One of the biggest trends in raising money is private equity. In reality, private equity has been around for generations, but it has been enhanced over the past 20 years. In the textbooks, when a company needs to raise money it has a number of choices including bonds and equity. Often times going to the equity markets was considered the company would raise more money. The thing that has changed is there are a number of private equity firms that can raise as much and sometimes more than public markets. If a company went public, a wide number of investors could invest in the company, in private equity – the company takes positions but they are much more concentrated and if the company goes through a restructuring and comes out better, there is greater amounts of money to be made in a shorter time period.

An interesting book dealing with private equity is a book called Money Machine by Weijian Shan published by John Wiley & Sons, New Jersey, 2023.

In the book, Mr. Shan works for TPG and recently had worked on a deal to transform a South Korean Bank ( Korea First Bank) from needing government bailouts to profitability. The bank was in good shape and people in the Asian markets recognized efforts by the TPG group. One of the people who recognized it was Alex Zhang, a partner at Dorsey & Whitney with offices in Minneapolis and in Hong Kong. Mr. Zhang asked would Newbridge Capital, the prior name of TPG) would be interested in buying a bank in China?

The bank in China was Shenzhen Development Bank (SDB), it had nationwide abilities and was headquarters in Shenzhen, a city across from Hong Kong.

Similar to all banks that are in trouble the Non-Performing Loans (NPL) was a large percentage of the outgoing operations of the bank. Commercial banks make money by capturing the difference between the average interest rate at which it lends money and the average interest rate at which it collects deposits. The difference between the 2 is called the spread. Ideally it is positive.

The are 2 major costs to consider – operating costs: compensation, paying rents, utility bills, etc. Credit costs is the other, which refers to loan losses. If these costs are greater than the spread it earns, the bank losses money.

In China it is relatively easy to get to a framework for a deal, but then comes the regulatory process. The many details including the governments of Shenzhen, Guangdong Province, and Beijing. Before Beijing would sign off, the regulatory groups included the central bank, the securities regulator, the Ministry of Finance, the State Council and ultimately the Prime Minister.

Each body would need both data and information from TPG and political approvals. It was going to be an interesting ride. Most of the book is the process to gain approval and it was a roller coaster ride with many ups and downs. Once TPG was able to buy the bank, then more work started.

Who do you trust? One of the steps was to do a 360-degree performance review process. Every one of the 7,000 employees would be reviewed and evaluated by the people around them including superiors, subordinates and colleagues. Evaluations are kept as anonymous to ensure fairness and honest as possible. It too 2 weeks to get the results. The purpose – the bank’s employees knew who the best managers were, and given the right outlet, they were willing to tell us.

Chinese banks were organized like a federation of regional fiefdoms. There was a major branch in the capital of each province, which functioned like a regional headquarters controlling a number of sub-branches throughout the province.

SDB had a high ratio on NPLs in general. But the bad loans were unevenly spread. What caused the uneven spread of NPLs?

Clearly the managers of the SDB branches made the difference. If a branch manager was good, the branch booked good loans and avoid the bad ones – even in a bad market.

The other factor was the SDB’s organizational structure. The provincial branches operated with their own lending standards and made their own credit decisions – with a wide range of results. From this point of view of international best practices, the whole bank should have a uniform credit underwriting standard. Fortunately, there was good man to lead the transition.

The Strategy and Policy Committee met for the first time with a mandate to create a new organizational structure and change management at various branches. How fast should the change be? never an easy answer but Mr. Shan believed major surgery was needed.

Mr. Shan let the results of the 360-degree reviews guide the personnel decision. Given the past method, most people bought into the changes as merit and performance were important.

A town hall meeting was asked and Mr. Shan asked the question – how many of you think our bank ranks as the best bank in China? none. the middle -20%, the bottom – a majority.

A culture change of a sense of ownership would be undertaken, additionally the incentive system would be changed.

The loans were effectively broken into 2 banks – the good one and the bad one. The good ones allowed the bank to grow; the bad banks would focus on recovering of outstanding debt.

There are other insights into operations of the bank and the exit or the selling of the bank to a new company PAIG Insurance which grew the bank, but selling at the right price takes time and discipline.

Linking to dividend paying stocks, when you read or if you ever gone through restructurings, hopefully you stayed on, you will learn and resort to the fundamentals of the business. As a dividend paying investor, your companies are not supposed to be dealing with restructurings except to bring them into the bigger company, but you can ask the questions that pertain to restructurings to see if you believe the company is getting it right.

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

The American economy runs on consumer spending and for many decades that has been a good thing. Americans have access to all manner of goods and services and with the internet, things can be order online. It seems times are changing.

In an article by Ben Casselman and Colby Smith of the New York Times News Service, there is emerging or already exists a two-tier economy or a K economy. For those who have savings or money in the bank, asset values have risen, and they are wealthier than before. For those with little or no savings, the prospects are paying the bills and trying not to get too far behind.

In the article, the reporters focused on Chicago, on one hand was the shops of the Magnificent Mile similar to Rodeo Drive in LA or Fifth Avenue in New York. The luxury hotels and designer boutiques are doing brisk business.

According to Moody’s Analytics the top 10% of US households accounts for half of all spending.

Inequality narrowed during the pandemic when the government spent trillions of dollars on consumers and businesses. However, at the present, the labor market has cooled, low-wage workers have lost their leverage. Slower wage growth combined with persistent inflation means many family finances are straining. This has led to greater increases in the use of credit cards and the buy now, pay later processes. However increased use of credit generally means most do not pay off the credit cards, so higher interest payments are keeping people’s stress levels up. People are falling behind on car payments and recently a sub-prime auto lender called Tricolor filed for Chapter 7 bankruptcy a victim of bad luck, fraud and the auto loan crisis. For Tricolor, its bonds were rated AAA and now the large banks of JPMorgan Chase wrote off $170 million, Barclays wrote off $150 million and others wrote the money off. (for commentary on the bonds, Patrick Boyle’s You Tube channel offers analysis).

According to Leo Feler, chief economist at Numerator, people are consuming the basics, but they are cutting back on all the extra stuff that they were able to do during pandemic. This time it is more precarious because if they have already trimmed back, the only thing they have to trim is the basics. Which is why food banks are seeing increased usage.

In Pilsen, a neighborhood of the west side of Chicago, food bank usage is up, and because of ICE patrols in Chicago, the food bank is getting requests to have the food delivered so people do not have to venture out.

For people out of work, finding a job has already gotten far more difficult. Nearly 2 million are considered long-term unemployed, the highest since the pandemic. Job fairs are seeing increasing numbers of attendees.

Linking to dividend paying stocks, many of the companies appeal to a wide sector of people to buy their products, for example a utility offers gas and electricity to people of all income levels. The more people move from paycheck to paycheck, the higher the probability there will exist write-off’s due to bad loans. In the banking sector this is not good, and there are programs in many cities to help people keep the lights on. When you are investing, ideally you are making more money, but often you are dependent on all customers paying their bills. If you see the numbers increasing, investing in companies that collect money can be a good thing to do, because they buy the debt for pennies and collect a dime or 50 cents or even a dollar.

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

When a long-established company gets into trouble because of class action lawsuits, it can do many things, pay the bill, but that is expensive; spin off the division to a new company and the new management can look after it, and there are other actions. This is what lead to the creation of Kenvue. The long-established parent company Johnson & Johnson (J&J) spun off its consumer product division to establish Kenvue. The brands include: Band-Aid, Benadryl, Zyrtec, Listerine, Tylenol, Visine, Baby Powder, Johnson’s Baby Shampoo and others. If you are in an average household, you likely have one or more products in your house. Many of those brands are billion-dollar brands, but the likelihood of high growth is limited.

In an article by Lauren Hirsch and Rebecca Robbins of the New York Times News Service, Kimberly-Clark the consumer products giant that owns Kleenex and Huggies said it agreed to spend about $40 billion for Kenvue.

Even though the brands are doing ok, the growth rate for the consumer products was not good enough for some investors. In March, the investment firm Starboard bought a stake in the company, had its CEO Jeffrey Smith elected to the Board of Directors and started a review of the company’s strategy.

Under the terms of the cash and stock deal with Kenvue, Kimberly-Clark would own 54% of the company. The combined company should generate about $32 billion in annual revenue and $7 billion in operating profit. The synergy potential is $2 billion in cost cutting in 3 years.

The deal would close in the second half of 2026 subject to regulatory approvals and approvals from shareholders. The corporate offices of Kenvue would shift to Kimberly-Clark’s head office in Irving, Texas.

Linking to dividend paying stocks, when a company is diversified and lawsuits come against it, there are always a number of methods to deal with it, without causing existing shareholders to pay for it, if the company loses the lawsuit. Spinning off a division is a good example, so the existing company can be seen as and experience higher growth multiples which translates into high stock prices. And that is a good thing for investors.

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

There is a movie called Miss Congeniality movie starting Sandra Bullock who goes through a makeover from FBI agent to beauty queen pageant contestant. In the movie, she makes the finals and is caught up in the expression’s beauty contestants say, after giving a demonstration of self-defense tactics, says I really do want world peace. Hopefully we all want world peace.

In an article by Eric Reguly of the Globe and Mail, the reconstruction of Gaza will require a repair bill of a minimum of $70 billion. About 85% of the built environment has been severely damaged or outright destroyed. Water purification systems, the electrical grid, fiber-optic networks, urban sanitation systems and farmland has been destroyed. Most hospitals and schools no longer exist or require reconstruction. Millions of people were displaced.

Israel and Hamas signed a peace treaty, but who will pay for the rebuild and under what conditions can the rebuild happen? Who has authority to award contracts? Who will govern Gaza to ensure stability of the long-term projects?

It is likely that the funding will come from the wealthy Gulf States, the EU, the US, the World Bank, the IMF, and the UN Development Program.

Turkish companies would get most of the work if Palestinians had their way. Turkish President Erdogan has been a consistent supporter of the Palestinian, but the risk is the Israeli military could disrupt the supply lines for any Turkish company.

The major Turkish construction companies are: Limak Holding, Ronesans, ENKA Insaat and Kalyon Construction. ENAK has done a lot of work in post war Iraq and Libya. Kaylon helped build the new Istanbul airport, one of the world’s largest private airports.

Egyptian companies that likely would participate include Orascom and Consolidated Contractors. CCC is one of the world’s largest construction companies.

Linking to dividend paying stocks, when peace is present people will build and construction happens. There are large construction companies in the USA as well as the rest of the world. If you want to diversify your portfolio looking at companies that will benefit from the rebuilding of Gaza can be a good thing to do.

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

Sometimes owning a stock means the price stays in a small trading range, the company makes money or profits but is not seen as a growth story. Then some good news from the customers of the stock sends the stock price up.

In an article by Mimosa Spencer, Mateusz Rabiega and Alun John of Reuters, LVMH shares had their best day in more than 2 decades or 20 years on improving demand in China.

The world’s top luxury group, which owns brands from Louis Vuitton bags to Moet champagne soared 14% and it beat forecasts for its quarterly sales.

Luxury sector shares bad begun some transaction in recent weeks, with expectations that sweeping management and creative overhauls will bear fruit.

Sales in mainland China, a traditional growth driver turned positive. Chinese nationals account for about 1/3 of global luxury sales at LVMH, as well as the sector as a whole.

In addition, a new report stated that those in America who make more than $$250,000 a year or the top10% of the earnings were powering 50% of consumer demand. Many were staying at luxury hotels, and spending money on luxury goods.

Linking to dividend paying stocks, in the 1930’s John Dillinger was asked why did he robbed banks, and he said that is where the money is. Times have changed but asking where those that have disposable income spend their money can mean those places are good investments. There is homework to be done, such as how much sales need to be done before profits are made? but you are on the right track.

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

Every industry has a relationship with the government and the government of one level or another has the ability to push forward or slow down the industry. Sometimes it is the government of the day favors one sector other another; sometimes the government has many different pitches and it picks the legacy one; there are other multiple reasons, but it is safe to say governments can help or hinder projects.

In an article by Rebecca F. Elliot of the New York Times News Service, it is clear President Trump favors oil and gas and coal industries over solar and wind power. The President has said as such many times and equally important Congress is rolling back clean-energy tax credits and thrown up legislative road blocks for wind and solar farms to be built.

However, the pipeline to build wind and solar is so big that analysts expect the US to add a record amounts of renewable energy and batteries through 2027. BloombergNEF, a research firm, recently raised its forecast by more than 10%.

Wind and solar projects must be under construction by July to be eligible for federal tax credits. To hit that deadline, many developers have ordered custom power transformers – devices used to increase or decrease voltage – solar panels and other equipment much sooner than they would normally have in an effort to show the IRS the project is under way.

Part of the reason for the demand for solar and wind is due to the AI demand because solar and batteries can be installed much faster than installing new natural gas, nuclear or coal plants. There is no offshore wind farms being built, because the Trump administration shut them down.

Linking to dividend paying stocks, the important issue is the demand of whatever the company sells. If demand is rising, which is a good thing, then it is easy to see profits being made and dividends paid. You learnt about supply and demand and for many industries those simple lines are the key to understanding what is going on with your investments. Ideally, the government is supporting the industry.

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

At the moment, the real estate sector is active to provide data centers to power the AI revolution that has started. This is a good thing but the US has a problem, and the problem is an aging infrastructure and aging power transmission lines, but maybe China can help.

In an article by Keith Bradsher of the New York Times News Service, in China the longest ultrahigh voltage power line stretches more than 3,219 kilometers or the equivalent of transmitting electricity from Idaho to New York.

The power line starts in a remote desert in northwest China where vast arrays of solar panels and wind turbines generate electricity on a monumental scale. The line goes southeast, follows an ancient river between the mountains and reaches the Shanghai area home to electric car and robot manufacturers.

China has 41 other lines crossing the country. Each is capable of carrying more electricity than any utility transmission line in the US. Why? the line is more efficient that those in the US.

China is leading the world in producing clean energy, but most of it the sunny, windy western and northern regions. 90% of the people of China live near the ocean or in the east.

Many of China’s ultrahigh voltage lines use direct current technology, which allows them to carry electricity long distances with barely any transmission losses.

In addition to the vast solar and wind components of electricity generation, China is the world’s largest of coal to generate electricity.

China already consumes 2 X as much electricity as the US.

China can build faster because of its top-down industrial planning, government control of information and intolerance for public dissent.

Linking to dividend paying stocks, if you are a dividend investor, you like utility companies and one of the reasons is their ability to persuade the electricity regulators to raise rates to meet the demands of new infrastructure and keep profits coming. China has different utility technology, and which has concerns, but not losing electricity in the generation is a big benefit. In your search of new technology, what is the world adopting, that could lead to more profits?

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

You often heard invest in something you know. One of the ways that manifest itself is to examine what do you buy and who are the companies behind the things you buy. Unless you feel you are an exception, chances are reasonably high other people buy similar things. Then you do your homework to narrow down your field and invest in the best of the breed. A number of years ago, you would have looked at your computer and which company makes the computer work – many people would have seen the advertising logo – Intel inside.

In an article by Tripp Mickle of the New York Times News Service, for a time investing in Intel was an easy win, but then things happened which made the stock go sideways and from an investment point of view lost opportunity, however things maybe changing.

Outside of Phoenix, Arizonia Intel has spent $20 billion on a 4-story manufacturing plant that it hopes will turn its future around. The plant known as a Fab 52 is designed to make more powerful and efficient computer chips. The process uses the tools from ASML, a Dutch manufacturer of lithography machines. to manufacture cutting edge semi-conductors in the US.

10 to 20 years ago, Intel was the number one place to be for computer chips, but it fell behind Taiwan Semiconductor Manufacturing Co (TSMC) after it failed to develop ASML technology. Intel was dropped by Apple and missed the mobile phone computer chips.

Since then, a number of CEOs have come and gone, the latest is Lip-Bu Tan. He agreed to the Trump’s administration of $8.9 billion investment in treasury shares for 10% of the business. The administration then released the funds from the Biden’s CHIPS and Science Act.

Intel is trying to go back to the time it was the leader in new technology. There is no guarantee but if Intel can persuade others in the tech industry that the process works better than TSMC, they are off to the races.

Linking to dividend paying stocks, most of us are fascinated and interested in new technology, we think it can change the world for better and make money at the same time. There are always a number of ways to play the new technology – the makers or the users. Sometimes one is better than the others, but if you invest in the makers, part of the process of your homework is to ensure the company stays at the forefront of new technology the marketplace is adopting and using.

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

All governments make decisions and then the policies are rolled out, people elect governments to make decisions. Then people decide if the decision is good for them and that is where unintended consequences happen. In the case of President Trump, he decided the US needs tariffs. For the past 60 plus years the world has said we would all not want very few tariffs, but President Trump decided on a reset. Prices are up because of the tariffs, but in 2 years maybe they will fall. One of the unintended consequence is on the farm belt.

In an article by Nathan Vanderklippe of the Globe and Mail, the reporter interviewed Elliot Uphoff who has a family farm of 2,000 acres with his father in Shelbyville, Illinois for the past century. The last time the Trump administration sent him a check, he bought a mini excavator to fix drainage issues.

The big crop is soybeans and 60% are sold to foreign buyers with the largest China. In the trade war tariff, the US has not yet made a single sale from this year’s soybean crop to China. China has bought soybeans from Brazil and Argentina.

President Trump has said some of the money collected in tariffs, rather than going to pay the debt or about $16 billion trade aid bailout of farmers.

Around Decatur, the central Illinois city which refers itself as Soy City, farmers would rather have the market instead of government check, according to Tim Stock, EVP of the Macon County Farm Bureau.

Across the US, we are going to lose farms this year, guaranteed.

China’s half to soybean prices has not sent prices plummeting. An Illinois farmer can sell a bushel of soybeans today for nearly the exact same price as this time last year.

The reason, US farmers are harvesting less soybeans, the lowest since 2007. They grew more corn.

Michael Langemeier, the director of the Center for Commercial Agriculture at Purdue University where he is a professor of agricultural economics, said if China does start buying, prices would be 10% higher.

Matt Furr, who farms 4,500 acres with his family, has purchased only 10% of the futures contract he would normally buy to lock in an advance price for his crop. He is hoping better prices arise in spring or early summer. Similar to all farmers, they would rather work, but they will take the money if offered.

Linking to dividend paying stocks, most of these companies are large enough that there are plenty of government incentives to help them make decisions. Ideally the decision is made first and the government just adds to the returns, but all companies are dependent on government policies. Hopefully the companies you own investments in expects government money to be part of their analysis.

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