Recently a YouTube video was seen with the topic of how indebt the average American was. The person said according to the Federal Reserve statistics, the average credit card debt was $6,000 and climbing because the average person was making minimum payments. There are many things you can do with a statement, one the person asked why are savings so low? another person might say whoever owns the debt is likely a good investment because the average person is making minimum payments. This article is about the owners. The 3 big companies of credit cards are VISA, Mastercard and American Express or Amex. They all have slightly different business models.

Amex is a closed loop company which both issues and processes its own information. They charge merchants a higher price to accept which is why very popular retail companies tend not to accept Amex, but high spend retail places do. VISA and Mastercard issue their cards through banks. It used to be banks had to take one or the other, but now days, in many banks you can have either.

VISA and Mastercard provided the infrastructure to run the process, which is why debit cards work, the banks pay a fee to VISA and Mastercard for their infrastructure.

In an article by Anirban Sen and Michelle Price of Reuters, Capital One Financial announced they will acquire Discover Finanical Services in an all stock transaction valued at $35.3 billion. Discover shareholders would receive 1.0192 Capital One shares for each one Discover share.

Capital One is valued at $53.2 billion and is the 4th largest US credit card market by volume in 2022 and Discover has a market capitalization of $27.6 billion is number 6.

In turns of assets, Discover was the 27th largest bank with $150 billion in assets according to the December Federal Reserve data ranking insured US banks, with Capital One was the 9th largest at $476 billion. The combined entity would jump to 6th largest US bank.

Discover Financial model is closer to Amex as it process its own cards. If merged with Capital One and Capital One switched from Mastercard and VISA, it could process its own cards and that would be worth $600 million a year in potential savings. ($300 billion x 0.2 percent fee). Capital One believes the number would go to $1.2 billion by 2027.

According to Jeremy Kress, a University of Michigan professor of business law, the merger would be the first test of bank merger regulation since the Biden administration’s executive order on promoting competition in 2021.

The agency titled the Consumer Financial Protection Bureau noted in mid-February, small banks and credit unions tended to offer cheaper rates than the largest 25 credit card companies across all credit score tiers. The agency has a view on bank mergers.

Linking to dividend paying stocks, as an investor you like near monopolies because the company can regularly produce profits to pay dividends. However, the political world likes the illusion of choice or competition. In some industries the barriers to entry keep the near monopolies, in other industries other viewpoints need to be taken into consideration. In the meantime, Mastercard and VISA offer terrific margins.

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

If you think about the airline business, there are 2 global giants which control 95% of the market and they are Boeing and Airbus. Boeing is based in the US and Airbus is based in France and the UK. At the moment, thanks to COVID, airlines are flying more people and ever before and have the need to expand and update their planes. Both Boeing and Airbus offered the new improved version and both companies have a 10 year plus backlog of orders to build planes. As an outside looking in, you might think there is opportunity in the marketplace, but a giant bank account will be needed.

In an article by Lisa Barrington of Reuters, there is an outsider looking to break into the market and it is the Commercial Aircraft Corporation of China (COMAC). The company has unveiled the C919 which is certified within China and 4 planes are flying with China Eastern Airlines.

COMAC will invest tens of billions of yuan over the next 3 to 5 years to expand C919 production capacity. At the same time, the company is going through the process of being certified with European Union Aviation Safety Agency (EASA) which started in 2018. (with safety regulators time is expected to play a large role).

COMAC has 2 passenger products: the ARJ21 regional jet and C919 which seats from 158 to 192 seats. The airliner competes against the Airbus A320neo and the Boeing 737 Max 8 models.

Linking to dividend paying stocks, whenever there is an industry with high demand and great margins there will be some competition. At first the competition will compete on the margins or offer immediate delivery rather than delivery next year. Then the competition will gain traction and maybe more market share which means the established companies will use government regulations to slow down the competitors. After that happens, which may take a few years then we see how the marketplace react.

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

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.

In all markets there is the high end and the low end of the market. Companies have to pick one or the other to compete because in the high end, companies sell less units, but the margins are higher per unit. On the low end, the company sells as many units as possible as the margins are low. All low-end companies want to capture some of the margins of the high-end unit companies and often times changes in technology make it possible.

In an article by Keith Bradsher of the New York Times News Service, the government of China has gone full throttle in the EV market. The government encourage companies to make EVs in China, offers discounts for buyers, state companies own the raw materials to bring them back to China to go into the EVs and Chinese buyers are buying EVs.

China’s BYD has emerged as the leader in EVs with 80% of its sales are in China and each of the last 2 years, the growth has been over 1 million vehicles. The 20% of sales will increase for BYD is building assembly lines in Brazil, Hungary, Thailand and Uzbekistan. There are plants ready to go in Indonesia and Mexico. At the moment, BYD is not in the US because of Trump era tariffs, but BYD does sell buses in the US. (will the tariffs still be in place with the Mexican plant?).

BYD is leading China’s export push in electric cars and has built the world’s largest car carrier ships to transport them. The BYD Explorer 1 brought 5,000 cars from Shenzhen (where BYD is headquartered) to the Netherlands.

The city of Shenzhen is the hub of China’s electronics industry and BYD has tapped into it.

The company was founded in 1995 to make batteries for Motorola, but Chair Wang Chuanfu dreamed of making cars. His first vehicles were terrible, but they have gotten better over the years. In 2016, Wolfgang Egger, an Audi designer and his team redesigned the vehicles.

In 2020, BYD introduced the Blade battery. The batteries replace the industry’s standard chemicals in rechargeable lithium batteries – nickel, cobalt and manganese with cheaper iron and phosphate at a fraction of the cost. BYD sells cheaper models than Tesla with more limited range, but every year technology evolves.

Linking to dividend paying stocks, markets and companies evolve in every market because at the top end are the best margins. The companies that focus on the lower end need to keep costs low, but with technology can move to higher margins items. The companies at the top begin to see their margins squeezed and then the market dictates what happens next. With your investments, one of your homework checklists is to ensure the margins you bought at are remaining constant or you should look for alternatives.

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

If you live outside a large city or have roots in rural areas, the economic drivers of the economy tend to be agriculture because the land grants allowed settlers to receive land for free if for 5 years they showed improvement on it. After the agriculture becomes the institutional uses such as government offices, educational uses such as public and high schools and maybe a college, then services to the people of the area. Once in a while an industry has developed and has lasted for decades and everyone expects the industry to last for more decades. Then the reality of manufacturing decades before and what manufacturing takes in the present time days changes because of innovation and technology. It is blow to the small town the manufacturer leaves because it will take decades before something replaces it.

In an article by Michael Hill of the Associated Press, the rifle called the Remington has invented and made in the town of Ilion, New York which is about 30 minutes north of Cooperstown (home of the National Baseball Museum) in upstate New York. Eliphalet Remington founded the company in 1816 and it has a long history of making rifles. Within that long history, the manufacturing plant expanded and just about everyone in town either work for or knew someone working for the company. The plant covers 34 acres and a million square feet of red brick industrial buildings.

The company announced it was shutting down the plant and moving operations to La Grange, Georgia which is halfway between Atlanta, Georgia and Montgomery, Alabama. Companies offer many reasons, but one given was the state was friendlier to the firearms industry. This typically means the government is trying to stay out of their business or asking softball questions.

Linking to dividend paying stocks, all companies are started somewhere and if successful expand over time. In the internet age, we have seen many companies can operate from anywhere and larger companies have operations in more than one setting, partly as a risk management process. When the company moves, for perhaps all the correct economic reasons, people are left behind and it will be a few years before they adjust as some will start small businesses, some will retire, some will move and eventually some outsiders will come in and see the town for new opportunities, but that takes time. The closing of the plant is considered doing what is the greater good or the best interests of the company and this year there will be more mergers and acquisitions and some of that will be driven by cutting costs. As investors you accept the decisions to ensure the company remains profitable and can pay dividends.

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

If you think about the island of Puerto Rico, you might think about an island where there is plenty of sunshine all year around. This could be an opportunity to help the island be more self-sufficient. However you also might think about lost opportunities.

In an article by Danica Coto of the Associated Press, Puerto Rico is a US territory that most of the time, the US Congress can play a role but it seems to be 1 step forward and 2 steps back. The US Department of Energy and the Federal Emergency Management Agency (FEMA) recently released a report which said it could be possible for Puerto Rico to be off fossil fuels by 2050.

The power grid of Puerto Rico is complex, isolated, reliant of imported fuels and vulnerable to extreme weather events including hurricanes. Power plants that generate electricity rely on coal, oil and natural gas with renewables accounting for 3%.

Decades of operational, maintenance, and financial challenges have resulted in a system that lags far behind accepted reliability levels. (An example of this was after Hurricane Maria, a contract was given to a small power company in North Dakota and they were going to fix the system?)

The agencies want to change the number because the poverty rate in Puerto Rico is about 40%. The US territory has recently come out of the biggest US municipal bankruptcy in history.

One solution offered is new federally funded program that will subsidize residential rooftop solar and battery storage systems for up to 30,000 low-income households on the island. Homeowners who quality can start applying on Feb 22.

Linking to dividend paying stocks, often times government subsidies or supports are needed to fix serious problems. Companies have to supply the materials and some of the money will be profits. Governments release the information on which companies are supplying the solutions and potentially you could read the releases and see if it is material to possible investments.

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

Sometimes themes about possible solutions to the world’s problems gets ahead of the profits. For example: one method to increase the production of electricity is to tap the wind or wind power. In countries around the world, wind power was done at a small scale and it works wonderfully. One can easily think about the Netherlands or Don Quixote charging at giants or reality windmills in Spain. In every country the wind blows or seems to blow more than other places and tapping into the wind makes common sense.

In an article by Christoper Stitz, Stine Jacobsen and Jacob Grohnolt-Pederson of Reuters, the 3td largest industrial wind power groups are based in Europe and are Siemens Energy AG, Orsted A/S, and Vestas Wind Systems but they are not expecting a good 2024.

Siemens Energy, the world’s largest maker of offshore wind turbines expects a loss of $2.9 billion. The wind division had to deal with the cost of addressing quality problems.

China is the biggest customer for wind projects is on track to increase global renewable capacity 2 and half times by 2030.

Similar to other manufacturing processes costs are rising for raw materials, there are regulatory delays.

While demand is still good, the terms and conditions of the projects are too difficult for investors and project developers to take.

Danny van Doesburg, senior portfolio manager at Dutch APG Asset Management said, the market is not functioning anymore and a solution is for a stronger role for governments to help deliver a functioning model that distributes profits throughout the value chain.

All three wind companies are cutting costs to make a leaner more efficient company.

Linking to dividend paying stocks, you may like an industry but it is important to understand how they make enough money to make profits. If there is a big demand for the products who makes the highest margins and why are they sustainable? Once you have an answer invest in those companies who may or may not be have the highest public profile.

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

Sometimes what is great for the individual, is not so great for the company. When TV was invented and there were 3 networks ABC, CBS and NBC for better or worse people watched those networks and advertisers were delighted because they could segment the population and aim their advertising at a specific audience, but with enough appeal for a general audience. As time went on more TV channels appeared then was the rise of Superstations tied to satellites. This had the effect of making fans of sports teams from thousands of miles away, because the Superstation carried the local team – typically Atlanta and Detroit. The rise of the internet brought streaming services and now as individuals we have many choices. The choice is good for the individual, but there are many brands which advertise in search of a general audience. For a time, the salvation was sports broadcasting because sports shows are live TV. Sports TV was very profitable, which is the reason why professional sports teams rose in value or the TV contracts with the leagues became larger. However, as sports was the profit leader, competition came into the game and while sports TV is very important, the profitability for the broadcasting companies has fallen.

In an article from Reuters, Fox Corp, Disney’s ESPN and Warner Bros’ Discovery are teaming up to deliver a sports streaming service to capture younger audiences and to save costs.

The service will be an app on your phone and aimed at those that never had TV. With the internet, there are less reasons to bring TV into your home or through a cord. There are many options or cord cutting which means cancel the TV subscription. The app to be unveiled in fall of 2024 would have a new brand and an independent management team.

Linking to dividend paying stocks, all industries go through changes and the best ones can adapt to it. In the case of broadcasting companies, while the public may focus on the content, the profits are made in advertising rates charged. The greater the popularity of the show, the higher the rates of advertising or supply and demand. With high rates, there will be competition because of improved technology but a platform still has to have verifiable viewers that will tend to spend money on products and services. Often times, large profitable companies can adapt because they can either buy the new companies or throw money at the problem to find the elusive solution. Sometimes the solution is out of reach and shareholders will say what were they thinking? and find alternatives.

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

If you examine the weather, you would say it has changed. Why it has changed and what will happen in the future, we do not know but people have theories. One of the biggest is the use of fossil fuels, which we are not going to stop using today. Maybe in 25 years we will use less, we do not know. We do know if all of us used coal to heat our homes, the pictures of Bejing and LA of smog would be seen in many other places. Bejing and LA are built in valleys surrounding by mountains which tends to trap the air until the wind blows it clean. In the books about Jack the Ripper, the London smog was a main character. Every year there are more alternatives – hybrid vehicles, heat pumps rather than oil furnaces, greater efficiencies of fuel for internal combustion engines, however all these take time and money to change over from the normal.

In an article by Hiroko Tabuchi of the New York Times News Service, all business is essentially done through credit, if there is less credit, business has to adjust. In the case of coal industry, prices fell compared to natural gas and to generate electricity many power companies switched over to gas. Under those circumstances it was easier for banks to say they would no longer finance new coal mines. However, coal that is used in steel making is still financed. One of the banks that said they would no longer finance new coal mines was Bank of America and the climate activists rejoiced.

Two years later, the policy has changed to enhanced due diligence. The policy on the website has changed and according to the article, the bank has declined of what its risk review would include.

Many years ago, the bank which I worked at helped financed mega oil projects and it brought in considerable fees. It is hard to give that up and they have not (I still own shares in the company). The other aspect to mining, is similar to many other industries, robots can do more of the work particularly underground.

Linking to dividend paying stocks, when price of a commodity falls, investors turn to alternatives. When the price comes back up, they buy the companies that deal with the commodity. Money moves in many directions looking for the elusive return to maintain good margins and the company to make a profit. There are many investors with a wide variety of degrees of risk and every day they are active in the markets. Government policies affect the markets, but sometimes government policies are ahead of the reality of the market, this is good and bad. When policies are ahead, then incentives are needed for the market to catch up. Most of the time governments are behind the market, and incentives are needed to level the market. Investors want a good return and it is easier to gain a good return if the company is profitable.

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