The Dividend Cafe - December Memories

Episode Date: December 4, 2020

Early December is a tough time of year for my writing inspiration. I have soooooo much I want to say about 2020, but we really aren’t done yet, and this year as much as any other, affirms the reality that a lot can happen in a few days, let alone a few weeks. I also have a lot I want to say about 2021, but my “forecast” and “positioning” perspectives for the year ahead are also better served later in the month or early next month. Patience is a virtue, and as much as I am excited to delve into a yearly review and yearly projection, we are a few weeks off still. But it isn’t like there is nothing else to write about. Markets ended November and kicked off December this week with a move higher (as of press time, which is pre-market Friday, the Dow is up +330 points on the week, and futures are pointing to a +125 move higher. Congressional leaders in both chambers and from both parties are in heavy discussions about a new stimulus/relief bill. The incoming administration is announcing more and more of their incoming policy team. World energy markets are re-calibrating around clearer (and more improved) supply/demand dynamics. And, of course, the reality of a highly contagious respiratory virus continues to work its way through society, with various policy and economic ramifications coming in its wake. Every year the first couple of weeks of December have a few things in common – we are too far away from recapping the year we are in, we are too far away to start making the year ahead predictions, tax-loss harvesting needs to be executed, various holiday and seasonal events and tasks take center stage, and yes, regular market and news “stuff” takes place. This week’s Dividend Cafe will jump around a bit but offer a bit of history, a bit of present market tension, and of course, a bit of looking into the future. 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. Well, hello and welcome to this week's Dividend Cafe, a podcast and those of you watching on the video. I am sitting here recording. I'm getting ready to jump on a plane. I'm right here at LAX. And you can't see out my window, but I literally will be just leaving here in moments to jump on the plane and fly to New York, where I'll be working out of our New York office for the next couple of weeks. So I kind of wanted to do something a little bit different this morning. I kind of wanted to do something a little bit different this morning. I wrote this week's Dividend Cafe from here this morning, getting ready to get on the plane, about the month of December.

And it is a little bit nostalgic. Not really. There's some investment takeaways that I really want you to kind of consider what I'm going to talk about here. But, you know, it's an odd time of year. The early part of December is tricky because it's not just perhaps what you're looking ahead to, but, I mean, I'm more projecting. I'm wanting to write and talk about recapping the year that just was. And I'm wanting to write about and talk about the year ahead and various forward-looking predictions and forecasts and strategic decisions we're making on behalf of client portfolios.

And yet we're kind of too early into December here to get ahead. And so you have the next few weeks still, where you could taste the end of the year, you're clearly well into the holiday season. And yet we're not really there yet. And and we want to be able to get further along with the ending of 2020. In particular, before we we tie a bow around 2020. And yet we also want to have as much time to fully consider and work through our forecast into 2021 before we start articulating that. And so it isn't like we're in this sort of purgatory time of year because there's plenty happening in the world, in the economy and markets. There's always a risk in me saying this before market day. I'm recording at about 545 in

the morning on a Friday. And as I'm sitting here talking, the market futures are up 100 points and the market's up a little over 300 or so on the week. So it looks like December's off to a pretty good start. And that's on the on the follow up to November being, you know, obviously very big month for equity markets, but who knows what could happen. But, you know, I was thinking about that this morning. This is not really all that different. 2020 is a very unique year for all the obvious reasons. And my anticipation and my enthusiasm for talking about 2021 is probably heightened this year, partially because I think there is a sense where everyone wants to be able to move forward.

We want to look forward. We want to think about a post-COVID economy. We want to think about kind of getting just past this year that has been so difficult in so many different ways. But the reality is that every year, I think there is the same dynamic in early December. By early, I mean the first two to three weeks that you're not really at the end of the year yet. And yet there's things that are happening that need to be digested, understood, dealt with like any normal week. And in my kind of trip down memory lane in Dividend Cafe this week, I was thinking about all of the Decembers of my career where it does seem like a lot of the old traditions are sort of gone. And some of them are by our kind of lifestyle choice.

Like Jolene and I had years early on in my career where we were married, but didn't necessarily have kids yet from what I know. I mean, this is definitely before kids, but where we had some holiday event we were at like every single night. And, and those were just exhausting times i'm way too old and grumpy and and introverted to ever even think about that kind of thing again you know all the covid realities notwithstanding put that aside but even apart from that we we normally would do like one or two events now where we used to have, you know, 20 or so, right?

I think back to my years at Morgan Stanley and there was the restaurant downstairs from our building that I was a pretty frequent participant of for my lunch meetings. And in the month of December, I would do a big meeting there like every single day. I would do a big meeting there like every single day and, and with clients or with team members and, and, and other colleagues or money managers or whatever. And, and it was just this, this really excessive Calerick festivity. And it was a lot of fun. But, but I, it doesn't feel like that was ancient history. It was really a marker of the time of

year. And it was very holiday-ish. And it was delicious. But it was also special to December. And now it just feels like a regular work time. It used to be, I think, that clients were were a lot busier in December and focused on their holiday events, and there were less meetings that were normal portfolio and planning meetings and so forth. And now it just seems like the days are filled with the regular things. And so that's partially just kind of stage of life, stage of the business. But December is very normal as a market month in this sense. There's nothing unique about December as it pertains to markets. Forgive me for getting distracted, but as I'm sitting here recording, I'm looking up at this TV in the suite I'm sitting in

and I'm flying to New York, and I'm seeing what looks like some snow-covered fun waiting for me out in New York. So maybe that white Christmas fun of December will be there, my destination. But here's the thing I'm getting at. We talk in our business a lot, and I don't, but it is very commonly said that there is these trends that exist around various calendar themes. I don't believe in it in any month of the year, and I think it's dangerous. It's first of all silly. At best, one could maybe come up with certain correlations.

I don't actually believe that could even happen. But they most certainly couldn't come up with causation, which makes it meaningless. But even in December, you can't get either. Because I go back through the various Decembers of my career. Last year, markets were rallying hard in December. And that was a bit of a surprise because they had already rallied hard in October, November of 2019. The year before, it was a bloodbath in December. And in fact, on actual Christmas Eve day was one of the worst market days of the year. And it really impacted kind of my holiday week

at dealing with nervous clients and the realities of a big sell-off. That was on the already from October, November that it sold off quite substantially. And the S&P actually went down almost 20% for that quarter. It got down on Christmas Eve to a 19.8 percent drawdown. And so we've had a really big December here and there. We've had really awful Decembers here and there. And we've had a bunch of blah Decembers. But over the years, the fiscal cliff, which I

point out in Dividend Cafe, it was actually, although the ancient history of eight years ago, it was Joe Biden, who was then vice president, and Mitch McConnell, who was then Senate minority leader, now majority leader. The two of them working out the fiscal cliff tax compromise and markets went skyrocketed higher going into 2013 around the extension or permanence of the Bush tax cuts that had been set to expire. You go back, of course, to obvious stuff like the financial crisis. December was an awful month, but everything was just awful. September, October, November. January and February stayed awful. That was in the midst of that six-month period where the U.S. economy was utterly collapsing and financial markets was utterly collapsing and financial

markets were utterly collapsing. So this isn't a super profound point, but it's one that deserves remembrance. A lot of things have seemed, in my December experience, seemed to have changed in my lunch schedule and my evening festivities. And the intensity of the workload has really gotten much higher in December's than I remember it being, say, 15 or 20 years ago. But other things have not changed. And that is that it still feels like the holidays. There's still the lights and the candy coming into the office and the Christmas trees set up. And there's this sort of holiday festive cheer in the air. I love it. I absolutely love it. And that's sort of a constant. And so with markets, you get kind of a similar

thing. There's stuff that's just different year by year. And there's stuff that is constant and very similar. And in this case, the constant is the markets don't care what month it is, they care what it is that's actually happening from a catalytic standpoint, around earnings, around the news cycle, around monetary policy, around the economy. And when you look at those things, that's where people are reaching out saying, okay, well, those things will then affect markets, but they don't seem to be affecting markets because those things seem negative and markets seem to be doing well. And that's where I'll kind of end things. Those things are not negative. The reality is that markets are well aware that some form of a stimulus relief bill is coming.

The question is whether or not it's coming in December or February, whether it's going to be $900 billion or $1.3 trillion. There's definitely marginal questions that are unanswered, but there is the sense in which some of these governmental fiscal relief things are pending. There is a not pending, but certain and current state to the monetary stimulus side. Zero interest rates not going anywhere. a higher return into risk assets adjusted for risk than they can in the rate markets and safe money and risk-free monies. And so I think that the question should not be why are markets performing as they are, but why wouldn't they? And the bad news that is current is soon to be passed.

And in the meantime, markets do not, as sad as this is, or I don't want to say crass, but seemingly insensitive as it is, because it most certainly is not, markets don't price themselves off of the employment levels in the job market either. Markets price themselves over expectations of future profits. And really the future profit outlook and really the valuations of future profits discounted into the present is very bullish right now. Now, a lot of that bullishness may be already reflected in prices. I think it is very much reflected in some prices, not as much in others.

And that's what we have to unpack going into next year. But really this December, I think markets are doing what they do in any other month and in any December of any year, which is pricing and the realities of the moment. And in this particular moment, there, you see some of the negative events, and you see certainly the headlines around them. And yet, it is really quite clear how the path could change very soon. And that's what I think markets are looking ahead to. So I hope

that there's some kind of takeaway from this that makes sense to you and that your month of December will not be filled thinking about markets and the economy and profit outlook nearly as much as mine will be. I'm going to try to do a lot of the things this December that I do any other December. A whole lot of time, my family, you know, New York, by the way, is absolutely one of the greatest Christmas season cities in the world. And there is no one on this planet that can keep me from enjoying that, regardless of what is happening with the pandemic and so forth. I work very hard to not let my joy be a byproduct of circumstances, and I intend to get the most with my family out of this holiday season, and I hope you'll do the same wherever that is possible and however that, whatever that looks like for you. I'm going to be spending next

weekend diligently and in total isolation working on my 2021 business planning. That's something that I've spent a weekend in December doing every year as long as I can remember. The solitude of where I'll be out at our house in East Hampton is going to be the same, even though the setting is going to be different from where I normally have done it out in the desert here in Southern California. But my point is that there's some traditions that I'm holding on to and other things kind of change. And I guess that's the nature of life. But as far as these market lessons, I sure love the chance to talk to you more about it. If you have any questions, please reach out. I hope this has been somewhat helpful

in your little stint this week in the Dividend Cafe. With that, I'm going to go jump on this plane and I will see you next week from New York City. Reach out anytime. Have a wonderful weekend. Thanks for listening to and watching the dividend cafe the bonson group is a group of investment professionals registered with hightower securities llc member finra and sipc 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. Advisory services are offered through Hightower Advisors LLC. This is not an offer to buy or sell securities.

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