In the eyes of the law at least in front of the law courts, everyone is equal, once inside the law courts lawsuits take time to settle. Sometimes that is good for the larger organization, sometimes it is not, but over time a decision is made in court.

An example of this is from an article in Reuters, VISA and Mastercard announced after 20 years of litigation, a settlement has been reached. The other side is the National Retail Foundation, the largest US retail trade group and the Merchants Payment Coalition. The issue was the amount of fees a business pays Mastercard and VISA for their terminals in the store or swipe fees.

Swipe fees totaled $111.2 billion in the US in 2024, up from $100.8 billion in 2023 and quadruple the level in 2009.

Besides the money which will be allocated to merchants, the swipe fee will be lower 0.1% for five years. The merchants pay an average of 2.35% with a range from 2.0% to 2.5%.

Linking to dividend paying stocks, all companies charge fees and most of them are hidden from the end user or consumer of the goods and services. Similar to your household budget, there are fees or charges everyone pays and lowering them or even eliminating them is the goal, because then you keep more of your money. The company on the other hand, charges fees and getting the fees correct is more art than science. If the company charges too little, it could easily raise fees and increase revenues. For your investments, do the companies charge the correct fees?

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

In the world of geopolitics, countries try to have other countries follow the same rules and then the market can do what it does, however all countries do not follow the biggest countries because similar to most issues, it is complicated. An example is the US and Europe imposing sanctions on Russia over the Ukraine. That appeals to the voters in their countries, but the reality is all countries have something they can sell to others. In Russia, outside of the Middle East it has large oil and gas reserves and production. In Russia’s case China needs the oil and gas and if does not go through pipelines it comes in by ships. How does it come?

In an article by Steven Chase of Reuters, Remy Osman has a lovely apartment in Singapore where he can see the tanker traffic. He has a you tube channel which he identifies and captures photos of vessels on route to international waters. Once out of local jurisdiction they sidle up to another ship and transfer their oil shipments.

The growing shipping lanes in the South China sea offshore of Singapore and Malaysia are a growing site for ship-to-ship transfer of oil from countries. The reason it can be done is there are many ships going through the lanes. Once the oil is given to another tanker, it moves the oil likely to India or China.

The reason to do the transfer is to help obscure the origin, destination and ownership of the cargo. It can go to multiple sized ships and mixed with existing crude in a tanker.

The clues for Mr. Osman are: if the AIS (automatic identification system) data being broadcast from the ship is odd. For example the ship is from China but pointed at India. The second is which flag does the ship fly? If it is from an unregulated and underdeveloped maritime country which does not have a merchant fleet, it is suspect. The third clue is the age of tanker – 25 to 30 years is too old.

Singapore is about halfway between Iran, Russia and Venezuela to go to China or India. It is estimate that some 30 ships a month are engaged in the offshore transfers or about 18.2% of global oil tanker tonnage.

If you use the example of cleaning money or once the drug money gets into the bank, it is clean money. Once the oil moves into a local tanker, it is clean oil and not at the jurisdiction of those countries which impose sanctions.

Linking to dividend paying stocks, often times the volume of transactions means that the shadow world can operate in the background. It affects the volumes and the prices and invariably how much profits are gained by the legitimate companies. How the shadow world operates in your investments is important to understand.

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

Food is something we all need to eat and some companies are seemingly a license to print money and others doing almost the same thing, do not make money or barely break even. The issue is always why and how do you invest in companies that have a license to print money? In the food business it is difficult, but we all like to eat which means we all have an opinion.

In an article by Dee-Ann Durbin of the Associated Press, one of the owners of the food that we like to eat is called Yum Brands Inc. They own the franchises of KFC, Taco Bell, Habit Burger & Grill and Pizza Hut. If you are a relatively average consumer you likely eaten at one or more of the restaurants over the years.

At one time Pizza Hut is where everyone wanted to eat pizza. The company expanded and there are 6,500 stores in the US and another 14,000 stores around the world. The biggest location outside of the US is China, although half the sales of the company come from the US.

One of the biggest problems of Pizza Hut is the design of the store, it was designed with the expectation people would come to the store to eat their pizza or spend a couple hours. Some of the readers will remember a pizza chain saying they deliver 30 minutes or it is free. There was a number of accidents which stopped the advertisements; however, consumers want fast pick-up and delivery which was not something Pizza Hut does well.

Yum President Chris Turner says Pizza Hut has many strengths and controls 15.5% of the US pizza market down from 19.4% in 2019 according to Technomic, a food service consulting company.

The Pizza Hut team has been working hard to address business and category challenges: however Pizza Hut’s performance indicates the need the brand realize its full value, which may be better executed outside of Yum Brands.

Linking to dividend paying stocks, there is a reason why longevity is difficult in the food industry although we all have to eat. Things change, consumers change and business has to adapt or the license to print money is gone. There is money to be made, but growth rates change.

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

In every economy, people look to a few numbers which sum up the direction of the economy. For example, the average age to buy a new home is 40 years of age. (it has taken the average person working for 20 years to afford the down payment on the house and enough credit to furnish the house). This can be a good thing, but when housing and its expenses allows for many indirect jobs, it would be a factor in a slowing economy.

In an article by Sydney Ember of the New York Times News Service, President Trump’s policies while they might be effective in the long-term are having a detrimental effect on the construction industry.

Tony Rader, the chief relationship officer at National Roofing Partners, a commercial roofing company in Coppell, Texas says it just seems like every time we turn around, we have something else to fight.

Tariffs have pushed up prices of many parts that go into home building such as screws, plates and other supplies.

The tariffs are on a wide-ranging products and while they are meant to encourage more domestic manufacturing, this has not been the case. The complicated nature of supply chains means that it will take time for companies that buy materials from abroad to shift gears. It is also unclear whether foreign suppliers, American companies or consumers will shoulder the extra costs and how much prices will rise from consumers? (in your community do you see manufacturers setting up shop to build in America?)

This year, the National Association of Home Builders estimated tariffs would inflate the cost of building a typical home by $10,900. Prices on construction materials are up 2.3% from a year earlier according to the Bureau of Labor Statistics. Iron and steel prices are up 9.2%, copper wire and cable are up 13.8%.

In terms of people to build the construction projects, it is estimated that the workers living illegally in the US make up 13% of the construction industry in 2022. Construction projected demand is the need for 500,000 construction workers. The industry unemployment rate is 3.2% a record low.

Selma Hepp, chief economist at Cotality, a real estate data provider, says we already seen some challenges both in terms in the terms of cost of materials being driven higher and now the labor shortages being exacerbated by deportation policies. I think we have not seen the worst of it yet.

In terms of spinoffs of construction, trucks are needed to move supplies, according to the National Trucking Association, shipping of supplies are down 30%. The trucking industry employs 30 million people versus the 2 million in the build out of the AI data centers. At the moment, less truckers are working.

President Trump might have a good idea, but good ideas need implementation and often government assistance to bridge the gap. If most of the supply system is based on lower prices, if a company sets up shop in America at what point will they match the price point? Given the government is trying to spend less, why would they help businesses more?

Linking to dividend paying stocks, often times with government they have reasonable ideas but governments send conflicting messages. For example, we want aluminum to be made in the US, but what is the biggest cost to making aluminum – very inexpensive electricity. In the US due to demand for AI data centers, electricity prices are going up. Fortunately, most dividend paying stocks have the ability to make profits through each economic cycle and the ability to ensure government policies are the correct one for them.

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

Shortly after government was invented regulations or red tape came into event. A few weeks later somebody complained about the red tape because of the restrictions it imposed. Centuries later, red tape is still being complained about and every once in a while, a government wants to cut red tape.

In an article from the New York Times News Service, while those of not from Europe tend to think because of the European Union or EU status, there should be less regulations, but that is not the case. Cumbersome bureaucracy – covering everything from hiring requirements to financial regulations – can stifle companies wanting to grow.

The former President of European Central Bank, Mario Draghi, wrote a report recommending a single capital market.

Despite the challenges, 35,000 early-stage companies in the EU and Britain were established in 2024, more than 4 times as many as a decade ago. Venture capital firm, Atomico estimated investment of those 35,000 firms is $426 billion.

The downside according to Atomico is European companies raised 2/3’s as much funding relative to their American counterparts and achieved half their success.

Two examples among many are: a financial startup in Ireland to work on a standardized credit score. The company gained a foothold in Greece and Cyprus but failed to get into other markets. Part of the reason is the myriad interpretations of the trade bloc. The regulation functioned more as a legal framework than a technical guide, so it is open to hundreds of interpretations.

Another example is Gravity Wave, a Spanish clean-tech company that removes plastic from the ocean and recycles it into furniture or pellets. The founders visited dozens of plants to source local recyclers in Italy and Greece to avoid some of the regulations.

A problem is recyclers did not want Gravity Waste product because it contains both plastic and fishing nets. The fishing nets get stuck in the machines.

Even registration was a headache, the solution was to set up 3 companies: one for waste collectors, one for production and one for sales.

Every company tends to protect its own companies.

Linking to dividend paying stocks, once a company is established it likes regulations because regulations hurt the competition. When discussing cutting regulations one must ask who does it benefit and who does it hurt? There is a reason, cutting red tape has been an issue for generations.

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

In all negotiations each side has advantages and disadvantages, most of them are known but each side brings something the other side does not think they have as an advantage. The biggest negotiations in the world are between the 2 biggest economies China and the US. Over the years, the US evolved into the number one consumer economy or service based, while China developed into the number one manufacturing economy.

In an article by Alexandra Stevenson of the New York Times News Service, China believes it has advantages such as a monopoly as the world’s supply of critical materials. It also has an advantage of booming factories.

The strength is on display in the city of Yiwu, home of the world’s largest wholesale market where toys, home electronics and drones are stuffed into complexes that span multiple city blocks. Yiwu unveiled another trade center that is the size of hundreds of football fields (think of the Merchandise Mart in Chicago), the names are International Business and Trade City, Yiwu International Expo Center, and Yiwu International Trade Mart, Shopping and Touring Area. The city is located southwest of Shanghai.

Much of the merchandise used to be sent to the US, but tariffs force a change and now new buyers in Europe and Southeast Asia are making up for the loss in US traffic.

China’s factories are helping produce a trade surplus with the world of $875 billion.

There are trouble signs in the overall economy as Chinese consumers cut back on their spending. However, at the moment new markets in Southeast Asia and South Africa are opening up.

The question mark of increased trade to other countries outside the US, is will they allow free trade to continue or will they impose tariffs?

Linking to dividend paying stocks, all companies have advantages and disadvantages, for example having a billion-dollar product is a very good thing, J & J had dozens of them. The advantage to own J & J is if all the products remain stagnate, it was going to be a good year, but if one of them catches fire and sells even more it will be a great year. If you own dividend producing companies, your risk goes down and hopefully the reward can go higher.

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

One of the biggest trends in raising money is private equity. In reality, private equity has been around for generations, but it has been enhanced over the past 20 years. In the textbooks, when a company needs to raise money it has a number of choices including bonds and equity. Often times going to the equity markets was considered the company would raise more money. The thing that has changed is there are a number of private equity firms that can raise as much and sometimes more than public markets. If a company went public, a wide number of investors could invest in the company, in private equity – the company takes positions but they are much more concentrated and if the company goes through a restructuring and comes out better, there is greater amounts of money to be made in a shorter time period.

An interesting book dealing with private equity is a book called Money Machine by Weijian Shan published by John Wiley & Sons, New Jersey, 2023.

In the book, Mr. Shan works for TPG and recently had worked on a deal to transform a South Korean Bank ( Korea First Bank) from needing government bailouts to profitability. The bank was in good shape and people in the Asian markets recognized efforts by the TPG group. One of the people who recognized it was Alex Zhang, a partner at Dorsey & Whitney with offices in Minneapolis and in Hong Kong. Mr. Zhang asked would Newbridge Capital, the prior name of TPG) would be interested in buying a bank in China?

The bank in China was Shenzhen Development Bank (SDB), it had nationwide abilities and was headquarters in Shenzhen, a city across from Hong Kong.

Similar to all banks that are in trouble the Non-Performing Loans (NPL) was a large percentage of the outgoing operations of the bank. Commercial banks make money by capturing the difference between the average interest rate at which it lends money and the average interest rate at which it collects deposits. The difference between the 2 is called the spread. Ideally it is positive.

The are 2 major costs to consider – operating costs: compensation, paying rents, utility bills, etc. Credit costs is the other, which refers to loan losses. If these costs are greater than the spread it earns, the bank losses money.

In China it is relatively easy to get to a framework for a deal, but then comes the regulatory process. The many details including the governments of Shenzhen, Guangdong Province, and Beijing. Before Beijing would sign off, the regulatory groups included the central bank, the securities regulator, the Ministry of Finance, the State Council and ultimately the Prime Minister.

Each body would need both data and information from TPG and political approvals. It was going to be an interesting ride. Most of the book is the process to gain approval and it was a roller coaster ride with many ups and downs. Once TPG was able to buy the bank, then more work started.

Who do you trust? One of the steps was to do a 360-degree performance review process. Every one of the 7,000 employees would be reviewed and evaluated by the people around them including superiors, subordinates and colleagues. Evaluations are kept as anonymous to ensure fairness and honest as possible. It too 2 weeks to get the results. The purpose – the bank’s employees knew who the best managers were, and given the right outlet, they were willing to tell us.

Chinese banks were organized like a federation of regional fiefdoms. There was a major branch in the capital of each province, which functioned like a regional headquarters controlling a number of sub-branches throughout the province.

SDB had a high ratio on NPLs in general. But the bad loans were unevenly spread. What caused the uneven spread of NPLs?

Clearly the managers of the SDB branches made the difference. If a branch manager was good, the branch booked good loans and avoid the bad ones – even in a bad market.

The other factor was the SDB’s organizational structure. The provincial branches operated with their own lending standards and made their own credit decisions – with a wide range of results. From this point of view of international best practices, the whole bank should have a uniform credit underwriting standard. Fortunately, there was good man to lead the transition.

The Strategy and Policy Committee met for the first time with a mandate to create a new organizational structure and change management at various branches. How fast should the change be? never an easy answer but Mr. Shan believed major surgery was needed.

Mr. Shan let the results of the 360-degree reviews guide the personnel decision. Given the past method, most people bought into the changes as merit and performance were important.

A town hall meeting was asked and Mr. Shan asked the question – how many of you think our bank ranks as the best bank in China? none. the middle -20%, the bottom – a majority.

A culture change of a sense of ownership would be undertaken, additionally the incentive system would be changed.

The loans were effectively broken into 2 banks – the good one and the bad one. The good ones allowed the bank to grow; the bad banks would focus on recovering of outstanding debt.

There are other insights into operations of the bank and the exit or the selling of the bank to a new company PAIG Insurance which grew the bank, but selling at the right price takes time and discipline.

Linking to dividend paying stocks, when you read or if you ever gone through restructurings, hopefully you stayed on, you will learn and resort to the fundamentals of the business. As a dividend paying investor, your companies are not supposed to be dealing with restructurings except to bring them into the bigger company, but you can ask the questions that pertain to restructurings to see if you believe the company is getting it right.

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

The American economy runs on consumer spending and for many decades that has been a good thing. Americans have access to all manner of goods and services and with the internet, things can be order online. It seems times are changing.

In an article by Ben Casselman and Colby Smith of the New York Times News Service, there is emerging or already exists a two-tier economy or a K economy. For those who have savings or money in the bank, asset values have risen, and they are wealthier than before. For those with little or no savings, the prospects are paying the bills and trying not to get too far behind.

In the article, the reporters focused on Chicago, on one hand was the shops of the Magnificent Mile similar to Rodeo Drive in LA or Fifth Avenue in New York. The luxury hotels and designer boutiques are doing brisk business.

According to Moody’s Analytics the top 10% of US households accounts for half of all spending.

Inequality narrowed during the pandemic when the government spent trillions of dollars on consumers and businesses. However, at the present, the labor market has cooled, low-wage workers have lost their leverage. Slower wage growth combined with persistent inflation means many family finances are straining. This has led to greater increases in the use of credit cards and the buy now, pay later processes. However increased use of credit generally means most do not pay off the credit cards, so higher interest payments are keeping people’s stress levels up. People are falling behind on car payments and recently a sub-prime auto lender called Tricolor filed for Chapter 7 bankruptcy a victim of bad luck, fraud and the auto loan crisis. For Tricolor, its bonds were rated AAA and now the large banks of JPMorgan Chase wrote off $170 million, Barclays wrote off $150 million and others wrote the money off. (for commentary on the bonds, Patrick Boyle’s You Tube channel offers analysis).

According to Leo Feler, chief economist at Numerator, people are consuming the basics, but they are cutting back on all the extra stuff that they were able to do during pandemic. This time it is more precarious because if they have already trimmed back, the only thing they have to trim is the basics. Which is why food banks are seeing increased usage.

In Pilsen, a neighborhood of the west side of Chicago, food bank usage is up, and because of ICE patrols in Chicago, the food bank is getting requests to have the food delivered so people do not have to venture out.

For people out of work, finding a job has already gotten far more difficult. Nearly 2 million are considered long-term unemployed, the highest since the pandemic. Job fairs are seeing increasing numbers of attendees.

Linking to dividend paying stocks, many of the companies appeal to a wide sector of people to buy their products, for example a utility offers gas and electricity to people of all income levels. The more people move from paycheck to paycheck, the higher the probability there will exist write-off’s due to bad loans. In the banking sector this is not good, and there are programs in many cities to help people keep the lights on. When you are investing, ideally you are making more money, but often you are dependent on all customers paying their bills. If you see the numbers increasing, investing in companies that collect money can be a good thing to do, because they buy the debt for pennies and collect a dime or 50 cents or even a dollar.

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

When a long-established company gets into trouble because of class action lawsuits, it can do many things, pay the bill, but that is expensive; spin off the division to a new company and the new management can look after it, and there are other actions. This is what lead to the creation of Kenvue. The long-established parent company Johnson & Johnson (J&J) spun off its consumer product division to establish Kenvue. The brands include: Band-Aid, Benadryl, Zyrtec, Listerine, Tylenol, Visine, Baby Powder, Johnson’s Baby Shampoo and others. If you are in an average household, you likely have one or more products in your house. Many of those brands are billion-dollar brands, but the likelihood of high growth is limited.

In an article by Lauren Hirsch and Rebecca Robbins of the New York Times News Service, Kimberly-Clark the consumer products giant that owns Kleenex and Huggies said it agreed to spend about $40 billion for Kenvue.

Even though the brands are doing ok, the growth rate for the consumer products was not good enough for some investors. In March, the investment firm Starboard bought a stake in the company, had its CEO Jeffrey Smith elected to the Board of Directors and started a review of the company’s strategy.

Under the terms of the cash and stock deal with Kenvue, Kimberly-Clark would own 54% of the company. The combined company should generate about $32 billion in annual revenue and $7 billion in operating profit. The synergy potential is $2 billion in cost cutting in 3 years.

The deal would close in the second half of 2026 subject to regulatory approvals and approvals from shareholders. The corporate offices of Kenvue would shift to Kimberly-Clark’s head office in Irving, Texas.

Linking to dividend paying stocks, when a company is diversified and lawsuits come against it, there are always a number of methods to deal with it, without causing existing shareholders to pay for it, if the company loses the lawsuit. Spinning off a division is a good example, so the existing company can be seen as and experience higher growth multiples which translates into high stock prices. And that is a good thing for investors.

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