The Dividend Cafe - The DC Today - Monday, April 3, 2023

Episode Date: April 3, 2023

Today's Post - https://bahnsen.co/3ZFg4ZY So congratulations to the San Diego State Aztecs and the UConn Huskies, who will go head to head tonight for the NCAA college basketball championship. It has been a tournament to remember – thrilling upsets and last-second shots – and enough investment lessons to generate a whole Dividend Cafe! The written is here, the video is here, and the podcast here. Yes, a March Madness Dividend Cafe, indeed. I got coaxed into talking about the Trump indictment on Varney Friday, along with some refreshing reminders about investing in the energy sector. You will find a little market review and a little of everything else in this very special Monday edition DC Today, with a whole whole whole lot of ENERGY and OIL in the aftermath of this weekend’s shocking news. Off we go … 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 Monday edition of DC Today. It's going to be a very oil, heavy talk. I do want to cover as many of the other things as I can, but I've got to tell you that the dctoday.com, you're going to get a lot more info today than normal just because there were a lot of different things I wanted to cover. And I want to spend the time I have for this podcast and video focused on the rather earth shattering news that came in Sunday in energy markets and certainly affected equity markets today. The Dow closed up 327 points. That comes after it being up over a thousand points last week. It's been a monstrous rally here to finish the month of March.

And yet today's rally was led by the energy sector up almost 5% just today, 4.91% in the S&P energy sector. And you had four sectors that were actually negative, including real estate that was down almost 1%. The NASDAQ itself was down 27 basis points. So you didn't have a broad risk on rally like we did have several days last week. You had something a little bit more particular, selective. And again, energy was the reason. And that comes from the news we're going to discuss in a second. The S&P was kind of in between there. It was up 37 basis points,

so not negative like the NASDAQ, but not up 1% like the Dow. The bond market rallied today. The 10-year itself was down another seven or eight basis points, closed somewhere around the 3.4 percent range. So you take the first quarter of 2023, today being the very first day of the second quarter, and the bond market was up 3.2 percent. That's the index that combines both government and investment grade corporate bonds. By the way, the Dow was up 1% last quarter. The S&P was up 7%. The NASDAQ was up 16% as you had some of the recovery from the bloodbath that had taken place in some of those sectors late last year.

Emerging markets were up 4% in Q1. And the Russell 2000, which is small cap companies, were up 2.3%. So between all the theory of the Fed tightening and all the theory of recession coming and all the theory of banks failing, well, it doesn't appear to have been caught on to risk markets where virtually every risk-oriented equity index we track was up, and certainly the bond market was up. That's kind of the story for Q1. I mean, I think that the market being a leading indicator means to me it's not a huge surprise, but I think it's kind of weird because some might argue that the market's now leading something that would be way out in advance

because there could be much more distress ahead. And a few weeks ago, I mean, not a few months ago or a few quarters ago, like a couple of weeks ago, we were talking about the breakage in the global financial system. And yet risk assets are continuing to rally. The issue that brought up energy 5% today was OPEC Plus' announcement yesterday that they're going to be cutting, starting on May 1, 1 million, a little over 1 million barrels per day from production through the end of the year, Saudi Arabia committing to 500,000 of that 1 million alone.

Now, we could say it was even more than that because Russia is talking about taking 500,000 a day offline as well. But that was already kind of priced in. And so I'm not counting that. I'm netting that out when we get to the 1.1 million barrels per day. Russia hasn't been producing up to that quota level anyways. So there was no reason to include that as a cut from a number that didn't really exist. Why are they doing it? Well, there's simply no question that they want to set a floor more like 80 than like 60 or 65. And they believe that the demand levels have not picked up to where current supply levels are going to rationalize a price between 80 and 100. Thus far, I'm going to write more about this in Dividend Cafe this week.

That's sort of my plan right now to have a Thursday Dividend Cafe. By the way, markets are closed Friday for Good Friday, to have a Thursday Dividend Cafe with a lot more unpacking of the real story going on here, which I think is a China-Saudi accord playing out in world energy markets. But the million barrels per day that even I believe is necessary and additional demand with China reopening, there's no question that has not materialized yet. Maybe it will later. Maybe the million itself was overthought and overestimated. There's no surprise it would need to be more of a ramp up, particularly with the

heavy COVID infections after the reopening that were necessary as they kind of begun some process of normalization. But I think there's some other reasons too that it might be more prudent to suspect that that million barrels a day of additional demand was overthought and overestimated. And therefore, with the U.S. production levels lagging and consumption, the demand levels not going to a whole nother stratosphere, that the level is not going to a whole other stratosphere, that the production is not going to warrant those price levels. And I think that OPEC Plus is basically saying, we're not going to let the U.S. be the marginal buyer that dictates a $65, $70 price. a $65, $70 price. And they flooded the world with 180 million barrels of excess supply via the release from Strategic Petroleum Reserve. That worked for their, meaning American, consumption

needs, but it did so at the effect of taking $10 to $20 out of the price, which came straight from OPEC Plus's margin. So therefore, two can play at this game. So that is, to me, what I believe they're thinking. It was a completely gangster move, shocking. And yet I am, for the life of me, trying to figure out what the leverage is that their foes have to fight back at it. I don't believe there is any. And so I think Saudi is moving towards a very deep and substantial partnership with China that I want to elaborate on in Dividend Cafe. But when we're talking about Saudi putting $3.6 billion, U.S. dollars, that's grown up money into what will be one of the largest oil refineries in the world in China and committing to running 500,000 barrels per day from Saudi production to this China refinery in a strategic joint venture with China. This is a serious, I think, sign of where the geopolitical and the economic alliance is headed. So allow me to elaborate more on it, but understand it for what it is.

There's very little the U.S. can do. It puts the big U.S. producers in a very attractive spot whereby they're already global players to begin with. And now without having to increase production, take extra CapEx risk, they benefit from higher margins, from higher dollars, and yet don't have to increase volumes at a time where there's so many extrinsic forces fighting against higher volumes domestically. It's just utterly crazy. So that was the scoop today in the energy market, which really kind of spilled over to all equity markets. And on Friday, the inflation data did indicate more downward pressure on the PCE,

which is the Personal Consumption Expenditures Index that the PCE, which is the personal consumption expenditures index that the Fed likes even more in the CPI. Now looking at goods inflation that is up 3.6% year over year, it had been 10.6%. So that's the kind of disinflation we're talking about from 10 down to three, giving you a core PCE rate of goods and services at 4.6%. There's still, in my mind, excess froth in their own housing, but it's not nearly as bad as it is in the CPI number where the lag effect of housing measurement is far worse. That number will come out here in the next couple of weeks. So that's the story with inflation, the oil markets, the geopolitics, Q1 in review. And I just want to let you know the back by popular demand against doomsdayism

is in the DCtoday.com. And if the idea that the invention of penicillin saving 203 million lives in the last 90 years does not cause you to take a little pause at pathological pessimism. I don't know what will go to the DC today dot com for more of a elaboration. All these things will come back to you tomorrow with another DC today podcast video and reading. Thanks so much. Have a wonderful evening and may your final college basketball team selection win. 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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