The Dividend Cafe

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A Tale of Two Decades Nov 17, 2023

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Today's Post - https://bahnsen.co/3sAWzr1

For the second time in the last couple of months, I am going to call an audible and not publish a Dividend Cafe on the artificial intelligence moment and its relevance for investors, despite having announced I was doing so the prior week. I have actually been assembling and digesting research on this topic for many months and am quite excited for the final product to appear in Dividend Cafe. But it is too important of a topic and an issue I have worked on now too much to publish prematurely. I was in New York City the first two days of this week, Dallas the next two days, and am in California now. Between a massive amount of meetings, events, portfolio activity, flights, and all the things, I was engulfed in a different topic this week instead of finishing my other piece.

This week’s topic is pretty darn important, though. In fact, I believe it serves as the macro story of our moment. It brings in some very important history and how to think about the past in the context of the future (not exactly an old or stale topic for those who remember last Friday), but it also allows us to understand what is going on right now in a broader and more extended sense. I think where interest rates go over the next ten years matters (also a fresh topic on our minds). Still, one could argue that everything going on right now has to do with the cycle we are in, had previously been in, and the question around where we ultimately go.

So let’s hang tight on artificial intelligence and investing a little longer because this week, we have to cover a tale of two decades. It will take you ten minutes to really appreciate ten years. Let’s jump into the Dividend Cafe …

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

The DC Today - Thursday, November 16, 2023 Nov 16, 2023

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Today's Post - https://bahnsen.co/40JB5EW

It was a pretty quiet day today, although we were down almost 170 points mid-day following some slower economic numbers to then rally back to just about flat on the day in stocks. Honestly, with the significant move up this week, just seeing markets just hang in and constructively consolidate and stay at these levels (both in stocks and bonds) is a good thing and bodes well.

This week, we had lower-than-expected inflation numbers in both CPI and PPI, some weak retail sales, the largest US retailer citing disinflationary pressure, and today, we got a jobless claims number that was higher than expected. Mix all of this in a bowl, bake, and no matter how you slice it, you’ll get an unquestionably cooling economic pie. See what I did there as we head into Thanksgiving week. =)

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

The DC Today - Wednesday, November 15, 2023 Nov 15, 2023

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Today's Post - https://bahnsen.co/46gNK3n

With over 90% of companies now having reported Q3 earnings, we stand at a 6.3% growth rate and well above Octobers estimate of just 1.6%. Just as I mentioned on CNBC World Monday night, profit growth is exceeding revenue growth as companies with pricing power that raised prices the past year due to inflation are showing margin expansion as some of those input prices ease. Also, for all you wondering, it really was just CPI and not my global television debut that fueled the market rally the following day.

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

The DC Today - Tuesday, November 14, 2023 Nov 14, 2023

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Today's Post - https://bahnsen.co/47wGQI7

Markets rallied huge today as bonds rallied in the aftermath of the CPI report.

Interest rates went into total free fall (the 10-year is down a stunning -18 basis points, and the entire 2/10 curve is down 18-21bps in what may be the biggest bond rally of the year and possibly several years) as the CPI number came in at, wait for it, +0% month-over-month (headline inflation). The core number (excluding food and energy) was +0.2% on the month versus +0.3% consensus expectations. Year-over-year, the core CPI was +3.2% versus +3.3% ex-expected.

But there’s more. Rent growth is being measured as +6.8% on the year and rent of primary residence +7.2%. Both are down +1% from recent highs but a minimum of 4% too high versus real-life “current market” metrics. That means assuming 3% shelter inflation (I am being very generous) at a 34% weighting, the 1.35% attribution coming off CPI brings headline inflation to 1.85% and core inflation to 2.65%. So, yeah, the Fed is about to take the credit. And the right teed it up for them. Ay yi yi.

Money supply (as measured by ODL – Other Deposit Liabilities– the best measure of available money in the system for a lot of reasons) has declined now for three straight years. We know it flew higher post-COVID. We know about lags and monetary aggregates and all that jazz. All excess liquidity created out of COVID has been evaporated from the system. And yet, over $1 trillion of debt next year will mature and be re-borrowed at 3-4% higher in cost (as things stand now). And for those who choose not to roll over debt (many companies, some individuals, zero governments), cash reserves will be used (that, my friends, is what you will call lower velocity).

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

The DC Today - Monday, November 13, 2023 Nov 13, 2023

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

There are some financial writers who I believe are professional doomsdayers. There are some who are more nuanced. And, yes, there are others who I think are hard to pin down. I suppose it is most fair to treat all people individually, with unique circumstances and particulars around their approach and worldview. For example, I think some are SINCERE but almost always WRONG (and have a business model that depends on scaring people, even if they really believe it). Some professional doomsdayers are, in my opinion, rank charlatans and grifters – though I’d rather not give names here. Hopefully you get the idea …

As for how to prepare for various “bad things,” well, that’s pretty much what I write about every week in the Dividend Cafe. In the first such issue this month I wrote the following, and it would apply to the wide array of possible scenarios we face:

“Our Operation Magnify is forever committed to active, proactive, intelligible allocation of capital across Dividend Growth companies, in the Boring Bond space needed to preserve capital, in Credit assets where there is opportunity and compensation for risk taken, in areas of both Growth and Income Enhancement, and of course in Alternatives where we can seek to lower the volatility profile of a portfolio and diversify sources of risk and reward.

Doing that in an era of high rate volatility, of high ambiguity about monetary policy, and a period where far too many eyes are only on the Fed requires a contrarian bend, a deep commitment to real enterprise (bottom-up company realities that transcend monthly price volatility), and a faithful commitment to the principles that made Magnify what it is.

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

This Time It's Also Not Different Nov 10, 2023

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Today's Post - https://bahnsen.co/3u3NcAi

Sir John Templeton could have never known what staying power his famous edict would have when he wrote in 1933, “The investor who says, ‘This time is different,’ when in fact it’s virtually a repeat of an earlier situation, has uttered among the four most costly words in the annals of investing.” He wasn’t wrong, and the vast majority of the time that famous quote is used (mostly via paraphrase), it captures a vital truism – that people assuming certain things about the past are no longer true and investing accordingly generally get their faces ripped off.

Today, we unpack what issues are the same, what may be different, and what that all means for an investor in 2023. Lots of things stay the same in this world because the creator of the world is the same yesterday, today, and forever. The law of gravity is still working. Men and women are still different. And UCLA is still a mediocre football program (hey, now!). But some things do change because that same creator made the world to be dynamic and gave the human race agency in its stewardship. And we know human beings can be temperamental.

So jump on into the Dividend Cafe, and let’s discuss the permanence in change of being an investor (extra credit to any who remember the second greatest band of my youth, The Alarm).

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

The DC Today - Thursday, November 9, 2023 Nov 09, 2023

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Today's Post - https://bahnsen.co/40yBPwn

We started off todays session in another quiet day, until about 1PM ET when we had an abysmal 30-year treasury auction on $24B of notes that moved rates higher across the curve that gave us our first down day in November for the SP500. With an increased supply in new issuance to fund a $2T budget deficit and a dearth of large buyers like our own Federal Reserve and other large Sovereigns it took higher rates to get this auction to close with the lowest bid to cover ratio in weeks. 2’s are back over 5% and 10’s were up 11 bps.

Oil was flat on the day but down 7% this week back to pre-war levels, and while energy stocks have given up some gains as well keep in mind that the sector in large remains in an uptrend with 94% of the energy name complex has a 50 day moving average above its 200 day. I am far more focused on fundamentals like the increase in CAPEX in our names recently than technicals like this, but note worthy of its relative strength amongst other sectors nonetheless.

Powell’s comments today at the IMF cited that Fed officials were ‘not confident’ they were restrictive enough with rates to bring inflation back to 2%, which added to todays give back in stocks. So, the market tea leaves yesterday read his statement as dovish and today hawkish, and so there you go. I get into why this day-to-day Fed obsession shouldn’t matter to investors, and more in todays video podcast link below.

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

The DC Today - Wednesday, November 8, 2023 Nov 08, 2023

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Today's Post - https://bahnsen.co/3My1KhW

Futures were as quiet as could be last night, and markets followed suit in a benign trading range that came off the lows mid day to close slightly higher and extend our November rally at least on the SP500. To be fair, we did come into November with only 17% of the SP500 having a positive three month return so were set up well for a rally and while the market did close higher yesterday the advance decline ratio on the NYSE was a dismal -1.6 to 1, so we are losing some steam here.

The top two weightings of the SP500 (one makes Windows and the other the iPhone), now make up 14.6% of the index and each have larger market caps than the entirety the UK FTSE 100, the French CAC and German DAX indices. To say the market remains top heavy in big tech is an understatement.

US and Chinese economic dependency on one another (one to make widgets and one to buy them), has continued to decline. The US now imports more from Mexico than from China for the first time since 2003, and China is recycling less of those dollars back into US Treasuries as a result. Both of these tie into why private foreign investors make up a larger piece of Treasury buying and why, in addition to slowing Chinese economic fundamentals, the Yuan has devalued against the dollar this year. All this and more in todays video podcast.

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

The DC Today - Tuesday, November 7, 2023 Nov 07, 2023

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Today's Post - https://bahnsen.co/46Z4Xj5

This is the longest winning streak (number of up days) for the S&P 500 in two years. One of the least encouraging things? The delta between cap-weighted and equal-weighted results … Top-heavy doesn’t end well. But nevertheless, markets are enjoying a very strong rally over the last week and a half.

Oil was hit hard today (down over -4%). Some traders think things will settle in the Middle East.

It appears S&P earnings growth year-over-year for this earnings season is going to top +5.7%, with revenue growth of +1.2%. Margin expansion has been something to behold and has a lot to do with market resilience in this challenging rate period.

Office behemoth WeWork, officially declared bankruptcy. Shiny objects are painful to watch implode. The ramifications to commercial office space will be notable, but it does appear creditor restructuring has been reasonably pre-negotiated and is not likely to result in huge vacancies hitting the market.

For all the weakness in manufacturing and insistence that construction is hurting and (especially) China’s weakness, why is iron ore doing so well and copper basically hanging in there?

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

The DC Today - Monday, November 6, 2023 Nov 06, 2023

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Today's Post - https://bahnsen.co/3SuN9Yy

Nothing like the Monday edition of DC Today. I’ll get right into it.

Dividend Cafe dealt with the subject of long term interest rates and what it all means for the economy and investors. I think it was a useful way to think about what the long term is supposed to measure, and what current Fed actions mean for that process.

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

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