In every era, there were expressions or sayings some of which became popular and then people could use them if they wished to. One of the sayings in the 1920’s was if the shoeshine boy was giving you stock tips, it is time to sell. In the 1920’s people wore shoes and they needed to be shined which meant a number of young people were involved. It is possible a young person could be studied the markets, but the likelihood was the number was going to be small, so the shoeshine boy was repeating something he heard or was popular. If everyone is thinking popular, the people who spend more time at the endeavor should move to the sidelines or sell.

In the bond markets, there is a the yield curve which has been getting great publicity because traditionally it was a good indicator. The yield curve is how short term interest rates compare to longer term. The longer term should be higher, however in recent months the curve was flat to the point of inverting meaning short term rates were lower than long term rates. Often times in the past when this has happened it has meant a recession is around the corner.

In an article written by Ian McGugan there is another tool to look at before you declare a recession is around the corner. The measure is called Excess Bond Premium (EBP) developed by Simon Gilchrist of Boston University and Egon Zaakrajsek of the US Federal Reserve Board in 2012. In their paper written in 2012, they examine credit spreads on bonds from US non financial corporations. The theory being to hold a corporate bond rather than a safe US Treasury should mean extra risk premium or higher rates. This excess bond premium can be seen as a measure of investors attitudes toward corporate risk. In other words how optimistic investors are. If they are happy, the risk is low; if they are worried, the risk should be higher.

Why pay attention to the EBP? The yield curve may be less reliable giving the bond buying from global banks, although this year they are trying to cut back on the buying. If you wish to follow the EBP, the Federal Reserve calculates the premium and publishes monthly updates.

Linking to dividend paying stocks, similar to every expression, they give you an indication but try to verify it with other information. There is an old saying a recession is when your neighbor loses his/her job, a depression is when you lose yours. There always is some opportunity, but being prepared and having an idea of when to sell is always key in the marketplace. Spend time on both when to buy and sell.

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

President Trump in his view of the world believed trade wars are winnable. For most people outside the White House, this was a strange view to take, because for the past 80 years, American companies and governments have been setting up supply chains to benefit American companies. The supply chains did not necessarily help American workers but they were designed to help American companies and many of the largest companies in the America benefited. Then the President comes along and says something is not right. It is good that he wanted to change, except for change often means looking inwards at the systems America has put in place.

Veronique de Rugy a senior fellow at the Mercatus Center at George Mason University wrote an opinion piece in the New York Times in late August. Ms. de Rugy discussed the steel and aluminum tariffs. The 25% tariff was put on for “national security reasons”. The facts were the US Steel industry prior to the tariffs had a 70% market share and the Department of Defence report said no national security harm from global steel imports.

How did the justification allowed to go through? It turns out the Commerce Department who is responsibe for measuring a given tariff’s impact only measures the most direct impact an industry. By law, the Department does not have consider the impact on the industries which in this case use the steel and aluminum in their businesses. For example numbers produced by the Commerce Department shows that may increase employment by 14,000. The report says significantly larger number of jobs will be destroyed in industries downstream from metal production. This is why over 20.000 firms have sent in requests for exemption from steel tariffs. The number which is given is 6.5 million jobs could be affected downstream. The tariffs help 14,000 damage 6.5 million what is a President to pick?

Another trade body the US International Trade Commission or ITC is forbidden by statue from considering the impact of tariffs on downstream industries.

The solution or a solution that makes common sense is change the statues to ensure the trade bodies and Commerce Department seriously consider the downstream effects on both industries and consumers. (You may have notice prices went up because of the tariffs, when the tariffs come off will prices go down or will consumers pay more and companies profit more?  Wall Street is voting for the companies.)

Ms. de Rugy does not believe the statues will be changed because the 3 biggest boosters of the tariffs Wilbur Ross (he made money in the steel industry); Robert Lighthizer the US trade representative for years represented the steel industry and trade advisor Peter Navarro 2012 documentary Death by China was funded by steel producer Nucor.

Ms. de Rugy noted the last time the US under President Obama was tire tariffs and it proved to be an unmitigated failure.

Linking to dividend paying stocks, while many of us believe normal common sense will prevail and things will revert to some sort of nomalcy, often times they are take longer because govenment reguations make it harder to do normal. In the above example departments only look at a very narrow scope to solve a problem that did not need the tariff solution. If the real problem is China or Chinese steel imports – go after that and have US President say I was part of the problem I used Chinese steel in my building projects. Steel and aluminum are bulky importers when they come from China the metals come by boat and rail – there are only so many places to they can come to the US and if the US can not monitor those locations for big items, what do they do about illegal drugs? Trade systems are complex and they should be but fixing the internal process helps on the external process. If the company you invest in blames outside forces take a look inside the company to see do they really understand the problems and how are they tackling it inside the company?

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

 

In August, Elon Musk the Chief Executive Officer of Tesla tweeted he might take Tesla private and he had the financing arranged. In was news to his Board of Directors and in late August after a Board Meeting, Mr. Musk changed his mind to keep Tesla public. In the meantime, those that bought stock now either have a long-term hold or lost money as the shares declined to well below what Mr. Musk said he would take Tesla private. In addition the good folks at the SEC are investigating.

If you have an opportunity to ride in a Tesla, do it. By all accounts it is a cool car to ride in. After the ride, whether you want to invest in the stock or not, ensure you look at the short sellers or the naysayers from a financial point of view. Everyone agrees the car is cool. They will not agree on whether Tesla makes money selling a car, one short seller will tell you they lose $5,000 a car. The short sellers look at the coming marketplace and see other car companies entering the market – BMW, Range Rover, Lexus and soon the marketplace for the price of the car is crowded. Will Tesla continue to sell the number of cars it does? The shorts say no. There are a host of other factors, but the shorts believe while Tesla is a cool car, the company should be priced similar to other car companies and if that happens the company can continue but the price of the stock falls.

In an article by David Gelles of The New York Times News Service, he investigated who was for the going private and who was not. Unless Mr. Musk had a very deep pocketed investor, many of the institutional funds were going to have to sell, because their governance or regulations only allow funds to hold public companies which allows the holdings to be valued on a daily basis.  While there are many individuals who hold Tesla stock, the history of the company is to continually say they are cash positive but go to the bond and stock market to raise more money. Typically, individuals can not come up with the amount of money Tesla raises and says it does not need.

The Board met, they heard the private equity firm Silver Lake and Goldman Sachs make a presentation they could privatize the company, but Elon Musk changed his mind and the Board agreed. The company remains public and Elon Musk actions as the Chief Executive will continued to be scrutinized for the stock price declined. Who sold during the announcement?

Linking to dividend paying stocks, while Tesla never paid a dividend the lesson to learn is examine the facts from both sides. If you are a shareholder, you have some bias what is the opposing side saying and what do you believe. Tesla is a promoter stock with a cool car, it may be the best but in a year or two it may be where it is now, only with hindsight will you know.

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

If you are a reasonably normal person, you know some Kings and Queens around the world. In the case of England, the leading person is Queen Elizabeth II. If you were to be asked what is her last name, you would become even more normal – you likely do not know. Kings and Queens are referred to by their first names. In many societies, people are referred to by their last name and it would be an informal calling by calling the first name. However with Lords and Dukes, the tradition seems to be the reverse. In one of the summer readings, the book The Plantagenets – The Kings who Made England written by Dan Jones published by William Collins, London, UK, 2012 was read.

The family name the Plantagenets is French and for a long time, the lands in France or across the English Channel Normandy and south belonged to England. The winner of the battle to be King was William the Conqueror who was Norman. He brought the Normans into the fold of England. It was not for hundreds of years later, the Tudor family of Henry VIII took power and Queen Elizabeth II is related to this family. The time before Henry VIII, the family of the Plantagenets ran the country. More generations, only a male heir could inherit the kingdom and the names of Richard I “the Lionheart” , John, Edward and Henry are all well known Kings.

In reading the book, although the job was only available to family members and similar to most families, there was fighting over a level of power. If you think about Robin Hood, John want to be King when Richard was overseas. When Richard came back he was King and when he died, John became King. Famous documents such as Magna Carta came into force although the document is really about power sharing between the Dukes and Lords of England and the King.

Each King was not equal, some were better at gaining territory than others; all of them had what we call Public Relations people which is why we tend to like one King over the others. Each of them had to worry about money, when John was King he lost the territories of France to the French King and then could depend on the resources and money from the United Kingdom. Although for most of those years, the United Kingdom was not united,Wales and Scotland always had an independence streak and lost wars to become part of the UK. Each King had different management styles and strengths and weaknesses to run the country. Usually they were up to the task, but not always. Often being born to be King did not make a person a good administrator; a good task master and a good foreign affairs King. Sometimes Kings rewarded their friends too much, so the other Barons – Dukes and Lords fought the King to keep their place. In many ways the issues which face leaders has not changed.

Linking to dividend paying stocks, management matters. Although it would be wonderful if the company could easily continue to make profits and it did not matter who is the leaders chairs, in reality it does. When you examine your investments, ensure management speaks to your interests who find someone who does.

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

Every August, the Kansas City Federal Reserve holds a conference in Jackson Hole, Wyoming, located in the Grand Teton National Park south of Yellowstone National Park. It is lovely setting for a conference, at this particular conference economists gather to talk about the National economy and hear the keynote speech from the Fed Chair Jerome Powell. Chairman Powell sees an economy running with low employment, partly as a result of baby boomers retiring, and believes a rate hike or two would allow the economy to continue to do very well and inflation to be curtailed. President Trump has offered his opinion that he would like interest rates charged to the banks to be low, but Fed Chair Powell sees the world differently. (It would be more practical to President Trump’s base to have VISA and Mastercard lower rates, but President Trump does not tweet or do anything about those rates and thus owning and continuing to own those shares is rewarding).

According to Howard Schneider and Ann Saphir of Reuters, Federal Reserve Chair Jerome Powell will continue to raise rates in September and December. Traders have kept their bets on these rates happening. By next year rates should be in the range of 2.75% up from the 1.75% they are at present. The Fed typically deals in concepts of full employment and the definition sometimes changes as will continue to do things on a gradual basis.

Linking to dividend paying stocks, while all companies run on credit which means interest rates is a cost to doing business, as long as the adjustment to raising rates is expected and can be priced into the goods and services sold, then dividend paying companies will continue to pay dividends.

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

Most investors should not trade in the commodity markets, but watching the markets is a good thing to do. The commodity markets are the closest thing we have which is related to those supply and demand curves one learns about in economics 101. If there is a shortage, prices should go up; if there is more commodity than need, the prices should fall. Unless something else is affecting the markets.

In the world of copper, the mines in Chile are big players, there was a possible strike but in late August and the 11th hour before there was to be a strike, the miners settled and worked continued. In normal trading that would have sent the price lower. There is also hope that the trade hostility between China and the US is slowing down.

China has been a key driver for the use of copper in the past decade. The difference according to Andy Home of Reuters is new investors using the Chicago Mercantile Exchange (CME) as opposed to the London Metals Exchange (LME). The only conclusion which was drawn by Mr. Home is the new players has made the exchange more volatile and money moves between being bullish and bearish faster – either calls or puts.

Linking to dividend paying stocks, it used to be reasonably easy to play the commodity markets with supply and demand. There are only a few mines, there are relatively few companies or countries needing the commodity but times change and where there is great volatility it makes it interesting to watch, but be careful if you are investing. Finding good dividend companies whether producers or end users is a less risky way to be involved and use your judgements.

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

 

In late August Norman Rothery of StingInvestor.com wrote a column for the Globe and Mail about yields and dividend stocks. Mr. Rothery who is based in Canada used the S&P/TSX Composite for his research. If you had purchased an equal dollar amount of the dividend stocks in the S&P/TSX Composite Index you would have gained an average of 10.2% compounded annually. In number terms over 16 years a $100,000 would grow to $609,000.

A reason to invest in dividend stocks is not to invest in more highly speculative mining and energy companies which rarely pay dividends. Often you can do one or the other not both. Dividend stocks means not losing money, mining and energy stocks means you may double but you may also lose some if you are in the wrong part of the commodity cycle.

In Mr. Rothery’s research he found if you investments in dividend stocks begin to be very high yielding, you will eventually lose money. There are generally very good reasons why dividend stocks become high yielding relative to the other companies. High yielding means the stock price has declined but the dividend yield has remained consistent. Often something has happened to fundamentals of the company, but they are trying to turn the fortunes around and keep the dividend payments high. If they are not sustainable, the stock price will fall and if you own the stock you will lose money, both on the price of the stock and dividend yield which would have been cut. The trick according to Mr. Rothery is when the dividend yield becomes too high relative to others, find alternatives and move your investments.

Linking to dividend paying stocks, in life moderation is often the key to long term success. If you can live most of your life in moderation or a good balance and your investments reflect your lifestyle then over the long term you will be wealthier.

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

Most of us know who Midas is and similar to Midas there are many people who love gold. As an investor you will sometimes look at the world, the sabre rattling which goes on, central bank increase going up and wonder should you own some gold to protect yourself? It is a good question because unless you own a company which produces gold and has a dividend, the gold price has not moved in the direction you would want it to.

Niall McGee the mining reporter at the Globe and Mail looked into the gold sector. The Toronto Stock Exchange is one of the biggest mining exchanges which is why the Globe has a mining reporter. Since late 2011, gold has peaked at $1,900 an ounce and in late August sold for $1,190.

The difference of the $800 an ounce is causing miners worry and gold production less than $1,200 an ounce is now being looked at closing. If you own any mining company, know the cost of production, then you will known what to do when the price of the commodity goes up and down.

While everyone is drawn to gold, kings and queens have used gold for generations, all the gold mined in human history can fit inside 2 1/2 Olympic sized swimming pools. Most of the gold has little value outside of gold jewellery, coins, bars. (A little while the writer watched a B movie which had its plot, someone who was trying to find the lost city gold of the Aztec Empire and another person who had most of their wealth tied to investments in the gold industry. If the lost city was found, some its gold would end up on the markets to depress the price. The second person was trying to stop the first person from finding the lost city).  It used to be all governments had gold bars backing their currencies and up to President Nixon, the gold standard was considered the best method to back up currencies. nowadays, the dollar is backed by the infrastructure of the country among other considerations.

There have been countries whose economies were and continue to be devastated by hyper inflation, but they tend to be countries very dependent on a commodity and the price of that commodity which allows for the rest of the world to adjust to it and its citizens to use another countries money for carrying out transactions.

We do not know what will happen and there are always people who have been gold bugs and others who believe that one can live without investing in gold, outside of personal gold jewellery, but as Mr. McGee writes gold has always moved in mysterious ways, and predicting where it might go next might be a fool’s errand.

Linking to dividend paying stocks, if you love gold investing try to pick companies which have reasonably low costs, low debt and can pay a dividend. In this fashion you are protected from the price increase and decreases. There are some very low-cost producers and then what happens will happen.

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

In August after you heard about the Morandi Bridge in Genoa, Italy falling down, hopefully you were concerned about the people first. Later, you started to piece more details of the design and maintenance issues and possible weather related issues. Now days we ask was the road a toll road and who owned it – the country or a company? According to Ilaria Polleschi of Reuters, in terms of the road, a company called Autostrade per l’Italia which is a subsidy of Atlantia which is controlled by holding company for the Benetton family, who are famous for the clothing company. The shares of Atlantia went down 30% because of the bridge collapse.

The Italian government expecting the company not have maintaining the bridge as much as possible, not wishes to pass a law to invest more of the profits of operating the infrastructure to maintenance and safety. It is even thinking about taking away the ability for Atlantia to operate, however if they do there is a compensation clause to be paid for the investments the firm has done.

The bridge collapse raises the questions of private control of public assets and should there be more or less. Governments typically are in deficit positions and some institutions welcome the opportunity to invest in toll roads. Both directly and in joint ventures with the government agencies. Over the past few years, billions of dollars have and continue to go into public assets with tolls. With a monopoly on the road, the institutions can project traffic volumes and profitability.

Linking to dividend paying stocks, when you buy these companies and some have been very profitable in terms of volumes and rising asset prices, ask what happens when something goes wrong. How is the company protected, because the reality is without the public private partnerships, large aspects of infrastructure would not get done on a timely basis. If the company is protected well, continue to invest your money.

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