The Dividend Cafe - Profits Earned, Lessons Learned, Sessions Burned

Episode Date: July 27, 2017

Profits Earned, Lessons Learned, Sessions Burned by The Bahnsen Group

Welcome to the Dividend Cafe, financial food for thought. Hello, this is David Bonson, Chief Investment Officer and Managing Partner at the Bonson Group of Hightower Advisors. Welcome to the Dividend Cafe podcast. It has been an incredible week in the markets, not necessarily a whole lot of up and down market volatility, but a lot of activity in terms of those things that drive markets, primarily company earnings, operating results, announcements about companies' own expectations going forward, how things are going out in the real life marketplace. And so when you get into

the belly of earnings season like this, you really get to kind of see what the primary drivers of markets are. And certainly a lot of companies doing some incredible things right now. It's been an amazing period of time to serve as a testimony to American corporate ingenuity, ability to continue driving profit margins higher, to growing top-line revenues, and to do this in the backdrop of really very unimpressive GDP growth. So until the overall economy itself gets more of a push, you would think that companies have a harder time growing top line revenues. And yet we continue to see new innovations, new opportunities, and just greater allocations of capital creating better results for shareholders.

better results for shareholders. The big theme that we're holding on to right now has to do with the earnings trumping the Washington, D.C. activity. And I will tell you, I do think it is the highest decorrelation I have ever seen between the headline events of Washington, D.C., the political cycle, headline events of Washington, D.C., the political cycle, policy movements or non-movements, and then what the markets themselves are actually doing. There seems to have been now several months, if not longer, of a total disconnect. One of the things that we really hit home at our dividendcafe.com, our written commentary this week, is the kind of contrarian reality surrounding currency. And of course, we're contrarian investors. We happen to believe that whether you're talking about currencies or stocks or most anything, that in reality, when the whole crowd jumps on one side of a particular expectation, usually things go the other way.

Crowds are a very good indicator, inversely, as to where one may want to line up their capital. Sometimes it takes longer than others for that to come through, but that's generally what we've observed and and I think that it is fascinating to look at how heavy the position was sometime back here after the election that the dollar stood to strengthen that the US Fed was the hawkish tightest most tightening central bank in town and that the dollar would continue rallying. And at the website, we put up a cover of The Economist magazine just from December of last year, talking about the almighty dollar and how the strengthening dollar is the big challenge in the global economy. And now you've had the U.S. dollar essentially do nothing but go down in the last six months.

The euro is rallied rather dramatically against the dollar and you have a lot of people not really able to figure out why. And we propose a few different reasons, I think primarily by the way. It's because currencies have never operated solely off of interest rates. There's always, outside of monetary policy and rate policy, other metrics that feed into it. Trade activity, the inflation expectations, inflation realities, economic growth, perceived safety, and any number of things that all work together in a dynamic fashion that can move exchange rates when it comes to currency. But what has happened is a lot of people based profit expectations on a strengthening dollar and you've gone the other way. And because of that 42, 44, 46 percent level of S&P sales

that come multinationally, it's resulted in greater profit margins here in the short term. And then organically, there's an awful lot of things pushing profits higher as well. So interesting times in the corporate side of the market, and that is the side versus politics and things of that nature that we want to be much more focused on. A few other things I guess I'll kind of highlight here. You know, it's funny, this whole idea about globalization is dead, and then you look at U.S. real estate, and some interesting data I digested this week.

I digested this week. Over 300,000 homes in the last 12 months, exceeding $150 billion of value, have been bought by foreign owners in the United States. It's the highest quantity of homes and the highest dollar value in history. And it has been a 50% increase over the year prior and it has also represented 10% of the total dollar volume of the market because there's a heavy concentration of foreign purchases in the higher end of the market, more expensive product. So you know a lot of people ask me how sustainable this is. And I think when they ask, they know that I don't believe it is, but I don't have a lot to say about it because I couldn't dare time it. I have no idea what the policy catalyst will be. Will it be on the United

States end? Will it be on the other country end, such as China or another country, making it more difficult for these things to happen. There's any number of policy things, let alone economic things, let alone cultural barriers, let alone, I mean, all kinds of things that could change that trajectory. But I think the big question is how much of the market in particular areas has become much more dependent on it. And that's for people to debate and consider, but I would not recommend ignoring the reality. Big balances, big central bank balance sheets right now.

Obviously, after eight years post-financial crisis, heavy amounts of bonds being bought in Japan and Europe and the United States by our central banks with money that didn't exist, essentially growing the balance sheet of a central bank. And I think that this concept of normalization is going to go very, very slowly because it would be highly disruptive to markets to unwind those balance sheets quickly. And of course, in Japan and Europe, they're not even unwinding. They're still continuing to add to it. So there isn't even the beginning of normalization in many global pockets. At least here in the U.S., they've begun to discuss what they will do, although their discussion reflects an incredibly slow-paced plan.

But that is a big area of conversation. What will central banks do? What is the plans in terms of monetary policy to bring us normalization? And how disruptive could it end up being to growth or to market valuations? And my response is that I don't think we have any way to know, because we're not even really close to that process actually happening in a meaningful way. I think it will happen, but certainly the central bank watch has got to involve more than just the short-term interest rate. These ballooned balance sheets are a big deal in terms of where capital markets go next.

So, yes, do go to DividendCafe.com. And we also have our video channel at YouTube. And there's some other commentary there you might be interested in. Reach out to us if you want to talk about any individual holdings. Even if you're not a client of Bonson Group, you'd like someone to kind of review your own portfolio we we do that frequently we never expect anything from it we're not interested in soliciting for new business nothing like that but um frankly a lot of people have stuff in their portfolio that they don't know what it is and they don't know why they own it and and we believe very strongly in our clients.

There is a very intentional strategy behind the way we allocate capital, and we want every investor to have the same. So I'll close you with that thought this week at Dividend Cafe Podcast. Look forward to coming back next week. Talk more of the same. 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 through Hightower Advisors LLC.

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