The Dividend Cafe

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Interest Rates and the Next Ten Years Nov 03, 2023

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

It has been a volatile month in markets, to say the least. October represented the third consecutive negative month in all three market indices, coming off of a modest downturn in August and September, as well. October did it in more roller-coaster fashion, starting off the month with a 600-point drop in the first few days of the month, only to see that reverse to a +1,000 point increase from October 6’s low to October 11’s high (that’s a pretty quick comeback), only to then drop -1,500 points (no typo) from mid-month to late-month, only to then yet again rally, being up over +1,100 points from the low of last Friday to the time I am typing this just one week later.

But the intra-month volatility and the odd twists and turns of the market throughout the year all speak to a bigger underlying dynamic in markets that I have obsessively covered in these very pages all year – the role of monetary policy, financial conditions, and bond yields in driving investor outcomes in this very short term moment. That entire landscape was the heavy focus of our annual week spent with various money managers, hedge funds, and research partners this year (I covered Fed chair, Jerome Powell, last week). The evolution of our annual “due diligence” week has led to a lot more meetings with managers in private markets, as well (equity and credit). Across private and public markets, we got a chance to see what is most on the minds of asset managers at this stage of 2023, and you will be shocked to know it is not a lot different than the same things on the minds of all investors.

And those things are the subject of this week’s Dividend Cafe – the underlying conditions right now creating multiple round trips of a thousand points in the market in just one month. Jump on into the Dividend Cafe …

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

The DC Today - Thursday, November 2, 2023 Nov 02, 2023

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Today's Post -

Big rally day, with markets posting a very nice fourth day of gains, closing up 564 points and putting us now up almost 5% on the week. While I would love to say it’s off to the races, under the hood, the relative underperformance of the higher beta components of the market just feels less convincing. Another bond market rally day as well, with 10’s coming down another nine bps to now 4.67%, along with continued yield curve volatility.

Following a slightly lighter-than-expected Treasury issuance report that was more front-end loaded on the curve and QT, which has removed the largest buyer of the front end, we’ve gone from 18bps inverted yesterday morning to now 30bps.

For those citing the historical track record of an inverted curve un-inverting just before a recession starts (looking at you ‘bond king’), the last two days have us in the opposite direction.

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

The DC Today - Wednesday, November 1, 2023 Nov 01, 2023

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

So the market closed the month of October down -1.35% in the Dow, down -2.2% in the S&P, and -3.4% in the Nasdaq. Let’s just say those numbers got a lot better the last two days, though. And then today was noteworthy as well …

Fed Day is the best day, and today the Fed kept rates where they were, as expected. The market was up +100 when Powell began talking, it went up to +200, then gave that back, then went up +250, and closed just a tad below that level. More importantly, bonds rallied viciously – with each maturity from two to ten years on the treasury curve seeing yields drop over 10 basis points.

His only comments about quantitative tightening were that they were not, at this time, considering slowing down or ceasing their “run-off” of the balance sheet. The word “run-off” is key because they are not actively selling bonds – they are letting about $80 billion of bonds mature per month and not reinvesting the proceeds. This is a form of tightening, but less aggressive than some have suggested.

Bottom line – Powell was pretty clear that they know financial conditions are, themselves, doing their work for them, and while he skirted around QT it is hard to see how anyone could hear what he said today and conclude any additional rate hikes are coming.

As mentioned yesterday the rally on Monday saw 2.5 advancers for every 1 decliner, and yesterday it repeated at 2.3 to 1. A year ago when the market bottomed and a nine-month rally began the breadth of the rally was consistently above 5-to-1 and sometimes well above 10-to-1. Market participation is still too thin to feel good about things.

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

The DC Today - Tuesday, October 31, 2023 Oct 31, 2023

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Today's Post - https://bahnsen.co/3QErw6L

With half of the companies having reported quarterly results, we now see +4.3% earnings growth year-over-year and +1.4% revenue growth. Of course, half is only half.

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

The DC Today - Monday, October 30, 2023 Oct 30, 2023

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Today's Post - https://bahnsen.co/49hz1aU

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

The Fed Chair Said What? Oct 27, 2023

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Today's Post -

I closed out our annual “money manager due diligence week” last week with a luncheon put on by the Economic Club of New York with Federal Reserve chair, Jerome Powell. He surprised me by saying some things that I was not expecting, and he also said a lot that I could have predicted verbatim (okay, I did predict verbatim) before the speech.

But despite all my earnest desire that the main action in markets let alone the economy not be at the whim of a few unelected academics, the Fed is the major story of markets right now. Their propensity to stay way too loose for way too long followed by a period of being way too tight for way too long is the cyclical and rotational story of our economic and market-oriented experience for 25 years.

We met with nearly twenty money managers last week (across a wide variety of asset classes in both private and public markets). We did not meet with a single one who did not bring up the Fed, the state of monetary policy, the potential direction of monetary policy, and its impact on how they think (and in some cases act).

So let’s jump into the Dividend Cafe where today is all about the Fed, the rubber chicken, and the radicals who stormed the stage before the speech began. Well, actually, we spend very little time talking about the rubber chicken or the people who stormed the stage and delayed the event for fifteen minutes while security and law enforcement did their thing. Those things really happened and were quite upsetting (especially the chicken). But the Dividend Cafe today is all about the actual words of Jerome Powell and what it all means. Off we go.

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

The DC Today - Wednesday, October 25, 2023 Oct 25, 2023

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Today's Post - https://bahnsen.co/45RiZ4B

Yesterday’s little market move was pretty weak sauce (not even 2-to-1 advancers to decliners and not even 1% in any index). Yields soared back today, putting downward pressure on the S&P and Nasdaq in a 2022 kind of day.

Yesterday, I recorded DC Today in the studio in our Newport Beach offices, had already submitted the final written edition, and then walked down the hallway to my office to eight pop-ups and notifications and alerts that Tom Emmer had removed himself for contention for the House speakership. Five minutes earlier, I had talked about how he was the most recent candidate, but I still didn’t see a path for him to get the votes. Twenty-four hours later, Congressman Mike Johnson of Louisiana is the new Speaker of the House.

In one day, our Q3 earnings season theme of divergent results amongst companies was on high profile display as the largest software company and an up-and-comer in cloud applications (Microsoft) posted positive results, while the largest search and advertising revenue firm in the world (Google) posted negative cloud revenue.

The S&P earnings yield is still higher than a 10-year treasury yield (total earnings dividend by share price). Of course, that differential is less than it has been in the last twenty years, but it is actually much more historically in line with where it was in the 1980s and 90s. The highest earnings yield in the market? Energy.

China increased its tolerance for a deficit to the highest in thirty years last night (above the 3% limit of deficit-to-GDP) and stated that deflationary risk will not be tolerated. President Xi actually made a trip to their central bank (he has never done that). The fiscal side of Japanification seems to be coming. The monetary side is the question mark.

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

The DC Today - Tuesday, October 24, 2023 Oct 24, 2023

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

Markets today rallied a bit (though they closed off their highs) as Treasury yields calmed down and leveled out.

Earnings season is not even 20% complete yet, so all projections are quite premature, but thus far, revenue growth is coming in +0.9% year-over-year with earnings growth of +1.2%. There will be more meaty data to chew on in the next week and the week after that, of course.

Republicans nominated Tom Emmer as their new potential Speaker of the House, but it is highly doubtful they have the votes in a full vote of the House to get him approved.

A fair question – are many people buying Treasuries now not as a non-recession call (yields higher because there is no recession), but rather as a recession call (one will come and right now we get 5%, so buy now and then during a recession Treasuries rally and yields fall). In other words, is it a trade? And if it is one, is it a good one? Time will tell.

Was 5% the top in the 10-year? It is obviously way too early to say. It fell pretty quickly below it yesterday and today closed at 4.81%. But the bond market volatility in 2023 doesn’t allow us to read anything whatsoever into 19 basis points or 30 hours.

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

The DC Today - Monday, October 23, 2023 Oct 23, 2023

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

So the market came into today just 300 points above its intra-day low of Friday the 6th at the beginning of this month, having rallied about a thousand points off of that in the six days that followed, but then selling off three days in a row to end last week. Bill Ackman announced this morning that he had covered his short on U.S. Treasuries (another way of saying this is that he ended his bet on rates going higher). Bonds also rallied on the news as the 10-year yield dropped 17 basis points (from +8 to -9).

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

All That Is On Your Mind - October 2023 Oct 20, 2023

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Today's Post - https://bahnsen.co/46P3YBs

Greetings from New York City, where I will be leaving very early Friday morning to head back to California for a week and where I have been in meetings all week with our major money manager partners across every asset class in which we live. I had thought about doing today’s Dividend Cafe as a sort of recap of the week, but I am going to need the plane flight home to better organize 25 pages of notes and more decks than I know what to do with. I am in content overload mode at the moment, which is one of my favorite modes to be in (often times I am in Chinese food overload mode, so “too many charts” about the economy is far healthier than “too much fried rice”). I plan to really clean up my notes and takeaways and allow more organized thoughts to create a deliverable around this week’s findings. Brian Szytel and Kenny Molina are phenomenal Investment Committee partners, and we were all richly blessed by the conversations we enjoyed this week on interest rates, economic projections, housing, credit markets, relative value opportunities, and more. So, for those who want to tag along a bit on the week, stay tuned – more to come.

But that does leave me with a Dividend Cafe to write and not a whole lot of margin in which to write it. Luckily for me (and maybe for you??), a robust set of questions has come in that I have been sandbagging, and it seems like a good time to use Dividend Cafe to answer all of your latest and greatest questions. I am quite confident these questions that have come in will reflect things on the minds of many of you, so get ready for some good takes on such subjects as fears about interruption to dividend growth, minimum wage laws, velocity and inflation, dollar strength, China, and more on the Israel/Middle East situation (discussed in last week’s Dividend Cafe).

Get ready to jump into the Dividend Cafe …

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

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