The Dividend Cafe - The DC Today - Monday, November 27, 2023

Episode Date: November 27, 2023

Today's Post - https://bahnsen.co/3sYDwqz Futures opened last night down -40 points or so, worsened a bit throughout the evening, and this morning pointed again to a down -40 point open pre-market. The market opened pretty flat this morning and just stayed in a tight range to the downside throughout the day. The Dow closed down -57 points (-0.16%) with the S&P 500 down -0.20% and the Nasdaq down -0.07%. *CNBC, DJIA, Nov. 27, 2023 As a contrarian, I do not like seeing the put/call ratio and bull/bear sentiment be so tilted towards complacency. Even the VIX at $12.69 is pretty surreal. The ten-year bond yield closed today at 4.39%, down almost -10 basis points on the day as the November bond rally continues Top-performing sector for the day: Real Estate (+0.38%) Bottom-performing sector for the day: Health Care (-0.64%) 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 back to the Monday edition of DC Today. Thanksgiving week is behind us. We are here into the final week of November and we're in our kind of normal Monday edition of DC Today. It's actually, as far as these Monday editions go, a little shorter than normal. There's a handful of things to be covered. But honestly, in market activity right now, things are a tad boring. We had a weird day today in that equity volatility was quite low. The Dow closed down 57 points and it opened down around the same and it didn't move a whole lot out of its range on the day. So you had a tight range, barely down after a good week, after a good month. And yet the bond market continued to rally. I mean, the 10-year

was down, the yield was down another almost 10 basis points today. So when you have the 10-year now at 4.39%, this is actually one of the rare days in the last month where stocks did not go up with the bond market as yields fell. But again, the market didn't exactly drop much either. The S&P was down 20 basis points. The Nasdaq practically flatted down just seven basis points. So not a lot of action in the market today. One of the things I kind of want to point out for you who are listening or watching is the complacency in the market right now. I'm not totally loving and I don't mean, oh, just because markets have done well. That part I understand completely based on how yields have gone. Earnings season ended.

It was a pretty benign earnings season as these things go. And I can understand the market's beginning to sort of look ahead to the Fed beginning to cut rates next year at whatever point that may be. But the put-call ratio, which is one of our sentiment indicators, where you're looking at the ratio of people buying puts, which is playing defense, versus buying calls, which is playing offense, and you get a kind of historical relationship in that ratio. And you do see both 10-day and 20-day put-call ratio at very, very low levels. You do see the VIX at barely at 12.5.

I mean, an incredibly low VIX at barely at 12 and a half. I mean, an incredibly low VIX. It just seemed like a few minutes ago it was back well above 22. So in, let's call it about a month, the VIX has been cut in half, more or less. And then certainly the various sentiment indicators, those identifying as bull versus bear and that kind of stuff, you do have an overwhelmingly positive sentiment. So you might be hearing all this, and I just need to reiterate our contrarianism. Why in the world would I feel negative about everybody else feeling positive? That is exactly what I'm saying. You are hearing me correctly. And it is an important investment philosophy that when things get a little too positive, we don't love it.

Now, there are some negative issues as well, which I consider positive. You don't have a lot of flows into the market. People can be saying they feel real bullish, but we don't see a lot of small money flowing into the market. A lot of times when you see some of that, it's setting itself up for a reversal. Look, I don't have anything else to happen in the short term. But I do know, generally speaking, when you find opportunities, when everybody is very, very bearish and there's a lot of negativity, those generally are really wonderful times to be entering. We don't see that. I mentioned how the bond market did today. The top performing

sector in equities was real estate. It was up 38 basis points. Healthcare was the worst performing, down 64 basis points. So again, not a lot of upside, not a lot of downside. Pretty boring and diversified day in the market. I think in the news story, the news side of upside, not a lot of downside. Pretty boring and diversified day in the market. I think in the news story, the news side of things, the biggest story was the hostage release. I think they're now into the third phase of it. It's a little bit complicated. The country of Qatar kind of helped broker this deal between Israel and Hamas for now. So they're accompanying some back and forth hostage release with a temporary ceasefire. My understanding today is that they did agree to extend the ceasefire for a few more days. We'll see how that holds. And the, let's see, Israeli hostages

are supposed to be released to the tune of 50. So we're not quite there yet. But like I said, they're doing that in phases. And U.S. public policy, there's not a lot going on other than the Ukraine funding. I still do not know how they're going to get there. As a standalone bill, Senator Schumer went out on a limb saying he's looking to put that up to a vote, threatening to keep people at the Senate even through the holidays if they don't get to a deal. And then, of course, if they do or do not fund Ukraine solo, do they fund Israel solo? Or do they accompany these bills? Does one of them, more likely the Ukraine bill, get accompanied to an immigration package? And so there's a lot of political questions around how some of this will come together. And that's

the major issue happening, I think, in public policy right now. On the economic front side, 11 million people, this is some reports I read over the weekend, there are 11 million people who work for companies in the high yield bond index. If you take all the companies that trade bonds, that have issued bonds, that are part of the index that captures the high yield corporate issued bonds, that are part of the index that captures the high-yield corporate bond universe. There are 11 million employees at all these companies, and there are 8 million employees who work for companies that are in the leveraged loan index. So if those numbers are about right, because there's some issues that could, you know, cause us to have to turn the knob a little up or down there.

If those numbers are right, and unemployment got to 10% in both the companies in the high-yield space and 10% of the companies in the levered loan space, which would be well more than double what it is now, what it is now, that would be nearly 2 million additional unemployed, about 1.9 million additional unemployed in a workforce of 168, it's 167.6 million people. Will defaults in high yield and levered loans pick up before the Fed begins cutting? Will they pick up? Will defaults get to a point where it's leading to higher levels of layoffs? If it does, will the level of layoffs be at that magnitude, 10% in that space? And even if all those things did happen, would that level of job losses even move the needle that much in the total unemployment rate? That's a lot of ifs. And it's entirely possible you get more distress in those sectors. But I'm not sure that you're going to see job losses at that level.

Marginally, yes, or at least potentially, yes. But to that degree, I doubt it. Here's an unemployment stat that does bother me. 9.2% in the month of April for unemployment of 16 to 19-year-olds. It's 13.2% now. Now, does that bother me? Because I think it means that we're about to see higher unemployment in 39-year-olds because the unemployment rate for 17-year-olds has picked up. There actually is not a great precedent in the data of teenage unemployment going higher and that being foreshadowing to broader unemployment going higher. I don't like it for what it is on its own. Higher minimum wage requirements that are impacting lower skilled segments of the workforce.

And I think that that itself leads to less training, less experience, less opportunity set for those of a lower education and skill set to get themselves priced out of the labor market. That's a data point I'm concerned about. As far as the Black Friday shopping, we're in that time of year they're going to start talking about retail and the consumer like crazy. The best indications are that Black Friday shopping was up two and a half percent year over year. Some indicators like Adobe Analytics had it up 7.5%. We do like hearing the numbers more from MasterCard, Visa. That tends to be a bit more reliable and less tracking error.

But all in, it appears whether it was 2% or 7% that you had a modestly higher weekend of shopping. And I still don't care. Okay. Housing existing home sales in October were 100,000 less than expected. This is the smallest monthly number that we're seeing for existing home sales since August of 2010, well over 13 years ago. And then just anecdotally, I think it's very interesting. First time home buyers are less than 30% of home purchases the last several months. You have to think that's a testimony is attributable to mortgage rates and affordability. Reputable to mortgage rates and affordability. And then certainly the fact that cash buyers, all cash buyers, are a stunning 29% of home purchases right now.

That most certainly has to be connected to high mortgage rates. Oil prices are $75. It was down a little bit more than half a percent on the day. Midstream energy continuing to do very well, was up again last week on the holiday shortened week. Oil prices had come from the low to mid 80s all the way down to 72-ish last week, came back to 77 or so. The mid 70s is still a lot lower than the mid-80s where things had been. But I think that there is, just as we see in the bond yields, a certain degree of pricing in lower economic expectation.

The notion about Iran dumping oil on the market before they face sanctions that may come back is a plausible theory. I do not want to discount it entirely, but I do want to stay sensitive to Louis Goff's point that people last four or five times oil prices dropped have looked to blame it on Iran. And it does sort of get to a point of, you know, well, I mean, is oil really that susceptible that a pretty marginal player like Iran could move it down four or five times in a year? It seems unlikely. OPEC Plus, by the way, was supposed to meet yesterday and today their annual policy meeting and set kind of their new production commitments. And they delayed that meeting until this Thursday. So we'll keep you posted about that later in the week. Are you against doomsdayism? I am. One in five homes in America, one in five homes, 20% in 1950 had no real plumbing, toilet in the house or running water.

I consider those to be pretty basic prerequisites of plumbing. About 20% as well used coal or wood for heating, didn't have actual systematized gas heating running through the home. systematized gas heating running through the home. There were parts of the country where this 20% threshold was actually 50%. So there was a geographical dispersion that was quite interesting as well. The number of homes today without plumbing or heating is pretty much zero. This is not a statistical point from 1750 or 1850. It starts at 1950. So that's a very quick period of time to go from what seems like an awful data point to a phenomenal data point.

And I am happy to share it with you in my perpetual commitment to being against doomsdayism. One question asker did wonder what I thought about the Argentinian election, the fact that the country actually elected, you know, a pretty zealot advocate of free markets, brands himself as a, you know, kind of far libertarian. And from what I've heard, there's a lot of things he has said that I like a lot. There's some things that I'm not totally crazy about. But for the most part, it looks like, you know, a good step in terms of economic freedom. But then the question was, well, when you get a leader like that doesn't mean just compared to the socialism before or what have you, this is going to be just huge. And I just want to remind people that in addition to having the right beliefs, you have to have the right execution.

You have to have the right sophistication, the savvy, the personnel to move policy through. And so I'm not being down on this guy or the situation in Argentina at all. I don't have any idea what to expect. I just want to say that having the right ideas is a necessary but not sufficient condition for national improvement, societal improvement. And we'll see how this plays out with a little more time. So I will leave it there. We shall see in Argentina and we shall see in the D.C. today. I will leave it there. We shall see in Argentina and we shall see in the DC today. Please reach out questions at thebonsongroup.com anytime. And thank you for listening. Thanks for watching. Thanks for reading the DC today. We'll see you tomorrow on Tuesday. Thank you. Past performance is not indicative of current or future 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 reliable.

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