The Dividend Cafe - A Week to Remember

Episode Date: January 24, 2025

Today's Post - https://bahnsen.co/3PKDFpp The top-performing sector throughout the entire Biden Presidency? ENERGY The weight of the entire energy sector right now in the entire S&P 500? 3.2% The weight of Apple in the S&P 500? 7.6% The weight of Microsoft in the S&P 500? 6.3% So every energy company put together in the S&P 500 is worth well less than half of Apple and basically right at half of Microsoft. And this comes AFTER Energy was up +284% over the last four years, compared to the second place +120% performance in Technology. Source: *Factset January 22, 2025 President Trump announced via a splashy news conference Tuesday night that OpenAI, Oracle, and Softbank are creating a joint venture called Stargate: Source: https://www.wsj.com/tech/ai/tech-leaders-pledge-up-to-500-billion-in-ai-investment-in-u-s-da506cd4?mod=latest_headlines Navigating Market Impacts Under the New Administration In this week's Dividend Cafe, host David Bahnsen discusses the fast-paced events of the week, recorded amidst his team's offsite retreat. The focus shifts to the first days of President Trump's 2.0 administration, unpacking the economic implications of several executive orders. Bahnsen examines key policy changes around energy, DEI programs in federal agencies, and the temporary halt of the TikTok ban. He emphasizes the market implications of these orders while noting the more organized approach of the administration compared to 2017. 00:00 Introduction and Weekly Overview 00:36 Inauguration and Executive Orders 06:32 Market-Sensitive Policies 09:10 Energy and Trade Policies 15:10 Key Takeaways and Market Tidbits 22:04 Conclusion and Final Thoughts Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividend Cafe, weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Hello and welcome to another Dividend Cafe. I am your host, David Bonson, and I am excited to present a week's worth of excitement into a weekly Dividend Cafe. It has been a very fast moving week, and we're doing something a little bit different this week in that, though you're receiving this as you always do on Friday, we're recording in the middle of the week because we have our team retreat and offsite meetings that

I talked about last week on Thursday and Friday this week. I normally am writing Dividend Cafe and certainly recording it near the end of the week. But this week, I not only am recording in the middle of the week because of the team festivities and activities and meetings, however, I'm also wanting to use the Dividend Cafe today to talk about the events of the inauguration and first couple of days after the inauguration in terms of public policy around the new administration coming in.

We had an avalanche of executive orders signed. We've had a number of announcements. There's been press conferences. There's been tweets. There's been dogs and cats falling out of the sky, and there are some things that I don't think are particularly market sensitive, and there are some things that are. And so I just want to hit the right highlights in terms of what needs to be brought to your

attention and really put our focus and emphasis in this talk on those things that are most market sensitive and economically relevant. I'm going to do the same caveat I did a couple of times last year when we were doing election, pre-election, dividend cafe issues, when we were doing the aftermath of the election. There's some of these issues that I'm about to talk about I have opinions on, and some of them I actually don't have opinions or at least have strong opinions on. And then there is the way in which you present things that is very much in this case intended to present what may be relevant to markets, how something that does or doesn't happen with tariffs or does or doesn't happen with China impacts us as investors.

That's the context here. And what I have found is that it's a close to 50-50 ratio of those that misunderstand or misinterpret or just simply dislike what I'm doing in terms of either believing it to be me endorsing something that they don't think I should be endorsing or me condemning something they don't think I should be condemning, when in reality there's some things I'm going to share my opinion on from time to time. It is, after all, my dividend cafe. But I really am not actually doing that in this case. And so that's just the caveat I want to give that if it's 50-50, you have to understand it can't really be me here.

I can't be saying the same thing and have half the people upset that I'm saying X and half the people upset I'm saying Y. I can't be saying both at once. Very honestly, I'm well aware of the kind of high emotions and rhetoric that exists around this particular president. We no longer have to call him the president-elect. The Trump 2.0 administration as Trump 47 is now here. A lot of people have strong opinions from Trump 45, and there's certain things that can be said positive, certain things that can be said negative, but that's just not really what we're doing here. What you had was a crazy week in terms of volume, okay?

Just dealing with the volume of activities and markets trying to absorb some of that. Markets were closed Monday because of MLK Day, which happened to be the inauguration. So what I want to do is go through some of the main executive orders, and then if I can go through this efficiently, then it will leave us time for me to make a few other market comments that I have in the dividend cafe this week. I'm going to just start with kind of what I thought were the three biggest non-market sensitive executive orders. They got a lot of press, got a lot of attention, were consequential in the magnitude of what

they're addressing, but I think not consequential in terms of what the obvious and discernible, measurable impact economically may be. The declaration of an end to birthright citizenship, people can like it, they can dislike it. It's somewhat moot because it's clearly headed to courts. There's already been, I believe, over 20 lawsuits filed, and it will be an issue that is either changed at the courts. Right now there's a 14th Amendment that says if one is born in the United States, they're a citizen of the United States, they're a citizen of the United

States. And yet the issue is if they were born with a parent who was here illegally, what would happen there? And short of Congress acting on that, we're going to see where that goes. It's going to get a lot of attention. It's going to have a lot of aftermath, but I don't think the market's going to respond. And ultimately, it's probably very unlikely to go anywhere. The second being the end to DEI programs in federal government agencies.

And this is one where I'm actually not sure it belongs in this list because it could end up having some indirect market impact. It could end up being relevant if it is used in a way that expands the permission structure in corporate America to also further move the pendulum in a more meritocratic way. I think that's happening anyways, but to the extent that they've now put on paid leave all federal employees across a lot of different agencies, bureaus that are part of these so-called DEI type programs, what happens around that governmentally and politically

is not super relevant economically, but there is a potential, I would acknowledge, of it having some economic significance if it is, again, kind of infectious inside of publicly traded companies and just the overall private sector of the corporate economy. The third being this, and again, a lot of these executive orders I have links to the actual orders themselves in dividend cafe in order to end the weaponization of the federal government. And this is, again, it was sweeping, it was big, it had a lot of big statements in it, but it isn't market sensitive per se, and it's more political, it's more rhetorical,

you know, a declarative statement, but doesn't necessarily have a lot of teeth to it in specifics, let alone things that affect economic policy. So the areas that I think do have more impact, none of these should have been a big surprise. I think people were somewhat surprised at the way in which a lot of it was announced or how organized some of it was or prepared, but most of this I think should have been, and in a lot of cases was very clearly known, was coming.

The declaration of a national energy emergency in and of itself is more rhetorical and whatnot, but the way in which that executive order is written to tie specific issues in our national energy condition to those things that are prohibiting at a federal agency level, things that are prohibiting the expansion of our own production or distribution of oil and gas. So there were some specifics done. There's a big major order that was also done around expanding Alaska's allowance for energy The Biden era ban or moratorium on LNG export permits was rescinded, and they are now able to look and receive proposals to go build new liquefied natural gas ports and so forth. Identifying areas where federal restrictions and regulations are impeding ability to produce

and distribute energy to the public is a major issue. proposals to go build new liquefied natural gas ports and so forth, identifying areas where federal restrictions and regulations are impeding ability to produce and distribute US energy sources. The Paris Climate Treaty is an example. We entered that by executive order. President Trump, 45, pulled us out by executive order. President Biden, 46, put us back in by executive order, and President Trump, 47, pulled us out again by executive order.

So that stuff is hard to take real seriously when it's more cosmetic executive order by executive order going in and out of something. But I think that when you look at the mandate that this has for a pretty substantive need to report back to the Department of Interior, to the Department of Energy specific findings around where there are impediments in the production and distribution of oil and gas. It is more meant to try to set a deregulatory climate around some of these energy related issues. I think it's meaningful in that it is setting a tone for a presidential policy priority.

It's well known. It should have been well known to voters. It was certainly well known to us that this was going to be a priority, and that was one of the more meaningful things of the week. Now secondly, I would say that there were no tariffs mentioned at all regarding Mexico, but a national emergency at the border with Mexico was declared. The remain in Mexico policy for asylum seekers was reinstated. But again, there were not specifics about deportation plans.

And I think people can say, okay, well David, you're getting into kind of cultural policy or domestic policy. It's a little unrelated to the economic side. The reason why I don't agree with that is that I get a lot of questions from people saying, what are we going to do if he does deport 2 million workers? Isn't that going to be inflationary? So if people are concerned about deportation as an economic issue, then we have to be able to look at the potential mitigation of some of that as an economic issue.

My view from what we saw this week and some of the actions taken both rhetorically and in these policies with Mexico is that it was really a reinforcement of their focus on targeted deportation. And I believe that the fact that there were no sweeping orders around that indicates we're more than likely going to see a targeted deportation that's very likely, in my opinion, to be politically popular and not something that is going to be needle moving in terms of any labor market conditions. He issued an executive order to delay the ban on TikTok, which had been congressionally passed and legislatively last year, a delay of 75 days.

And you go, again, why do we care that much about the TikTok thing economically? And I don't in and of itself from a matter of economic and market impact, but what I believe it indicates or incrementally points to is something that is market sensitive, which is I think the desire to formulate a deal with China that is part of a larger deal and the Tick-Dock negotiations playing into that. Now very likely what's going to happen here is that the executive order will get overturned in the courts, which I would say just I'm not a lawyer, but I think probably for pretty good reason.

But in the meantime, it's bought time until that happens to try to put a deal together, which I think is his intent. Fourthly, the Biden-era electric vehicle mandates 2030 requirements were fully repealed, and that also has implications in auto industry and supply chain, certainly in the EV space directly, and it ties into point number one about some of the environmental and energy agenda. So some big differences, three things I want to point out, very, very different from 2017. In 2017, when he came in with a couple of these priorities, Steve Bannon was the White House policy advisor, Reince Priebus was chief of staff, and there were a few other people

around, but it was a skeleton of a team relative to what he's coming in with now. The biggest difference is that there's a lot more organization. And so if you like some of what's being done, that is probably a good thing. If you don't like it, it's probably a bad thing. But it isn't as rough shot and it isn't as lacking strategy. It isn't as sloppy. And a lot of that's just simply because when you're doing something for the second time, you've learned a lot relative to when you do it for the first time.

I keep hearing the term from my friend Mark Halperin that this is one of the first times you've had a presidency, or it's a mulligan. You want to redo some of the things that you don't feel like you got done the first time. I think that analogy is a good one, but it's really more than just let's go replay that hole of golf or replay that shot. It's an entirely new caddy, an entirely new set of golf clubs and whatnot. It's really being done differently, and so I expect certain elements to carry out with more efficiency and to use chaos in the public sphere, but a little bit more order privately,

and that's very different than 2017. Number two is definitely an almost complete indifference about the reaction or perception. The notion that there will be a big shock and awe to the way certain things were done or what was being done, and that press reports expressing this complete shock and awe about something would mute it, neutralize it, and otherwise moderate it is very unlikely. I do not think POTUS is remotely concerned about the perception this time around. Certainly not perception from mainstream media. So reports from people being aghast at certain things is not going to make the difference.

Some could say it didn't make a difference before. I happen to think it did on the margin, but I don't think it is now. And the number three is it does feel like a lot. And this is maybe contradictory to the organization in number one, but I think there's actually a method to the madness. Signing 40 plus executive orders in 24 hours, 25 on Monday and another 20 cents, you're drinking the fire hose just to read what was done and then to discern what has real teeth to it versus what is just a sort of cosmetic announcement.

A narrowing of priorities behind the scenes is likely happening more than the very broad throwing a million things at the window that you see publicly. If what they were doing behind the scenes was 40 things going on at once, it's unlikely the way government works, you can get those things done very effectively. But if you've chosen a few that are your main priorities, and in the meantime you throw a bunch of other stuff at the public, that's a different story. That is where I think from my vantage point, my view, my conversations with people, that's what I think is going on.

So then that really forces us to say, what are these big priorities? And I want to say the kind of key takeaways here in terms of bottom line on that. No executive orders were signed trying to use any rationale for unilateral setting of tariffs, universal tariffs against China, against anyone. Some tariffs may be coming. There are going to be plans and there are going to be talks and there are going to be threats. Out of the gate, all the things that were done, 45 executive orders, the one thing the

markets would have been most concerned about didn't happen at all in some form of lateral tariff setting. I think Q1 will be largely spent without that happening and mostly deal talk and things being set up to get to a deal. And Q2 is where more actions could come, whether for good or for bad. Things could get worse, they escalate, they could get better, but I think Q2 is more likely to see some activity there, less so in Q1. The overall conversations with China, we're hearing reports of phone calls that they're saying we're on our way to balancing

trade. We're addressing fentanyl. We're addressing TikTok. That we both Xi and Trump agree they want to make the world more peaceful. I think that my 2025 theme written about in our early year white paper is onto something. Even though I suspect there could be periods of apparent increase in escalation of conflict tension, I think for the most part they're working on something that will feel more like a grand bargain than an escalation. Point number two is rather easy, but I can't emphasize enough how important it is. Energy is very clearly to me the top priority out of the administration this week. I think that's expected.

I don't mind saying on this front, from my vantage point, it's candidly welcome. It is not something he's remotely worried about who it would alienate, and he's quite confident that the people it will not alienate, and he's quite confident that the people it will not alienate represent well over 50% of voters. And then to the extent it could create some disinflation in their control of energy prices now, but I would argue the longer term structural benefits it could bring that have geopolitical national security implications are more important. Number three, the universal tariffs on all countries, there's a quote, was talked about

in the campaign. I didn't take it seriously. Markets didn't ever take it seriously. But on Monday, forget the fact there were no executive orders implementing any of these tariffs. The president was specifically asked, are you looking at doing universal tariffs? You had talked about just a unilateral tariff against everyone just to kick things off. And he said, yeah, I may still do that, but we're not ready for that.

Look, there is a risk of a full blown global protectionism risk that comes on at some point. That risk is not zero, but that risk has come down significantly. It's lower now than it was a few weeks ago. It was lower a few weeks ago than it was after the election. It was lower after the election than it was a few months before the election, and it was lower throughout this whole campaign than it was back in 2018. Now it's still there. I want to be clear.

The risk of some protectionist global byproduct of a lot of this is not zero, but it is far less than some have feared, and that needs to be understood and that's reinforced in a lot of the activities of this week. All right, that's the major takeaways, okay, from all of this avalanche of stuff. If you're sick of talking about all the political things, I understand it was a big week in our national political scenes. I had to cover some of it. There's a few other market tidbits that I think are worth noting. President Biden has left office and right now the energy sector is 3.2% of the market as he's left. Apple was 7.6%. Microsoft was 6.3%. The entire energy sector is basically half of Microsoft and well less than half of Apple.

It's a pretty fascinating statistic, but energy was up 284% in the Biden administration. Technology was second best. It was up 120%. I dare you to find people that are aware of that statistic before they just heard it at the Dividend Cafe, but it speaks to the kind of contrarian messages and also the math of what happens when you have a sector get walloped in one year like 2022. Massive returns in 23 and 24 were real in technology. Muted returns in energy in 2024 was real, but the math of

spending a whole year dropping and then the other years having to recover changes things. Nevertheless, that's the hard facts of what took place over the last few years. Energy, the rig count, this is a real amazing statement on the productivity of American energy, that our rig count is less than half of where it was 10 years ago and we're producing more than double. So when you're producing more than double from less than half of the rigs, you have just simply increased the efficiency of what you're doing with wells and then the rig counts ability to efficiently produce is reality of the American energy story, the story that

continues to give. The other thing I'm going to close with deals with this announcement about the $500 billion so-called Stargate investment. These things are always tricky. There's a big splash, big press conference. President Trump loves those things and you got some big heavy hitters from Oracle and OpenAI and then you had some international investors, a soft bank represented. United Arab Emirates is going to be one of the big investors in the equity of this.

They're talking about committing $100 billion, but they want to get up to $500 billion. And then other than that, there's more or less no specifics announced at all. But it's a ton of foreign equity coming in to build data centers. And you look at companies like Blackstone and Brookfield and other US base, that this has been a big priority for a while and still is. The data center story is something we've written about for a year. It's not new, no surprise. They need to build more data centers as a part of artificial intelligence infrastructure. And so let's put a headline around it of a few hundred billion and whatnot coming in. There could be some good investments to come out of it.

There could not be. It's going to have a lot of foreign investment in it. There's a story here, but I don't think anyone can really say what the story is yet. But for this week, it was one of many, many stories that has a lot of glitz and glamour around it. That's what I'd leave you with. I'm going to point you to DivinityCafe.com for a couple other charts and things that we cover there that we're not going to cover here now.

To the extent anything significant has happened by the time you're listening to this, since I was recording on Wednesday afternoon, I apologize, but I've explained why there's that gap. And so if a world changing executive order comes Thursday and it wasn't mentioned today, now you know why. Thank you, as always, for listening, reading, and watching The Dividing Cafe. Please reach out with any questions you have anytime. Questions at thebonsongroup.com. Have a wonderful weekend.

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