The Dividend Cafe - Comey Fired and Macron Hired

Starting point is 00:00:00 Welcome to the Dividend Cafe, financial food for thought. Hello, welcome to this week's Dividend Cafe podcast. This is David Bonson, Chief Investment Officer at the Bonson Group. And even the firing of the FBI Director by the President of the United States didn't seem to warrant much higher market volatility this week. We had a little check back unrelated to that near the end of the week, but pretty much flat. We remain in a period of very low market drama. And with each passing day of still market waters, we feel more reinforced in our posture

Starting point is 00:00:41 of defensiveness and prudence. I'm going to cover the gamut of market affairs in the Dividend Cafe this week, from the robust jobs report last week to the market, to the active-passive perpetual discussion. So let's get into it. This time it's different. The utter shocking surprise of President Trump terminating FBI Director Comey did nothing to stir markets midweek.

Starting point is 00:01:10 The rationale for expecting it is simple enough. President Trump has an aggressive economic agenda. Markets are relying on success in that agenda. President Trump's political capital matters in creating that success, and a controversial and scrutinized move like this perhaps undermines that political capital, and therefore calls into question the viability of his economic agenda. Simple enough in theory, but if the last 12 to 18 months have taught market observers anything, it should be that the market reaction to political wins is completely unpredictable and generally the opposite of what people expect. Seemingly devoid of any human logic or expectation, political pundits and commentators will have their own take on the firing of Director Comey,

Starting point is 00:01:58 but from a capital market standpoint, we are not surprised that the market was, well, unmoved. Jobs, jobs, jobs. The April jobs report contained some surprises in the weeds, even if not in the major headline numbers. 211,000 jobs were created, higher than the 185,000 expected. The bigger aspects to us were the U6 under-employment rate, which came down from 8.9% to 8.6%, the lowest level since 2007. And then also the fact wages grew 2.5% year over year. The fact only 17,000 of the jobs created were in the government sector. And even the fact that retail saw 6,300 jobs created. The subtle details of the substantive items we believe matter in the real economy. Certainly nothing happened in the report that would change our projection the Fed is nearly certain to hike another 25 basis points at the

Starting point is 00:02:58 June meeting. Well, the French have voted. There will be two mistakes made in the aftermath of the French election and Macron's utter pounding of the nationalist Le Pen. One will be to interpret the results as belief that all populist revolt and nationalistic or Euroskeptic impulses in Europe are dead or dying. They are not. The country of France remains deeply divided, largely along rural versus city lines, if that sounds familiar. And angst remains high about the challenges surrounding immigration and globalization. The candidates here mattered a great deal, and the coalitions were not easy to define or binary. But there's another mistake pundits may make, and that is to overplay the idea that Macron's win means the death of a Euroskeptic populist movement in Europe. I read one research report this week from a firm I respect, the Great Deal Act, but they were speculating as to whether or not this Macron win means Brexit will reverse and the German-Franco alliance will see power go to a new level. This interpretation represents a massive overreach.

Starting point is 00:04:03 Legislatively, Macron will not have a huge mandate. Reform will not come easy. Structural changes persist. Excuse me, structural challenges persist throughout France and Europe. That's a healthy understatement. Active versus passive debate. We know for 10 years there's been a steady increase of passive strategies, index funds, exchange-traded funds, and outflows from active strategies, mostly within the camp of mutual funds

Starting point is 00:04:32 that fail to perform. Or we would add, much more importantly, that do not act like active strategies, but rather closet index funds charging fees as if they were real active funds. We have a chart at DividendCafe.com this week showing the degree of outflows from active mutual funds and inflows into passive. The reality is that a healthy blend of active and passive strategies are generally best for investors with special attention and customization around the asset class in question, we're highly focused on the very limited pool of companies that are perpetual growers of dividends, and that requires active attention. We think emerging markets in particular simply beg for active management for a variety of reasons. Other asset classes can be represented adequately with a passive approach, but the

Starting point is 00:05:23 historical reality is that active versus passive outperformance is highly cyclical. We have a chart to this effect showing the different up and down zigs and zags that exist between active and passive performance going back many, many years. Purchasing power teeters, dividends and earnings totter. The speed at which inflation moves makes it a significant threat for those who plan to be around a decade or two or three or four. Purchasing power is halved over 20 to 25 years. Halved even if we have just fairly benign inflation.

Starting point is 00:06:04 I say speed is a significant threat because of the slow speed reality of it, the fact that it doesn't get noticed. Out of this horrific reality and invisible confiscation of wealth comes a key tenet of long-term investing, using dollars that are falling in value to buy companies whose earnings and dividends are rising in value. Do we believe this will represent a return actually in excess of inflation? You bet. But how many investors, in their pursuit of avoiding volatility, which poses a long-term threat to their financial

Starting point is 00:06:39 well-being, will fail to even defend against inflation, let alone grow beyond it. I'm going to leave it there for this week. We really encourage you to look at DividendCafe.com and see some of the different charts and other market aspects we cover. Lots of things happening in the market. We look forward to coming to you next week from the SALT Conference in Las Vegas. Thank you again for listening to the Dividend Cafe podcast. 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

Starting point is 00:07:50 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.

Starting point is 00:08:21 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.

The Dividend Cafe - Comey Fired and Macron Hired

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