The Dividend Cafe - Monday - June 16, 2025

Episode Date: June 16, 2025

Today's Post - https://bahnsen.co/3Tphtmu In this week's Dividend Cafe commentary, Brian Szytel steps in for David to do the usual around the horn market commentary. The episode covers a variety of market updates, including a brief recap of recent fluctuations in major indices such as DOW, S&P, and NASDAQ. Brian discusses the ongoing Middle Eastern conflict between Israel and Iran and its impact on the markets. The episode also touches on oil price movements, sector performance, and the implications of the weakening US dollar. Brian delves into the current state of the housing market, details the recent Fed meeting's outcome on interest rates, and explores the potential effects of the new tax bill. The segment wraps up with a mention of Opportunity Zones and other investment opportunities, encouraging listeners to stay engaged and reach out with questions. 00:00 Introduction and Market Overview 00:57 Middle Eastern Geopolitical Tensions 02:25 Energy Market Movements 03:23 Sector Performance and Interest Rates 03:55 US Dollar and Global Economic Insights 06:31 Government Receipts and Spending 07:54 G7 Meeting and Global Trade 10:18 Real Estate Market Analysis 11:35 Federal Reserve and Economic Indicators 12:48 Investment Opportunities and Taxation 14:07 Conclusion and Disclaimers 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. Welcome to Dividend Cafe. This is Monday, June the 16th. Brian Seitel with you here today. Obviously, David is not. He's out on a much well-deserved family vacation this week and so I get the pleasure to be back with you here on a Monday version, which has always been my favorite, this longer form around the

Horn deal on Dividend Cafe. So with that, I hope everyone had a great Father's Day weekend. I know I did and got some nice gifts from my two girls and had a lot of fun and did some barbecue and things. And we actually started out today on a nice day in markets. So we'll take that. We had the Dow up about 317 points on the day. S&P was up just under 1%. NASDAQ was up over 1.5%. And all of the positive market movement, at least in stocks, was around hopes and negotiations or re-engagement from Iran based on their nuclear treaty with the U.S. And as Israel and Iran have been conflicted here for the last couple of days, call it

four days now, Israel has struck several of Iran's nuclear facilities and taken out several of its key nuclear leaders and such. And in retaliation, Iran has launched different drones and missile strikes against Israel. And so this is an ongoing Middle Eastern conflict that isn't good, but it appeared to be positive today with Iran saying that they were to open up these talks again. And there's an important reason as to why they would be willing to do that potentially this early. It's only been three or four days.

One of them is that Israel announced it did achieve air superiority over Tehran, which is the capital of Iran, which is a pretty amazing feat, number one, to do that so quickly. But I also wanted to just explain to readers and listeners what that actually means. It's essentially saying that you've claimed victory over the airspace. It's a military term. It's not just an opinion. For example, over the course of the last, what, three years, Russia has not been able to claim this over any part of Ukraine that they don't occupy already. So it's a big deal. And once you have air superiority, it starts to force the hand a little bit because it opens a major vulnerability in the Iranian regime.

So hats off to my friend, Rene Anano at Corbu for some of those insights there on the geopolitical military front. Today, you also had WTI with this news, which had risen about 13% last week, come off about 4% this morning. We actually ended up closing down only about 2% on oil on WTI, but still it's a positive move lower for energy prices. We had an oversold condition during the post-liberation day period of April, and so oil was back into the 50s, and that has now moved up with geopolitical tensions and so on and so forth here the last

couple of weeks up into the low 70s. I suspect somewhere in between those two numbers, the porridge is just right for market clearing prices. Of course, energy is volatile, and so that can just change. But that seems to be the direction, at least, where we're going, and it's certainly part of the administration's goal to keep those energy prices low, because it's a major input in the CPI.

But I'll have to say, on the sector side, you had communication services that were the highest for the day. So think telecom stocks, big telephone and wireless companies, and then you had utilities that were the underperformer on the day. And it's funny because interest rates on the day were actually a little higher. Bond prices fell off a bit. So you had 10-year yields move up about four basis points to 445.

And usually when you get rising rates, that's what puts a little pressure on some more income producing sectors like utilities, think of staples, REITs, more interest rate sensitive sectors, things like that. There was also a comment that I had in there today too, just because I get so much attention these days about this plummeting US dollar and the demise of US assets and the sensationalized media take on where bond prices go. about this plummeting US dollar and the demise of US assets and the sensationalized media take on where bond prices go. The dollar has weakened here in 2025, but I think that gets a lot of attention and I

think what gets a little attention is that it can only be weakening against currencies that are moving up on a relative basis. And that affects things like trade and exports of other places. And so if you look at, for example, the Eurozone, you've actually seen wages pull back, you've seen industrial production pull back pretty significantly, and you started out with a lower growth paradigm to begin with. And so the shift away from American assets that people keep talking about, I understand that. And maybe the run that we've had post-GFC was ahead of itself versus the rest of the world

Relatively speaking and so you've gotten some movement back overseas of assets. That's fine You've seen an equity movement Eurozone indices are up double digits US and to see is only up 2% or so on the year But I say all this because the dollar is basically back to the median that it's traded at for 25 years. As far as fundamentals are concerned versus the Eurozone, you've got about half the growth from a GDP perspective. You have an ECB that's already lowered interest rates three times and will probably lower it more than the US well this year. And so their Fed funds rate equivalent, their central bank policy rate is about half of what ours is. So just keep those things in mind as you read some of these things.

As I said, markets have moved back to not quite the highs, but they're getting pretty close. We're only off the highs by a percent and a half, 2%. And that's all good. And I think it's positive that you don't have euphoria right now, that we are climbing this steady wall of worry in markets. If you look at the bull bear ratio, which is basically bull versus bears, in extremely overbought situations, you basically get everyone that's bullish and everyone feels great, and it's that euphoric phase. And as a market participant, oftentimes that is around the top.

And then the opposite of that, when everybody's pessimistic, is usually somewhere around the top and then the opposite of that when everybody's pessimistic is usually somewhere around the bottom. I just say this as a positive, as a contrarian, the stock market being back to about where it was and still having half or so of the amount of positive people or the bulls in the market is actually a good thing for forward returns. It means that there's potential for more marginal buyers than there are marginal sellers. I also wanted to shed light on this. We've spoken about it a few times, so I don't think it's anything new, but I did want to

put a picture of it in there to just show you that this year is not a bad one for government receipts. So we've talked about the tax cuts that were put into place in the first Trump administration and the other potential extension of them and potentially additional tax cuts that we're talking about now and how that can affect the deficit. But just keep in mind, through the last, call it 10 years or nine, receipts of revenue into the government have never been higher. We're at all-time highs by far.

So we're over $5 trillion of government tax receipt. If you think about that, what that means in size of gross GDP versus other countries around the world, it would be like the size of Germany and France put together. And that's just on government tax collection, not on total GDP. So I say all that because there's so many things going right, right now. You have max government intake, you have full employment, you know, you have an economy that's expanding. All of these things are very good and positive, and you still have record, call it $1.8 trillion government deficit spending from last year. The issue here, regardless of partisanship, is spending.

There's just no way around it. The amount of spending and largely entitlement spending needs to be addressed. It's the main culprit. We can talk about supply-side economics, doing better things to broaden the tax base and grow the economy, and that drives revenue, and that's great. And that's what we have done, frankly. And that's what we're likely to continue to do here with the current administration. But until there's some sort of rein in on spending, unfortunately, it's not going to be a problem that fixes itself. Around the world, we've got the G7 meeting happening in Alberta, Canada started yesterday, which was Sunday.

It's ongoing today. Obviously, you can guess the topics. We're talking to Israel and Iran and we're talking about trade. There's a reciprocal tariff increase deadline of July 9th that the Trump administration has put in. And so they want to get deals done. And both Japan and India has mentioned that they aren't ready to do something yet. Countries like Vietnam are much closer. But regardless, I know that's

the win that they want to have and the feather and the cap that they're looking for. But with Israel and Iran now probably front and center, I'm assuming that in the G7, that's more of a pertinent topic ahead of trade. But that's nonetheless what they're talking about in Canada. As we've spoken about, Senate is working through this bill, this tax bill. Section 899 seems to get a whole lot of hot press these days. And this is on the taxation of foreign businesses in the US, how their US operations get taxed. It has broad implications on foreign investment in the US.

And I think that is important, actually, which is why it's being spoken about. But I think it's a little funny that it's being spoken about more than all of the other goodies that are inside of the tax bill itself to hopefully stimulate the economy, broaden the tax base, lower tax rates, deregulate, no tax on tips, all of that as well. And I think at the end of the day, if there are higher tax rate on foreign corporations for their US operations, it would only be for those countries that are doing the same thing on their side as well. And I'm not saying an eye for an eye is necessarily a positive and productive way to treat things

necessarily. It's not that. It's more just... It's on the margin. I think it's getting a little more attention than it otherwise should. I wanted to point that out. On the economic side, we had the New York Empire State Manufacturing Index out with much worse than expected.

We got a negative 17. We thought it would be negative five and a half. A bit of a drawdown. This is actually the fourth month in a row in that region. The positive takeaway that I got out of the report was that if you look forward, business optimism was actually positive for the first time in four months too. So I would call one of those the lagging indicator, which is what the number was,

and one of the more of a forward indicator, which is what is likely to come down the pike. Going into housing and in real estate, this is actually in the last 10 years, one of the largest imbalances of sellers and buyers from an inventory perspective. So you have about 500,000 more people trying to sell their house than there are willing buyers out there.

So the housing market remains stock. Interest rates have not moved lower. A lot of the last, call it year or so, I believe that was the main culprit for a frozen housing market was folks were waiting for lower interest rates. So they didn't have to exchange their 3% mortgage for a 7% mortgage. Over time, I think there's pent-up demand and people just have to move for life and for jobs, for family. And so you end up getting transactions, but there's just more listings than there are

folks willing to buy them. And I do think once you get clarity around the state and local income tax deductions, so SALT, and you also get some lower interest rates heading into the year, it'll start to clear the market a little bit more. But either way, I would expect softer prices as that happens. And we're seeing that across most markets, including where I'm sitting here now in Newport Beach marginally and elsewhere around the country. So I suspect that will continue here. And I think that's a very healthy thing, by the way,

not an unhealthy thing. So I'm not talking about a 20% decline in home prices. I'm talking about something normal, less than 10%, five, 10%, something like that. That's a normal housing market. We do have the Federal Reserve meeting this week. They'll conclude their meeting on Wednesday. There's a 99.8% chance they're leaving rates unchanged.

So I'm gonna go out on a big limb here and just say rates aren't changing. It'll be interesting to hear what Powell says in his press conference after the meeting. And I do think he'll talk about both the weakening labor market slightly. Initial claims have just moved up here. We were talking low 200s for a year, maybe to 220. Now we're talking more like 250. So they've inched up slowly but surely on the labor market. And I think they'll mention that's obviously their second mandate to prices is employment. And I also think they'll likely mention geopolitical

uncertainty and things like that. But I don't think you're going to get a whole lot of change with the dot plots, which is where their estimates are for the remainder of the next 12 months on interest rates. And I don't know that Fed futures is going to move meaningfully either. So until we get into probably September or maybe even October, I wouldn't suspect at least now rates are going to change a whole lot. But that leaves us at four and a quarter to four and a half. There was a question that I put in there, somewhat technical, but it's fairly common. It's come up many times.

In 2016, there was an Opportunity Zone Fund Act that was passed to stimulate and to hopefully incentivize people that had business gains or real estate business gains to defer them in investing in parts of the country that could use the capital that were under-invested. And so these opportunity zones allowed for deferral of capital gain taxes for 10 years and some other benefits above that too. And they've been this great deal and we've had several solutions for clients.

And the recent question was about, do we offer things? Yes, we do. We've got several things in that space. But my comment around it is just the luster of it is a little bit diminished at this point because the end of 26 is pretty close at this point. That said, there's still viable solutions and you still get the capital gain removal for all the appreciation above what you actually invest in over the next 10 years. You just wouldn't get the deferral of your gain that you're exchanging into the fund for more than about a year and a half now.

So keep that in mind. There are other opportunities in the DST 721 Up-Reit space. We do a lot of these transactions for clients that sell buildings and different real estate holdings. And so the comment was just to consider all of those pros and cons with either solution. But yes, there's several solutions that we can offer in that space. That's what I have for you around the horn today. Like I said, it's fun to be with you back here on Longer Forum Monday dividend cafe as always. I hope David is having a nice trip with his family,

as I said, reserved. And I'll be here in Newport Beach all week. Please reach out with your questions. We encourage them. I appreciate you listening as always and have a lovely evening. Thank you. 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

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