In the US and other developed countries, the economy is tied to the mythical average consumer spending on a constant basis. 2/3s of the economy is based on consumer spending. Although on a personal level, keeping debt low and ensuring it is paid off is a very good thing to do and if you can you will easily build savings, the reality is over 40% plus of households live paycheck to paycheck. One of the many reasons could be trying to pay off debt. If they have no debt, savings are possible.

In an article by David Randall of Reuters, one of the indicators that fund managers used to examine the future of the economy is household debt and consumer stress. One method is to examine credit card delinquency rates and according to the Apollo Group, the rates among credit cards issued by smaller banks are the highest on record.

For the past couple of years, economists have talked about the savings that the general public was able to generate because of COVID payments, those savings are gone. The new reality is department stores such as Nordstrom said its credit card delinquencies is now higher than pre pandemic levels. Macy’s says its late payments to reduce credit card revenues by 41% from the previous quarter.

While credit cards payments go higher, it seems the consumer is still spending because consumer discretionary stocks are up 34% this year.

Linking to dividend paying stocks, there are always signs the worse is going to happen as well as the best is going to happen, it depends. On an individual level, credit card rates were never low when interest rates were near 0% and they are higher now that the Fed has raised interest rates. It is a great idea to have no debt on your credit card. From an investor point of view, it is better to own the big stocks of the big 3 credit card companies – VISA, Mastercard and American Express. They all have great margins, wonderful infrastructure that debit runs on and pay dividends. Warren Buffett told a high school audience one of his best financial advice is to stay out of debt, do not pay interest to credit card companies, but own their shares. While everyone listened, few did and credit card companies have a good future ahead.

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