The Dividend Cafe

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The DC Today - Wednesday, October 4, 2023 Oct 04, 2023

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Today's Post - https://bahnsen.co/46j9PPy

Following another down day yesterday, we got a little reprieve in markets, with both stocks and bonds posting gains on the day. The biggest economic news on the day was the miss in ADP Payroll numbers, which starkly contrasted with yesterday's big upside surprise in the jobs openings report. More openings but fewer private payrolls could either mean there is a cyclicality or variability around the timing of correlation between the two or could have just been from the number of new job openings TBG just posted this month. Still, either way, the more significant number will be this Friday when nonfarm payroll numbers come out.

While yields came off following today's economic data during the trading day, it is notable to see 10-year yields hit 4.88% in overnight trading and 30-year treasuries reach 5%. As a result, US debt interest expense is now just over 14% of tax revenue, which has not been the case since the late 1990s and has historically been a threshold in which fiscal austerity begins to show. Fact notwithstanding, last night, we also saw the ousting of the Speaker of the House, Kevin McCarthy, by his party for the first time in history for getting a bill passed not to cut spending to avoid a government shutdown.

I strongly suspect deficits at 7% of GDP during full employment will keep volatility high in Washington as tough decisions must be made. While the Fed says higher rates are here for longer, I remain skeptical, given the tightening financial conditions we have already seen.

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

The DC Today - Tuesday, October 3, 2023 Oct 03, 2023

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Today's Post - https://bahnsen.co/3RJ28h3

Markets were hit hard again today, and I do imagine we are getting closer to some short-term capitulation, but you never know. The way the regional banks have been acting lately is noteworthy. This bond rally has not let up and is basically 100% of the current market story.

Why have oil prices gone up so much even as gas prices have not really gone up (and have, in fact, come down)? Refinery margins have collapsed, period. There is more than one input to retail gas prices at the pump.

Cleveland Fed President, Loretta Mester, is the latest Fed head to say she believes another rate hike is needed. But she also said part of that would depend on … “the UAW strike” ?????? Yep. She is not a voting member of the FOMC, by the way.

You’ve heard all the talk about record levels of credit card debt. It is currently 3.7% of nominal GDP. It was 3.9% of nominal GDP in late 2019. It was 4.2% in 2010 after the financial crisis. Sorry, but the numerator is not the only number in a fraction.

Market rates are tightening without the Fed. The idea that the Fed would pour gasoline on top of this is surreal to me. But so is modern central banking.

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

The DC Today - Monday, October 2, 2023 Oct 02, 2023

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Today's Post - https://bahnsen.co/3F3CrAp

Ask David

“A couple weeks ago in your ‘What to Look for in an Advisor‘ Dividend Cafe, you pointed out that most advisors outsource portfolio management and asset allocation, and you expressed your disagreement with that trend. I agree with you, but I was wondering if you could unpack the specific reasons for why you disagree with outsourcing the investment process and why there is merit in direct portfolio management by advisors.” ~ Nathan

I really don’t feel strongly that most advisors should be managing capital directly, and in fact, for a significant amount of advisors I have met, considering their work ethic and intellectual capacity, I am glad they don’t. But I do feel that TBG should because we consider it our calling, part of our authentic skill set, and a huge part of our value proposition. What I believe is more universal, though, is that all advisors should have some baseline competence in capital markets, even if they do not practice security selection or portfolio management directly. And that they should be accountable for who they outsource to and not use third-party partners as mitigation of their own decision-making.

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

Long Term Capital Memories Sep 29, 2023

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Today's Post - https://bahnsen.co/4598Q3a

I hope (and assume) that long-time and regular readers of Dividend Café know that I am a sucker for history. I think this is true of all history, going back thousands of years, covering many eras, geographies, nations, people, and events, but it is especially true of American history. 20th-century American history is not very old, but wow, is there ever a lot of material there.

What happened in 1906 or 1915 or 1933 that matters to us today is “history” now – but when it was happening, it was “future history.” It was also well before I was born. There are, though, events in my lifetime, even my adult lifetime, that represent future history, much like the events of the early 20th century I allude to above. Knowing that I lived through these more recent events, that I have my own particular context to add, that they were both personal and all at once cultural – it all makes my interest in “modern events” of my adult lifetime that will be “future-historical” intense and profound. If I write too often or too obsessively about such things, forgive me, but it isn’t going to stop. I believe living through history being made is almost as fun as studying the history that was long ago made. And all of it I count one of the great blessings of this life.

It deeply impacted my life and allows me to obnoxiously wax and wane nostalgically, but it also deeply impacts your portfolio, even today. For much of the last 25 years you might argue this event had the most significant market impact, period. I am not being hyperbolic.

And that event is the subject of this week’s Dividend Café. Let’s jump into a little modern history and a 25th anniversary you will benefit from understanding.

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

The DC Today - Thursday, September 28, 2023 Sep 28, 2023

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Today's Post - https://bahnsen.co/468UHnU

This morning, we had a slew of economic data that moved markets modestly to the upside in stocks and bonds in a fairly positive trading day throughout the session. Q2 GDP revision was largely unchanged, jobless claims were better than expected, and Core PCE revision was also unchanged.

Yields moved lower across the curve following the releases, which put some wind in the sails for most risk assets today. The inverted yield curve is slowly but surely becoming less so as longer rates rise, and is now half of what it was a month ago at 47 bps on 2/10’s from over 100 bps.

With short rates anchored closer to Fed Funds, why are longer rates moving higher? A combination of the Fed’s QT, Japan’s exit of Yield Curve control, US budget deficits and less Treasury demand from China on falling exports.

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

The DC Today - Wednesday, September 27, 2023 Sep 27, 2023

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

The market opened up a bit and got up nearly -150 points before dropping nearly -300 points (an intra-day swing of over -400 points) before rallying back a few hundred points and closing down just -68 points.

Who knows what the next two trading days hold but right now the only asset class on my screen up on the month is the DOLLAR. Bonds, Gold, Europe, Emerging, TIPS, Small Cap, Tech. Utilities – you name it, all down. The dollar, up nicely (DXY).

At this time we expect the government shutdown will kick in on October 1 (this Sunday).

Jamie Dimon, CEO of JP Morgan, said yesterday that if rates were to get to 7% you would see a deflationary asset unwind and a lot of asset bubbles burst. The media ran with the comment as if he were predicting that rates would go to 7%, which of course, he was not.

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

The DC Today - Tuesday, September 26, 2023 Sep 26, 2023

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Today's Post - https://bahnsen.co/45cmDG2

Markets were hit again today (five out of six days to the downside) as the Biden administration announced a major antitrust lawsuit against Amazon, and general market jitters continued (despite a flat day in bond yields).

Why is the U.S. dollar up so much when things are supposed to be so bad in the U.S.? A good place to start might be the fact that yields are high and growth has been decent (and compared to other places, quite decent). Currency is a relative game, always and forever. More dollar bears have lost their faces and reputations, failing to understand that basic point more than anything else.

To be totally honest (and believe it or not, I am serious right now), I cannot remember if “net neutrality” rules were supposed to ruin the internet and the world as we know it or if “rescinding net neutrality rules” was supposed to ruin the internet and the world as we know it. What I do know, or at least I think I know, is that we used to have them (I think), and then they were rescinded in the Trump administration (I think), and it doesn’t seem like a lot of horrible things happened in having them or not having them. And then this morning, I see that with the Biden Administration now having a majority of votes at the Federal Communications Commission (FCC), the intent is underway to bring back net neutrality rules, which is either a good thing or a bad thing. I would have more to say if I could keep it all straight.

Another Fed governor is talking about a further rate hike, and futures respond by INCREASING the odds of NO further hike. Follow the fed funds futures, not the rush to a microphone.

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

The DC Today - Monday, September 25, 2023 Sep 25, 2023

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Today's Post - https://bahnsen.co/48qpYnM

Status of the shutdown – Speaker McCarthy is trying to split enough of the far “right” (I hate that term applied here) to avoid a shutdown. He’s currently attempting to package several appropriations bills together and send them to the House for a vote. The votes appear to be questionable as to whether or not they will be there, and this does not avoid a shutdown. These bills, IF passed in the House, have no chance of passing in the Senate. There appear to be enough votes in the House against any form of continuing resolution whatsoever that keeping the government open past this weekend is highly unlikely.

How it could play out: Option 1: The House passes a bill this week, the Senate amends it (to put it mildly), the House then rejects that, the government shuts down, a deal happens to end that, and Speaker McCarthy ends up removed from his post; OR, Option 2: No bill is passed out of the House, the Senate passes a bill, a deal is cut between House moderates and Democrats, and a shutdown is averted (with McCarthy likely removed shortly thereafter) I think Speaker McCarthy has moves to help avert a shutdown or, more likely, end one after it has started (see above). In both cases, I think he greatly improves his chance of being removed as Speaker.

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

The Fed's Pickle Sep 22, 2023

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

Actually, the inspiration for this week’s Dividend Cafe is not “why markets were down this week or this month” – but rather something more substantial and thematic. There are some “whys” that are more important than “whats” right now and big picture, I felt certain macroeconomic themes we are watching were worth a whole Dividend Cafe.

That verbiage makes it sound kind of boring, but really, I am just under-selling the excitement of what lies ahead for those who jump into this Dividend Cafe … You will not want to miss the drama and fun. Off we go

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

The DC Today - Thursday, September 21, 2023 Sep 21, 2023

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Today's Post - https://bahnsen.co/48s8IyG

The violence was most felt in the bond market as yields rallied dramatically at the long end of the curve. As yields did not move much (or at all) in the short end of the curve, you saw a fair amount of inversion eroded. It is all a rate story now – as stocks are following bonds, not vice versa. QT is tightening, and high rates are tightening (with the bond market doing more of it for them). Something has to break eventually.

The Bank of England also left its interest rate alone, pausing after 14 consecutive increases.

The House GOP was four votes short of having the votes needed to advance their compromise funding bill. Some tweaks are in motion to allow for a new vote next week.

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

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