The Dividend Cafe - Some Oil In Your Healthcare

Episode Date: March 10, 2017

Some Oil In Your Healthcare by The Bahnsen Group

Hello and welcome to this week's Dividend Cafe podcast. Happy anniversary, it really is happy, and of course what I refer to as the 8th anniversary of a market bottom that will forever and ever be in the history books. So we definitely want to delve into some of those details this week as we pass the March 9th date, March 9th, 2009 being that generational bottom with the S&P 500 having reached 666 and the Dow hitting 6470. Both of those moments proved to be the low point in what was a simply horrific period of time in American history, beginning with the descent from all-time market highs at the time, all-time market highs in October 2007, and really accelerating in the fall of 2008 when the official financial crisis struck, culminating in the demise of Lehman Brothers,

AIG, Merrill Lynch, Fannie Mae, Freddie Mac, IndyMac, Washington Mutual, and Wachovia. Freddie Mac, IndyMac, Washington Mutual, and Wachovia. The specific history of what went on those fateful months and why those things happened has been a passion in my studies for the last eight years. And professionally, the practice of applying the investment lessons of the great financial crisis has been an obsession. The one thing that we want to say on this anniversary that just never gets said enough, there was no reason that stocks bottomed on March 6, 2009. There was no catalyst, no news, no particular event. The reason they bottomed was because they were done going down, period. The market was tired of going lower, so it became time to go higher. Was it timeable? Was it obvious? No. The market was just exhausted. The market has now tripled since that level. Those who had exited the

market in the midst of the crisis carnage had a very hard time getting back in. Most did get in at some point, but missed out on a large percentage of the recovery. We've had a lot of ups and downs since March of 2009, but we remain in a stunning recovery from what was a brutal and indescribable period. So happy anniversary. Happy because that carnage is long behind us. Happier still because those who did not make temporary declines, a permanent loss, have now seen a glorious rebound in capital markets. This is the stuff wise investing is made of. Keeping our heads on straight, we want to continue writing about various inflationary themes as they enter our thinking and portfolio management decisions, but we also want to stay very clear about what we see as the risk to investors. We would be fearful of A, any belief that growth itself is necessarily inflationary.

It is not. B, the various responses to inflation, even if necessary and wise, that could certainly have an impact on risk markets. We believe it behooves investors to always be prepared for the reality of inflation, hence our passionate commitment to growing dividend stocks, the best defense against inflation we have ever seen. We also believe it behooves investors to understand that should real and significant inflation above Fed targets begin appearing, it has not yet, that the reaction to those signals are the things recessions are made of, a sudden contraction of the money supply. It's why we advocate a smooth and stable monetary policy as opposed to an excessively accommodative

one, because smooth and stable lowers the need for reactions and overreactions. because smooth and stable lowers the need for reactions and overreactions. Getting clarity at the border. Here's our latest summary of where things seem to stand around the border adjustment tax and where it may fit into broader corporate tax reform. President Trump's chief strategist, Steve Bannon, supports it, as does his senior advisor, Stephen Miller, and certainly trade director, Pete Navarro. His Commerce Secretary, Wilbur Ross, says he's undecided. But his Treasury Secretary, Steve Mnuchin, as well as National Economic Council Director, Gary Cohn,

the former president of Goldman Sachs, have grave concerns with it. So to clarify things, about half of the key decision makers are for it, about half are against it. The president himself has not chimed in. Is this all clear yet? Money well spent. We have become increasingly convinced of the benefits many companies pick up from what we'll politely call their lobbying efforts. Using skill, strategy, and pressure to benefit from shifts in

public policy or to defend one's own way of doing business may seem somewhat unseemly, but it also has become a near necessity for many publicly traded companies given the increased size and role of government in the private economy. Lobbying costs money, but we suspect it often generates an ROI multiples of the expense itself. At the end of the day, our own personal beliefs about the nature of the swamp are not relevant here. Rent-seeking is a reality in the corporate sphere, and we do not think this is an area of competitive advantage that analysts are able to follow or monitor very effectively. Repeal and maintain. The Trump administration and House GOP leaders revealed their plan for substitute legislation for Obamacare

this week. Political reality seems to have smacked a lot of Republicans across the face, and many are left trying to reconcile the fact that they want to blame the House GOP Speaker Ryan for the parts of this proposed bill they think fall short. But in reality, this is the plan the Trump White House has essentially mandated. We do know more changes are coming as this bill works through committee and conference and eventually into reconciliation with the Senate, it's completely impossible to draw any investment conclusions out of the bill at this stage because we have no idea what the final version will look like and what the political odds of passage will end up being. If there's any investment precedent here as we prepare for tax reform and other parts of the Trump agenda, it is that those who believed in knight in shining armor was coming to make politics and

legislation easy in DC. Well, now they know it ain't happening. The story of the week in the market was most certainly the rather substantial drop in oil prices. The press digest the tragedy of a market down 200 whole points in four days after a single day where it was up 300 points, four months where it was up 3,000 points. But instead of the focus on a slight drop off through Thursday in the market, we want to comment on U.S. oil prices hit hard, dropping to just about $49 at my speaking time now, which was at $54 earlier in the week. So the drop comes in response to the Saudi oil minister making comments that U.S. shale production was helping to undermine the OPEC deal to curb global oil production. global oil production. Inventories have expanded and you either have to believe that supply challenges persist or that the market has been so chock full of speculators that the

commons forced some weak short-term hands out very quickly. Our position is totally agnostic as to what we believe oil prices will do in a 24 to 48 hour period. And we're pretty much agnostic over a six month period about oil as well. If you go to this week's DividendCafe.com, there's an incredible chart about the U.S. total credit market debt as a percentage of GDP. And where things stand relative to where they were throughout the financial crisis. relative to where they were throughout the financial crisis. And then our chart of the week gives you quite a bit of summary information about just how exactly amazing this bull market has been that commenced in March of 2009, eight years ago this week. So we encourage you to check it out at DividendCafe.com.

I'll close you with this quote of the week from John Greenleaf Whittier of all sad words of tongue and pen, the saddest are these, it might have been. We thank you very much for listening to Dividend Cafe podcast. We encourage you to sign up from a subscription standpoint, send it to anyone you'd like, but more important than all that, reach out with questions anytime.

We are always here for you at the Bonson Group. Thanks for listening to Dividend Cafe.