The Dividend Cafe - The DC Today - Thursday, August 10, 2023

Episode Date: August 10, 2023

Today's Post - https://bahnsen.co/454dv7h A tad to my surprise CPI came in even lower than expected (+3.2% vs. consensus estimates of +3.3%). The core rate was +4.7% as anticipated. On the month, prices ex-food, ex-energy and ex-the B.S. shelter figure were down -0.1%. Within that +3.2% the shelter component was up +7.8%, as the model shows OER (owner’s equivalent rent) up +7.7% on the year and Rentals of primary residence up +8%. Uh huh. Core goods prices are up +0.8% on the year. +0.8%. The annualized total CPI from the last three months even with the bad shelter data is +1.9%. Shelter is overstating headline inflation by 30% and core inflation by 40% (and I actually think it is mor than that). Month-to-month data is moved by base effects of the year prior and energy prices. As for energy prices, it looks like much of the oil and gas surge was late July and not as captured in this month’s data as I would have expected. Two years ago this exact week the S&P was at 4,450 or so. Fast forward to today, the S&P is at 4,450 or so. But the 10-year yield was 1.32% and is now 4.02%. Would anyone guess that a near tripling of the bond yield would leave the market flat? Now, the Nasdaq is down -8.3% over the last two years, but still, you get the idea. Sometimes facts make no sense unless you have the gift of hindsight. Be careful about applying an investment conclusion to your forward-looking premises. As I always say, it will be hard enough for your premises to come true. It will be even harder for the conclusions that come from your premises to prove accurate. 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 Thursday edition of DC Today. I actually am recording from my apartment. Actually, I'm recording from my apartment. New York City was just hit with quite a thunderstorm. And so rather than go back to the office after I'd been down at Fox Studios recording on set with Larry Kudlow after the market closed, rather than go record in our studio at the office, I came straight to the apartment reasonably soaking wet. And that is just a byproduct of the dedication I have to you to come here to record this. So let's get into it. It was CPI day. And there's a few things I want to be able to go through. All right, let me pull something closer here. Okay. The market was

up 450 points today at one point, the Dow, and it closed up only 50. So it gave up most of the lead. On the day you ended up with the Dow up 15 basis points, 50 points, like I said, the S&P just up, you know, only a few basis points, practically flat. NASDAQ up a small amount as well. All three had been up quite a bit. All three gave up their leads. And what had happened was the bond market was all pretty much up. Not a lot, but yields mostly across the curve had dropped one to two basis points in the aftermath of CPI. And so as bonds

were going higher, equities were rallying quite a bit. And then at some point in the middle of the day, the bond yield started turning straight up. And that is more or less around the time equities reversed at one point going negative, then making back and there's just a lot of choppiness. So, you know, you definitely have volatility around the thing I talked about yesterday with different traders putting on and taking off and putting on new positions, hedges, things like that. But that volatility is sort of explained by that. As to why it would have ever been up 450 points, the only thing I could think would have been some short covering. There wasn't anything fundamental that I could see that would drive that. The CPI report was a little better than I expected, but not enough to change any of what would have been baked in already,

which was that the Fed's likely looking to kind of do nothing at the next meeting. And then there's still a sort of a jump ball after that with a little bit of a bias towards not hiking again, but not a foregone conclusion there. And nothing changed out of that. I was expecting CPI to go up a little more than it did, but it does appear to me that the energy impact and headline inflation I was expecting didn't materialize till late enough in July that it didn't get captured in the data to the degree I would have expected. And so you really had a pretty benign report.

They're expecting 3.3% headline CPI year over year. It came into 3.2. But again, I got to get in the weeds on it because the shelter number is still being tracked at 7.8%. That's a little lower than the eight handle from before, but just obnoxiously unrealistic of that 7.8. obnoxiously unrealistic of that 7.8 um you have let's see here uh owners equivalent rent up 7.7 and rental of primary residence up eight and um there's ongoing debate about whether or not the data should be three percent there should be one percent you know i'm willing to take any number

between zero and four but not any number between seven and eight in terms of real life shelter inflation right now. And so that is putting us at a higher place than we otherwise would be. Now, I want to point out, even with that, that you when you when you look at core annualized over three months, which is not really what people do. And excuse me, I meant headline. Total inflation, if it were annualized over three months, you'd be looking at 1.9%. Now, you're going to need more time than that because you don't annualize three months. You look over 12 months. I get it. You also, though, have core goods inflation that is up 0.8%, less than 1% year over year. Now, you do have a lot of things like airfare that are down and other things like auto insurance that are up. I understand that there's a mixed bag depending on what people are buying.

I don't like the selectivity of when people were wanting to make a point previously or make a different point now by cherry picking what narrative tells their story. But I do believe this is part of the problem with a general price level theory that you really don't have such a thing as an aggregate price level. And to try to blend together things that are up 10 and things that are down 10, it makes for some, well, math is math, but it makes for some very odd practical conclusions. So that's where we are on the inflation front. Energy prices will be the thing you're going to want to watch on headline.

And then as far as core services go, and whether or not it lowers to a point where the Fed admits that this thing has gone on long enough, we shall see. So one other anecdotal point I wanted to point out is that two years ago, the S&P, this very week, was at 44.50. And right now today, two years later, it's at 44.50. Basically a flat S&P for 24 months. And yet everyone knows it's been anything but flat along the way. Some really big drawdowns, some really big rallies. And this is the point I've been making. I did write a dividend cafe to this effect.

I do not think this flattish range bound market that goes on for years is over. market that goes on for years is over. I believe that we are in a post bull run, post bear run, where you get a period of flattishness that has ups and downs on the way. And yet nevertheless, leads to a rather dull response for an index investor. Now, the NASDAQ over two years is actually down 8%, but of course, it was down significantly last year. It had been up a lot in the second half of 2021. It has been up a lot in the first half of 2023. And there's just such a big sell-off in between that it's still down. So here's the thing, though, besides my So here's the thing, though, besides my tangential point about equity indices in a two-year period like this, the 10-year bond yield was 1.3% two years ago, and it's now 4.1%. So the idea that anyone could have guessed that the bond yield was going to triple and that the S&P would be flat is just surreal. And that's the way markets go, that people can get right premises, which is very hard to do, and still get very wrong conclusions.

And it happens all the time. And the notion that one just simply needs to know how things are going to shake out economically, and then they have an investment thesis to carry with that. It isn't true. And I've written about that quite a bit. All right. So I'm going to let you go there. Crude oil was down a little bit today. I write more about inflation in the DC today. And there's a couple of links that may be worth your time. And then tomorrow you get Dividend Cafe. And I'll look forward to recording that still here from New York. And then I'll be flyingividend Cafe and I'll look forward to recording that still here from New York. And then I'll be flying back to California for the next two weeks, late, late, late tomorrow night. So thank you for listening and reading and watching the DC Today. Hope you've

gotten a lot out of it. And I certainly welcome your questions as we continue to navigate through these very interesting times with inflation, with the economy, with bonds, with stocks, all the things that we literally eat, drink, sleep, breathe, and love at the Bonson Group. Thanks so much. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC, member FINRA and SIPC, and 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, a registered investment advisor with the SEC. Securities are offered through Hightower Securities LLC. Advisory services are offered through Hightower

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