The Dividend Cafe - Dividend Cafe Meets The Bahnsen Group Investment Committee

Episode Date: September 6, 2019

Topics discussed: Despite the shortened market week, we got another display of market uncertainty and persistent volatility this week (though lately the upside volatility has outweighed the downside volatility). We use this week's Dividend Cafe to really jump around the horn and give you a succinct but well-packed punch in the state of markets, the outlook to come, the state of interest rates, the concerns in the economy, the challenges, the bright spots, and everything else. This will prove to be an easy read, so please, jump on in to this week's Dividend Cafe ... The Market, The Trade War, The Rate War, The Yield Curve What's the Fuss About Brexit Where Do Markets Go From Here?Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividend Cafe, financial food for thought. are continuing our weekly surge of technology brought to you. I think we're videoing this, we're recording this, and all it is is the five of us sitting around talking markets, talking the economy. And with the shortened market week, we're trying to pack a lot in here. As we're recording right now, it is middle of the market day Thursday,

and markets up about 450 points. And so we dropped about 280 on Monday, excuse me, Tuesday. Market was closed Monday for Labor Day. We're up most of that earned back on Wednesday and then now up for 30-ish today. So a little rally here to start into September. Ironically, because of the rally late into the month of August, you really right now are only a couple of hundred points now down from where we were, the all-time high in the Dow. And I think from a percentage standpoint, the S&P and Dow are both within striking distance again of being where they were right at the late part of July. So I'm joined with the investment committee. We're going to walk through all these things.

I have Brian, Julian, Daya, and Robert all here. And guys, what do we make of this market, trade war, interest rates, yield curve, Brexit? What else do we want to talk about today? Manufacturing, the economy, the election. Other than that, we'll just sort of talk fantasy football, I guess. Yeah, first day of NFL. That's right. Seven or eight pretty we'll just sort of talk fantasy football, I guess. Yeah. First day of NFL. That's right. Seven or eight pretty big things in front of us. And I'm not referring to fantasy

football yet. Brian, what's your take? Market rallying? Is this just more volatility or is this actual change in direction? I think it's just some more volatility. You've got some good news today with China and U.S. trade talk kind of resume in person in Washington. I think first week of October, you had Hong Kong kind of walk back their extradition bill, which I think was positive. There was the no deal, no hard deal, I guess, Brexit kind of vote that's going to go through.

So all those things matter. And then again, you know. But wait, you think that, oh, let's stop with that one for a second. You think that, okay, obviously the idea that China and U.S. are going to meet for trade, positive markets. That's probably the big source of the rally here this morning. The Hong Kong deal I think was a big factor earlier in the week. But you think that the uncertainty around Brexit and the lower likelihood of hard Brexit, that that is a good thing for markets right now? It seems to me it's adding to uncertainty.

No, I think it does add to uncertainty. The whole back and forth with it certainly does. I'm more referring to kind of intraday. So markets are up today. It doesn't hurt when you get sort of kick the can down the road. Taking the hard deal off of the table, I think actually gives markets a little bit of a boost. Whether they get something done at all and whether it takes forever, you know, we'll have to see. But at least for the day, it would be considered positive. Julian, is a hard Brexit off the table? Betting odds in Britain brought it from 60%. Yes, hard Brexit would happen October 31 to now 21%. Boris Johnson has not had a good week. But is hard Brexit off the table?

Technically, it's not off the table yet, but I think it's most likely off the table. For that date or? For that date, for that date. Okay. Yeah. But, you know, it's, I know with my French accent, you guys don't realize I'm also British. I have the nationality. I lived there for many years and I think that, you know, it's... This is getting very confusing.

It's confusing. It's important, but it's important if you're British, very important. It's important for maybe European markets, but for US markets, for us, I think it's not that important, really. It's much less material than what the Fed is doing, than trade war, and that, you know, earnings really. And I guess if you look at what happened yesterday, that really gives you an answer. Like on this press release by the Chinese that there's going to be discussions in October, you had this massive rally. You have the vol going, you know, much lower. And we're back in this circle of, you know, tension, you know, markets going lower, and then going back to now negotiation table.

And who knows if negotiation even happen, and then if they happen, if we get a deal. But this is still like more than a month away. And before that, you're going to have the Fed meeting, and you're going to have a lot of, you know, you're going to have earnings coming as well, starting October. So there's a lot that could happen before we get into that meeting, potentially, in October. So, Daya, you have the VIX right now between 15 and 15.5 range. I feel like that's what the VIX should always be at. It should never really be lower than that. There's enough justification for cost of protection that that level seems pretty rational.

Very low VIX relative to this macro events that one way or the other still linger. But again, is there anything directional? I think Brian was hitting this well. This feels like more volatility. It happens to be a little more up of volatility than down lately. But do we see a breakout coming? And if so, what would the catalyst be? So as far as is this a directional move, to me, it feels like more risk on risk off type stuff. Like Brian said, the can's been kicked down the road with Brexit a little bit. Yeah, maybe that adds a little bit of uncertainty. I mean, the only thing that I could see that could make this directional is some sort

of clarity around U.S.-China trade talks, which is probably a consensus view. If there is some resolution there, if there's just some sort of deal, you know, just to remove some uncertainty, to give business confidence a little boost. I think it could be directional, but I would need more information. I would have to wait and see. So is today's rally, you know, again, it's going to move on. 450 points right now. Unless there's other stuff behind it, does the mere announcement of a meeting on negotiation really justify this kind of rally i i mean it's the market being overly hopeful so yeah hopeful of what that

a deal's gonna get that some sort of deal will be on the table so i i i i don't know what so you know i'm pretending i don't know the answer i really know the answer and i'll clear it all up for you yeah so so you think it's'm pretending I don't know the answer. I really know the answer. And I'll clear it all up for you guys. I can't wait to hear it. So you think it's the market being hopeful? Yeah, right. I think it's a risk on, risk off thing. And yeah, I don't take it as a sign for anything of lasting direction, you know, as far as an indication goes. Got it. So, Robert, I agree with everything Dave is saying, but I have one little thing that is giving me pause around the idea that when we're in risk off,

we're in risk off. And that is, I was pointing out to you the stuff in different cafe, the high yield bond spreads haven't, haven't really widened that much. The investment grade corporate bond spreads have tightened risk on risk off. It's true. Risk assets have gone all up together on certain updates in this volatility of

the last month and risk assets have all sold off together for the most part. But corporate spreads are not reflecting risk off. No, and we're in a healthy space there, as you noted, in the high-yield space specifically. We're right around the 400s right now, and that's not extreme. That's pretty good, and that's a real barometer. I mean, the bond markets really tell us the truth. Equity markets tend to be more reactive, but I think a lot of times a smart money can be, can be viewed in the bond markets. I do want to comment on something. Can I say something? Yeah. 400 is not only not

extreme, it's on the low side, historically about 500 average over 20, 25 years. But that's, that's also when the treasury was at three, four or 5%. So just as a nominal, like investment return, a return on capital yeah four percent spread but the 10 years at one and a half so people are loaning money to junk credits to people that are very likely to not pay them back for five and a half percent i know we're supposed to focus on the spread brian you and i have gone through this over the years with our taxable fixed income guys sure The spread trumps the absolute yield. But the absolute yield, you're buying junk paper at five and a half.

Yeah. No, it's crazy. In this world. I totally agree. I mean, looking at those spreads is a great indicator. And I think bond market kind of is more indicative of where things are globally than even stocks at times. I mean, today or maybe last night, yesterday, you had three companies in the U.S., Apple

being one of them with $200 billion sitting on cash issues, $7 billion worth of debt, 30 years at 2.9%. So companies are taking advantage of where yields are. But to your point, five and a half for a junk company versus three for Apple, I don't know. I just don't think there's enough reward for the risk that you're taking. The one thing I wanted to mention really quick, too, with – Well, that three for Apple is at a 30-year. It's a 30-year. Yeah, Apple's cost at 10 years is less than 2%.

I know, yeah. It's close to U.S. government. Apple should issue a trillion dollars a day. They could give Dr. Dre so much more money. Everybody should, yeah. Robert, I interrupted you before. Finish that thought. I was just going to say, piggybacking off of Dave's comments on the VIX,

two things that we tend to not like here here at the bonds group is you know vix trading i mean so many people got their their lunch money taken in that over the last couple years uh and then the gold space as well i mean we see the vix hovering in in the mid high teens right which isn't historically super high but what i'm seeing you know you look at economics confidence and substitutes there's been a big inflow into gold too these days so i think a little bit of the moderation in the vix has been because of that flight to gold and gold miners things like that treasuries as well and treasuries as well of course of course i want to make clear before i forget for our listeners we just briefly talked about apple and i want to make clear we're talking about it as a um hypothetical anecdote to this

issue of borrowing costs. Our comments were to use them as an example of what's happening in the corporate bond market. We were making no comment positively or negatively about Apple. There was no recommendation in there. There was no security analysis. We were purely just using as an example of the state of affairs. Okay.

Well done. Good comment. Yeah, more investment-grade debt versus high yield. So back, Julian, to this issue on risk on risk off where does the yield curve fit into this i mean i think last time we all spoke and we of course talk about this stuff all the time but we're pretty much a consensus at the boston group which makes us not really in consensus we're definitely not with the media i think that there's a fair amount of people that are agreeing. I'm finding more and more economists who I respect that are in a similar or nuanced rhyme to what we're saying. But I still think there's a lot of people just saying, look, yield curve means recession coming. Do you think that the market is taking its P's and Q's

from the yield curve? Or is the yield curve taking its P's and Q's from the yield curve, or is the yield curve taking its P's and Q's from the market? That's a good way to think about it. I guess the market is still debating whether this is the yield curve inversion is a sign of a recession coming or not, because it's torn with the historical data that's telling you that it is an indicator. And on the other hand, the market knows and we know and we believe that this time is different because you need to look at the rest of the world where the yields are

and you need to look at the fact that the Fed has been, you know, distorting the market, the credit markets. So that's where I guess there's the limits of the exercise of looking backwards. So, you know, it's still inverted, but the Fed is addressing that. There's one cut coming in September. Do you think it's a good indicator, the yield curve inversion, historically?

I think it's an indicator that we have sluggish growth. We have a risk of recession, but I don't think it's a 100% indicator that we are going into recession. And I would think, I mean, I would bet that we are not going to go into recession. I would bet that this will sluggish growth and that we're going to avoid the recession. That would, if I had to make a bet, I would say that's...

The problem with saying that the market is rallying around the yield curve is that the yield curve is not widening today. Okay. The two years up 12 bps and the 10 years up 12 bps. Today's definitely about the trade war announcement. Well, I think, did you see where yields went right when ISM came out today? They all came up

across the term structure. That's what I'm saying. The shape didn't. It's a little steeper, but you're right, not by much. But 10 year went from 150 to 158 within four minutes of ISM coming out today. That's right. And I think it's, and you were talking about direction, that's a fundamental number. That can change direction a little bit.

That's looking like services in this country, which are far bigger than manufacturing at this point anyway, are still growing pretty robust. So we had PMI that was a little weaker. And not as sensitive to the trade war. Yeah, and not as sensitive. Exactly. Good point. Yeah.

One thing I guess I wanted to add is that maybe it's possible that we all overreact into what trade war could do to the economy. Because if you look at, actually, there's some numbers that are quite interesting, is how much of the job in the U.S. are for manufacturing. It's only 8.5%. Yeah. So, you know, the U.S. economy is mostly consumer. And business confidence is the one that we're worried about.

But, you know, there's... I just don't know that I can get there. Okay, so let me play along with this. Yes, the consumer is the larger part as a percentage of what GDP growth comes in. So let's make up a number. If GDP growth is 3%, the consumer is going to be about 70% of that 3%.

And if GDP growth is 4%, the consumer is going to be about 70% of that 3%. And if GDP growth is 4%, the consumer is going to be about 70% of it. That part's true. But when GDP moves, it is coming from a different category than the consumer that gives it above trend line, let alone recent trend line growth. So when GDP growth went from, let's call it just to be political, Obama's one and a half percent to Trump's three percent, that didn't come from a consumer spending even more. The consumer was always the big part of it, which you're right about. But then it was business investment that moved the needle higher. So as a percentage of where GDP growth,

move the needle higher. Yeah. So as a percentage of where GDP growth, consider it GDP alpha. The percentage of where GDP alpha will come from is business investment. That's right. I guess what I'm saying is like, if this trade war doesn't last for two, three years,

I mean, if it's- Well, we're a year in. We're a year in. But if you look at from mid-2015 to mid-2016, you had a lot of big pullback in business investment. And the consumer expenditure still rose by 2.5%. So the consumer managed to help get the economy in that period. So I'm thinking it's possible that the consumer helped us avoid recession even without business investment. But Robert, I have a question on this.

If Julian's right that we avoid a technical recession, meaning the math of GDP stays above 0% because of the consumer, but these other things all happen, is it going to matter? Is it going to feel like a recession anyways? Well, I think Julian's absolutely right in that the consumer spending hasn't been affected. But I think a large part of that is what are the trade war implications thus far? A lot of it's been hitting B2B institutions. And this latest round of tariffs is very much more consumer focused. Only 1% so far has been targeted at consumers.

That's right. So, I mean, to some extent, we might have seen margin compression with businesses, which kind of trickles through. Business confidence tells us a little bit about that. But we'll see what happens as a result of this phase four type of tariffs. I mean, we're leading into the holiday season, which is a huge part of consumer spending throughout the year. So I think, you know, we'll see. It's a lagging indicator what the consumer spends after the prices increase a little bit. Yeah, I think that's true as far as indicators leading and lagging.

And also, I mean, the one thing about the trade war is it's definitely affecting capital expenditures. And I mean, going into this, you know, one of our main theses this year was that CapEx was going to turn on and that would, it was, you know, kind of fuel markets. And that spigot has technically been turned off because of the trade war kind of falling apart in May. And I think that's more of a leading indicator. As far as business competence is more of a leading indicator, and we want to see that pick up. And to Julian's point, maybe we're underestimating the effect that the trade war could have on businesses. If businesses are able to be flexible around

just their supply chains and how this trade war is affecting them directly. They can't. No way. I agree. If they could, then I would think that, and I think you thought people may be overestimating the concern of the trade war, not underestimating it, right?

Yeah, I mean, yes, I think. I mean, that's kind of what the market is, the way it's reacting today. It's telling you, like, maybe we're overly pessimistic about what it could mean in terms of, you know, the impact on the economy. So I think that there's a lot of truth in what all of us are saying. But then there's a kind of nuance to it that I'll throw out there. lot of truth in what all of us are saying, but then there's a kind of nuance to it that I'll throw out there. It's very difficult to analyze how the market has thus far reacted, business, consumer, because the market hasn't really ever believed it's going to happen. There's been this whole, almost like eschatological thing of the trade war's on,

but it's more potentially going to come, but then it may not come. And so the reactions of economic actors have not fully been actualized. I think that's in those spreads that we're talking about, too. If it were, if the market really did believe that that wasn't going to happen or something was going to really fall apart in a bad way, I think spreads would blow up much more than they are. And so I guess the question I'd have, I really agree with Robert's point that there has been a lot of targeting. By the way, there are so many exceptions that the State Department, Treasury Department, Commerce Department have granted on the tariff. So there's all kinds of

little carve-outs of companies trying to get out of it. But I don't know how we could say, based on, first of all, past experience, but also just pretty basic macroeconomics, that if you went all the way forward and the supply chain were hit with the level four of the fourth round of tariffs, that that would not have trickle-down effects to other parts of the economy. Yeah, I'm sure it would have a trickle-down effect. And look, we're talking about all companies right now in the same block. So obviously different companies, it'll affect some disproportionately. But I assume that over time there will be adjustments made and some companies will have

the ability to make investments in areas and uh maybe obviously their margins might be hurt in uh in the short shorter term but over the long term i don't know what type of adjustments they're going to be able to make but i think i think that your point when i cut you off before i was trying to be somewhat funny but i'd actually do mean it no the size and scale of some of the companies the idea of them moving production on shore which would be ghastly more expensive or moving it to Vietnam or something like that. It's two years, it's three years.

Some companies five years. And I, and I actually have done more research on this than I ever otherwise would have, because not only is all of this happening right now globally, but we have such a significant amount of clients who have international businesses, including a lot with production capacity in China, that I'm hearing from them. And they're all saying, this is like, we don't even know what to do. And so I feel like

there's been a kind of little miniature research just within our own client base of business operators saying, David, we cannot move from China to Vietnam by next quarter. It doesn't work that way. So I fear the trickle-down effect, the uncertainty, and then the invisible thing. And this is where one of our charts at DividendCafe.com this week shows the CapEx Plans Index, which is assembled by our old friends at Morgan Stanley, collapsing in August, 3.4 points. But it's really been in a downward trajectory since right around March of 2018. Now, what happened then? That was the launch of the trade war.

It had been skyrocketing higher from November of 16 to February of 18. This theme is almost impenetrable at any chart I look at. Durable goods, new orders, ISA manufacturing, small business optimism, CEO confidence, all of these metrics that tie into some aspect of business investment and business confidence went way higher at the point Donald J. Trump was elected president and peaked at the point the trade war started and have dropped at different levels of speed and magnitude since and some of the tax changes were some of the reason that it did go up and like either anticipation of the tax changes or the actual which would fuel capex and then that's coming off of the table

um i think the amount of tariffs they're now affecting are equal to about the amount of stimulus fiscal stimulus that we had with with i think we wrote about that in this week's evening cafe but it's it's it's pretty shocking and i think that chart is indicative of that um so let's uh let's we've talked yield curve we've talked um trade war you gotta do a little fed uh what is the date julian of the fed meeting the open market committee meeting this month? 18? I think it's in 12 days. So I'm not sure. I hadn't done the math, but yeah. But they're doing two days. So it's probably the Tuesday, Wednesday. So 9-11, it would be the 17th and 18th. It's amazing to see how the implied probabilities change. I was checking yesterday

and yesterday we had 90% chance of one cut and 10% chance of a second cut, so a 50 bps cut in September. And then I look again this morning thinking, with what happened, it might have changed a little bit. And so today we're more like at 90% of one cut and zero chance of a 50 bps or two cuts and maybe now 5% to 10% chance of a zero cut. So just on that, you know, trade war announcement,

the Fed expectations have been repriced. What stayed steady is the December futures pricing in something near half around there being one additional cut and about half around two additional cuts. Seems to me the takeaway is we're getting one cut in September, meaning we're not getting zero, we're not getting two. Are we getting one or two additional in december that's right on the margin it's still you know it's moving but the you know the the main trend is one cut in september has been around 90 percent for a long time and we're getting there so uh i guess it's uh is extremely likely now and one more by the end of the year unclear exactly when and that's how you get to end the

inversion of the yield curve. I think that's a good point that a lot of these implied odds figures that a lot of listeners might be seeing on the news, there isn't a lot of persistence to these figures. We can see them swing around quite a bit from day to day. So I'd be careful in trying to base your decisions

off implied odds in general. I don't think they've been moving a lot the last month. The idea of one cut in September has been pretty consistent. As far as the probability scale, how much did the probability swing for two cuts? It went from 90

of one and then 10 of a second to 90 of one and 10 of none. Yeah. And not even quite 10. It was like seven. So from two, it went from 10 to zero? Yeah, but the two cut probability was only 10%.

So it's kind of, you know, it would never happen. The one cut theory in September has been, my probability has been about 90%. Yeah, it's been constant around 90% for a while now and just sometime going to two for like a small percentage change and sometime going back to 1%. It's basically... So it's very stable.

If you look at 90%, it's quite a stable number, I guess. Yeah, 50 bps before the end of the year, 75 is what's oscillating back and forth. So if you get 75 bps between September and December put together off of... They already did 25 in July. That will bring the Fed funds target to 150 basis points. So this is an important question. Should that affect our bond positioning and should it affect our risk asset positioning, Daya, then Robert?

So as far as you're talking about after the cuts are made? far as uh you're talking about after the cuts are made uh well i think that it in general as far as uh equities go it's hard not to be more bullish on equities of uh rates in general or lower i mean whether you know as far and i'm i'm not exactly sure how the whole term structure will uh adjust i assume that either is the fed it'll just be a little steeper that's my my assumption uh so i am more bullish uh as far as equities go given that rates will be lower and after those cuts are made uh i am less bullish on fixed income uh given there's not a lot of uh coupon to clip i'm talking about uh fixed income for investors that are just thinking about buying fixed income after these cuts are made. So, yeah, I'm bullish on equities and less so on fixed income.

So, I mean, it sounds like the nutshell is the rate cuts would do for you what they're intended to do is they would give you a bid to risk assets and make free assets less attractive. Right. Who knows how good this is? I mean, it's obviously distortive. I'm not a fan of stuff that distorts markets as the Fed is doing. But yeah, I mean, at the end of the day, you have to make decisions based on the lay of the land.

On what is, not what ought to be. Right. And it incentivizes you to do just that. Robert, I'll tweak what I asked Daya for you. I'm going to assume that you would agree with him in the very short term. But what does it mean for our longer term perspective if indeed we're going to get this extended, further accommodative Fed? It gives a boost to risk assets short term. What does it mean for us as we look out further?

You know, looking at the last, just take a step back, the last three inversions and what happened 12 to 18 months after the fact, you're looking at high teens returns on the equity side, right? So if 50 bps is, we can assume, priced in to where equities are at right now, and 75 bps is kind of the wild card there, an additional cut at 75 helps us to get to that high mid-teens returns in the 12 months following when the curve inverted. So I'm very optimistic for equities over that period of time specifically, and even more specifically, the types of equities we like. On the bond side, there will be volatility coming into the next six months. Of course,

we have an election year. I think there's still a very strong demand for the security of yields, even as they're dropping a little bit, both on the taxable and muni side. I agree completely. I'll add a caveat. I suspect you're going to agree with it, but if not, please push back. The only caveat I'd make

is that I'd be less interested in bonds for those income investors and equally interested in bonds for asset allocated, accumulated investors. I would agree. It provides hedging. It provides defense, provides diversification. But for those who need a coupon, they're not going to get it. And then when you say I'm stuck strategically as an asset allocator in an asset class for coupon, and the coupons go from three and a half to one, you start reaching and you make really bad decisions.

So Brian, let me ask you this. Both Day and Robert gave the answer that I think if you isolate the consideration to the Fed stimulus, and Julian's talked about this over the last couple of sessions we've done in the podcast. Okay, the Fed's probably going to be stimulating and it's very hard to argue against a re-rating.

The S&P is at 16 to 17 forward, and you're going to end up with an even kind of further manipulated boom to asset valuation. That's a fair consideration. But what about when you expand economic uncertainty, political uncertainty, someone who wants a 70% wealth tax on wealthy Americans to potentially become president, someone who wants a 70% wealth tax on wealthy Americans to potentially become president, someone who wants to repeal corporate tax cuts or change corporate tax. In other words, don't you have to take the monetary stimulus and interpret it in context of other uncertainties that linger?

I think absolutely. I mean, the one thing I'll say to all of this is we're doing all of this stuff. So we're talking about lowering interest rates, 50, 75 basis points, like you guys discussed, be good for stocks, bonds. We'll talk about allocation a valid point. But I get to your question, this stuff is being done without a recession on the landscape in the short term. And so as all of those other things kind of come to materialize, whether it's political turmoil, geopolitical and whatnot, and you actually get a recession without as many arrows in the quiver, that's something to consider as well. But all of those things matter and all of those things speak to where rates are globally right now and where the economy is. Yeah, I agree. And to that point, as far as when we're talking about, look, what asset classes do you like? If rates go from X, you know, to two or minus, you know, whatever, whichever direction they're headed.

The pretense is all else being equal. you know, whatever, whichever direction they're headed. The pretense is all else being equal. So when you're doing your analysis, all else being equal doesn't really exist in real life. Rates don't move down and nothing else in the economy happens. So a multi-factor analysis is always needed, but it's also useful to think of things in isolation. Absolutely, I agree. Yeah, that's right. So Julian, day is teed up for you. I'm going to let you hit the ball off the tee about dividend growth. When you do multi-factor analysis right now, Fed, and also these other economic concerns, need for defensiveness, possibility of re-rating of risk assets, where does dividend growth particularly look good in this environment?

Well, that's a reason why you receive a premium for owning these risk assets. There's a lot of uncertainty out there, but instead of making one and a half yield on the 10-year, you can make, so at 16 times speed, that would be a yield of about 6%, 7% on equities. And if you look at the stocks we own that are more defensive, that are cheaper than the market, we're more around 13 times P.E. And that gives you a yield that's more in the 7%, 8%. And then on that... In earnings yield. In earnings yield.

And then dividend yield or income, really, that you receive on an annual basis, we are close to 4% at the moment with a bet of below 0.8. So it feels really good owning, I think, these assets in this environment. And then the big question mark, of course, are earnings. You know, we look back at Q2, even with trade trade war being around four-year holdings, and most of the S&P 500 companies have done well and beat expectations. Q3 is around the corner. It will be interesting to see what happens.

But that's really down to earnings, and we'll have to see in the coming quarters. So it sounds like what you're saying is that all dividend growth is doing right now in the environment we're in is giving you a much higher yield than the 10-year and the S&P at a much lower valuation than the S&P. That's right.

And with far greater earnings reliability than the S&P. Yeah. Other than that, it sounds like an awful idea. Yeah. And then I guess, you know, just looking at some data, I mean, we have, I think, 30, 31 equity names in our portfolio. And I was just looking at, you know, how many of them have recently have reporting dividend growth this year. And the number is like close to 90%. So most of them, I mean, we've, I guess, done well selecting these stocks.

They're all growing dividends. And the only three or four that I haven't is because they haven't announced it yet for this year. So we're going to be like at 97% ratio. And the average is more like is around 5%, 6%. So it's, you know, I guess it's a nice asset class, I think, in this environment. Well, let me bring us to conclusion here. I think we're ending a little shorter than normal this week, but we all have some more meetings we have to get to.

Let's summarize it this way for listeners. You had a good week, it looks like, in risk assets in the market. We'll see what Friday does, shortened market week. I think summer's kind of officially over, and those final treks back from people's Hamptons homes to their trading desks takes place this weekend. You'll get a little more volume in the market next week, and maybe even more volatility. There'll be another Democrat debate soon. We're going to see. this is a political projection, not an economic one, but those two dovetail at times. I think you're going to see the solidification of Elizabeth Warren as the front runner

and the downtick of Joe Biden as the front runner in the months ahead. If indeed that happens, by the way, Biden can't, Biden, he'll disappear. He, his whole claim to fame is centered around what he has his credit maintained. So markets are dealing with the uncertainty of the trade war. The next round of talks, which are not scheduled to be until October at this point. There's not a whole lot on the policy agenda right now. We still don't really know if Lighthizer and Pelosi

are going to get this NAFTA 2.0 across the finish line, but the president's taken away the capital gain inflation indexing off the table. There's not a lot to really move the market other than where earnings end up coming in in the next quarter, which we're still over a month away from quarterly earnings season beginning. So you have trade war, and then you have the kind of democratic primary. We're going to be watching those things, and we're going to stay at neutral levels. Maybe we'll see some opportunity to take some money out of bonds on the margin. They've had

huge gains this whole calendar year. But the problem is the equity markets haven't acted that bad. So we don't see a screaming rebalance need to pull from bonds to stocks. So really, our neutral weightings have served us well. You had positive return on alternatives in August. You had positive return on fixed income. You barely had a negative return in equities. You've had some repositioning around some of the foreign composition, particularly for us with our Japan exposures.

So I think that right now, this is a good time to be invested, but not be getting dramatic, dramatic negatively or dramatic positively. And hopefully the wisdom of all my colleagues and partners today has helped inform your views. Anyone have any final words of wisdom they want to say before we sign off? And of course, I'm referring to who you're going to start at running back in your face i was just going to say being from chicago what do you think uh robert are they going to pull it off tonight against the packers i think they must 100 years it's a good reason to celebrate a victory in chicago yeah all right i think that um more important even than what teams win an opening weekend and and the fact that Dallas got Ezekiel Elliott back signed and all that.

More important is that this is the greatest time of year for anyone who loves God, family, and country. And Julian, can we count on your participation in our American football activities this fall? I thought you were talking about the rugby World Cup. Badminton. Thank you all for listening to the dividend cafe. I'm going to make an offer to those of you as we sign off here. If you will go write us review and send us the review,

you give us some stars, you write a little review, then we get ahold of it. You email us. We have your address. We're going to send you a copy of our dividend growth book, the case for dividend growth investing. Thank you for listening to the dividend cafe. We'll be back at you next week. Thank you. 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 opinion, 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 at Hightower should not be in any way liable for claims and make no express 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.