The Dividend Cafe - Bringing the Fed to the Beach

Episode Date: June 4, 2021

For now (even from my spot out of the country), I do keep my weekly streak alive with the Dividend Cafe. Going back to the week of Lehman’s bankruptcy in September 2008 I have missed just one weekly commentary, and this weekly podcast really is one of the things I love most about my job. Today’s may be a little shorter than normal, and it is primarily Fed-oriented, but I am quite happy with some of the subject matter covered and hope you find it simple, readable, and useful. If it turns out that this week’s Dividend Cafe speaks to you more than normal, perhaps I will have to open an office in the spot I have recorded it so that the magic can be repeated. 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. Well, hello and welcome to a very unconventional Dividend Cafe. I guess it's a little more conventional for you listening on the podcast, but if you're watching the video, I am on a little vacation. My wife and I have done an annual trip in between our two birthdays, which are only 10 days apart every year for a long, long time. So we're actually out of the country right now, celebrating a little weekend deal away, but that doesn't mean the Dividend Cafe has to stop. That either reflects how committed I am

to doing Dividend Cafe or how bad of a husband I am, or maybe a little bit of both. But we are here, and Dividend Cafe is written, and it's primarily about the Fed today. And I just want to share a few things, and then I'm going to get back to what I'm here to be enjoying. Obviously, it's quite beautiful. I spoke last week about the three primary issues that I believe are macroeconomically sensitive to investors for not just days, weeks, months ahead, but I believe years and decades. And the three major categories I offered up were the inflation deflation debate that I won't stop talking about, China and its ascendancy in the global economy, and then third, the Fed and really central banks overall and where they are

headed in the years to come. And today, I just want to make a couple of comments on that third category. I do think that we are limited in our imaginations as to how imaginative the Fed can end up being in the way that intervenes into financial markets going forward. I don't believe, by the way, that their interventions have ever been anything other than well-intended. I'm a Fed critic primarily in the sense that there's a certain view of monetary policy I have that is not the monetary policy that is being implemented in modern times. But I am not a Fed critic who believes that these are bad people, or believes that they have bad motives, or believes in any kind of conspiracy stuff.

I think most of the Fed critics that come from that school of thought have ruined the ability to criticize the Fed, because most of those people are insane. And primarily, that insanity breaks down our ability to intellectually, incredibly assess Federal Reserve activity. My view is that the Fed is emboldened after 20-something years of further and further and further interventions into healing parts of financial markets, that there has not been yet a limiting principle that has come in to speak to where they are doing more harm than good. And I think there is more malinvestment and more distortion being created than there is normalcy that they're allowing to implement into financial markets. Look, when I talk about conventional policy tools, it's the interest rate.

And they have the interest rate down at zero. So you can't stimulate further borrowing when it is needed in the future when you're already at zero. So then what't stimulate further borrowing when it is needed in the future, when you're already at zero. So then what does that mean? You go from the conventional to the creative. And the creative is where you got the Fed doing health after the financial crisis, or made in lane with the Bear Stearns assets, or intervening in the AIG bailout, or post-COVID, buying junk bond ETFs, the various money market, corporate credit, municipal bond facilities they created. The Fed got hyper creative because the conventional had lost its potency. Well, we face a generation of this. And unless

you believe crises are not happening. I mean, when I was a younger man entering the business, it on happening. I mean, when I was a younger man entering the business, the Asian currency crisis seemed like the end of the world. Now it's like small ball to even retroactively assess it. The long-term capital management implosion, that Y2K thing turned out to be a joke. But then 9-11 was a big deal. Economically, the great financial crisis was the biggest of deals. And then, of course, we had the COVID affair of last year. My point is there will be another crisis. And if anyone doesn't believe that, I promise you the central bank knows it. Will we do the ex-ante preparation or will we wait and have to just solve for a crisis later?

Well, they're not going to do the preparation. Americans are not good at preparing for crisis. They like to respond to crises. And that's where I think we are in the realm of central banking, which leaves a financial advisor, a professional investment manager who is responsible for outcomes for his clients in the future. It leaves someone like me in a very difficult position because I have to plan on things that I don't know what they're going to be, when they're going to happen, how they're going to happen.

And I have to do so not believing that the central authority who is most empowered around these things is going to be preparing either. I'm just stuck with their own future creativity. So I really want you to read dividendcafe.com. There's a lot more. I expand upon it in there, but this is a subject that's going to continue to drive a lot of what we're doing at the Bonson Group for years to come. And I welcome any questions you have on this. And I am going back to my book and most importantly, to my wife. Thank you for listening to and watching the Dividend Cafe. Look forward to coming back to you next week from New York City.

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