The Dividend Cafe - The DC Today - Monday, July 31, 2023

Episode Date: July 31, 2023

Today's Post - https://bahnsen.co/3rQeA3P 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. The month of July has come to an end. I will have some kind of month closing numbers in tomorrow's DC today. We generally know the markets did quite well. There actually was some beginning of the month downside volatility, but really it's been quite a good ride ever since that CPI number came and earnings season began on both fronts kind of adding to the combined theme of inflation going away, some light at the end of the tunnel for when the Fed will quit acting silly, and the earnings environment looking reasonably sanguine, therefore adding to the notion of a soft landing thesis

or perhaps skirting away from some of the economic distress that could come from this tightening cycle. All of those thoughts are kind of mixed in some form of a stew that have provided some market bullishness, not just late July, although it was sort of added to in July, but really the whole year, that different phases, ebbs and flows, that's kind of the underlying bullish case. And a lot of those things came to a head in July. I was on CNBC earlier today. The link is in the dctoday.com, talking about dividend growth, talking about our views of big tech valuations, and just talking through a couple of specific names, financials, sectors.

So it's worth watching if you're interested. But the Dividend Cafe on Friday, I am doing a second part to it because I do believe that the subject is that big. because I do believe that the subject is that big. And we got a lot of feedback from Friday's Divin Cafe about it helping people understand bonds a little better, more particularly credit, which is a more specific category of bonds. And then, and beyond bonds, credit includes more than just securitized debt instruments where bonds can be sold as a security

to the investing public, but even bank loans and all sorts of other debt instruments that exist in society that help feed our capital markets and economic activity. And I hope that the Dividend Cafe Friday, you got a chance to check out to kind of understand where we're looking at credit in the context of understanding the economy we're in. I'm going to add a little second part to that likely this week. The Dow today was up 100 points, but it was pretty much flat, down 20, up 20, like all day. And in the last second of the day, and I don't mean the last 20 minutes, I mean the last 20 seconds, it spiked up 100 points. And so you usually, in that case, have a trade that's being held, and it's the last day of the month. And I don't know if it's some kind of a settlement in an ETF or something.

Those things are always kind of interesting, but it's not super relevant. There was some reason the market spiked 100 points in the last second. So the Dow was up a quarter of a percentage point today. The S&P was up about 15 basis points. The NASDAQ up 21 basis points. So all three indexes up a little bit. I do believe, and this was part of Dividend Cafe's message on Friday, but the number one economic story to me right now is with all the Fed tightening and with

a reasonably unimpressive environment for economic growth, but nevertheless, not an economic contractionary environment, just a kind of low, slow growth environment, environment, just a kind of low, slow growth environment, how credit tightening has not done more damage. And my theory that maybe just maybe enough money was borrowed and terms, favorable terms secured and, and, and maturities extended, uh, refinancings performed, whether it's bank loans or certainly residential mortgages. We know a ton of that happened, perhaps even commercial, but definitely in the bond market and in the levered bank loan market, where there just simply aren't a lot of maturities right now. Therefore, this dramatically higher rate environment has not done the damage to earnings.

It's not done the damage to liquidity that it otherwise would have been expected to do. So that seems to me to be the kind of free ride that the Fed has gotten out of this tightening cycle and perhaps helps explain why economic conditions haven't weakened more. explain why economic conditions haven't weakened more. The profits haven't dropped a ton and the soft landing camp has kind of held in there the way it has. Speaking of those corporate profits, we're now halfway through earning season from Q2 results and we're tracking to show year over year profit growth down about 6.4% revenues flat on the year. So that's a point I guess I would make. Let's say this ends up being near the trough, you know, and I talked about this before about late October earnings. Excuse me, late October of 2021 being the peak and perhaps late October of 22 being the trough as far as what that

profit expectation trend was. And you're not talking about a significant drawdown. Now earnings contracted and 6.4% year over year in a market up over 20%. That's a lot of valuation or multiple expansion to make that math pencil. But I got to say it isn't that bad relative to a federal funds rate going from 0% to five and a quarter. And so you do have an earnings environment that is surprising people and forward guidance that looks pretty good and so forth. So that's really the state of affairs right now. The 10-year bond yield today closed at 3.96%. The top performing sector on the day was energy. It was up 2%. You did get oil prices up to $81.83, so almost $82. Not quite at a high on the year. We had very, to $81.83, so almost $82, not quite at a high on the year. We had very, very, very briefly touched $83-ish in April, but nevertheless, well off of the $67 number that oil was at just six weeks ago.

Healthcare was the worst performing sector today, down 0.79%. I think that in the economic data, this news about China and their government announcing more and more stimulus they want to add to their economy, which is stagnating. I do need to do a Dividend Cafe in the coming weeks about a Japanification in China, a Chinification that I think would be extremely bad idea for their policymakers. But when I hear them talk about various fiscal stimulus, you know, things like removing bad regulations, that's not Keynesian. That is supply side. Like I'm not talking about government stimulus in a negative when we talk about the government stimulating the economy by removing bad impediments, high tax, high regulation, high burdens of entry. That's what a supply side policy framework is about. So like China has different constrictions on their consumer limits on automobiles that can be bought.

If they were to eliminate that stuff, I don't view that as unhealthy or Japanification. I think it's extremely production oriented and might be very good for the global economy. But when they start saying things like they might do food festivals that the government would throw to help stimulate consumption, I mean, this is the kind of Keynesian stuff that I really think is a joke, except for so many serious people believe it. And this is something I'm going to be unfolding more. And I mean unfolding in Divin Cafe, where I'm going to try to explain it in a way that everyone will understand. And Divin Cafe has that intended mandate to really try to make things as simple and understandable as possible. On a more complex level, I do have a plan to write a white paper and a bit more academic of a treatment on balance sheet recession, some of Richard Kuh's famous work on the kind of macroeconomic holy

grail of Japan and the Japanification story that now has multiple countries involved in the narrative. And I haven't been able to figure out when I'm going to do that, but it's a priority of mine and it will tie into this overall theme of Japanification. So, okay, let me kind of wrap things up a bit. The personal consumption expenditure number from June came out at the end of July, where CPI from June came out in the middle of July. So we always get the PCE two weeks after the CPI, and it's a little bit outdated. But nevertheless, you got reaffirmation of a very heavy disinflation, PCE down to 3% year over year. The national apartment rent list came out with year over year rent growth

in apartments at negative 0.7%. So you are seeing now in real life data, negative numbers in rent when the CPI shelter number is showing a positive 8% number. So maybe, you know, that negative seven is on new leases done. It doesn't include rolled over existing leases that are renewed that maybe are being done at plus two or plus three. So the number may not be negative, but the number is just not plus eight. And that continues to be such an important understanding of where inflation is. Now, headline inflation, if gas prices go up 10, 20%, 30%, as oil prices have recently done, then you're very likely going to see a reversal in headline inflation, obviously so far out of the Fed's purview when you're talking about oil prices.

I'm going to leave it there. Fed funds rate, the futures market tracking an 80% chance right now of no move on the rate in late September at their next meeting. And then a 70% chance of no move in November, a 20% chance of a hike in September, a 30% chance of a hike in November, another quarter point. I've already talked about how I don't think it's reasonably clear this early because we have such a long distance to the next meeting what the Fed may do. Both Against Doomsdayism and Ask David have some good stuff we're checking out at the DCToday.com. I'm going to leave our video and our podcast there, though, for today. Please reach out with questions at thebonsongroup.com anytime.

I'm really looking forward to being with you again tomorrow and Tuesday. Have a wonderful evening and let's get ready to have a wonderful month of August. Take care. 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 Thank you. Tyrion will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities referenced Tyrion may not be suitable for all investors. All data and information referenced Tyrion are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as 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

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