The Dividend Cafe - The DC Today - Monday, March 4, 2024

Episode Date: March 4, 2024

Today's Post - https://bahnsen.co/4c33Ql2 Manufacturing contracted in February again, coming in at 47.8 in the latest ISM measurement (below 50 is contraction, above 50 expansion). Manufacturing has contracted every month since November 2022. Export orders picked up a bit but the other categories were all negative. However, 8 out of 18 sectors saw expansion this month where last month is was only four. For what it is worth, the states with the highest population growth since 2019 (by %) are Idaho (+10%), Utah (+7%), Montana (+6%), Texas (+5%), and Florida (+5%). Right behind those leaders all tied at +4% is Tennessee, Alabama, Georgia, and South Carolina. The only states to have negative population growth are California (-1%), West Virginia, Louisiana, and Mississippi. Services remain below their pre-COVID share of total consumer spending. 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. Hello and welcome to the Monday edition of the DC Today. I am thrilled to be with you here from our studio in our New York City office, and it has been a fun weekend task putting together today's DC Today. I think we're going to cover all of the normal subjects. I may have skipped one, but there's a handful of things to go through across the economic data, the Fed, housing, oil, all of the normal fun stuff. So I'm going to try to get through all of it. Why don't we just start with markets? Because you did have the Dow futures last night were down 40. When I was up early this morning, they were down 60. And then the market worsened throughout the pre-market hours and did open down 200. And it kind of opened at its low point of the day. And then

that's not to say it rallied way higher, but it did zig and zag throughout the day. Although after giving getting all the way back to even, it still closed down 97 points. So there was a fair amount of intraday volatility today. But when all of a sudden done, the Dow closed down just a quarter of a percent. The S&P was only down half of that, 12 basis points, but the Nasdaq was down 41 basis points. I don't think that there was any particularly newsworthy event that drove any of it. Probably the big headlines of the day were first one that was incredibly expected. The Supreme Court unanimously threw out the idea of Colorado and then subsequently Maine and Illinois, some states that were looking at not having President Trump be eligible to be on the ballot.

The Supreme Court, by a nine to nothing vote, overruled that. That happened today in the news cycle, but it wasn't market moving and it was pretty well expected, I believe. Another news bit that is more market impacting that did seem to weigh on a couple of the big tech companies, but again, it came out before the market opened, was that the European Union has assessed a almost $2 billion fine on Apple related to some of its bundling with its streaming and music streaming services. So, you know, you had some of that taking place within the NASDAQ side, but really not a whole lot to report. It's just that within a few indexes that didn't move a lot, you do have a kind of dispersion of results.

And what I mean by that is utilities were up over one and a half percent today and communication services, which includes companies like Apple and Google, which reached down, you know, two or three percent today. Communication services was down one and a half. So a little movement sector by sector within the market. The Nikkei, the Japanese stock market, closed over 40,000 for the first time ever last night. And the night before, LeBron James became the first basketball player ever to reach 40,000 lifetime points. So there you go, 40,000 being a big number for the last couple of days. Some have asked how January and February is pretty good start to the year. I think the S&P is up

about 7% through the first two months of the year, how that compares to other years. And it's the 13th best start since 1950. So if you're looking at, you know, almost 75 years, it's the 13th best start since 1950. So if you're looking at almost 75 years, it's in the top 20%. But 12 years have done better in January, February. So take it however you want. The 10-year bond yield today, by the way, closed at 4.21%. That was up a few basis points. I already mentioned utilities, best sector, communication, worst sector. I wrote a dividend cafe on Friday related to private debt.

And I want to point out that there was about $500 billion in 2015. So not exactly ancient history. Less than 10 years ago. Total in all closed-end private debt funds, it's now over $1.7 trillion. So the space has more than tripled in about eight or nine years. And that's just since 2015. If you were to go back to post-crisis 2009, 2010, you may not have been at $100 billion soaking wet. So significant gain post-financial crisis in the opportunity set within non-bank lenders. The expectation is that these closed-end vehicles will exceed $3 trillion in just another three

to four years. $3 trillion in just another three to four years. Now, I also want to say this dividend cafe was devoted to private debt. And I wonder if we have to do one soon about private equity when I see the fact that the total amount of public companies in the United States is now down 50% since I began my investing career over 25 years ago. That is crazy that there are roughly in the range of 4,000, almost 4,500 less public companies than there were in the mid to late 1990s. Obviously, that has to do with many evolutions and advances that have taken place in private equity. And then finally, and you're going to have to see the visual in the dctoday.com, but when you see it, you'll know what I mean. Cover of The Economist magazine for the month of March. How high can markets go?

So for those who have studied the history of magazine covers over the years, as it relates to things like the stock market, the economy, housing, all kinds of things, you can choose to view this as a contrarian indicator or not. Moving to the economic front. On Friday, we got the ISA manufacturing. It contracted in the month of February. It came in at 47.8, and anything below 50 is contraction. Anything above 50 is expansion.

The only kind of bright spot I'd point out is the last month, four out of 18 sectors had seen some expansion. This month, eight out of 18. So you got a little better breadth. But again, you still saw contraction in everything other than export orders. Export orders picked up, but total new orders, hiring, all the other data points that go into the survey were all down. Interesting, states with the highest population growth since 2019. So this includes just before COVID and then kind of through COVID, five-year period. Idaho, population growth 10%. Holy moly. Utah 7%, Montana 6%, Texas 5%, Florida 5%. Tied at 4% right behind those are Tennessee, Alabama, Georgia, South Carolina, all these kind of SEC states. The only states to have negative population growth, West Virginia, Louisiana, Mississippi, 1%, but then California, which had never had it.

And now California has gone five years with a net negative population growth, the largest state in the union economically, population, all those things. A great chart, by the way, that we put in the DC Today today showing how services as a percentage of consumer spending has not gotten back to where it was pre-COVID. It's obviously picked way back up from during the COVID years, but is still not quite to the pre-COVID level. In terms of housing, I have a whole set of data points, some links and things laid out regarding how the Bureau of Labor Statistics, which calculates these things, changed the computation in shelter component, which is now 36 percent of CPI, had previously been 34 percent. But the adjustment added 0.2 percent to the owner equivalent rent portion of shelter. So do with that what you will. so do with that what you will. Speaking of inflation data, the Fed, one thing I thought is quite interesting,

a data point that came to me this weekend, 27% of the debt held by the S&P 500 companies, only 27% is floating rate. So you have the Fed tightening rate. You don't have a big impact to earnings in the S&P. You don't have a big impact to pricing in the S&P. And people wonder why. And I wonder if a big part of it is just that, you know, again, about 75% of the debt was fixed, therefore somewhat immunized from the impact of higher rates.

Let's see, WTI crude, almost $79 a barrel, down 1.5% today. Oil prices last week were up 2.3%. They're up 9% on the year. Natural gas prices are still down 26% on the year, but they were up a stunning 16% last week. MLPs, master limited partnerships, publicly traded oil and gas pipelines have been positive eight of the last nine months. They were up four percent in January and up another four percent in February. And there is a little explanation I want to lay out about why

the Strategic Petroleum Reserve has not been getting refilled after the Biden administration brought it down from roughly 650 million barrels in 2021 to 350 million in 2023. They've only refilled 26 million barrels. 3.2 of those 26 were last week, by the way, a very slow refill. And I think that some of it was that they may have missed an opportunity when oil was in the high 60s, low 70s. Maybe it goes back there. But there are only four strategic petroleum reserve sites in the country, two of which are under maintenance right now. And then the need to refill them with a sour crude that requires refining and refining costs are still quite high. So you can see WTI price is lower, but the need to refine it into what the

SBR holds, there's a delta in that price that is relevant and maybe not about to cooperate anytime soon. All right, against doomsdayism, you tell me if you care about this or not. The average hourly wage, 25, it's a little more than 25 years ago, mid-90s, could buy 48 pounds of bananas today. Excuse me, today the average hourly wage can buy 48 pounds of bananas. In the mid-90s, it would buy 24 pounds. So you go, why do I care about that? Who's buying 48 or 24 pounds of bananas? I just simply use it to make the point that real wages have grown. And if you were to denominate your total expenditures by the cost of bananas, or if you were to use bananas as a currency, then that's a pretty stunning statistic. Now,

obviously, you don't do that. So you say, are you just putting it in to be sarcastic? And I would say no. I think that this is an example at which one element, and there are many, many others, reflect pricing that did not move higher. The ability to export to the United States from other countries did not come at a higher cost structure. And the ability of the United States to both home grow and import, put downward pressure or stabilizing pressure on prices, even as real wages grew.

Do with that as you please. Someone asked me if I trust the data we get. Governments report economic data. This is our Ask David question. And he had said, my cynical self questions the merit of a lot of the data coming from government, let alone from countries like China. And I point out that not all the data is coming from one source. There is an awful lot of various academic research and various think tanks and other organizations, some of which are governmental, some of which are not. And so you have a multitude of sources

to objectively evaluate data, to try to get validation across data inputs. But then, you know, if one of the thesis is, well, the government could be cooking the books, just flat out lying. Not only do I think you'd see a big non-correlation between their data and other data, but I also just think I might have a lower opinion of government than the people that would be concerned about that because I don't believe they could get away with it because I don't think they're competent enough to have thousands of people in on some form of book cooking that would be required when you look at the size of these teams involved, for example, at the Bureau of Labor Statistics and so forth. So I tend to be a little less cynical about it, but not because I have this high degree

of trust in their integrity as much as I have such a low regard for their competence to get away with something so impressive as cooking the books on various economic data points. I think the key is that you need to look at all data in a relative sense, comparing it to prior sequences, current readings compared to past readings. You want to get a variety of data sources, you know, confirming data hubs besides a primary or an authoritative data source. You also just have to understand the complexity of cooking the books in a research-sophisticated society like ours, I don't think is very easy to do. Now with China, I'm not aware of much data that I get that comes straight from the CCP regarding China. Most is related to what we know.

You know, Europe can tell us what they sold to China. U.S. knows what it bought from China. U.S. knows what it sold to China. So there's a lot of restrictions because of various global inputs into how China reports the data. This doesn't have anything to do with respecting some of the entities that report, but it does have to do with understanding the reality of what we already are able to know and therefore provide a certain degree of stress test around data inputs. I hope that's helpful. Okay, Brian Seitel will be bringing you the video podcast for DC Today tomorrow, Wednesday, Thursday. As always, I will be bringing

you myself as I do every day, the what's on David's mind in the DC Today. And that will leave it there for now. But reach out with any questions, questions at thebonsongroup.com. I hope it's been a helpful summary of all things going on in the market, the economy in this Monday edition, March 4th of the DC Today. Thanks for listening. Thanks for watching. And thank you for reading. 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 I'm Matt Levin. 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

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