If a developed country wants to save fossil fuels, the easiest and hardest aspect is the urban environment. Buildings were built for many reasons but saving energy was the least important because fuel was relatively inexpensive. In the northeast a number of years ago, visited a friend whose house had almost no insulation from the cold. Once they renovated to put the insulation the house was livable during the winter. In the northeast, winter lasts at least 4 months and seemingly can last longer. There in lies the problem, to fix houses, renovation has to be done and to renovate means to move everything around, live through construction dust and debris and move everything back again.

In an article from Reuters, the European Parliament looked at the figure of buildings account for 40% of the European Union’s energy use. Most of that energy use is either directly by oil and gas or indirectly through the making of electricity. If buildings use less energy, the energy bills should be less and dependence on oil and gas imports will decrease.

The EU countries would need to renovate non-residential buildings to an E grade by 2027 and D by 2030. Residential buildings would follow later deadlines of E by 2030 and D by 2033.

Few disagree with the desire, how it be financed is a different issue.

Linking to dividend paying stocks, in the above case construction renovations will have to be done to ensure buildings are energy efficient. There are many companies in the renovation business but they will need supplies – in the US you could point to Home Depot and Lowes as larger suppliers. It is possible to go through which companies’ products would be needed to achieve energy efficiency and determine how they should benefit from government regulations. As long as government convene, they will pass regulations or laws which means some companies benefit, looking at regulations as a positive is one method to like regulations.

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

We all have preconceived notions of how things operate and that guides us to making quick decisions. Often the real world is more complex and it takes time to digest the information and change our notions. For example in the banking sector. we think of a local bank whose prime functions are to take in deposits and lend out in mortgages and personal loans. There are many other functions at a bank, but we often think that is the normal because in fact in 99% of the time, it is the normal.

In mid March, a bank specializing in the tech sector collapsed for a bad business model and over concentration of prime depositors. The bank is the Silicon Valley Bank (SVB) and the business model was to cater to Venture Capital firms who invested in startups and the tech infrastructure. The process of Venture Capital firms is to lend money to startups and when they show their products can be regional or national or international in scope to invest more money and then to bring the companies to the stock market where they can sell some of their shares at a high premium. If the company is successful and the stock rises, the venture capital firm sells off more shares, earns a bigger profit and can look for the next company. The model depends on a healthy new issue market for companies to go public. In the last 6 months, investors did not want potential, they wanted real sales which translated into profits.

While the IPO was vibrant, companies tended not to need a great deal of cash to run their business, money was coming at higher valuations of the company and when the IPO was issued the shares, companies could sell shares or equity into the market and have a very healthy balance sheet. When the change happened and their were fewer IPOs, companies needed to go the bank or SVP to receive their cash.

At the bank, SVP was swimming in cash and decided to buy bonds with long maturities. Most of the bonds were US government bonds and the US has not defaulted on any of its bonds. The bank believed they were safe and secure and life was ok. When the federal reserve decided to raise interest rates, although the bonds would pay at maturity the principal and interest, the value of the bond fell. If the bond rate on a 10 year bond is 2%, and interest rates past 2%, no investor is going to pay 100% to buy the bond, it is worth less or when interest rates go up, bond prices fall and the reverse is true, when interest rates fall, bond prices go up. Giving the change in the IPO market, the venture companies each with multiple companies banking at SVP needed cash to maintain operations as start up companies burn through lots of cash or the burn rate. The bank needed to sell bonds to meet the cash flow requirements of the companies and announced it sold $20 billion in bonds at a loss of $1.8 billion. The bank was going to sell equity to investors to meet a shortfall on their balance sheet. The venture capital companies decided to move their primary banking relationship to bigger banks and the run on SVB was on. What the facts are and what the public perceives can be two different things. Will the fed continue to raise rates or is that off the table for now?

Linking to dividend paying stocks, we all start with what we think we know, but is there a difference? What is the difference that makes the stock unique and good to own forever? Do you understand the business model and what can change in the business model? If the answer is yes, then you can understand how the company will react to changing conditions, if and when they happen. How specialized is the company’s you invest in? For example many companies are dependent on China for their supply system and went the ports backed up, what were the alternatives for companies?

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

In the last decade we have seen the rise of ETFs and low cost funds, this was great news for investors because of the nature of the holding. If a fund mimics the index of the stock exchange and at least twice a year, the losers are replaced by the winners, over the long period of time the index will tend to rise. The key is long term, low cost, but no one knows when the stock market will rise and fall, but we do know the fund will tend to go up over the long term. Blackrock has the ishares and the other big players are State Street and Vangard. For Blackrock, every year CEO Larry Fink writes a letter about where he sees the financial world moving towards. A few years ago, seeing weather changing, he help develop ESG tools to evaluate companies.

In an article by Jeffery Jones of Reuters, Mr. Fink has been taking heat from Republicans because moving to ESG means to lessen reliance on fossil fuels. For many Republicans, fossil fuels have been very good for the economy for decades and they do not want to change. even at margin. However, the insurance companies which pay for damages to infrastructure after climate change has or is happening, want to pay less. The best way to pay less is prevention or ensure the problem becomes less of a problem.

Mr. Fink believes ESG is important and the company has developed metrics to evaluate how companies are doing but he said it is not his company’s role to drive the agenda for how society should deal with climate change. It is up to government to make policy for how companies will disclose and cut emissions. Investment firms such as Blackrock are not the environmental police, their purpose is to understand the risk management of the company they invest in.

In his letter, which is available to read on the Blackrock web site, Mr. Fink notes the costs of climate related natural disasters is rising and was $120 billion in 2022 of insured losses. Insurance companies are passing on costs to consumers with higher premiums. This means that some will take less insurance and be less covered by the next natural disaster in their region and the storms are getting both bigger and cause more damage.

An investment firm similar to Blackrock’s job is for analysts in the company to determine a range of scenarios to determine the impact on clients’ portfolios.

Linking to dividend paying stocks, we know prevention of natural or man made disasters is the best route, but prevention often comes at a cost because if companies do something and nothing happens, is the money not put to its highest and best use. As investors one expects profitable companies to act the most responsibility because the company makes a profit and can pay a dividend. If a profitable skips on preventable items, what do you think a non-profitable company would do? One can hope that increasing natural disasters are on a cycle, but the cycle seems to be more normal than before so you can ask your senior management of your investments – how do they see increasing natural disasters and how are they coping with them? If you like the answer, then you can hold otherwise searching for alternatives is a good thing.

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

When the average person on the street thinks about oil companies, they tend to think of the remains of Standard Oil. The public companies tend to the companies drilling for oil and they are ExxonMobil, Chevron, BP, Shell,Eni and TotalEnergies. Exxon and Chevron are US based, the other companies are based in Europe. The reason people tend to think of these companies is they own gasoline stations where people fuel up their vehicles. When people tend to think about big oil they generally refer to the upstream operations of drilling for oil and sending the oil down pipelines to a refinery. The downsteam operations is all the products which come from the refinery including gasoline. However, there is a bigger company in the oil business and it owns the oil in Saudi Arabia, the company is called Saudi Aramco.

In an article by Jon Gambrell of the Assoicated Press, the company reported $161 billion profit. In the last 3 years profits have gone from $49 billion to $ 110 billion to this year’s $161 billion.

Saudi Aramco put its production at 11.5 million barrels of oil a day in 2022, it hopes to raise levels to 13 million barrels per day in 2023. To increase output, the capital budget will be $5 billion.

Saudi Aramco declared a dividend of $19.5 billion to be paid in the 1st quarter of the year. Most of the profits will go to the government of Saudi Arabia which owns 98% of the shares.

The oil in Saudi Arabia is still some of the least expensive to drill and pump out which translates to big profits when the price of oil soared from an $82 per barrel to $120 per barrel. The price in mid March is around $80 per barrel.

Crown Prince Mohammed bid Salman has plans and the financial resources to built infrastructure to help diversify the economy and this is where the profits are allocated to.

Linking to dividend paying stocks, if you own a commodity based company such as oil companies which the past couple of years have made very good profits, the key is always what is the difference between removing the mineral from the earth and selling it. As long as the price of the underlying commodity is above that number, you can own it for as long as you desire. If the price drops, then it time to seek alternatives.

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

On a day to day basis most people tend to believe in reasonable equal opportunity will bring the best results. However, to get ahead, you need an edge and often it is to have more or better information. Generally, most people will know or tend to know where the boundary is between legal and non-legal, leaving aside whether it is right or wrong. One method to gain an edge is to be a detective. You are wondering why your opponent is successful, how does he/she do it? One method of gaining success is partnerships – work with terrific people who are successful and some of that will flow to you, but are they good people to work with? The answer is for you or you to hire people to do detective work.

In a book written by Tyler Maroney called The Modern Detective – How Corporate Intelligence is Reshaping the World, published by Riverhead Books, NY, 2020 some of the ways detectives are used are outlined.

Before the 1960’s, the world operated on a moral code and people were to be inside that code. If you were outside and caught, if could and would affect your career within organizations which operated on the moral code. If you think about World War ears, if someone in government was gay, then they could be blackmailed. In the present time if someone is gay, there are much fewer blackmarks in an organization. The sex lives of Hollywood stars helps sells magazines.

In business, people make decisions on allocation of resources and where to allocate them. In public companies, investors expect while there are some slush funds, most of the business is legitimate revenue sources. In the book, there are a number of stories which allows the reader to see how the modern detective works. One aspect is to bring in skilled people to be able to copy a hard drive to see how senior partners believe a partner is structuring deals for their benefit rather than all the partners. Unfortunately, in this case the partner moved to another competitor rather than face jail time.

Often the modern detective is engaged in trying to find hidden assets from people who declare bankruptcy and flee the country. A great deal of business is done through the use of credit and successful companies tend to have access to larger credit lines until the economy changes and payments have to be made. During the good times, the owner likely has a very good lifestyle and bought many luxury items. When the downturn happens, people take their items and run, and detectives have to track them down to find hidden assets. The hidden assets can be both those in plain sight, where they are living, safety deposit boxes and accounts in banks around the world.

If companies are investing overseas, they need reasonable intelligence about what is happening in the country the company invests in. Detectives play a role in providing that information. Who are the players, what is the end game, is our investment safe and reasonable secure?

Detectives play a role in companies that are built by founders become public which allows shareholders however in reality are run by founders for themselves. In one chapter, the founder set up companies to pay members of the family rent from the use of warehouse. The issue arose the rent being charged was twice that of the surrounding buildings, who was benefiting? If the company is doing that, what else were they doing? It turned out there were many aspects of the company that were done to benefit the family but not shareholders. Eventually, the shareholders changed the auditors which alerted prosecutors that there were many other concerns. This resulted in the founder being charged with insider trading, fraud and tax evasion.

Linking to dividend paying stocks, large companies have many variables, and one continuing job is to allocate resources to the benefit of shareholders. While most shareholders expect the companies to make a profit to pay dividends, how it is does this subject to questions. Within the category of consulting fees, does that include detective agencies, should it?

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

If you own a stock and the price goes up, that is a good thing and it validates your homework to why you wanted to buy the stock. If the sector in which your stock is in goes up, various private equity owners and CFOs are looking for the opportunity to sell stock. There are many reasons why stock is sold by the company including at times it is less expensive to raise money by selling stock than by issuing debt. The important aspect is a rising stock market.

In an article by Echo Wang and Lance Tupper of Reuters, stock sales reached $4.97 billion in the first week of March, the highest tally since the second week of 2022, according to Dealogic.

Some of the companies issuing stock were American Water Works of $1.7 billion. food giant Mondelez which makes Oreo cookies sold $1 billion stake in Keurig Dr Pepper. Private equity firms Blackstone sold $270 million in dating ap Bumble; and Providence Equity Partners sold a $333 million stake in software provider Double Verify Holdings Inc.

In 2022 according to Dealogic, companies sold $72.5 billion worth of stock sales for public companies, the lowest level since 1996 and 67% below the number for 2021.

Linking to dividend paying stocks, when the stock market is rising, many stock deals come to the fore front and are executed. Wall Street firms make good income from selling stock and institutions with cash eventually need to use the cash to buy stock. As a holder of dividend stocks, you do not have to anything until the dividend is paid and then you can decide to reinvest in the company, invest in other companies or wait till the market falls. When the market falls there is more value if your time perspective is longer than 6 months. Often you can buy good dividend paying stocks at lower prices, have the luxury of waiting for the stock to trade at its original multiple and you make both dividends and capital gains.

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

For many years growth in the Chinese economy was a given as the country moved to become the 3rd largest economy behind the US and the European Union. Even now, as politicans talk about bringing manufacturing jobs to the US, the reality is if you walk the aisle of Wal-mart and the Dollar Tree or similar outlet, you will see many items from China. As long as the world’s largest retailers are buying from China, the country will remain important to the US economy.

Every year the session of parliament or the National People’s Congress begins with a report on the economy and how the government will make lives better in China. Economic growth is expected to be 5% down from the double digits for the past 20 years and the goal is create 12 million urban jobs up from 11 million.

To bolster growth, the government plans to stick to its playbook of investing in infrastructure, increasing funding for big ticket items with $ 748 billion in special government bonds.

President Xi Jinping will remain as President as he appoints more loyalists to the Congress. China does have problems including fraught relations with the US, try to change its demographic outlook after the 1 child policy left not enough bodies for the future.

Linking to dividend paying stocks, for decades growth in China led to growth in stock markets around the world because China was the world’s manufacturer. To be the world’s manufacturer, great amounts of raw materials flowed into China and goods flowed to Europe and the US. Many companies benefited from this relationship and the stock market was good. If the jobs in manufacturing were in China, it stands to reason jobs in the US and Europe were eliminated. At some level that has come back to politicians in the US and Europe and thanks to COVID, growth in China slowed. It is hard to imagine manufacturing companies moving from China as the support systems exist and labor costs are what they are. For your investments asks what percentage of products and services come from China which makes profits possible.

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

We all have different metrics to tell us how the economy is doing and depending on where you live, one of the metrics most widely used is auto vehicle sales. In theory, vehicles should last longer but many people enjoy the new car feeling and once their vehicle either reaches a specific age or mileage driven, they are looking to buy a new vehicle. For some cars are a thing to move from point A to point B, while others see their vehicles as part of their status and there are many variations in between. Auto shows continue to draw people and many are interested in how the auto industry is doing.

In an article from the Associated Press, Ford annouced increase production of 6 models to meet the demand. For more than 2 years, sales have been limited due to the shortage of computer chips, but the chip shortage is easing and more cars are rolling off the assembly lines.

In 2022, vehicle sales were 14 million, however LMC Automotive sees sales increasing to 15 million this year. Ford sales were up 22% in February.

GM is increasing sales as well.

According to J.D. Power the average vehicle sold for $46,229 in February.

Linking to dividend paying stocks, we all look to some industries as bell weather industries and for the most part it is true. If sales are increasing at the auto industries, financing is doing well because people can buy new or used and pay their bills. Industries similar to the auto industry have good ripple affects on the economy as most of the parts are contracted out and those factories are busy, and the ripple goes on. For your investments do you know the ripple affects and which companies are bell weather companies?

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

In the news, some politicians are disagreeing with ESG or Environmental, Social and Governance goals, while many companies including investment managers are agreeing to examine ESG factors. In reality, ESG are factors to help you choose between candidates. In terms of environmental – how does the company treats its wastes and what happens if a spill happens? In the social – the social can be how does it treats its workers and the community it is located in? and governance includes how are decisions made at the Board level and does the company use bribes to secure business?

The issue of bribes is a book called Kickback – Exposing the Global Corporate Bribery Network written by David Montero, published by Viking Press, NY, 2018.

All companies will policies on how much to give in the expectations of continuing business relationship beyond the normal aspects of great products and customer service. How is the decision made to have the contract go to your company? All company executives have to meet their numbers or quota or whatever you wish to call it. Relationship building is part of the tax code and is part of the business, sectors such as hospitality and corporate gift giving depend on it.

In the book, Mr. Montero outlines companies which have paid bribes to government officials to secure large contracts in the country. The big pharma, big oil companies, the big telecommunications companies, the big construction companies and the list goes on, all have paid bribes and many paid fines because of their actions.

In 2009, Jonathan Karpoff, an economist at University of Washington analyzed the Foreign Corrupt Practices Act (FCPA) cases 143 cases ranging from 1978 to 2013. The evidence was companies making bribes are rarely apprehended and that bribe penalities are too low. Mr. Karpoff believes the ratio is 6.4% and while the penalities to the companies are often in the millions, given the companies are worth billions, it is less than 5% of their income or the behavior does not change.

Mr. Karpoff estimates for every $1.00 in bribe paid, it receives $5.60 in benefit. The Justice department believes the number is closer to $10.00 in benefits. In addition, when a company announces a foreign deal, the stock tends to increase 3.15%. Mr. Karpoff found if the firm is fined for bribery, Wall Street yawns, but if the charges include financial fraud or financial manipulation, then the stock tends to go down.

Linking to dividend paying stocks, one of the good things about dividend paying stocks is they tend to have sustainable income every year and many are diversified to where the revenues are received. Some of the revenue is received from outside the US which gives the country a larger pool of customers. Some of the countries outside the US the government officials will need to receive donations to the reelection funds or a number of years ago in Indonesia, the government’s family became a 10% partner in the company. The President was known as Mr. 10%, he is no longer President but the family’s business connections remain. Bribery is an accepted part of doing business, if the company does not want to do it then it often stays a regional company in size.

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