between prime and subprime debt. It was taken at face value: the program looked at the history of triple A bonds and accepted the official story that triple A bonds were essentially risk free. The bank was still buying when the market collapsed and the President of the Bank when asked about subprime debt, believed he did not own any.

The traders in Germany were not paid on how many loans they booked, what is termed a decent salary of $100,000 plus up to half bonus. So as long as the bond remained good on the outside, the traders could tick the appropriate boxes and be comfortable buying. It was the insides that had turned from Triple A ratings to D ratings.

Linking to dividend paying stocks, as investors we want to trust management and tick the proper boxes. We think we are doing the correct thing but then something happens and there is little explanation we did not know? Why did they not know it I had thought about it? When things go well, fewer questions are raised.

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

 

Many people have read or watched the movie the Big Short, the author Michael Lewis wanted to know who made money on the housing crisis? In investing you can make money when the market goes up, down or sideways. In the book Boomerang written by Michael Lewis published by W.W. Norton & Company, New York, 2011 Mr. Lewis examines countries outside the United States and how they were affected by the housing market collapse. Mr. Lewis picked  4 countries – Iceland, Greece, Ireland and Germany all countries which had made the news prior to 2008.

When the real estate market fell in the United States, one of the countries also hit was Ireland. For a number of years, Ireland 3 biggest banks – Anglo Irish, Bank of Ireland and Allied Irish Banks were the stars of the country. Then with a thud they were all bankrupt and now owned by the government.

In Iceland, the banks had bought overseas assets, in Ireland it was Irish real estate. For a time more than a 1/5th of the Irish workforce was employed building homes. The construction industry had swollen to become nearly a 1/4 of the Irish GDP compared to less than 10% in a normal economy. The economy was building half as many new houses a year as the United Kingdom and they had 15 times as many people to house. The price since 1994 had risen 500% and in parts of Dublin rents on million dollar homes could be rented for $833 a month. The good news was home ownership went to over 87% and who was going to live in the other homes? Who was going to lease the office space being built?

When the ball stopped spinning, the banks managed to persuade a lot of people they needed to be bailed out because of systemic risk or their failure would bring down a lot of other things too. The reality is Anglo Irish the biggest lender had 6 branches and no ATMs. It lent money to people to buy land and build. In the case of Irish they wanted to save the banks, why not just the deposits? The investors would have been stuck and had to do workouts or be long term holders. The bondholders did not expect to be bailed out but they were 100 cents on the dollar.

Why did the older banks act like Anglo Irish? They were growing at 30% a year in a business that should grow at 5-7% . The banks changed their tactics to getting the clients of Anglo Irish and paying lending officers of loans lent, not loans repaid. In October 2008 when the Irish Times published a list of the 5 biggest real estate deals in each of the past 3 years, the old banks lent 10 of the 15, Anglo Irish just 1.

Linking to dividend paying stocks, the above is to show you there were warning signs but most people decided to ignore them. In the property bubble that was Ireland, simple questions of who was going to buy and occupy space were not asked? It is a testament to the country to build housing, however if the private sector is going to pay, then who was going to live in the housing? Perhaps if a natural disaster happens, there is room for optimism. However when a mature market which typical has reasonably low rates for growth begins to show high rates of return, enjoy for a while and then ask why would it be sustainable?

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

 

Many people have read or watched the movie the Big Short, the author Michael Lewis wanted to know who made money on the housing crisis? In investing you can make money when the market goes up, down or sideways. In the book Boomerang written by Michael Lewis published by W.W. Norton & Company, New York, 2011 Mr. Lewis examines countries outside the United States and how they were affected by the housing market collapse. Mr. Lewis picked  4 countries – Iceland, Greece, Ireland and Germany all countries which had made the news prior to 2008.

Greece by all accounts is a beautiful country, it has the bluest of seas, it is the cradle of democracy and over time has evolved to the most indebt nation in Europe. They had the Olympics but cost overruns were the norm. They have structural problems – the national railway has annual revenues of  100 million euros against a wage bill of  $ 400 million euros plus $ 300 million in other expenses. The average state railroad employee earns $65,000 euros a year.

The Greek government tried to make life easier for its citizens by lowering the retirement age to 55 for men and 50 for women in “arduous” job classifications. Over the years, more than 600 professions are considering “arduous”. Ministers who work in the public service leave government with the ability to buy million dollar homes plus a country home. It is system which change is not going to come quickly.

In order to make budgets work for the entry into the Euromarket, expenses were off the government’s books even though they paid it. The government had no Congressional Budget Office or there was no independent statistical service. The party in power simply gins up whatever numbers it likes, for its own purposes. In addition, the first task of a government seeking reelection is to pull the tax collectors off the street.

In Greece, real estate which can be taxed has two values – the actual value and the objective value. The idea is to declare the property as objective value pay lower taxes and eventually sell at actual value. It was believed all members of parliament were using the objective value to evade taxes.

Linking to dividend paying stocks, there are remarkably few people that want to pay more taxes. Most of us invest in programs which are not taxed or deferred tax when we eventually retire and expect to be at a lower tax level. Sometimes what is good for the individual is not necessarily good for the economy as a whole. We want the companies we invest in to make a profit every single year and ideally make more is better which can raise dividends each year. The President gave corporations a tax break, but most of it went to buying stocks or increasing dividends which helps you the investor. It does not necessarily help the company 5 years from now, but we will see.

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