The Dividend Cafe

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The DC Today - Wednesday, December 20, 2023 Dec 20, 2023

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Today's Post - https://bahnsen.co/47gk0nS

A quiet day of trading as markets head towards the Christmas holiday on Monday and things slow down.

The US is one of many countries where inflation readings and projections are being reduced. The UK had a much lower-than-expected November inflation reading yesterday at 3.9% y/y versus a 4.3% expected and down from 4.6% the month prior. Not surprisingly, Gilt yields moved dramatically lower, and futures were priced in 150 bps of BOE rate cuts next year.

PPI data in Germany today was also below expectations. While the ECB noted it would maintain rates where they were last week, I expect that narrative to change next year if we continue to see numbers like this, especially once the US starts cutting. Global central bank policy, as does trade and currencies, tends to be tethered—this and more in today's video podcast.

Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

The DC Today - Tuesday, December 19, 2023 Dec 19, 2023

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Today's Post - https://bahnsen.co/47VBffb

Today saw risk assets rally yet again with the Dow closing at another all-time high.

It is interesting to see health care as the sector holding the defensives and lower beta names down. Consumer Staples and Real Estate have broken out a bit and Utilities have at least awakened, but Health Care has been the laggard.

The Bank of Japan extended its policy of negative interest rates (it has been seven years now, for those counting), though most believe they will hike the policy rate up to 0% in 2024. The Yen remains quite weak against the dollar.

Oil is down $20 from where it was in September (note, that was before the Hamas attack on Israel on October 7). The VIX is at $12.50, pretty close to the lowest it has been in five years, Credit spreads have tightened by 60 basis points just in the investment grade side, with high yield spreads tightening a full percentage point (and that is basically since Halloween). It would be hard to make up a series of data points that reflect a more favorable sentiment for risk assets than this.

Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

The DC Today - Monday, December 18, 2023 Dec 18, 2023

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Today's Post - https://bahnsen.co/3NuO33W

When one buys stock in the secondary market they are buying from Mr. Jones and Mrs. Smith, and the money is not getting to the company – that is correct. But there is a very important thing being missed when one concludes that therefore no money is being productively deployed. Namely, the existence of a secondary market is why a public market can raise money to begin with for primary productive purposes. When investors buy equity in a company that does go to the company for growth capital, productive use, etc., they do so with the knowledge, intent, and awareness that the money is going into a liquid, secondary market. That reality impacts the attraction of capital and it impacts the valuation of capital. Take away the ability for Mr. Smith to sell to Mrs. Jones, and you take away the marketplace for BIG INVESTOR to invest directly in BIG COMPANY.

Supplementally, many times companies are doing secondary offerings in the public market where money is coming straight to the company. And finally, dividends are paid to investors who often do directly productive things with them. Where do these dividends come from? The productive profit-making activities of the underling company. Rinse and repeat.

Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Housing Isn't an Asset Class Dec 15, 2023

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Today's Post - https://bahnsen.co/3TrUXux

I did a Dividend Cafe exactly six months ago about housing, focusing then on the duel economic and cultural reality of what was going on in the housing market. I think another six months gone by is a pretty good amount of time to now re-address this vital subject in American life. Housing is, for some, a crucial part of their economic story. Even for those smart enough not to think of their house as a “retirement asset” it is still a crucial economic consideration. Almost everyone I have ever met needs a place to live, and the ones I met who did not had very odd theories on the JFK assassination. Very few people own an asset with as much leverage attached to it as their home (assuming one puts 20% down they are 4-to-1 levered on the purchase; imagine buying $1 million of stock and only paying $200,000 for it). Housing costs (monthly) from rent or mortgage to property taxes and maintenance and insurance are the highest percentage of the monthly outflow of nearly every single family in America (even many who do not have a mortgage).

Beyond the economic reality of housing, from the silly (it is an “investment”) to the practical (it cost money to live somewhere), there is a deeply personal reality to housing, including for yours truly. People make memories in houses, they associate periods of their life with where they live, and they form families and social connectivity around houses. And even with all the suburban model has done in a postmodern culture to undermine community, many people’s “houses” are also part of their “neighborhoods” – a Tocquevillian concept we’d be wise to re-affirm. This subject matters.

So today in the Dividend Cafe I want to “check in” on the subject.

Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

The DC Today - Thursday, December 14, 2023 Dec 14, 2023

Show notes

Today's Post - https://bahnsen.co/4aigyM6

Well, and there you have it – coming out of a global pandemic where the world shut down and reopened and supply chain disruption and pent-up demand caused 9% inflation, the Fed raised rates 525bps in one year, inflation fell back down without rising unemployment, the economy still grew, and as of yesterday, the Dow closed at an all-time high. I really don’t think, in all humility, there was anyone out there (including yours truly) that would have predicted all that. Now, there is still more time to go before I think you can officially fly the soft landing flags, but we are getting close after yesterday’s Fed meeting and statements.

Adding to that narrative, we had some encouraging retail sales and jobless claims data today that had markets higher again. Also, the good ole three handle 10yr is back! We closed below 4% today down another 11 bps at 3.91% on 10’s for the day. Does all this sound too good to be true? I assure you there are still plenty of things in the world to worry about, but my sense at this point, with a dearth of large economic data coming out before the year-end, is that we will head into the holidays feeling a little more merrier than we did last year. =)

Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

The DC Today - Wednesday, December 13, 2023 Dec 13, 2023

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Today's Post -https://bahnsen.co/46RNNmw

This may have been the least anticipated Fed Day in nearly two years, with the futures market serving up a 100% chance of no rate change ever since the last Fed meeting. That said, the Fed chair talking after a rate announcement always has the possibility of moving markets. Today, he moved markets. That he didn’t even remotely push back against market expectations for rate cuts next year was a surprise, but the dot plot actually showing three rate cuts in 2024 was a huge surprise. Now, I have been saying it for months, and fed futures have been forecasting it, so maybe this market response seems overdone – but for Jay Powell to just say it? Today was like reading a future history book.

I think it is important to note that the Fed Funds Futures are currently pricing in a 100% chance of a 100 basis point reduction (1%) in the Fed Funds Rate by this time next year. There is a 24% chance of it being down 1.25%, a 37% chance of it being down 1.50%, and a 26% chance of it being down 1.75% – all by next year. The most “hawkish” expectation is a 100 basis point cut.

All stock market indexes were up the SAME. And I am pretty much sure this was the biggest bond rally of my career in a single day, as the 2-year yield dropped THIRTY BASIS POINTS and the 10-year dropped EIGHTEEN BASIS POINTS. Ay yi yi.

Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

The DC Today - Tuesday, December 12, 2023 Dec 12, 2023

Show notes

Today's Post - https://bahnsen.co/3Nr4A93

A consistently positive trading day on this inflation-day-Tuesday. Both core and headline CPI came out largely in line with expectations and markets were constructive with stocks modestly higher and built on gains into the close and rates down just a few basis points. These numbers are coming out right in time for the December FOMC meeting to end tomorrow with a rate decision (which is at a 100% chance for a continued pause), Fed statement update and Powell presser following.

Continued broadening out in markets with more non mega cap technology names participating. Yesterday by the way, was the first time in over 10 years we had markets up broadly (including a positive Nasdaq) with all seven of the largest technology names (aka Magnificent Seven) all closing lower. Today we had more participation those names, but worth noting the subtle shift in leadership, particularly with Industrials.

A positive dynamic we have spoken about for years but particularly post the Russia/Ukraine conflict continues to play out in energy markets. For the month of November, 68% of all US LNG exports were sent to Europe which has now over taken Asia as the number one destination for US LNG exports. Just as tensions between US/China has begun to permanently shift supply chain manufacturing destinations globally, the EU shifting its reliance on Russia for its energy and heating needs isn’t likely to be temporary and is quite positive for the US energy dynamic.

Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

The DC Today - Monday, December 11, 2023 Dec 11, 2023

Show notes

Today's Post - https://bahnsen.co/41lZfWf

Greetings from 29 degree Grand Rapids, Michigan where I have had a day of meetings and recordings and give two different speeches in two different Michigan cities tomorrow. I will be back in the much warmer climate of New York City on Wednesday. In the meantime, the special Monday DC Today awaits you …

Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

A Buffet of Information Dec 08, 2023

Show notes

Today's Post - https://bahnsen.co/3t62eFN

I really do like the SOP for Dividend Cafe (that’s “standard operating procedure” for those of you who have time to say full words instead of acronyms that always require explanation anyways, hence adding triple the time to what could have just been said in long form to begin with). What I mean here is that I have for several years now selected a singular topic for each week’s Dividend Cafe and written a 2,000-3,000 word piece on that topic. There have been a few exceptions where we did a wide array of “Q&A” as our focus, and we will continue doing that once a quarter or so when we get an excessive build-up of “Ask Davids” that the DC Today cannot bear. But for the most part, the Dividend Cafe is, I think, better as a deeper dive week by week into a given topic on my mind and heart. I keep it investment and economy focused, of course, because if I went anywhere my mind and heart went, I would end up doing some Dividend Cafes about my favorite steakhouses in New York City, what is wrong with today’s Republican Party, or what in the world my daughter’s vernacular in our family group text chat means. But Dividend Cafe will stay in its lane, I promise. Focus, David, focus.

Anyways, today I am doing the buffet thing, but I didn’t write it throughout the week – I wrote it all at once. I simply had three “mini” topics I wanted to address instead of one “mega” topic. I hope it is cohesive and interesting, but if you hate it, at least you know next week, we will go back to the single-topic norm of the Dividend Cafe – our SOP.

Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

The DC Today - Thursday, December 7, 2023 Dec 07, 2023

Show notes

Today's Post - https://bahnsen.co/4abzegh

The market opened up a handful of points this morning and slowly built on gains for most of the day. After a big move lower across the curve in yields this week we took a bit of a breather today with a flat 10YR up two basis points at 4.14%. Stay tuned for a three handle on 10’s.

We are starting to see this market rally broaden out with the equal weight version of the SP500 breaking away from the market cap weighted index. This is showing the average stock starting to participate more in this rally outside of technology names, which I find constructive. Both large cap and regional banks by the way are back to where they were pre SVB failure earlier in the year. Part as a normalization of stress in the financials and part for a 2024 line up that could favor the banks if we get better net interest margins as the yield curve potentially normalizes with the short end moving down. This is something we have seen before; late cycle rally in financials as the Fed pauses and ultimately cuts the following year (95’/96′ comes to mind).

Monthly financial obligations for consumers like auto payments and home payments, as a percentage of household cash, are on the rise and now at 16%. Interesting however that even with such a rise in rates these are still actually below pre-pandemic levels which was closer to 18%. Higher rates just haven’t bit as hard as years past with such a prolonged low rate refinancing period the years preceding it.

Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

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