The Dividend Cafe - The Business Model Matters in Economics

Episode Date: June 11, 2021

We had a reasonably boring week in the markets (as of press time, which is after the market open on Friday, the Dow is modestly down on the week but no up or down day this week was particularly significant), but it was somewhat less boring in economic news. What I want to do today is look at the variety of economic news circulating and apply a market perspective to it.  My view is very simple as to the dangers around most conventional methods of receiving that news and most conventional methods of applying that news to investment practices: The news itself is prone to sensationalism, and the application of the news is prone to over-reactionism. Put differently, the incentive structure behind how most people receive their news is flawed (and in this case, I am talking about economic news, but my statements here are true in all forms of news).  And the incentive structure in how investment applications are delivered is substantially flawed, not to mention divorced from personal financial reality. I unpack all of that this week, and do a look at the current news, and provide wise investment applications for you - within our framework - where the incentives are right, the temperature is moderate, the perspective is sober, and the culture is fiduciary. 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 edition of the Dividend Cafe podcast and video. I am sitting in my New York apartment. I just flew back in last night and will be here in New York for a little while. But this morning wrote a fresh Dividend Cafe. I actually had something I really barely ever get, thank God, based on how much writing I do. But I had a little writer's block this morning trying to figure out which direction I wanted to go with Dividend Cafe.

And what I'm going to talk about here today is indeed where I ended up going. And once I kind of got going, I enjoyed writing it. I think it's a helpful message and I'll let you all be the judge of that. But the subject right now of economic data and economic news and how we are to feel about it and how we are to apply what we hear and feel to our investment portfolios, what it means in terms of actual application, is, I think, a fascinating subject. And I think it's one that is becoming increasingly important. There's always been the presentation of economic data. And yet my general feeling coming out of the COVID pandemic is that economic data right now is being presented in a more theoretically actionable or potentially actionable way than I've ever seen it in the last 25 years. It is being presented as if each data point

must mean something to your portfolio, to the world at large, that there is this great kind of takeaway. And it's not just the silliness of like the consumer confidence number month over month, which has always been candidly a joke, you know, or people trying to guess what it may be, if they're just real short term traders around interest rates or something like that. around interest rates or something like that. I'm saying that right now, there's a lot of import being put on, for example, the CPI number that came out this week or what the jobs number will be.

And I want to be careful here. There isn't anything new under the sun, which I might add. My friend Stuart Varney this morning said on Fox Business that that was from a Pink Floyd song. And I just want to make sure everybody knows that's actually in the Bible. But regardless, there is anything to honor the son. And people have done that with the jobs report politically for a long time. Like each month, the jobs are up and so and so candidate should president should be reelected or the jobs are down.

His his candidacy is doomed and that kind of stuff. And that's also been pretty equally silly as well, other than when you get obviously into trends and sustainable periods of either robust job creation that has a profound political impact or deteriorating job health, which obviously generally can and will lead to political implication. But I'm saying the month-to-month movement short term. Well, my thesis here, and I have a lot of confidence in what I'm saying. I think that I'm being excessively humble to pretend that this is just a hypothesis. I think that there is a business model at play as to why economic data is being presented the way it is. There's a certain level of outrage. There's a certain level of sensationalism

around a lot of it. And I think that generally, a lot of people do get their economic news from the same place they get their news. And the news delivery, the industry of news delivery in our country has largely, in its commercialization, become subject to great politicization. And what I mean by that is that it is the business model, more than I think the ideological agenda, but the commercial agenda of most of the news outlets to deliver something that is satisfying to their viewership, their customer base, and what is satisfying is generally something that generates a fair degree of outrage. So the presentation of data is pretty vanilla and also nuance in the data

that can mean one thing here, but has a complexity there and whatnot is, first of all, not very good television, not very good reading. I get that. I comment in Dividend Cafe. It's kind of boring. And if anyone should know how boring it is, it's people who read me because it's what I'm trying to do. And I don't think my stuff is all that thrilling to read either.

But at the end of the day, there's a lot we can complain about and I would complain about and criticize in the model of how news is delivered in our country. But I'm making a comment that when it comes to economic news, it's not immune from it. And yet then attempting to take that and apply it in one's investment portfolio strikes me as very dangerous. dangerous so the example i use is right now the kind of inerrant uh biases around the way different people might feel about president biden and so i don't ever hide the ball i don't really care if left-wing people are upset at me for being right-wing oriented and i don't care if right-wing people get upset with me when i say something that's outside of the narrative that is popular with right wing people. And I do that plenty, I suppose. But because I just I don't think of this as a popularity contest. And I don't think of it as sustainable to try to make all the people happy all the time anyways. So I just decided I'm going to be myself and tell the truth what I believe to be truth, and allow those things to kind of fall in where they are.

Lacey Hunt said this week, an economist that I hold in very high regard, that he doesn't believe it's his job to be popular or to persuade people. It's his job to tell the truth. And I really do, that resonates with me. And yet, the other hand, I'm certainly never looking to offend people either. As it pertains to this example I'm about to use, I think I should either be offending no one or everyone, and we'll see how it goes. But I do understand why right wing folks that just like Joe Biden might want to really play into the inflation thesis, because you want to put a negative economic input onto a new president. And I think that's understandable. And I think every side with every president has always done that would want to do it. But I think it's entirely consistent for me to say that while I disagree with the argument that many are making about the inflation thesis, I can understand why some are making it. And yet, the president and the political aspects

along with it are irrelevant to the facts on the ground about inflation, where we do have some, where we don't have some, what its sustainability is going to be, what interest rates are telling us about it, what interest rates will tell us about it. There's so much nuance and complexity on this subject that I simply believe trying to say inflation bad, ergo Biden bad, or inflation good, therefore Biden good, is unhelpful. And so for that reason, I think that my narrative on this subject gets missed a lot because it seems to lack a political lane, and it lacks a political lane for good reason. There's no political lane here. Inflation data is mixed. It's complicated. It depends on the window of time you're looking at. It depends on a whole lot of things. And it doesn't allow for that kind of quick and easy political talking point. I'm quite confident that a lot of people on the right are using inflation data because of their desires around implicating President Biden. I think you look to the government subsidy, the federal government subsidy that was extended in the first quarter of this year, all the way through September,

and what the implications of that have been in unfilled job openings and extending some of that unemployment. And it's almost impossible for me to believe that anyone on the left who's defending that policy could really believe what they're saying. And yet, I get why one would want to defend, you know, the candidate that they might may like or what have you. My point is simply, one can do a little bit more objective of a job in parsing out the realities of inflation, of unemployment, of job policy. Things like taxes, I recognize are a bit different because we do have different opinions on those things. And there are different studies as to what the impact may be over time. And there are different beliefs about the social aims of taxation and whatnot. I have all very well set opinions on these subjects, I assure you. you know, room to disagree within that. But what there is a room to do is formulate a defense of a policy because you like the candidate who presented it, or to present a condemnation of

that data because you don't like the candidate. And I think we have a lot of that going on right now. What I mean in the inflation side is very simple, by the way. I think that the 0.6% increase in consumer prices this month, now 3.8% increase year over year in core consumer prices, speaks to a lot of the reflationary effects coming out of COVID. I think that when you look under the hood, it's just abundantly clear. 7% increases in used cars, 12% increases in airfare, massive increases in the cost of renting cars. These are COVID-sensitive dynamics that are at least very plausibly able to be classified as transitory. plausibly able to be classified as transitory. And to the extent it ends up being sticky,

then people will have a chance to have either been right or wrong or to change their view or what have you. But I feel that formulating the opinion on a political agenda or what one wants to be the case, or taking a month's data, a quarter's data, what have you, and applying a five-year investment plan out of it is unhelpful and counterproductive. Here's what I would say. The bond yield was at 1.85% in March, and people started to scream about inflation. And people started to scream about inflation. And I thought that 1.85 on a 10-year bond yield was pretty darn low if I was supposed to be worried about 4%, 5%, 6% inflation. Now, the argument could have been, yeah, it's 1.85 now, but it's going to 4% or something. And people are free to make that argument.

Now we're at 1.45%. And for all I know, the 10-year does go back to 2%. 2% will not strike me as inflationary. But going from 1.85 to 1.45, as all this inflation-oriented data has been coming out, I do believe is trillions of dollars of economic actors voting against inflation. And I don't know how anyone can interpret it any other way than that. Now, it could be wrong. Generally, the bond market has not been, and it can change, and things always can change. So I'm saying this with a very authentic amount of humility. I don't know where we'll go. And I believe we have an investment policy that is very well positioned to take advantage of either direction in inflation and deflation, in economic growth and economic stagnation, so forth and so on. So we're going to talk more about debt next week.

I want to be able to unpack why I think at the heart of the matter in all of these subjects is the realities of debt, not just governmentally, but in the corporate economy and in the household sector and what it means for good and what it means for bad. And I think that getting into that a little bit with more nuance, with more objectivity, and more depth is going to be helpful. And I intend to do it from my business model, which is one of conflict-free advice giving. There isn't an investment product or service under the sun I can't incorporate if I want to do. I incorporate what I believe in. Our team of advisors incorporates what we believe in because we're full-blown legal fiduciaries. I don't know how to get some more conflict-free than that.

What I do know is that whether it's news outlets or product salesmen or doom and gloomers, everyone's got a business model out there delivering the news. And I advise my clients, delivering the news. And I advise my clients for whom I care about deeply to allow the economic news to come with competence and come with objectivity. And then for the application of that economic news into one's investment portfolio to come with skill and precision and alignment of interest. With that, thank you for listening to Dividend Cafe. I look forward to coming back to you next weekend. Please subscribe if you haven't. Forward this around, all the things.

I'll leave it there. Thanks for listening to Dividend Cafe. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC, member FINRA and SIPC, and with Hightower Advisors LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities LLC, Thank you. is 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 expressed or implied representations or warranties as to the accuracy or completeness of the data

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