The Dividend Cafe - The DC Today - Monday, April 10, 2023

Episode Date: April 10, 2023

Today's Post - https://bahnsen.co/3GAu2FF I hope everyone had a wonderful Easter weekend and are feeling excited for the week ahead. Markets should be pretty weird this week, but now I just say that every week because I have such a high chance of being right when I use the word “weird.” Today didn’t do anything to embarrass me in this prediction (more below). Dividend Cafe last week was my earnest effort to unpack the current state of oil markets and all their economic, geopolitical, and monetary implications Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Welcome to the DC Today, your daily market synopsis of the Dividend Cafe, brought to you every Monday through Thursday to bring you up to date information and perspective on financial markets. Well, hello and welcome to the DC Today, the Monday version. It is Monday, April 10th, back open in markets after the Good Friday holiday and the Easter weekend. I hope you all had a wonderful weekend and it is nice to be back in action. It was a weird day in markets. I'm going to kind of go through that, talk a little about housing, a little about the Fed, and then send you on your way. The market ended up today 101 points on the Dow. The S&P was barely up a tad and the NASDAQ was basically flat. It was down three basis points. However, the market had opened down about 50 points or so and then kind of went up and really was choppy right around the flat line for for first half

of the day, dipped a little, went back up. And then it doesn't happen very often, but it closed into the high of the day, right up 100. So we are going to start earning season at the end of this week. And you'll start to have some of these big banks reporting their quarterly results. And then into next week, you'll get more earnings. And the week after that, you'll get everybody. So, you know, we have about two and a half, three weeks of earnings season that will begin in earnest this coming Friday. But yeah, modestly up day on the markets. Worth noting in the last couple of weeks that the defensives in the market, lower beta names, more defensive sectors have been the leaders.

So you have like consumer staples doing a lot better than consumer discretionary. You have utilities doing better than transports. You have small cap not doing as well as big cap, you know, things like that. So the stuff that's a little less juicier is doing better. This is sort of the world we tend to live in. We favor a lot of stuff in that regard. But it is the environment I mostly expect for 2023. But it hasn't necessarily been that way with much of Q1.

And now it seems to have rotated back in that direction. We'll see where that goes. It's somewhat immaterial on a couple weeks basis, but it does speak to, I think, some underlying uncertainty in the markets. The 10-year bond yield was up three basis points today, 3.41%. So still very low on the longer end of the curve. Top performing sector for the day was industrials, which was up almost 1%. And the worst performing was communication services, which was down about 0.7%. The global venture funds that seed money, venture capital money into startup type companies, tech, certainly pre-profit and most of the time pre-revenue type companies, invested $76 billion

in Q1. They deployed $76 billion of capital in the first quarter into tech startups, and that's on a global basis. And that is less than half of the $162 billion that have been deployed in the first quarter of last year. So in a year over year basis, you see that amount of capital coming into the startup tech market cut by well over 50%. That is perhaps a very good thing that there's a higher value on quality. There's more selectivity. It more likely speaks to the fact that there's less liquidity, less capital to be throwing around, a little more discernment, et cetera. So do with that what you will.

There's sort of good news and bad news in that factoid depending on where you're sitting. news and bad news in that factoid, depending on where you're sitting. John Romb won the Masters of Spain, phenomenal afternoon of golf. Congratulations to him. And then the other news tidbit I want to share is this kind of bizarre story of a rather significant leaking of highly confidential Pentagon documents on the internet, a very weird chain of events. And the documents appear to be less than a month old in some cases, less than 45 days old in all cases, where there's some real practical significance, like Ukraine likely changing strategy on certain things as a result of these leaks. So the story is still in development, but it was newsworthy enough for me to mention. in ISM services and its correlation to the consumer price index, which by the way, the March CPI number will come out on Wednesday of this week. And I have for some time now

advocated for a sequence that basically demand for goods went totally away in a lockdown. And then demand for goods went way up when the lockdown was over, but supply was still down. And so you had a tremendous increase in goods inflation. The prices of goods went higher between high demand and low supply, not rocket science. At the time of the full reopening, demand for services went up. People were traveling again, for example, and supply of labor went down. And so you had a services price inflation that followed goods prices inflation. But then as the supply chain normalized throughout the bulk of the second half of 2022, goods prices inflation went away and in fact disinflated significantly. Really, again, because of the supply chain reopenings. openings. On the services side, we just now saw last week prices paid, which is a very strong

leading indicator, collapsing. And this is, again, on the services side in ISM. To me, you can look at this chart to see this correlation over the years. I think it is incredibly foreshadowing of expected disinflation in services as well. For those that hang on every nook and cranny of jobs data, praying that people lose jobs so that inflation will go down, under the mistaken economic concept that jobs are bad for prices, that jobs are bad for prices. The fact of matter is that we did have 236,000 jobs created in March, new jobs. That was about 90,000 less than we had the 326,000 in the month of February. And yet wage growth year over year is down to 4.2%, which is the lowest annual level of year over year wage growth since June of 2021. So in almost two years, we had the lowest level of annualized wage growth.

So a robust jobs market is not creating a wage price spiral, as I have said over and over and over again. as I have said over and over and over again. Speaking of services and CPI, the shelter component, which is such a large percentage of what makes up the services side of the consumer price index. There is a chart at the DC today showing you the reality of home prices, which may not be reflected in CPI yet, but it is actually reflected in home prices. And it's a black knight home price index showing you the collapsing of home price appreciation over the last year.

OK, so for the Fed, the odds are now up to 67 percent in the futures market next month of a rate increase of another quarter point. That's largely off of chatter of a Fed governor says one thing one day and there's another data point another day. We shall see. Oil closed at 80 bucks, really incredibly low volatility since it jumped higher from 70 to 75 and then from 75 to 80 after the OPEC plus announcement, which was the subject of my dividend cafe on Friday. I really hope you got to read that, encourage you to do so if you didn't. But more or less, the oil prices have just stayed right there about 80 or $81 ever since. Somebody asked me about gold in the Ask David today. And that answer, I'll go over real quickly here for you podcast listeners.

People sometimes believe that I have something against gold as an investment. I certainly do not. I just don't consider it an investment as much as a speculation and often really a manifestation of one's own sociological outlook. I think those things are allowed. People with their money wanting to play into a particular cultural narrative or sociological script, if you will. Look, speculations can pay off and they cannot pay off. And so I don't have an opinion. I have no reason to say gold price is about to go down or that gold prices are not about to go up. I just simply say I have no way of predicting it. And someone goes, well, yeah, but can't you look at your own Japanification theme and see that gold prices are not about to go up. I just simply say, I have no way of predicting it. And someone goes, well, yeah, but can't you look at your own Japanification theme

and see that gold will go higher? And I most certainly cannot. I don't think that the kind of downward pressure on growth bids up gold prices necessarily at all. And then someone can say, yeah, well, with inflation, do you think gold would go up? And I say, well, I don't know. Inflation went up a ton in 2021

and in the first half of 2022 and gold didn't go up at all. Actually went down a little bit. Now gold in the last couple of months has gone a little higher, but if you go back to like the 2011 price, we had done QE1, QE2. We hadn't even started QE3 yet. We hadn't even started the explosion of deficits that would take place through the next 10 years, let alone the COVID years. Gold is basically flat. Now, it's up a tiny bit, but I mean, net it out for inflation. It's down 3% per year for a 12-year period, down 3% per year. So whether it's inflation or deflation, disinflation, stagnation,

there is no detectable pattern. And the argument I've made for 43 years, that's right, going back to when I was in first grade, is that gold has not been a great hedge against inflation, just hasn't. And there can be entry points at which someone can do well and entry points at which they don't do well. People can cherry pick a start date and an end date and say, I did well. Or I can cherry pick a start date and end date and say, I didn't do well. But as a substantive and repeatable source of internal rate of return, it isn't. And so I just can't invest sociologically on behalf of my clients. That's why we're not gold investors. So I don't think it fits into a Japanification antidote theme and in fact,

quite the opposite. But that has nothing to say about what it could do speculatively. Okay, CPI number Wednesday, I'll be on set with Varney tomorrow morning from 6 a.m. to 7 a.m. Pacific, 9 a.m. to 10 a.m. Eastern here in the world's greatest city that is New York. Thank you for listening to. Thank you for watching and thank you for reading the DC today. 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 are offered through Hightower Advisors LLC. This is not an offer to buy or sell securities. No investment process is free of risk.

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