The Dividend Cafe - The DC Today - September 12, 2022

Episode Date: September 12, 2022

It’s pretty anti-climactic that I announce the new DC Today plans on Thursday and then we get to Monday and … it’s the same DC Today you are used to … But that is the idea – no difference in the written program for DC Today on Monday, but with the addition of this daily podcast (and video) … TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividend Cafe, weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. All right, well, welcome to what is the very first ever DC Today podcast. And for those that have been involved with the Bonson Group for some time and know the history of it, or for anyone who might actually care about it, you know that we did do a podcast, I think pretty much every day throughout the COVID and markets days, which ran from March through September of 2020. And then when we switched from COVID and markets to DC Today, we stopped doing that daily podcast. And as was announced last week, we are now making some changes even around the format of DC Today. We stopped doing that daily podcast. And as was announced last week, we are now making some changes even around the format of DC Today as well. So those of you who

received the written DC Today today, you won't notice any changes. In fact, it's actually quite a long and robust one because I had so much time working by myself in New York City this weekend. But starting Tuesday, Wednesday, Thursday, meaning immediately tomorrow and so forth and so on, we will have a written DC Today that goes out, but it's really just going to be a market synopsis and a Ask David each day. The podcast with and also those watching on video will be where the kind of more elaborated daily update comes from. So that's our routine going forward. Let me kind of get into some of the things I wanted to about today. It's been a very, frankly, bizarre and fascinating market recovery. We're now up pretty much 2,000 points

from where we had bottomed out a couple weeks ago. And that itself was down about 2,500 points. So the market has both had a huge recovery since June, lost a lot of that recovery, and now gained a lot of that loss back. There continues to be ongoing volatility. I suppose the one thing that's a little unique in the present situation is that previously, when the market recovered, bond yields had hit a certain high point and then really dropped quite a bit, confounding a lot of the critics about the bond market

most supposedly tracking what the Fed was expected to do, which is utterly absurd. But in this particular market recovery, the Dow is not only up a great deal, but it's doing so with bond yields kind of going higher still also. They're not back to their June highs by any stretch, but they have indeed come well off of their lows from before. And so you're now seeing a kind of inverse correlation with equities and bonds,

where they've been highly correlated together for most of this year, regardless of the direction. In terms of the market today, it was up another 230 points. The Dow, the S&P was up over 1%, NASDAQ over 1.25%. I won't get the breadth of the market until tomorrow, but the huge rally from last Friday, it was 9 to 1 advances to decliners. That's one of the stronger breadth days we've seen on the year. I wanted to follow up with you on a few things from the Dippin' Cafe on Friday regarding the U.S. dollar.

I think that there's a pretty significant move higher in the dollar, as we've talked about, on the calendar year. And a lot of that is measured against the euro, the pound, and the yen. But I think that when you look at the Canadian dollar, the Australian dollar, it's a less very great Mexican peso, the Brazilian real. We don't see the same move. Commodity-oriented countries have not captured some of that weak developed currency versus strong US dollar in the same way. And I think that's a very relevant part of the story. Now the dollar has come off a little bit relative to the normal traditional basket,

including Euro and so forth in the last week. And that is, I think, a very big question mark as to, I personally have no question as to whether or not it's going to happen. Will the dollar revert? I'm quite confident it will. But the question is when. And if this is the moment in which maybe the dollar begins to kind of peak out, that may speak well to the opportunity in some non-dollar assets,

particularly in emerging markets, which are quite vulnerable with heavy dollar-denominated debt having to pay back on a stronger currency. Energy was the biggest gainer for the day, and consumer staples were the worst-performing sector on the day, but consumer staples themselves were up 0.41 not a bad day any day and it happens so rarely where the worst performing sector is still positive you can assume it's a very wide threat day um i do want to point out by the way back to that currency, the yen is also making a 30-year low against the Chinese yuan. And so as weak as it may be against the dollar, this is not merely a U.S. dollar story.

The Chinese currency relative to something like yen has maintained a lot of strength as well. a lot of strength as well and it is in fact the reason for some weakness in chinese yuan relative to dollars they simply are having to compete a bit with what again is doing to them they're the moving parts of this currency battle are quite quite interesting and then finally before i move on from markets i uh love the fact that wall Street Journal is covering this and there's more conversation around it now, but I have to point out that there were 190 publicly traded listed companies that eliminated their dividend during COVID. 190. And there were a lot more across all public listing exchanges that cut a dividend, but I'm just referring to elimination.

And I think, let's see, there's 39 of those 190 that brought back their dividend that year. Once more was known about COVID and economic response, the dividend was brought back rather quickly. response, the dividend was brought back rather quickly. But then 53 brought it back in 2021. And so far this year, another 23 have brought it back. You can guess why they've waited so long. But when all is said and done, that's 75 companies who cut their dividend in 2020. companies and cut their dividend in 2020. And here we are now into the end of 2022, and they still have not brought it back. And I think that does speak to a very important distinction that I make all the time, which is the difference between a dividend payer

and a committed dividend grower. Companies that call themselves dividend payers and they're paying one and then are so cavalier about getting rid of it, they're not always in any kind of rush whatsoever to bring them back. And the reason I would suspect 75 companies that still not brought a dividend back of 40% of that 190 is that you had 190 companies that were so willing to cut their dividend in the heat of the battle. Now there's always some reasons some companies get forced out to do it. They were overly levered. They were maybe going to be taking money from the government in the

context that made it impossible for them to keep paying a dividend. You can think about some of the airlines there. But my point would be never confuse a company currently paying a dividend with a company committed to its dividend. You cannot measure commitment to the dividend from what they may currently be doing. You have to know what they want to be doing, what they've historically done, their capacity for continuing to do it. A lot more goes on into that. Okay, let's move on to the news and some of our other normal topics of the day. I think it's no question

that one of the bigger news stories of the day is Ukrainian forces making significant gains in their efforts to repel the Russian aggression. Recapturing in the last few days, basically as much territory as Russia has captured since everything since about April of this year just after everything began. So I would suggest that there has been unexpected progress in the Ukrainian war effort and the other news is getting a little bit of attention,

but I don't think you're going to hear about it unless you hear about it from me. We're just a couple of days away, it appears, from what would be a massive, about 60,000 employees striking in the railroad industry, primarily electricians, engineers, conductors. Many of the smaller unions have come to an agreement, but two very large unions have not. It would appear a strike is very likely if something does not break through in the next few days. You know the public policy side.

I've got to say, the idea that Senator Manchin was going to get a vote on this energy bill, and that was one of his conditions for voting for the climate spending bill that he and Chuck Schumer got through the Senate a month or so ago. You notice I don't call it the Inflation Reduction Act, and I'm not going to, but if you want to just make sure that you understand what Bill is talking about, you now know that I won't lie to you. Look, he was promised a vote on streamlining the process for approving federal permit oil

and gas drilling, along with streamlining for pipeline approval, including a pipeline to be built in his home state of West Virginia. And I'm not saying he won't get that vote, but there all of a sudden has been a huge pushback. And so, Senator Bernie Sanders has come out way against it, but

75 House Democrats sent a letter, basically voicing their opposition to it. This has the capability to get very interesting within the Democrat Party and potentially block the thing mentioned with promise that his could go close. I am expecting this week to get public release of

some draft of the Taiwan bill that's been floating around for a bit. A Taiwan policy act that's supposed to be firming up U.S. commitments militarily and economically to Taiwan. I've heard some rhetoric from the Biden administration, haven't seen the draft yet, and I expect that to come to the table. On the economic side, you may have heard, this wasn't a surprise to me, 42 million people who have student loan payments owed were told throughout the COVID moment they didn't have to make payments. A moratorium that I think ended up getting extended six or seven times kept them from having to make either a principal or interest payment. But 9 million

of those 42 million chose to be making payments anyways, understanding that in their mind it was going to be owed anyways, may as well keep it going. And certainly since very, very, very, very, very, very, very few of those people were actually not in a position to pay based on the fact that unemployment came back to record lows and there was so much transfer payments and support throughout anyways. Well, now there is just an absolute flooding of people requesting refunds of payments that they made for the obvious reason that the word is out

that they're going to be getting $10,000 of forgiveness. They want to get that money back and then have it forgiven, and then they're better off. Who could have guessed this was going to happen? To be anecdotal for most of you, I just want to point out, the governor of the state of New York lifted the mask mandate on subways last Tuesday. On Thursday, there were 3.6 million people who rode the subway in New York City.

That is the single highest day since COVID began, going all the way back to the onset of the pandemic mandate on the subway being lifted. But also there were a fair amount of employers who have continued to kick the ball about getting their employees back to office. They had finally said their line in the sand was going to be Labor Day of 2022, about nine years after COVID started. Excuse me, two and a half years. And so my suspicion is you have a double whammy of a lot more people having to come back to work. Thank God. So, okay, as far as the housing side, you know mortgage rates are way higher.

We do have a range of the 30-year mortgage that for most of the last 10 years was as low as three.5%, and a couple points got up as high as 5%, which a lot of people talk as if it had always been 2.8% on the 30-year, but it wasn't true. It reached below 3.5% during COVID, and with all that monetary stimulus and MBS buying and rate manipulation, zero bound, you did get these all time lows in the 30 year mortgage, well below 3%.

And so now we're dealing with rates back up to near 6%. And I think that the boom cycle of rates being pushed so low behind the median range is why you're not getting the bust cycle of rates that are so high above the range. We talk about a bus cycle, by the way, there were 266,000 apartments rented in the second quarter of 2021 last year. There were 72,000 rented this year, a massive decline. And you have apartment vacancy going higher for the first time in 14 months. I don't think there's any question that apartment rental hikes are slowing. There's some areas in which they've already begun to actually go negative. The growth of rent in apartments from the year is likely to now come in just around 6%.

It was up about 18% last year. So you add the very most, no matter what, you're seeing some heavy form of disinflation. But then on a single family residence level, look, you saw no price increase nationally for the last two months. And that's a pretty good predecessor to deflationary rent levels, something I think a lot of people would appreciate based on the absurd affordability levels, in affordability. I do think the Fed is set. It's not until near the end of next week, but I think the Fed is set. It is not until near the end of next week, but I think the Fed is set to raise rates 75 basis points as we get ready for the consumer price

inflation number to come this week. I would have guessed that if there was a big enough miss, you know, meaning inflation undershot expectations in the CPI data. I would have thought the Fed would be more likely to raise 50 bips than 75. But they have done so much telegraphing now, including putting two governors out on the Fed governors out on TV on Friday before their quiet period began. Basically saying, yeah, we sure hope to see CPI less than people think. But even if it is, we don't want to err that direction, rather err the other way. So I do suspect that they will go with 75 basis points. The futures market is saying the same thing, 88% chance of a three-quarter point rate hike next week.

I want to reiterate, I don't think it matters. I think they're stopping between three and a half to four, no matter what. And if they get there with a 75 now and a 50 later and a 25 later or no 25, whatever they do, September, October, November, December, I think is irrelevant. The point in my mind will be, I think they're going to be stopping in that range. There are some who disagree with me not a lot whose opinions i normally respect but there is there is one economist and analyst i follow religiously who i respect incredibly who disagrees uh but regardless we we um the pace is not the primary issue and markets obviously are well aware of where these things are headed early, shorter term. Energy oil prices were up about 1.36% today. I think that midstream doing so well last week as oil prices were negative, natural gas was negative, and yet the energy sector that is responsible for transporting oil and gas, what we call midstream MLPs,

pipelines did quite well. Yet again, this is what I want, what I believe, that there should be a de-correlation from that sector from asset prices, but you just never know when sentiment can churn. It can do irrational things. I'm going to leave it there. I do intend to have all of the information you're going to want from DC Today coming from the podcast Tuesday, Wednesday, and Thursday going forward. preferring to read DC Today, including a big Ask David clarification about stock valuation and on, excuse me, doomsdayism chart. Those things are also available today in the normal written form. So tomorrow will be the first day where the only way you're getting a lot of this extra info is from the podcast, but we'll still have a market synopsis and ask David in the written form. So CPI number coming. I'll be speaking at the SALT conference here tomorrow morning.

You will be able to catch me on Cutlow on Fox Business tomorrow, late day. And with that said, I'll leave it alone. Reach out anytime. Questions at thebondsandboop.com. We want to hear from you. Thanks so much for listening to and watching 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.

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