The Dividend Cafe - Believing in the Lessons of History

Episode Date: June 8, 2017

The Bahnsen 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 reference 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 and HighTower shall not in any way be liable for claims, and make no expressed or implied representations or warranties as to 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 referenced herein. The data and information are provided as of the date referenced. 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.

Welcome to the DividendCafe.com property to see some of the charts and some of the from those lessons what we think are some real practical guidance for the present. There's so many things of interest to investors moving so incredibly fast right now. It's very important for us to touch upon all those things that we believe have real-life practical significance. And the topics this week are to our minds of great interest and relevance. So let's get into it. The most common trend in history, not believing in the lessons of history. Much has been made of the fact that while the S&P 500 is beating the Dow year-to-date, with both posting nice, high single-digit returns in less than half a year so far, there are 10 names out of 500, literally just 10, accounting for over 75% of the index's return.

And yes, those names are, in a lot of cases, big behemoth technology names. And yes, they are popular companies from a consumer retail brand type standpoint. I read a remarkable report this week by Louis Vincent Gavkal, research I read quite frequently, analyzed the current predicament in terms of history. He walked through the last four decades and how investors would have fared entering a new decade by not owning the hot dot at the time, the area of the market for a global equity investor that at the time would have been incomprehensible to not own. From commodities and energy entering the 1980s to the hype of Japan entering the 1990s, to the very famous boom in technology and telecom and internet entering the 2000s, China entering the 2010s. These are all

investment sectors and asset classes that were on top of the world, unshakable, unbreakable, unfadable, that all became extremely advantageous to not own in the years that followed. Am I saying that the Facebooks and Googles and Amazons of the world will prove to be the same in the years or decade ahead? I'm not. Well, not exactly. I am saying that on a risk-reward basis, investors are wise to be prudent, defensive, and stay disciplined and diversified within a prudent asset allocation strategy. A heavy concentration in any hot dot is not wise, let alone the one that has defied all valuation expectations. In defense of technology, a worse interpretation of what I just said could not be formulated than to conclude that we're opposed to investing in

the technology sector. We find the changes in the economy that have taken place and are taking place to be profound, attractive, and investable. Many technology companies have shed the old model of vertical integration where design, manufacturing, and sales all took place in-house and have instead focused on becoming platform companies where they have vast applications for how their platform can be monetized. The divisibility of the technology supply chain is quite interesting to us, and yet many retail investors are only jumping to the big names and brand names in the sector, when in fact the entire success of the brand names involves the various companies involved in this division of labor. The infrastructure of technology is a

cash flow generative sector. We call it old tech, and this is all part of a bullish view on new tech. Our thesis is not that all investors must avoid all new tech names. Rather, it's that believing the new tech names to be risk-free is a recipe for disaster, and ignoring the less popular names that make the new tech names possible could be a very high opportunity cost. Market impacting politics, above and beyond the kind of highly covered testimony of FBI Director or former FBI Director James Comey today before a Senate hearing and so forth, as the market moved nowhere but up in response to the testimony. We'll let that fact kind of speak for itself as to the real relevance of that whole escapade

and what markets are doing around it. and what markets are doing around it. But beyond those things, the Senate GOP's ability to pass an Obamacare repeal replace bill, whether in reconciliation with the House bill that's already passed or is a somewhat new bill, has been a subject of much discussion. And at one point early this week, the sentiment was that there was a real uphill battle ahead to see them move through. But by midweek, the sentiment had that there was a real uphill battle ahead to see them move through. But by midweek, the sentiment had dramatically changed and much momentum appears to have picked up to

get this done on the Senate level. On the tax reform front, the whole process gets much easier once the Obamacare matter is handled because the repeal for Obamacare takes $1 trillion of spending out of the budget. Market actors continue to believe that despite uncertainty around specific details, some form of tax relief is coming, particularly on the corporate side. The House passed on Thursday a phenomenal bill from Representative Hensarling, rolling back Dodd-Frank and seeking to improve and optimize financial regulation. The bill has an uncertain future moving in the Senate, though, and our reading of the tea leaves is it could go either way. A couple nominees to the Energy and

Natural Resources Committee are finally set to be approved. When they do, it'll open up the door for significant energy infrastructure project approvals that have been on delay because they haven't had a full enough committee to vote. Finally, President Trump released his infrastructure plans this week, and we're going to comment more on that next week. There's a lot to unpack there. Markets are continuing to impact politics. We remain adamant that it has not been the biggest factor in global markets this year, but certainly news headlines and political ramifications from policy has a tremendous relevance to what we're doing. The jobs report came out last week for the month of May. Only 138,000 jobs created, which was quite below the 182,000 expectation, and there were revisions for both March's and April's numbers down.

So it was a soft report, but I don't believe soft enough to cause the Fed to pause at the June meeting. I think another quarter point interest rate hike is surely very likely. The U6 underemployment report did come down, by the way. Average hour earnings ticked up a little bit, but other than that, not a lot to say. President Trump's decision to pull the United States from the non-ratified Paris Treaty, technically an accord as a treaty, by definition would have required Senate ratification. Rather than chime in on the areas where the controversy lies, we'd rather point out the obvious market implications that come from this whole chain of events. Promised reductions in greenhouse emissions have been achieved, and then some. Not because of this accord, because of horizontal drilling and hydraulic fracturing, the process commonly referred to as fracking. And it created an abundance of natural gas supply, which has replaced coal, in short order, as the nation's primary electricity fuel.

primary electricity fuel. Whatever edicts were involved in the Paris Accord, they pale in comparison to the present and future capacity for natural gas to serve as a greater clean fuel source for our nation's power needs. Investment in a natural gas infrastructure is aligned with that view. The other piece I would add about the Paris Accord issue is that the significantly improved movement, both environmentally and economically, out of lifting restrictions on liquefied natural gas producers in the United States from dealing with Chinese buyers. I mean, this is a needle mover, and the investment opportunity is fantastic, but it really has tremendous impact for a strong Chinese investment into natural gas to both reduce carbon emissions and U.S. economic growth improvement. If you go to Dividend Cafe, we want to point you to a couple things about the yield curve

and what that means regarding the bond market. Not so fast inflationistas, expectations for inflation have collapsed. That's why interest rates have dropped so much. The implied inflation expectations in the year are all the way back to where they were well before the election. And what has gold done with declining expectations on inflation? It's rallied to new 2017 highs. Remember, people view gold as this great protection against high inflation. Inflation collapses and gold moves higher. It's all over the map. Those who believe the movement of gold can be forecasted, understood, or invested in based on some rational or predictable or fundamental metric. I would just say, I think you're wrong.

Speculators rule the precious metals world. I'm going to have to leave it there for now. We kind of covered too much ground. We have more about China, some great historical charts on the Dow. Let me just simply review that the history of markets and particularly various patterns in markets can often help us understand a context, never predict with certainty an outcome. But we want to be a student of history because we want to better understand the present and the future. I also will say that we can't ever grow tired of telling our clients what they most need

to hear about in terms of their ultimate success as investors. That capital markets are fickle, unpredictable, and most of all, untimable. And yet capital markets provide investors access to investment realities which can be monetized over long periods of time to extraordinary results for those whose temperament and behaviors do not serve to distort these results. Pulling into the present the great earnings and growth opportunities of the future is the miracle of investment markets. And it can be done with liquidity, I might add. So we must understand these markets. And you see in this week's Dividend Cafe alone how many topics that may entail. But more than anything else, we must seek to tell you this truth,

that the zigs and zags of the market this week and next week will have no impact on an investor's long-term success. And yet the decisions an investor makes or doesn't make in the face of troubling zigs and zags can make all the difference in the world. So to that end, we work. 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 referenced herein. The data and information are provided as of the date referenced. 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.