The Dividend Cafe - Something To Be Certain About

Episode Date: April 8, 2022

From the seat of a person who dispenses financial advice for a living, one could be forgiven for believing there must have been a time in the recent past that was quite idyllic. Why? The constant chorus of those concerned about “new instability” or “these difficult times” or “all this uncertainty” all implies one thing: That there must have been a time where stability and certainty ruled the roost. Today we are going to do a little history lesson, and by the end we’ll draw a few conclusions. The point will not to be wrap current economic or political circumstances in a pretty bow – but rather, to contrast the present to the past with history and logic. The conclusions will either concern you or encourage you. But the information will be informative. So jump on 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. Well, hello and welcome to another Dividend Cafe. I am sitting in the New York office, although tonight I will fly back to California and then fly back to New York on Sunday night. So kind of a lot of back and forth these days, but I love recording in the studio, whether it's California or New York. And I love recording in the studios much more than in a hotel room. And I really love this week's Dividend Cafe. And I'm going to actually the written Dividend Cafe this week doesn't have a bunch of charts and graphs and things. I just want you watching the video or you listening to the podcast to get a certain message out of what I have to say, which is something I began writing very early this morning, just finished moments ago. But I think it's one of the more evergreen principles, meaning just permanently applicable, a sort of universal truth in the message that I

am ever going to do in Dividend Cafe. Most of what we do, we intend to have some universality to it and permanence of application. But when some weeks are going granular into Saudi Arabia or the Fed or a new convention of monetary policy, I recognize that those things may not seem as sort of permanently, universally applicable to the actions and thinking of an investor. But right now, there is a sense in which I'm not getting overwhelmed with feedback or comments. I think a lot of that might have to do with the fact that we write the DC Today every day. So certain anxieties or pressures or whatnot that could bubble up for clients perhaps are preempted by just the ongoing communication that we do. And also, I believe that some of it's a little skewed because people that are investors in the NASDAQ out there or were heavily overweighted to shiny object investing, they may be feeling a certain anxiety that perhaps clients of the Bonson Group are not feeling, which we've had a more positive year so far around the kind of fundamentals of how we invest and cyclically and so forth, there's been maybe an advantage there that has calmed people. But still, there is an anxiety in the air. I hear some of it, sometimes not even from clients. And I think the anxiety is somewhat prominent in terms of this fear of uncertainty. And that word in particular, I'm hearing a lot,

and I'm hearing it applied to Russia, Ukraine, to the Fed, to China, to a lot of things that most certainly are uncertain. I mean, that's not really what I'm here to talk about today is by trying to put people's mind at ease about the particular uncertainties. What I want to do first is add to the list of uncertainties. I'll dig the ditch deeper if you want. If one is looking for things to feel anxious about, you don't have to limit your list to Russia and the Fed. about you don't have to limit your list to Russia and the Fed.

I mean, geopolitically, I wrote a couple weeks ago about a total transformation in the U.S. relationship with Saudi Arabia. We have no idea what this authoritarian Putin is up to in Russia. We kind of know what he's up to. We don't know what the end game ends up being. I think anyone who is paying attention, studying current events, understands that the Chinese Communist Party has aspirations that are in conflict with American interest. There is a $30 trillion debt sitting on the national credit card, and that debt is not going down. It is going higher. And all we ever talk about is the speed at which we grow the debt.

Never any discussion about rectifying. Other countries on earth have even worse debt predicaments. There is a valuation issue of risk assets, whether it's real estate or stocks that are trading. If you're being really kind of nice, they're in kind of a higher range of historical valuation. kind of a higher range of historical valuation. If you're trying harder to get to a worse place, you could argue that they're outside of the bounds of historical valuation. Regardless, there's some froth in the way that risk assets are valued. That's indisputable.

We know of high commodity prices. We know of incredible global tensions. And we know of domestic political polarization, the partisan rancor that I think has become a cultural phenomena and not in a good way. And so I think you could look all over the map and find things that are very problematic and you say there's just too much uncertainty okay and the only thing I guess that I want you to take away in the way I handicap these various uncertainties and distressful predicaments in which we find ourselves as a society, economically in most categories, some of those elements you could argue are more geopolitical or more cultural or more social. This is just not new. It simply is not unique historically. not unique historically. Uncertainty is the most certain thing in the history of investing.

And what the specific uncertainty is, is the only variable. So it could very well have been Libya one moment and Egypt another moment in terms of Middle Eastern tensions in the last 10, 20, and 30 years. And it could have been Russia here and Japan there and Germany there. You look to the various realities of just the 20th century and it is almost unfathomable how quickly history has changed in sometimes a matter of 10 years, sometimes for the worse, sometimes for the better. And yet that permanence in change being a dynamic of investing that has always been there. Are the specifics of a Fed being at the zero bound new? Well, actually, that specific isn't even new because we faced it after the financial crisis. They let the zero bound roll way too long.

Then they tried to had to get off of it a bit. And you had positive returns in the market from 2015 through 2019. Now, I would argue they chickened out. They didn't go through to the point of full normalization. I don't think the Fed's out of the woods. I don't think they're going to get to full normalization. But my point is there being this sort of new spirit of monetary experimentation is the uncertainty that I think will be the prominent one I deal with for the decades to come in my career. But even if the Fed was not the major story, or at least people didn't perceive it to be the major

story in other past decades of investing, there has been that theme, that thing that stuck out as a major uncertainty. And when you look at global tensions, we literally had two world wars in the first half of the 20th century. We literally were engaged in a four decade Cold War with nuclear superpowers, where a significant portion of the square footage of planet Earth was communist controlled. Now, all things being equal, I'd prefer to have no global tensions. I'd prefer to not be at war with Germany and Japan. And I'd prefer to also not be in conflict with Russia, with China, with Middle Eastern enemies and things of that nature. But see, I don't know what to say about that. If you're waiting for global peace and harmony to feel good about investing, it's not going to happen.

There will be a point at which peace and harmony comes, but it is on the other side of glory, my friends. And I think everyone knows that, but I hope it's helpful to be reminded of it. I don't like what Russia has done. I do not like what Putin has done. I do not know how it's going to end. This Ukraine thing is a tragedy. But the notion of violence, of military escalation, of uncertainty, it's not new. The debt levels, I think 30 trillion is perverse. I think it represents stagnation and growth opportunity. I think the economy will do less great things that it is capable of doing if it weren't for the debt. And yet, I believe that when President Reagan left office, when I was in high school and we had $2.8 trillion of national debt

and a bond yield the 10-year at 8.5%. People thought that was absolutely cataclysmic. And here we are 30 trillion later and we have a bond yield of 2.5%. trillion later and we have a bond yield of 2.5%. Now, I can't tell you that we know where things go with the debt and where things go with bond yields and so forth. I do know that markets have humbled people who have decided to persist in a kind of atmosphere of uncertainty. The valuation story, by the way, I'm not an index investor. We don't index client portfolios at the Bonson Group. We believe in active management. We believe in a better result. We believe in better mechanics and better risk management that come from dividend growth investing. It's what we do. But even if one were indexing, I get the math that if you have a 20-year time horizon and you get to buy at

an entry point of 16 times earnings instead of an entry point of 20 times earnings, I expect your long-term return to be higher. But I also think buying at 20 times will produce a better return than missing four or five years of returns altogether while you sit around waiting for something that may or may not ever happen. So I like to remedy the valuation issue with the way we invest money, but even in the world of indexing. I think valuations, people could argue that the kind of historical averages of valuations have gone higher over years by the persistence of historical valuations. I can tell you this. I look at like a perma bear guy like Jeremy Grantham, who I think is brilliant.

I love reading his stuff. as him than I am, but I'd rather have our returns than his because they're just wrong constantly with these permanent bearish commentaries around evaluation. And I think that that story matters and it can be remedied in the way in which someone takes a portfolio approach, but by allowing it to sideline someone or speak to an atmosphere of uncertainty, they miss the point. The point is we do not have the luxury of investing without uncertainty, geopolitically, economically, culturally. I've made the comment before, I do think the current partisan rancor is worse than it's been in my lifetime. I was born in 1974. I'll turn 48 next month, and I don't believe it's been this bad in my lifetime.

I can't really comment on 1968, and I can only comment on the 1860s because of the just profundity of the historical moment. I'm quite comfortable saying that things are worse at Gettysburg than they are now. And as far as comparing what it is now to 1968, I'm sure there's different arguments, maybe even a lot of overlap and commonality. But I think there's a cyclical nature to it. I'm not, by the way, as convinced.

I think there's a lot of fatigue with the partisan tribalization right now. When you get off of social media and cable news, I'm not sure that in our day-to-day lives it is as bad as it feels at times. But it's bad and so forth. And the COVID moment did not help our societal cohesion and presidential cycles for a couple of periods now. I've not been healthy there, but I have no reason to believe that the pendulum can't shift the other way. But do I think about the deepening divide between red and blue when I'm investing? I do not. That's just silliness. Silliness. I want a healthier, more cohesive society, and I want a more liberal society that is free

in the classical sense of the word and has more tolerance for disagreement. I don't understand the social ramifications that we're dealing with, but the investment ramifications are nil. So I believe the message for today is to be certain that there will be uncertainty. And if today it's Russia, Ukraine, Fed, valuation, political rancor, tomorrow most of those things will be different, but there will be something. And the same was true of yesterday

and years ago and decades ago and so forth and so on. But what I believe in and what I want you to believe in is the capacity for humans to act, to do incredible things that create investable, opportunistic, productive results. I favor a pro-productivity agenda. I favor pro-growth. I favor as few impediments to human action as possible. I favor the right alignment of incentives to get humans to do what I believe they were created to do. And I believe that those who have financial aspirations should tie the growth of their capital to human activity. That's my story. That's what we do with the Bonson Group. And I don't believe that uncertainties are going to prevent that.

They never have. And I don't believe they ever will. I hope this is helpful. Reach out with questions. Feel free to try to poke holes in the thesis. And in the meantime, just know that the world keeps on turning as it always has. And we continue to look for the right opportunities to do what needs to be done on behalf of our clients. Thank you for listening to and watching the Dividend Cafe. Look forward to coming back to

you next week. It'll be a Thursday Dividend Cafe because markets and offices are closed on Friday in honor of Good Friday. Thank you for watching the Dividend Cafe. Securities are offered through Hightower Securities LLC. Advisory services are offered through Hightower Advisors LLC. This is not an offer to buy or sell securities. No investment process is free of risk. There is no guarantee that the investment process or investment opportunities referenced herein will be profitable. Past performance is not indicative 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. Thank you. and make no expressed 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 Bonson Group and do not represent those of Hightower Advisors LLC or any of its affiliates. Thank you.