The Dividend Cafe

Today's Post - https://bahnsen.co/3X7RBwR A flattish day in markets but a big rally in Financials … The SEC is suing Coinbase, the major publicly traded exchange for cryptocurrency, for violating securities laws and defying regulatory requirements. This company is down -80% in value from its high, and now there exists an investigation or active charges with every major crypto exchange firm. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3qnOZyl Ask David “With regards to the debt ceiling compromise, you point out that it suspends the debt ceiling entirely through the end of 2024. What I do not exactly understand is if the spending growth has been capped, then why would an increase in the debt ceiling be needed at all? ~ Mark The part you’re missing is revenue. We can reasonably know what expenses will be now, and they will be reasonably limited. So yes, that should take the need for much borrowing above a given ceiling off the table. But revenue is a big variable, and especially in a deeper recession, it can drop well below the expenditure line, enhancing the need for deficit borrowing. The variability of revenue is massive. Think of a 1% drop in the total GDP of the economy. Then think of an average drop of revenue as a % of GDP of 2-4% per recession. So $24 trillion GDP goes to $23.75 trillion, and then the tax receipts go from 19% of 24tn to 16% of 23.75tn – essentially, lost revenues of roughly $750 billion. That could add 50-75% to the deficit and would be funded with debt issuance. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3qmaIH8 For a long time there was only one country on earth dealing with a bubble that had burst, spending way more than it was bringing in, seeing revenues decrease, juggling banks that weren’t actually solvent, and running extreme monetary policy to try and keep all the holes in the dam from bursting. That country was Japan in the 1990’s and into the next decade. For over 30 years now they have favored radical fiscal and monetary policy as a means of dealing with their economic woes, and the result has been well-documented in these pages of Dividend Cafe. The balanced budgets and high real GDP growth rates of the American economy in the 1990’s went away when our own credit bubble burst in 2008. Asset prices fell, deficits exploded, and the Fed played pharmacist to it all, providing ample medicine to make it all feel better as we muddled through. Japan now has ample company to the fundamental shared sickness of “excessive indebtedness.” Across the developed world those Japan-like characteristics of high debt, muted growth, and monetary discretion are now par for the course (see: America, Europe). Today we’re going to look at a few things with Japan and see if we can’t learn a little about the future state of the American economy and policy. It is one thing to refuse to learn from the past. It is another thing all together to not even learn from the present. Let’s jump in to the Dividend Cafe … Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3C3vY77 As expected, the House passed the McCarthy-Biden debt ceiling bill, and the Senate will do their part by this weekend. The bill passed by a vote of 314-117, quite the nail-biter, with 165 Democrats voting yes and 149 Republicans voting yes. This allows us to now change our focus to the next end-of-the-world moment. Do not fear – it will not take long – a new culprit for the cause of Armageddon will arrive shortly. And the media will be ready to tell you what it is. Futures are now at a 78% chance of a Fed Rate pause at the June 14 meeting (it was less than 40% just two days ago). Several Fed officials have come out jawboning the idea of a pause. I think there is almost a 0% chance that these Fed officials making public comments to this effect do not mirror the view of Chairman Powell himself. The world’s largest chipmaker most connected to Artificial Intelligence is trading at a mere 197x earnings now, which is just the bargain basement level of 23x gross sales. It is sort of surreal to see this kind of excess and froth just a year after all these other shiny objects got taken to the woodshed. Human nature is immutable. C3.ai, a leading artificial intelligence software firm, is down -30% in the last 24 hours as numbers came in vastly below expectations. I bring this up because they are all over the news since, well, they lose $260 million per year on gross sales of $266 million per year. That negative -98% margin being attached to a $6 billion market cap is, shall we say, a sign of the times. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - The debt ceiling bill has gotten through the House Rules Committee and it appears nearly certain that the House will have the votes tonight for passage. What happened here proved to be even less dramatic than I predicted, and I was predicting that the media posture here was recklessly and shamefully melodramatic. I promise you this, though – no one will learn anything, and everyone will take the bait again next time, too. Media reports that some hardliners on the right were going to look to oust Speaker McCarthy over this bill were, well, totally untrue. One of the big themes in the market right now is the relative weakness of defensive sectors like Consumer Staples, Health Care, and Utilities. And for a contrarian like me, it makes me like them even more. The momentum is in one very narrow space right now. That boat has a capsize risk in front of it as 2023 progresses. In the meantime, 4% of the large cap universe is at a relative high right now, while 25% is at a relative low. Weird wacky stuff. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3qlozNA “I agree with you overall concerning shareholder vs. stakeholder priorities in a company’s motivations. It did occur to me, however, that often the bad behavior examples provided by the advocates of the stakeholder paradigm don’t really involve a company acting in the best interests of shareholders, but rather having a near-sighted, excessively short-term focus on quick returns at the expense of sustained gains. My question is how in a dividend-growth framework you and your team balance the near- and far-term in a company’s approach in such a way as to genuinely promote the interests of the shareholder.” ~ Jeff M. But of course here is the exact point – no system of investing I have encountered seems to directly and specifically focus on long-term decision making vs. short-term noise more than dividend growth! If the entire focus is on long-term sustainability of growing cash flow, various quarterly efforts at “quick returns at the expense of sustained gains” can’t possibly be tolerated. They are disqualifiers. Now, how much companies really do that is another story, but the point is the qualitative and quantitative criteria for stellar dividend growth companies are the very things that call for long term prudent actions versus short term myopia. I cannot say this enough: Dividend growth over time is both the signifier and the consequence of a well-run business. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - We live in interesting times. Is that fair to say? Does anyone disagree with that? I didn’t think so. Now, I didn’t say, “We live in unprecedented times.” I think there are a lot of reasons to barely ever say that (Ecclesiastes 1:9 is a good place to start). I certainly understand that some things seem unprecedented, and many times the particular manifestation of something may be unprecedented. But honestly, most of the time, people say something is “unprecedented,” they are just a person who does not value the study of history very much. I value history a lot. I believe in almost all disciplines, a better understanding of history is needed for a better understanding of the present and to be prepared for the future. Current social unrest is not unprecedented. Neither is political tribalization. Neither are class divisions or any of the many other things adding to societal angst. It is somewhat arrogant to believe we are the first people in the first time in history to experience a certain thing. So I prefer the word “interesting” to “unprecedented.” And one of the things most “interesting” right now is the state of corporate America. For some, corporate America is not doing enough to save the environment or participate in various social or political causes. For others, they have stepped knee-deep into a political and cultural agenda that is detrimental to their well-being as a company. Today I want to talk about the concept of shareholder engagement, what it means, what it ought to mean, and what The Bahnsen Group is doing in this regard. You may find it not political or audacious enough. You may find it too opinionated. You may find it outside the core of investment advice. You may find it the heart of investment advice. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/45JhuqH The debt ceiling discussions advanced today though no final deal was struck. The adjectives and nouns across the headlines refer to “fresh urgency,” and “potential default,” and “sensitive phase”. The Fed seems to be telegraphing a “pause” at the next meeting … The new language being thrown out is whether or not they are “pausing” or “skipping.” The Artificial Intelligence space is rallying like crazy as one of the good companies that make money reported a huge quarter, which naturally led to a big rally in the bad companies that don’t make money … One year ago today, the market closed 32,637. Today it closed 32,765 – up 0.39% in one year. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3Mxdgto While everyone tosses and turns about the debt ceiling debate in Washington, I want to remind everyone what is the real scenario playing out in the economy. The Fed’s tightening may or may not “succeed” in their mission to destroy those inflation-creating jobs (their words, not mine), but it certainly will succeed (and has already) in tightening credit. Essentially a trillion dollars leaving the banking system is a lot less monetary base for lending. Funding costs for banks are much higher. And overall bank lending is collapsing. These things are all known. Now, one can argue much of it is priced in. And one can certainly debate if it leads to a deep recession, or a shallow one, or a soft landing, or my own hypothesis, a more “narrow, targeted” recession, but it is the issue in front of us. What ends up being the impact across the broad economy and to corporate profits of the inevitable decline in credit as a result of this financial tightening? And then, of course, how does the Fed handle their inevitable back-peddling of the mess they create? It’s all so weird to watch play out. The impact of tightening credit – the variables around that will be real in six months. Almost nothing anyone else is talking about right now will be. Food for thought. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/41Xc7Rq The drama in Washington is supposed to be all the rage and I am torn because I do know it is the primary mover in minute-by-minute market fluctuations, and I also know it may be what readers most want to know about (adding to the burden to write about it here, which is the purpose of DC Today), and yet the whole thing annoys me so much I wish I had the option of a protest abstention. But I don’t. As of press time today the basic update is that talks are dragging on and this is somehow news. Both sides continue to say “default is off the table.” The press is acting more recklessly than I expected them to, and I expected full-blown beclowning. It is really hard for them to perform worse than I thought, and they are. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com