Reread Confidence Men by Ron Suskind published by HarperCollins Publishers Ltd, NY, 2011. The book has 3 main themes – the financial collapse of 2008 and what to do about it; health care reform; and President Obama. When you compare President Obama’s time as the President to the existing President, you are will be reasonably happy so far there has been no crisis in the economy.  At least with President Obama he was able to draw upon the smartest people in the US and know when to take advice and when not to accept the bias of the advice. With President Trump as soon as fellow Presidents of companies tell him what to do he says yes do it. Tax cut for corporations lets do it, now companies can buy back billions of shares which helps existing shareholders (including me) but the deficit is going to be the concern of the next President.

In dealing with the banks, the most important asset they have is confidence. You deposit money, they lend it out and receive more back. The largest banks have a large trading system, primarily in debt or debt like instruments and as long as 99% of the people repay their loans, while you can live another day with money coming into the banks. In the banking crisis of 2008, when the value of mortgage backed securities dropped to almost nothing because too many bad loans – both based on faulty income abilities to pay increasing higher interest payments and declining home prices (when the mortgage amount is greater than the value of the home would you continue to pay?) what should the government do. If the banks sat on the money, the economy does not move because it is based on credit flows. Credit flows are based on confidence to repay loans and losing money means there is no confidence.

It is also true that risk management which is the most important job of the senior management was lapsed because the attitude was securitize the debt and sell it to someone else. What happens when no one buys? One can see there were many problems but remarkably few solutions. The banks are private institutions, does the government go and change management? take the bad debt and hope real estate values go up? what do you do and how do you encourage growth in the economy? While President Obama never got everything right, they made better decisions than other administrations would have or could have.

In terms of health care, a study in Dartmouth revealed not surprisingly if insurance companies or medicare pays more for a procedure, then eventually more of those procedures will be done whether the outcome is positive or not. The idea of health reform should be to reward procedures that make the outcome positive. The problem is hospitals and doctors who are rewarded by the procedures that make money and less about positive outcomes and they tend to have more influence on the health care than regular policy makers because they are seen as the experts. It takes a great deal of effort to affect health reform.

Linking to dividend paying stocks, when companies make money life as it should be is easy to see. When governments want to do reforms, uncertainty becomes an issue. Easy reforms are when procedures can change but companies can still make relative easy profits.

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

If you go back to last year, Apple continued to sell iphones in large numbers, had $250 billion in offshore accounts and paid a 36% corporate tax. Thanks to the tax cut, Apple continues to sell large numbers has brought or is being to bring its billions offshore back to the US and pays a lower corporate tax. Even if it did nothing better than last year, it would have beaten estimates. With the money, what did Apple do – it bought back $23.5 billion of stock back, increased its dividends and there is more to come. With less shares each remaining share is more valuable and with increased dividends shareholders receive greater cash for their holdings. There is nothing not to like, except for the big picture in the US.

In dealing with Apple, in an article by Stephen Nellis of Reuters, Apple sold 52.2 million iPhones which is along with Wall Street expectations but no longer the great numbers of the last couple of years. Apple spent money on buybacks and still has $145 million in the bank to do more. The revenue for Apple was 61.1 billion up from 52.9 billion of last year.The average selling price of an iPhone was $728 compared to Wall Street expectations of $748. Selling the iPhone X and iPhone 8 at a discount was the reason.

People continue to buy music as Apple Music, the App Store and iCloud posted 9.1 billion in revenues compared with expectations of $8.3 billion.

For the next couple of years as Apple continues to do what it was doing plus distribution of cash to shareholders, Apple will be considered to be a core stock holding. Maybe not a growth stock, but things can change.

Linking to dividend paying stocks, the tax cut the President gave to corporations has increased stock buybacks and dividend payments and as dividend buyers that is good thing for the companies. In a couple of years, they will have to do the really work of beating the competition instead of relying on the tax cuts, but for not it is a good thing.

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

Many years ago, there was an advertisement for Avis which says we try harder, they had to say this because they were the number two or three brand. In the world of business, being number one market share means higher profits. In an effort to increase profits, T-Mobile is merging with Sprint in which they hope to close in the first half of 2019 or next year. In an article by Greg Roumelitos of Reuters when you examine mergers, an important aspect is who controls the Board of Directors, in this case, the new President will be from T-Mobile and the owner of T-Mobile, Deutsche Telekom AG will have 42% of the shares and can nominate 9 of the 14 directors.

For Sprint which is owned by Softbank of Japan, it has tried a couple of times to merge and carries debt of $32 billion. Analysts noted Sprint’s growth came through discounting (volumes increase, not necessarily profitability), due to its debt lacks the scale needed to invest in the US network and to compete in a saturated market.

For consumers, the benefits are a higher capacity network, lower prices, create jobs and improve service in rural areas. The two biggest wireless players are Verizon Communications and AT&T, incidentally Verizon is a wonderful generator of free cash which goes into dividends. The new aspect for cell phones users is the 5G network and both Verizon and AT&T scope will be larger than the merger T-Mobile Sprint.

Linking to dividend paying stocks, while competition is important and needed, to be in the top 2 market share is more profitable and that can lead to many more elements. In the cell phone world, it leads to the ability to continually upgrade the network, to spend more money on good customer service and be innovative. Those elements bring more customers and the cycle continues to be strengthened every year. While it is great to watch and be informed of the other competitors, invest your money in easy methods to see success.

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

 

Amazon the company that is reshaping the online world, continues to churn out greater profits. Amazon reported higher profits and a rosy outlook as reported by Jeffery Dastin and Arjun Panchadar of Reuters. Sales for Amazon rose to $51 billion beating out estimates of $49.8 billion.

The world’s largest online retailer announced it was raising cash or prices on Amazon Prime from $99 to $119 in June. It is important to note Amazon has over 100 million people paying the membership and members spending on Prime fees and other subscriptions grew to $3.1 billion.

Amazon stock is up 30% this year, which is why most institutions and mutual fund companies own shares in Amazon.

Linking to dividend paying stocks, if you buy Amazon it is important to understand how the revenue model works – from fees from Cloud computing, Amazon Prime and shipping books and other things. If you believe things are relatively the same then Amazon is a good hold.

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

As with everything else in the world, it depends is a good answer. Since 2008, government treasuries, the most secure debt instruments (the government can raise taxes to pay the interest) have been close to 0%. With that yield, almost everything else looked good that was positive. If you lost money then even 0% looks good. US Treasuries interest rates and yields have been to move up to 3% which makes the depend answer more tricky. Typically, dividend stocks return about 3%, but there was the good aspect of higher stock prices to produce a total return often above 3%. Now that US Treasuries are 3% do you shift to begin buying bonds?

According to Ian McGuggan writing in the Globe and Mail the Federal Reserve is expected to hike interest rates up at least twice more in 2018 as it combats rising inflation. Although with elections being held in November, maybe the second hike will be later. For the second hike the politicians want to ensure the low interest rates which helped fuel the economy is not being hurt. It is important to note as interest rises, neither stocks or bonds thrive. Bond prices move in opposite direction to yields. Stocks are hurt because higher interest rates means higher corporate interest payments. Then the issue of how much debt a company has and should have are raised again.

Linking to dividend paying stocks, while buying stocks, it is better to buy a company with growth rates plus pay dividends as interest rates go up, there is a risk. If you do not know what to do, you can little for as the cash comes in from the dividends there is no reason why you have to spend it. You can wait until a great opportunity from the homework you have done comes forward. This makes it all the more important to be aware of the alternatives and what alternative would you buy and at what price?

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

One of the things small businesses tend to have the most problems with is pricing strategies. There are a multiple reasons because pricing is a process however if you can determine the right price for your product or service it will improve the bottom line of your company. For the importance of pricing, there are a remarkably few books about it and one is from the Self Counsel Press Business Series written by Andrew Gregson written in 2008 published by the International Self-Counsel Press Ltd – Vancouver, BC and Bellingham, Washington.

One of the important elements is do you compete on price or value? If you compete on price understand the margins will be low, but you have to make it up in volume. If you compete on value – you have to help your customers understand and tap into the value they see in your product. There will variables along the line – customers who want to pay the lowest price but are one off customers; there are customers who see value in your product or service and willing to pay more – and you need to find out why they see value and price accordingly.

What makes pricing successful – the company has a decent profit; the owner is paid a reasonable wage; the company and owner can pay their taxes; the company has no difficulty finding the cash to pay bills; the company attracts the best quality of customers who are willing to pay for the value added by the company; the company generates a reasonable return on investment; and bids on jobs are planned to leave no money on the table.

Your prices are too low if you do not generate a profit and liveable wage for the owner; you hate customers because they beat you on price every day; you just spin on the wheel but do not create profit.

What to do – your company needs a unique selling proposition in order to find value in the products and services you offer to your customers. Without it, you will be see as a commodity in the eyes of the customer and no different between you and the competition and because of the internet they are all over the world. Once you have the unique selling proposition you can go through the steps who are your customers; which ones see value and which ones need to better reason; and then you can look at your costs. The process continues every time you open for business.

Linking to dividend paying stocks, when you invest in company which earn profits you can see their value, but you have to ensure customers see the same thing. You expect profitable companies have a very good idea in terms of their pricing strategies and it is something you look at their gross and net margins. Are they consistent, what changes, who are the customers and do they see value they will pay for? The questions never go away.

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

If you own a mutual fund or index fund and it does not have Alphabet in it, then you should be looking for an alternative fund. One of the reasons to own it is Alphabet which owns Google made $9.4 billion in profit in one quarter. In an article by Paresh Dave and Arjun Panchadar of Reuters, Alphabet achieved better pricing on ads and saw unrealized income from start up investments.

Alphabet makes its money from advertising and point and click ads. The ads come after the clean page search engine, YouTube videos, millions of partner apps and websites. World wide ad sales increased to $31.1 billion. In terms of the mobile app store such as cloud computing services and consumer devices the number was $4.4 billion.

Another aspect to Google is through its venture capital arm with investment in companies such as Uber Technologies and Waymo – the self driving car ideas.

Linking to dividend paying stocks, Alphabet continues to generate billions of dollars in revenue and most people expect what we consumers are doing now, we will continue to do next year. If we do similar things, use Google to search and find information we can use, then advertisers will continue to use Alphabet as a primary adverting. Along with the ads, Google does many other things and most of us will use one or more of their services. If you examine the number of people the company has and the few fixed expenses, it is one of the reasons why owning Alphabet is needed in your portfolio.

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

For every company to make money somebody must sell their goods and services. The company can do and make very needed things, but somehow they must be sold. For manufacturers it is often easier to have distributors sell their product and the company can concentrate on the next improvement. For Hasbro which has been around for many years, the biggest seller of their toys was Toys “R” Us and for many years this has been a very good relationship. It was reported by Nivedita Balu of Reuters,  Hasbro reported nearly $100 million less than expected because of the bankruptcy of Toys”R” Us. The good news is the company has found ways to grow margins by 2019 and is expected to  generate between $600 and $700 million in operating cash flow for the year. One of the strategies is to ensure their toys are in Disney and Marvel movies and this year there are 6 major releases.

Linking to dividend paying stocks, every company eventually becomes dependent on others and that is a good thing until it is not. It is the reason in large organizations there is someone worried and makes plans if things do not go correctly, what should the company do? how does the company adjust and how long should it take? It is easier to adjust if their are plans on how to adjust. As you look at your investment in companies see who they are dependent upon and how could they adjust if something goes off for a quarter or two.

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

As political season gears up for the midterm elections, you will hear an argument for tough, cost-conscious management to bring the correct results to the electorate. The argument works in politics and in the private sector. At the moment one of the best companies known for its cost cutting is 3G – a Brazilian investment firm. Warren Buffet teamed up with them in the merger between Kraft and Heinz. According to Ian McGuggan of the Globe and Mail only a couple of years ago, 3G was being applauded by analysts for their ability to slash costs and trim corporate fat. This was the best recipe for squeezing new profits from aging consumer brands.

The approach worked for a time as critics argue management focuses on streamlining operations but they have less time to spend on product development, corporate innovations and brand building. The danger is efficiency increases but sales and earnings per share do not. In the era of highly commoditized categories it is hard to grow consumer brands as Robert Moskow of Credit Suisse noted. The model is very good at cutting non-essential overhead, focusing on price realization and running an efficient plant and distribution network. The model is not so good at driving sales growth through marketing new products and strategic investments.

Linking to dividend paying stocks, the lesson to be learned is if a company goes through cost cutting hold for 2 or 3 years and then look for alternatives because the price of the stock will likely fall.

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