Knowledge is Power: Globalization, Facts about Kissing, Oil Stocks Edition

Digging up Mammoth Tusks in Sibera

Digging up Mammoth Tusks in Sibera

Photo Credit: Production of mammoth tusk in Siberia, English Russia

How Big is US Defense Spending ?

The U.S. easily beats other countries in defense spending. In fact, its defense expenditures accounted for 37% of the world’s military budgets in 2015.  Last year the total US spending on defense reached $596 billion. This figure is more than the defense spending by the next seven countries combined according to Peterson Foundation.

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US Defense Spending vs Major Countries

Source: Peter G.Peterson Foundation

Military Expenditures in US Discretionary Spending:

Military spending alone is projected to account for more than half (54%) of all US discretionary spending in fiscal year 2015.

US Defense Spending in Federal Budget

Source: National Priorities Project

Some thoughts on US defense spending:

US allies benefit from the high spending on defense by the US since they are protected by the US military and they are able to divert their resources to other expenses such as social spending.

High spending on military keeps a large part of the economy active and booming at all times. For instance, defense contractors employ thousands of workers producing all kinds of weapons for the military.

Though it may unnecessary to devote more than half the nation’s budget to defense, there are many benefits. For example, military spending many wonderful innovations such as the internet and not the over-hype up venture capital industry.

For millions of middle to poor Americans the US military is the only outlet for getting a job, education and career for a variety of reasons. Without high defense budgets most of these folks would join the ranks of the unemployed. So in a sense the military can be considered as “the employer of last resort”.

Since the world is constantly changing and threats are everywhere, having a powerful world-class military ensures enemies are kept at bay. During peace times, military is a great tool to offer humanitarian assistance to people in need. From Hurricane Katrina to Haiti Earthquakes and thousands of other natural and human disasters, US military personnel provided immeasurable aid and service to victims.

Population: U.S. vs. Russia

The current U.S. Population is over 324 million according to the  US Census Bureau. The population has grown consistently over the years since 1920. In fact, the US population has soared from about 110 million or so in 1920 to 324 million today. Though the land area remains the same more than doubling of the population has put strains on resources and services. Both legal and illegal immigration has contributed to the population growth.

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US Population Growth by year:

united-states-population

Source: Trading Economics

Compared to the US, the population of Russia is only 143 million. Though Russia is the largest country in the world in terms of land size, the population is less than half of the U.S. The population growth rate in Russia has been negative since 2000. In 1950, the population of Russia was about just over 100 million. Since then it has not not even increased by 50%. The U.S. population in 1950 was about 150 million. From that year the population has soared by more than 100% to 324 million now. So the rate of population growth in the US is much higher than Russia.

Russian Population Growth by year:

Population_of_Russia

Source: Wikipedia

Sources of Electricity Generation: Germany vs. USA

Germany produces more than one-third of its electricity from renewable energy sources. This is a huge rise from year 2000 when just 6% of electricity came from renewable sources.

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Germany Electricity Sources

Source: Sea change to Germany’s energy transition as it throws renewables to the open market, DW

The Energiewende program that the country implemented a few years ago dramatically reduced Germany’s dependence on non-renewable sources for electricity production.

Compared to Germany, renewable sources account for only 10% of the total the US power generation.

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US Electricity Sources

Source: What are the major sources and users of energy in the United States?, EIA

The US has a long way to go before catching up with Germany in terms of generating a high percentage of power produced from environmentally friendly sources such as wind, water, etc. For example, many German households sell excess electricity they produce from solar power to utilities and get paid for it.

Five Reasons Why Holding Individual Stocks Are Better Than Index Funds

The world of equity investing has changed in the past few decades. The invention of mutual funds decades ago allowed many retail investors to participate in the market by pooling resources together and reducing risks. More recently the advent of ETFs have changed the investment landscape even more as investors have a wide range of funds to choose from focused on specific strategy, sector, region, etc.

Due to explosion in the number of available funds and cost factor, some investors may prefer to invest in equities primarily via index funds such as ETFs and not bother with individual stocks. SPDR S&P 500 ETF (SPY), SPDR Dow Jones Industrial Average ETF (DIA), Vanguard Emerging Markets Stock Index ETF (VWO) are few of the large ETFs that track a certain index such the S&P 500 by the SPY ETF. There are many advantages for going with just index funds as opposed to equities directly. Some of the pros of investing with funds include less risk, easy diversification, low costs, ability to trade all day, etc. While these are valid benefits that one cannot deny,  there are many advantages that only stocks can offer. In this post, let’s review some of the pros of investing in equities over funds.

1.Dividends

When investing in individual company stocks, an investor receives the full amount of the dividends paid. There is no leakage of the dividends due to management fees and other fees. Due to the effect of compounding when full dividends are reinvested returns will be much higher especially over many years. When firms increase dividends, then adds another boost to returns as well. With index such benefits cannot be fully attained.

2. Special Dividends

Some companies offer special dividends to attract and keep loyal shareholders. Usually such dividends can be annual. Equity investors are able to enjoy such dividends. This may not be the case with index fund investors. For example, Glacier Bancorp, Inc (GBCI) pays a special dividend of $0.30 at the end of the year.

3. Spinoffs

By holding individual companies, investors will get additional shares in a new company or cash when a firm has a spinoff. This is an additional advantage of holding stocks as opposed to funds. Many of the large-cap companies are big enough to carve out some of their units into separate entities.  For instance, Reckitt Benckiser(RBGLY) spun off its pharma unit Indivior into a separate firm. As a result RBGLY shareholders ended up receiving some shares in Indivor(INVVY). Similarly US utility Duke Energy(DUK) spun off Spectra Energy(SE) a few years ago.

4.Takeovers

In a takeover situation, shareholders of target firms can reap huge gains when the acquirer pays a steep premium. Though it is not possible to predict which firms are takeover targets, takeovers at huge premiums can lead to a big windfall for holders. Recent takeover of LinkedIn(LNKD) by Microsoft (MSFT) is one example. While fund investors also benefit from takeovers the reward of individual shareholders can be much higher.

5.Stock Splits

Many firms split their stock after the price reaches a certain level to maintain liquidity in the marketplace. Though stock splits do not increase the value of one’s holdings, usually splits tend tend to benefit shareholders in the form of higher returns over the long-term. So an investor starting with just 100 shares in a company can accumulate hundreds of shares over many years if the stock splits again and again. Index funds can also split but the probably of them splitting is less than individual stocks.

Disclosure: Long RBGLY, INVVY, GBCI

Is it Time to Invest in Railroad Stocks ?

The Railroad industry in North America is an oligopoly with a handful of players dominating the market. From an investment perspective railroads are solid long-term investments with consistent growth and stable and growing dividends. As a cyclical sector, railroads tend to follow the overall state of the economy.

Railroad stocks were flat to down until a few months ago this year. Then they stabilized and recovered strongly when commodities such as crude oil bottomed out. Though they are up substantially year-to-date, they may go even higher according to a recent article in the Journal.

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Railroads Infographic

Source: Has U.S. Rail Traffic Found Its Rebound?, WSJ, July 14, 2016

The major North American railroads are listed below with their year-to-date(YTD) price returns:

1.CSX Transportation (CSX)

YTD Return: 9.90%

2. Norfolk Southern Railway (NSC)

YTD Return: 8.16%

3.Kansas City Southern Railway (KSU)

YTD Return: 26.40%

4,Union Pacific Railroad (UNP)

YTD Return: 20.18%

5.Canadian National (CNI)

YTD Return: 11.47%

6.Canadian Pacific (CP)

YTD Return: 10.87%

Source: Yahoo Finance

Disclosure: Long CNI, CSX, NSC and UNP