The Dividend Cafe

Today's Post - https://bahnsen.co/42FOvmj Stocks rose modestly again today as we flirted with a five handle milestone on the SP500 intra day but closed just two points below. We are up 13 of the last 14 weeks, which is technically the longest streak since 1986. Good thing there wasn’t volatility the following October (joking aside 87’ still closed higher on the year believe it or not). All said, earnings have been quite good, the Fed is on hold for now with the next move lower rather than higher, employment and GDP are quite good, and inflation is subsiding, so the path of least resistance has been higher. Elsewhere, with year over year decline in CPI out today the slowdown in China post pandemic has been one that few, if any, predicted. After decades of record economic growth aided by a rapidly expanding population and industrialization, growth has been slowing. There isn’t anything different about this playing out in China as it did in Europe and then the US mind you, it just happened faster because of technology and productivity being more advanced than in previous periods. Demographics in the country have also begun to shift. Today, 18% of the population is over the age of 60, and by the year 2032 over 32% will be, which will surpass that of the US. This isn’t to say there isn’t growth in China, it still grew GDP by 5.2% last year, but would you like to guess what the 30 year annual compounded return in the market has been there? -2.1% per year or about zero including dividends. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/42zrukM A consistently positive trading day in markets today without a lot of new economic data out, but I suppose no news is good news, so we’ll take it. We did have a widening trade deficit data released today roughly in line with expectations but I am intentionally keeping this intro short and sweet today to tee up the more meaty sections in the this podcast. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/4bqijHA Markets traded modestly higher following global markets, particularly China, where broad indices closed higher by over 3%. Markets in China have given up over $7T in market value since peaking in March of 2021, and last night’s move had less to do with actual news than I think it just did with an oversold bounce on potential stimulus. I do suspect there will be more from the government there to stimulate the economy and a severely over-levered real estate market sooner rather than later. Slower growth in China, means less Yuan to recycle back in US Treasuries, as that share of ownership continues to decline. There are still plenty of long-dated liabilities that need to be funded domestically with pensions and insurance companies and the like, but the supply this year will be massive with $8.9T in maturing Treasuries. Add on another $1T or more in deficits, and we will need to see over $10T absorbed in markets this year. This, along with the fact that government interest payments have already doubled from $350B in 2021 to now $700B, just has me skeptical that the Fed will continue to sell $60B a month with QT for a whole lot longer. It was less of a data-driven market day, other than a host of Fed President comments, which I will sum up to effectively ‘…yeah, what he said…’ reiterating Powell’s Fed policy comments last week about more time needed with rates. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3HOoQy5 I am very excited to announce a few things going on with the DC Today … First, we’ll start with the changes coming to the Monday edition of DC Today: None. I will continue writing and recording the Monday DC Today every week and will continue doing so in the “format” you see below (which follows the template from the old “COVID and Markets” days for you nostalgic types – be safe, be well, be free – and has been the Monday template throughout the history of DC Today). I enjoy doing this. I use a lot of weekend morning time pre-sun to do the writing. And Mondays before our weekly Investment Committee meeting commences don’t have the morning workload other days do. I will continue to make the time Monday afternoons to record the DC Today podcast and video, as well. So Monday stays as is and you’re stuck with me. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/47Xsqk9 The Federal Open Market Committee of the Federal Reserve met this week for their scheduled meeting and announced that … wait for it … they were not doing anything with interest rates. The market knew this was coming – futures have had a 100% chance of no increase or decrease in the Fed Funds rate at the January meeting for months – but markets went down -300 points after Fed chair, Jerome Powell, gave his customary press conference. The bond market went way up as yields dropped. And sure enough stocks caught up to bonds the very next day as the Dow jumped +370 points. Maybe this sounds to you like a lot of drama for one or two market days when everyone already knew what was going to happen, and you would be right. But the question that many are asking is – if it doesn’t matter, why does it matter? In other words, why is market volatility so high and press attention so high about when the Fed will begin cutting rates? Maybe traders do dumb and speculative things but why do traders care about this so much? Why not focus on more important short term betting odds, like whether or not Travis and Taylor are going to get married? In this week’s Dividend Cafe we explore the question of, “well, does it matter?” And to understand if it matters or not what the Fed does, we may want to understand what they do, exactly. This is a good one. So jump on in to the Dividend Cafe. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3SoXYtv Welcome to the first day of February, and a 29 day leap year one at that. The Dow completely rebounded from yesterdays sell off in stocks, and the bond market has now had two big day of gains in a row with rates moving significantly lower across the curve. The Fed holding rates unchanged yesterday was expected, but the comments of a March rate cut not being the Feds base case until they see more supportive data is what moved markets. Two quick points: The dot plots of where the FOMC sees rates by year end was unchanged following the meeting and 2-Yr treasury yields moving lower by 17 basis points in two days rather than higher isn’t a vote of confidence from the bond market its buying it at all. The reality is that economic data continues to be stronger than expected which is allowing them to take their time on easing policy, but markets are pricing it in advance anyway (as they always do). Speaking of stronger than expected economic data, there was a fair amount today with both productivity and ISM manufacturing data both beating expectations Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/4bhe01g The Fed today did as expected, which was nothing, leaving rates in tact for what has now become a six-month pause. Chairman Powell reiterated the unlikelihood of a rate cut in March (more on that in a moment). Markets sold off with the Nasdaq especially getting pummeled (but it was already down over -1% on the day before the announcement. BUT, bond yields COLLAPSED, with yields dropping significantly making it a rare day (in the last year or so) where bonds rallied huge and stocks sold off quite a bit. The Fed futures moved down to 35% for a rate cut in March but I have to say that is shocking. I would have thought they would go to 0% (okay, more like 10%) with the Fed Chair kind of saying they are not cutting yet. My best guess is enough actors in the market just believe the inflation data will come in so improved and economic data will come in so questionable between now and March 20 that the Fed will change their minds. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3HB81Xw A pretty boring day in markets with the Dow up and Nasdaq down. A lot of eyes are on what is coming next in the Middle East after the horrific murder of American lives over the weekend. Oil prices so far are not responding with any panic. Microsoft and Google each release results after hours today. They are big companies, you may have heard. Earnings growth of +4.9% (year-over-year) is expected this earnings season from an expectation of +2.7% y/y revenue growth. We are barely at 25% of companies having reported so far so we will do a better assessment of how this is tracking after each of the next two weeks. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/48OKdeA Ask David “What is the best argument for why the distributed independent decisions of individuals, families, and businesses create more beneficial outcomes for most people than the top-down, centralized decisions of government, especially the federal government?” ~ David K. My argument is one of incentives and one of knowledge. These are two different arguments, even if they do overlap at points. Fundamentally, I believe better outcomes take place when the decision-makers reap benefits from their decisions and when decision-makers feel pain from bad decisions. I do not believe “disinterested third parties” (Thomas Sowell’s term) have the incentives to allocate and adjudicate risk and reward the way those with “skin in the game” do. But beyond the classical incentive argument, I am very much a believer in what Friedrich Hayek referred to as the “knowledge problem.” Knowledge is widely dispersed throughout a society and no central entity possesses the knowledge needed to properly steward the affairs of a diverse economy. I read the masterful essay, The Use of Knowledge in Society, by Friedrich Hayek while in high school. It was the beginning of a lifetime journey for me through Hayekian thought, particularly around Hayek’s thesis of the “fatal conceit” of central planners. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3OkKhL0 I did something fun today …  I just picked random topics from various things on my mind, in my daily reading, or across my research feed – sort of stream of consciousness – and wrote about them.  Therefore, I suspect there will be a little something for everyone today.  Hopefully, each portion is “bite-sized” enough to make it all succinct and readable, and I certainly appreciate any feedback you have to offer.  In fact, I am considering something like this in the daily DC Today (where I would write my own piece every day on whatever topic I am so inspired by that day, and let Brian run with the daily data recap).  It's all a work in progress and your comments are welcome. And in the meantime, let's jump into the Dividend Cafe - bite-sized variety and all ... Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com