When you are analyzing a company, two of the most important elements are to determine how the company makes a profit and what are the margins, then there are questions about how sustainable are the margins. When you analyze a country, it is slightly different, the most important element is how to people earn a living? In the developed countries, services is a very high component, for example in the US, about 2/3’s of the GDP is based on people shopping and all the services comprise that endeavor.

In an article by Chris Gallagher and Akiko Okamoto of Reuters, they examined the Japanese economy and similar to the US, about 70% of Japanese work for smaller firms in the services sector and people are cutting back for a variety of reasons. In general the Japanese yen has fallen in price making imports more expensive, wages are not going up, prices have gone up and people are paying their debts down. Individually for people to pay their debts is a good thing, collectively if the economy is dependent on people buying things, not so good.

Hideo Kumano, chief economist at Dai-Ichi Life noted although consumer prices have risen substantially, consumer spending has not moved in the same direction.

Economic output fell 0.4% on an annualize basis in the last quarter of 2023. This marked the 2nd straight quarter of contraction and meeting the definition of a recession.

In January, Motoyuki Shikata, Chief Strategy Officer of retailing giant Aeon, told analysts customers were becoming more sensitive to higher prices.

Ryohin Keikaku, which owns the Muji brand of clothing and household goods stores President Nobuo Domae says price increases have become a balancing act. Customers have accepted increased prices on some items but not all.

Linking to dividend paying stocks, after you have determined what makes the company money to be able to pay dividends, you can find antidotal items to help you determine how the company is doing. An example is if you own shares in Mastercard and/or VISA, if you hear people are making minimum payments on increasing size debt, then that is good for the company, if the company is not writing off higher debt levels. The ideal is for a healthy number of people to use their cards, pay the minimum plus and continue to use their cards. One way to see this is when you go shopping how will the customer pay? Often times what is good for the individual is not necessarily good for the economy, you need both the savers and spenders to be active.

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