If you think about risk management, one of the areas which comes up is insurance and insurance companies. We hear that storms are becoming more severe than what they used to be, and a cynic would say that means higher rates by insurance companies. It could be true,

In an article by Federica Urso of Reuters, the global insurance giant Aon noted natural disasters caused global losses of $313 billion, less than half was insured.

Losses from natural catastrophes covered by the insurance companies amounted to $132 billion, 57% above the 21st century average, leaving a global protection gap of 58%.

The gap was one of the lowest on record because many of the costliness disasters occurred in countries with mature insurance markets such as US and Europe. The biggest contributor was Hurricane Ian which caused insured damages in a range $50 – 55 billion from total economic losses of $95 billion. Ian is the second most expensive natural disaster the insurance sector has faced.

In Australia, there was $4 billion in insured losses linked to floods.

In Europe, Aon believes 31,300 people lost their lives with 2/3s linked to severe heatwaves.

Linking to dividend paying stocks, a number of years ago, once read a report from a farm-based insurance company saying last year we had fewer barn fires, which means the company had a surplus. In the insurance world, people buy insurance, hoping they will never use it and if they do not, the insurance company makes money. If your insurance company does not practice and push preventive measures, then it is time to find a new insurance company to invest in.

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

During the months of January and February, there are reasons why people in the northern half of the US go to the southern half of the US, and many of the reasons have to do with weather. It typically gets cold in the northern half and people desire to escape the cold for a little while. If you do not leave, heating bills rise as well as the need for heavy jackets, hats and gloves. If you go outside, you can be prepared, but if you stay indoors, you expect to be reasonably warm.

In an article by Keith Bradsher of the New York Times News Service, the northern part of China is facing cold temperatures without the heat of the natural gas. The reason is complex but there is no shortage of natural gas in China.

China had a very tight shutdown COVID policy and to do that cities and towns used resources for mass testing. The testing cost money which means many towns and cities budgets are not enough to pay employees, let alone to maintain adequate supplies of gas for homes.

When gas prices were low, the national government helped to ensure there was a lid on heating bills. In the winter, gas prices have gone up as demand as increased and municipal and provincial governments have cut subsidies for natural gas. As a result, gas is effectively rationed, people have enough to cook but not enough to heat the home.

Another issue is with pricing regulations – Chinese regulations strictly limit what municipal and township gas distributors can charge households but are allowed to pass on higher prices to industrial and commercial users. This effectively means homes are cut back and greater gas goes to industrial and commercial users who can pay more.

Linking to dividend paying stocks, all systems have a flaw or can have a flaw if circumstances change and who is to blame and who fixes the flaw is the solution, At the individual level, remarkably few people want to take the blame, or the problem becomes complex which results in nobody is to blame. Sometimes regulations drive actions, it is important for companies to work with the government to have the best outcomes no matter the outcomes.

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

It used to be that the most important aspect of a U.S. Senator’s job was to cut ribbons and mingle with senior businesspeople as they tried to solicit funds for their campaign. Nowadays it seems whenever there is a public relations problem the Senators will call the company to try to put them on the spot to score a political point or two. Perhaps there is a balance between the two actions but one wonders.

In an article by Diane Bartz and Moria Warburton of Reuters, the Senators were actually interested in how does one buy a ticket to one of the most popular singers – Taylor Swift. Ms. Swift’s singles and albums when released jump to the top 10 and crowd the top ten for a number of weeks. After making an album, a singer traditionally goes on tour to promote greater sales and to make money for them. The selling of records or downloads has decreased for singers but touring generates income for the singer.

US Senators slammed Live Nation Entertainment’s lack of transparency and inability to block bot purchases of tickets, during a hearing to determine what caused the problems. Live Nation’s Ticketmaster has a 70% share of large concert sites.

Joe Berchtold, President and CFO of Live Nation, apologized to fans, the artist – Ms. Swift, and said we need to better. Some examples of next time is staggering the sales over a longer period of time and doing a better job of setting fan expectations for getting tickets.

The issue was more than 3.5 billion requests from fans, bots and scalpers overwhelmed the website.

Linking to dividend paying stocks, when things go well and most of the time they will, there are few critics. When things go badly, the critics will come out of the woodwork and express an opinion on multiple sites. What does the company do and how do they react? If you are satisfied with the way the company reacted, you can hold on, if you believe the company did not do the correct response, it is time to seek alternatives, for the response will happen again.

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

In many areas of the economy there are and will be conflicting possible outcomes in the macro context. We all know that the world’s temperature is changing, some places for the better, some places for the worst. What we do not know is when it changes and how does it affect all the normal activities in the places for the worst. For example, agriculture depends on rain and melting snowcaps to replenish the rivers which can be used for irrigation. If there is less rain or less snow, then there is less water for irrigation. The issue is billions of dollars in infrastructure are in place to produce the agricultural products and companies cannot just move unless there are decades of less rain. There is a time lag between what once was a very good model to one that is broken. Sometimes governments can help with the solution.

In an article from the Associated Press, the country of Brazil had an election, and a new President was taken office. The last President believed that business or industry could do no wrong and whatever it wanted, it was allowed to do. The new President has a different vision and new regulations are coming in quickly.

One example of the President’s action was to appoint Joenia Wapichana, Brazil’s first Indigenous woman in charge of the agency charged with protection of the Amazon rain forest and its people. During the reign of the previous President, huge swaths of the rain forest was cut down to become agricultural land. Was this good or bad, we will not know but we do know the rain forest contributed to the earth’s atmosphere quality. One could argue that the process of clearing the land was bad, but the growing of crops is good.

Linking to dividend paying stocks, in all countries when governments change some policies change and companies dealing with that country have to adapt. It is normally better that the company tries to do the correct thing in the first place, or the process of adaption is the changing of buzzwords and a few people the company deals with. When a government, similar to company changes, the management picks a signature item to show changes are being made. In Brazil, the change in the Amazon Forest is a signature piece, how it turns out is a different story. When management changes in the companies where you invest in, what policies change? how does the new management show the new direction? If you agree, you can do little or nothing, if you disagree then it is time to find alternatives.

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

As an individual investor, you have many choices in which to invest. Often times you will hear a commentary about a company and put it on your mental watch list. Then you may read about the company and be impressed with the CEO. Although one person does not make a large organization, they help set the tone and if they deliver impressive results on a consistent basis, so much the better. The CEO of a successful company will be invited to many events including those put on by investment bankers which discuss the future of their industry. The events are covered by the business press and it is easy to highlight a successful CEO or investors have an attachment to the CEO. What happens when that CEO steps down from day to day operations?

In an article by Lisa Richwine and Dawn Chmielewski of Reuters, the CEO of Netflix stepped down to become Executive Chairman. Netflix was the N in the FANG stocks. FANG stood for Facebook, Apple, Netflix and Google or some of the big tech biggest companies. All the companies have grown to become very widely held by institutional and retail investors.

Netflix is the stream service which disrupted how people see movies, it was the most successful company and became number one. Due to the success, streaming is part of every movie distributor including competition from Disney, Amazon, Peacock, and other cable companies. Similar to cable companies, they depend on having hit series and for Netflix – the Adams family – Wednesday and the Glass Onion were hits.

During the lockdown of COVID, people watched more TV on their screens and growth in Netflix boomed, after people returned to work, the growth rates slowed. In the last quarter, Netflix added 7.66 million subscribers and while it was a very good result, it was less than previous years. Netflix has come up with a cheaper, ad-supporter service to retain viewers.

Linking to dividend paying stocks, with many of these companies they have been in existence for decades, which means they are used to attracting good people and the people in the leadership come and go. When people come and go, the change often means little change in the outlook for the company. CEOs tend to last 10 years, if the CEO continued to deliver good results, few people will consider investing in the company because of the CEO. In every organization, one of the important elements of management is evaluating the talent in the organization and ensuring as many good people stay and be promoted as possible. Some will leave because there is only one CEO and their track has stopped, but does the remaining people have the drive to continue to make profits for the company? if they do, while people leave the company happens, as a shareholder you have to do little or nothing. Sometimes it does not work, see Disney, but most of the time it tends to workout.

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

In the basic economic texts, the basic supply demand curve is learnt often guns vs butter. In many industries supply demand is the key to understanding how the industry works in terms of costs. One of the easiest ways to see how the supply demand graphs work is with basic commodities which trade on the LME (London Metals Exchange) or the COMEX (The Commodity Exchange). On these exchanges commodities are traded by those in the industry who want delivery or users and speculators trying to figure out whether demand or supply will be the most important aspect of the year and do not want delivery.

In an article by Mai Nguyen of Reuters, one of the industrial world’s basic materials is copper. The metal is very good conductor of electricity and heat which means anyone living in an urban environment is dependent on the uses of copper. The biggest country which uses copper to produce products is China. This means those trading copper watch the Chinese demand very closely – now only is demand up or down, but how sustainable is it?

In recent years, China had a policy of closing its country down because of COVID and due to its government structures, it had the ability to enforce the closures. China is reopening which automatically means demand should go up because the factories can be reopened. With the shutdown, not only less demand was seen, less copper was imported which means the stock piles of copper are down. In the bonded warehouses the companies held 4 days of global consumption rather than the normal weeks. That alone should produce greater demand to rebuild the stockpiles.

In China, the biggest holiday is the Chinese New Year where millions of people have family gatherings, and many are held at their ancestors’ hometowns. The travelling is good for hospitality and tourism, not so good for industry production. However, after the Chinese New Year celebrations are over, China tends to move towards normal production and then true demand will be seen.

Linking to dividend paying stocks, in the commodity markets it is easier to see supply and demand and the price of the commodity. In every industry, supply and demand plays a role in prices which means translates into public consumption. If the industry you invest in has fewer players in the market, it is easier to determine how they are expected to do. If expectations are reported and the company beats or exceeds expectations, there is little reason to sell or do. If the company does not meet expectations, more homework is required to why.

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

In America there is an industry of consultants who seem to watch what will the fed do? For every country around the world, there is a central bank which tries to balance the needs of the economy growing and not growing too fast to cause other concerns such as inflation. There are plenty of examples to examine and all of them have varying degrees of success. Sometimes the central bank does not want to let the market decided the outcome.

In an article by Naomi Rovnick and York Banceli of Reuters, the Bank of Japan has maintained ultralow interest rates. There were valid reasons to do so as COVID policies of shutdown both the economy and borders meant the bank had to do something. Recently Japan reopened its borders to tourism to bring in money from seeing the many wonders of Japan, you might remember Japan hosted an Olympics or built massive infrastructure for tourism activities.

Analysts believe a policy change is inevitable at some point given the Japanese inflation is at 41-year high and the cost of keeping borrowing down continues to rise.

Expectations are yields will move higher to entice cash back home and investors now have to adapt to potentially sustained fall in demand for Japanese global bonds.

Total holdings of foreign bonds by Japanese institutional investors, excluding Japan’s $1 trillion reserve portfolio, reached $3 trillion at its peak. The expectations are demand will be above $2 trillion.

Linking to dividend paying stocks, in every market there are demand and supply issues, sometimes investors from other countries see bargains at the home country, sometimes investors domestically see bargains at home. There are multiple government agencies and investment banks examining the demand and supply issues. Sometimes the answer is the cost to maintain the status quo is too expensive and needs to cutback, or the alternatives are the solution people really do not want. Watching costs and seeking alternatives is a normal thing to be doing for your homework.

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

On Wall Street there are financial regulations which tries to make the trading of stocks reasonably fair for investors of all sizes. In reality, the greater your access to capital, the more likely the President or CFO will return your call. However all public companies tend to put out press releases to state something material will happen at some time before or after the trading day. In this fashion, if you are interested in that particular stock, you can read the transcript or hear what the person has to say and make your decision. The larger your access to capital, the greater the opportunity for the company to ensure someone in the organization is on the call.

In an article from Peter Eavis and Kalley Huang of the New York Times News Service, in the era of social media, in 2018 Elon Musk sent a claim that he had financing to take Tesla private at $420 a share. The shares were trading in the $375 area which means it was a 20% premium.

On that day, investors reacted with more than 29.8 million shares traded, much higher than the normal 8.85 million.

Mr. Musk had sent the notice via his Twitter account, which has a lot of followers and mentioned he had secured financing. The deal for the total number of shares would total $71 billion. The buyout when compared to the previous largest at $32.11 billion would be larger.

In a normal takeover, a company would have gone to various investment banks to line up access to credit, what type of lending facilities, and to potential large buyers of stock to show how his company has a terrific future ahead just as a private company rather than a public company. As well, the various law firms would be engaged and there are many which specialize in mergers and acquisitions to be on the correct side of the law. For Mr. Musk he talked to one buyer – Saudi Arabia’s Public Investment Fund.

If you watch and rarely participate in the action of stocks worth less than the price of hamburger, depending on the flavor of Wall Street, news releases are sent on a weekly and sometimes daily basis which are less than half true. The promoters push up the price of the stock, sell and wait till the next time the flavor is popular. For example, it is not impossible to find gold in mining companies, the really difficult part is finding a gold mining company that can find gold at commercially viable deposit. At the moment, the flavor is AI but it will change in a month.

What actually happened late in August of 2018, Mr. Musk said the company would not go private and remain public. This led to institutions running to the SEC saying they should be compensated for buying Tesla shares. They want money from Mr. Musk. Mr. Musk has to prove he really had access to the funds or secured the funds or face penalties including fines and for a time, Mr. Musk stepped down as Chair as well as he needed a lawyer to review his tweets.

Linking to dividend paying stocks, there are rules and regulations to make the markets reasonably fair to all investors. When people break the rules, penalties come forth – from fines, to losing face, to having to regain trust again. Ideally, it should rarely happen with a large dividend company because they know and follow the rules. If you see you company not following the rules, it is time to find alternatives.

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

Over the years, we have seen many frauds some of them famous such as Madoff and Ponzi, some of them similar to Enron and Worldcom, but very few people have quantified how much fraud there is.

In an article by Alexander Dyck published in the New York Times, Professor Dyck believes 1 out of 10 public companies in the US is committing securities fraud, costing investors $830 billion a year, but most of it goes undetected.

Professor Dyck, who teaches finance at the University of Toronto used the real life situation – the collapse of accounting firm Arthur Anderson and the need for its clients to find a new auditor.

Before Enron, Arthur Anderson audited about 20% of public companies as clients as well as had consulting contracts with many of them. Mr. Dyck found that after the companies changed auditors, the rate of fraud detected was higher. Mr. Dyck believes when the auditors looked harder, they found a lot more stuff.

The issue is how much of it was material which meant the companies had to report to the public?

To measure fraud post-Anderson, the academics examined financial misrepresentations uncovered by auditors, as revealed by securities class action lawsuits; enforcement actions by the SEC; SEC securities fraud cases and restatements of financial results that did not involve clerical errors but related to judgement by management.

To arrive at the $830 billion annual cost of fraud, the authors used other published estimates and costs of disclosed and undisclosed frauds, applied the loss of 1.6% of the market value to the total capitalization of the US equity market.

Linking to dividend paying stocks, as investors we tend to believe the dividend paying stocks have less fraud because the profits tend to be manageable. Part of the reason is related to reporting earnings every quarter and management wants to look good, if the profits of the company are reasonably consistent which allows for profits to pay dividends, many people will be satisfied with the results. When there is a big change, more people will ask the questions why and how and management will have to answer.

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