The Dividend Cafe - History and Opportunity

Episode Date: July 3, 2020

In this week's Dividend Cafe we will look at: The real lesson of 2020 so far, evidenced in Q1 being the 9th worst quarter in history, and Q2 being the 9th best quarter in history, and what behavioral lessons some investors may want to pick up from this. We do an extensive dive into what lies ahead for 2020, and our views on economic recovery, stimulus, a vaccine, volatility, and so much more. What the jobs report yesterday did to encourage us, and what is still lacking - and will be for quite some time Why Fed liquidity provisions may or may not matter to the real economy (i.e. jobs), but certainly matter to investors The under-appreciated tensions coming to the surface with China after Bejing's passage of this Hong Kong security measure. What history says about an investor's timeline and corresponding expectation How foreign investors apparently feel about American markets right now And all the economic data for the week to form that perfectly mixed picture of ambiguity.  Retail.  Consumption.  Jobs.  Capex.  Copper.  Checking account balances. We have it all. And in Politics & Money ... the betting odds are blowing out for Joe Biden; what does that mean for investors, and what might the next three months of the stock market tell us about what to expect in November Finally, in the Chart of the Week, some calendar history to take us home Let's jump in to the Dividend Cafe! 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. Hello and welcome to a special 4th of July weekend Dividend Cafe podcast. This is David Bonson, the Chief Investment Officer, Managing Partner here at the Bonson Group. And those of you watching on video, you can tell that I am actually sitting in a different spot than normal. I'm at a hotel in Sag Harbor, New York, where I'm away with my family for the weekend. We get all settled in our new home in East Hampton here in a few days. And I'm more or less working out of my Manhattan office starting next week for the next five weeks or so. And it's interesting being in New York, being back in the city for most of this week. I definitely got a chance to see something that I think kind of parallels or has some sort of metaphorical connectivity to what is happening in the economy at large

and what we saw in the jobs report today. And that is a city that is opening, but not fully reopened. In other words, it is progressing. You see different things moving, but have we arrived nowhere near to the final destination? And so the Thursday jobs report that showed 4.8 million jobs recovered, when analysts were expecting 3.2 million, it outperformed by 50%. Okay, that's a massive miss for economists, analysts to once again underestimated the robustness of the jobs recovery. But I don't say that critically

because I do think it's very difficult to get a feel for what to expect out there. The trajectory of improvement is very impressive. But there is still a substantial amount, many millions of unemployed people, and there's a lot of room to go. We have an 11.1% unemployment rate. So it's half of where it was at that low point of when they had shut down the entire country. But it's still two and a half times higher than it was pre-COVID. And obviously we're not getting back to that level for quite some time. I think we're going to get to a lower point than people expected at a quicker point than people expected. But the key issue right now is how many of the temporary job losses

will prove to be temporary will come back. That number continues to hold up. It's two months in a row where those classifying as temporary have been right. where those classifying as temporary have been right. It was 78% or maybe 79% in May from the April report that were classifying their joblessness as temporary. Now that number is at 58% or 59% because that 20% really were rehired. There's very little evidence of substantial people that were temporarily laid

off now classifying as permanently. There's some. There's more than we want. That 500,000 number bothers me. But the fact, and again, seeing another 1.4 million people file initial jobless claims this week, I have to think there's a really substantial lag factor and processing issue going on with some of the states that are doing that reporting. But because the unemployment rate dropping to 11.1 and the amount of 4.8 million people who were unemployed that say they got jobs, that doesn't line up mathematically with some of those other numbers. And so at the end of the day, this theme of improving, doing better than expected, but still having a long way to go, much like the restaurant situation in New York that I experienced this week. I think that's kind of the theme of the American economy right now, will be for some time. If one wants a positive, besides the market going up 800 points this week, out of the stock market

action, I would not just point to it going up 800 points, largely making back the 700 or so it had lost the week before. I would point to it doing so in the face of an avalanche of negative COVID headlines from the media, highlighting this big increase in new COVID cases, which is very legitimate. There's no question that we have had a tripling of testing in the country over the last month, and we've had about a doubling of positive cases. That positivity rate is significantly lower than it had been a month and a month and a half and two months ago. It's ticked up a little higher from its low point of two weeks ago. Not probably surprising as we've had more and more reopening and as we had those protests and a lot of mass congregate activities. But the really encouraging thing for anyone who's trying to be objective and pay attention is that with a big increase in COVID cases that's now been going on for several weeks,

we have not had an increase in mortalities. We've had really consistent decrease in the fatal infection rate, the percentages leading into that ghastly outcome. that I believe the whole economy is going to have to say, and I think policymakers are going to have to say, and I think the whole society either has said or is going to end up having to say, which is that COVID is going to be with us and we're going to have to live with it and have a normal and functional economy with certain safety measures and whatnot at play until there's enough immunity into the society, either from a vaccine or from the organic endeavors that we go through. I think we're headed to that place. I won't use up all of our Divin Cafe time to talk

about all the COVID aspect, but I mentioned that to simply say that the market's resilience is one thing. 800 points is one thing. Doing it with that case escalation in Florida and Texas and the way the media sort of covered it with governors shutting down bars and new restrictions here, new restrictions there, I really do believe that that says something. It can reverse at any time. What I pray it won't do is reverse because we see a spike in fatalities. I do not believe we're going to. I think that it is a healthier part of the population that's testing positive. I think a lot of people testing positive have very light symptoms, if any. That is a data after data piece that I'm reading, studying individual states, significant amount of

medical testimony to the fact that we're just simply not in the same arena that we were with the coronavirus in March and early April, mid-April, etc. Look, the first quarter of 2020 was the ninth worst quarter of market history. The bulk of the quarters that were worse, I think it's something like six or seven of the other eight in front of it were from the Great Depression era. And now the second quarter that ended this week was the ninth best quarter in market history. So you had just massive drop down.

You had a massive recovery. There's still a lot of work to do. The bond markets are mostly fully recovered. The damage done to equities is not fully recovered, but substantially so. Small caps had a huge comeback. Emerging markets have done quite well. Europe still has room to go. emerging markets have done quite well. Europe still has room to go. NASDAQ's more or less fully recovered, particularly with some of the larger names in that index. So I made the comment

yesterday in COVID and markets that the only investor activity that is kind of irreparable that's happened this year is those who experienced the ninth worst quarter in market history, but those who didn't experience the ninth best quarter in market history. And the reason I say that is that's an awfully tough thing to come back from, to now kind of re-enter having missed that degree of snapback. It is a testimony of the foolishness of market timing. It is a testimony to the foolishness of market timing. It is a testimony to the ability of markets to confound people, because a lot of people still believe this doesn't make sense, or they explain it away because the Fed's been very supportive. But see,

the Fed being supportive is a reason to have been in it, not a reason to have been out of it. Whether or not the economy is going to recover in the way people believe, the optimists believe it is, is somewhat moot to exactly what the market does. The market is very much volatile. You were up 800 points this week and you're down 800 points the week before. You know, no one can run a victory lap right now. And certainly the bears that want to see an extension of market distress probably can't be feeling too good about the way the last three months has gone. My view is neither bullish or bearish in the immediate short term. My view is that there's going to be volatility. But my view that I think I could have never forgiven myself for if I had sacrificed our own principles here, is that in every high distress period, a substantial amount of the recovery that

inevitably comes, comes quickly and makes it impossible to try to time one's way in and out of. And I think that the extraordinary events of the last four months have reinforced so much of that. As we go through the rest of the year, our projection is really kind of simple. It is that much like I talked about with this jobs number and with New York, the overall energy level of their economic reopening, we are facing a situation where the data points are all going to be getting better. And the debate is simply at the trajectory at which they'll get better. And so that leaves us very vulnerable to volatility, because some data points are going to outperform expectations, as these last couple of jobs reports have.

Some data points are going to underwhelm, and you're going to seeperform expectations as these last couple of jobs reports have. Some data points are going to underwhelm and you're going to see markets move up and down around some of it. The bigger question will probably end up becoming at some point in time, I don't think in Q2 earnings results, but certainly into Q3, I think it's going to come down to whether or not corporate profits are holding up as resiliently as the market might hope they will. It's too early for us to formulate an opinion on that. The best opinion I have for the remainder of the second half of 2020 is you have an

awful lot of support from the Fed, some amount of fiscal stimulus that's proving very effective, some amount of fiscal stimulus, probably more very effective. Some amount of fiscal stimulus, probably more coming, that's proving to be very deficit-y, but not necessarily very effective. And then you have an economy that's going to have a lot of zigs and zags and unknowns. And so my advice for investors is to have an asset allocation appropriate to their level of risk-reward trade-off and to allow the dividends to accumulate. This is beating our drum of the importance of dividend growth, which we think has proven to be a masterful way to manage risk in this environment and to maintain income for cash flow investors and to accumulate greater amounts of shares,

particularly at distressed prices, for accumulators. On a risk-reward basis, we think that makes a lot of sense, but we expect there to be volatility in all aspects of equities. And so, look, the DividendCafe.com this week goes into so many different subjects. There's so many charts. I can't cover it all here in the podcast, but I encourage you to read this Dividend Cafe. It's one of my favorite ones in terms of the amount of information we're giving you as a projection of the second half of the year. But in the meantime, please reach out with questions you have. Enjoy your weekend, wherever you may be in whatever the state of economic reopening is

in your community. Have a very happy 4th of July. And please know that we here at the Bonson Group celebrate this great country with you. And we look forward to further dialogue about the state of the economy

in the second half of this year and any questions you have about your own portfolio and financial planning. Thank you. 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 and does not constitute investment advice. The Bonser Group and Hightower shall not in any way be liable for claims and make no

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