The Dividend Cafe - 2017 Boiling Down to These Two Things

Episode Date: June 22, 2017

2017 Boiling Down to These Two Things by The Bahnsen Group

Welcome to the Dividend plane, but I really want to get this information out to you. We do cover a lot at DividendCafe.com this week, but let's give you some of the good highlights that I think are important to summarize this week in the markets and some of the investment themes we're presently thinking about at the Bonson Group. All oily about energy stocks. A drop to the $42, $43 level in oil is a meaningful drop from the recent $52 level, but still notably higher than the Q1 2016 level of $26, where global demand fears took over. U.S. shale has become the marginal producer, thank God, and they have improved production efficiencies to the point that profitability can be achieved at much lower prices than previously thought possible. Supply has not come in from the OPEC freeze as much as anticipated,

as Nigeria and Libya were allowed to do as they pleased, U.S. shale producers found positive momentum, and too many speculators have recently run into overly ebullient long positions they've had to unwind. The reality is that oil prices will find equilibrium at some point, but even then will continue to be highly volatile because they are a highly volatile thing, period. volatile thing period. Ultimately the economic concern would only come to us if the drop in oil prices was related specifically to a slowing global economy and deteriorating demand none of which we presently see. China finding some weak spots. We noticed this week that the yield curve in China had inverted meaning that the 10-year bond yield was actually lower than the one-year bond yield often indicative of some problems we see it as a part and parcel of the Chinese monetary

authorities appropriately pressuring their highly over levered banks to de-lever, creating some pandemonium in the rate markets, but very likely to deteriorate progress in industrial production and construction. So much of the global economic turnaround in the last year, year and a half was related to China finding a pretty good footing, better footing than expected. Should any of that unwind, we see that as being a potential concern to markets. Three simple facts about 2017 investing so far. What has made money so far this year? Anything that doesn't produce energy or depend on a steep yield curve. Let me put it differently. The forces of a weak dollar and declining interest rates has made

a lot of asset classes money and damaged a few asset classes. Only oil-related investments have not had attractive conditions in which to function. The weak dollar is supposed to be bullish for oil prices, but contrary factors have ruled out thus far. Should the yield curve steepen again in the second half of the year, meaning the spread between short-term rates and longer-term rates expands, that would bode well for energy, financials, and probably not as well for high-growth stocks. Our approach? not as well for high growth stocks. Our approach? Assume nothing about that which cannot be remotely forecasted with any semblance of accuracy. Bond yield equilibrium is as elusive as any part of

financial markets. Being positioned in a more all-weather scenario will prove to be more beneficial. We would actually point to our own performance in 2017 as proof of this. The flattening yield curve has hurt financials where we're heavy weighted. Struggling oil prices have hurt energy stocks where we're heavy weighted. And yet our performance has exceeded market indices as the supplemental parts of our portfolio, emerging markets, the asset manager stocks, certain telecom and pharma names have more than offset those other impacts. One man's liquidity is another man's risk premium. There's a quote at DividendCafe.com this week that we think is kind of appropriate to the overall subject about liquidity.

But the bottom line that we want to get to is that we all take on risk to get a return premium in investing. We call it risk premia. Stock investors take on market volatility risk. Bond investors take on inflation and interest rate risk. And an underrated source of risk premia is illiquidity risk. We recognize investors have different timelines, different objectives, different cash flow schedules. But where circumstances fully allow for it, the illiquidity premium and private market investing can be very rewarding. Unfortunately, I have to leave it there. It's about half the time I normally would want for the podcast, but I need to jump on a plane. There's some great stuff in the dividendcafe.com about the Fed, about economic stagnation,

about productivity. Please do check it out. And we look forward to coming back to you next week with a fuller podcast of The Dividend Cafe. Thank you for listening to the Dividend Cafe, financial food for thought. The Bonson Group is registered with Hightower Securities LLC, member FINRA, MSRB, and SIPC, and with Hightower Advisors LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities LLC. Advisory services are offered through Hightower Advisors LLC. This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee

that the investment process or the investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors. All data and information referenced herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary. It does not constitute investment advice. The team in Hightower shall not in any way be liable for claims and make no express or implied representation or warranties as the accuracy or completeness of the data and other information or for statements or errors contained in or omissions from the obtained data and information reference herein. The data

and information are provided as of the date reference. Such data and information are subject to change without notice. This document was created for informational purposes only. The opinions expressed are solely those of the team and do not represent those of Hightower Advisors LLC or any of its affiliates.