The Dividend Cafe - The DC Today - Thursday, February 23, 2023

Episode Date: February 23, 2023

Brian Szytel here with you this up day in markets albeit in a choppy 500 point trading range of a session this holiday shortened week. I have some important updated economic numbers, along with comments on currency and real estate you will want to be sure to check out. 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, good evening. Welcome back to DC Today. Brian Seitel here with you. It is February 23rd here on this kind of holiday shortened week. And we had ultimately an up day in the market. We closed up about 111 points, but that was after about a 500 point range. We started out right up first half hour of trading, Right at first half hour of trading, we're probably up about 220, 225 points in the morning. And then we had something like a negative 250 print by about two o'clock or so Eastern before recovering into the close. And I'll kind of go through some of the data that we had today as to as to why we saw that trading range. But the bond market was slightly higher today. Rates were a little

bit lower, but not a lot. We're talking a couple of basis points. The one thing I'll note in the bond market is that while we've had the Fed minutes released this week and kind of a lot of noise around interest rates and where Fed is going to take Fed funds rates and all of this stuff, if you look at the yield curve, so short-term rates versus long-term rates, we're technically more inverted now than we were at the start of the week, which to me really just speaks to shorter-term inflation expectations are a little higher. So interest rates go up on the short end of the curve. And longer term, we're still pretty anchored towards basically a pretty indebted world. And so rates rates on the lower end, sorry, on the longer end are are down on the

week a little bit. But for all that was talked about, you know, for this Fed minutes being released and interest rates moving, frankly, they didn't really move all that much this week, market had pretty well already priced in a terminal fed funds rate of something like five and a quarter. I take that as good. I like that the market has kind of gotten it right in my opinion as far as where rates are going to go. Some couple of economic points on the day. We had initial jobless claims for the week come in a little lighter than expected. We were looking at something like 197. We got 192. And we also had continuing claims. So people on unemployment basically come in less than expected by almost 50,000, something like 1.65 versus 1.7 million.

Those are good things. I mean, I know the media points out that it's a good news is bad, you know, so that the Fed will lower interest rates or cut rates at some point. And I guess I understand that. But but I mean, we want people to have jobs. That's how this economy works. That's where we get positive GDP. So, you know, I'm all for having some of these numbers come out, be better than expected. And I don't necessarily know if it makes a huge difference to me or what we do at the Monson Group if they're going to raise rates by another 25 basis points or 50 basis points because of a good economy. There was a revision today on Q4 GDP, a final revision, and it was a little less than expected. So it came in two-tenths of a percent to 2.7% versus a 2.9% original expectation for GDP in the fourth quarter. There's some seasonality with that,

obviously holidays and things. So they have to kind of go back and forth where those numbers come in. The biggest negative attribution for the change lower was consumer spending. for the change lower was consumer spending. And so that kind of brought things in. They lowered it by about a point inside of that number. But still, a two and a half or call it 2.7 print for GDP and an expected something similar for Q1 is not a bad economy. That's a good economy, relatively speaking. not a bad economy. That's a good economy, relatively speaking. The other number that was out, there was an inflation number, a PCE, core PCE, which is personal consumption expenditure

outside of food and energy. So stripping those out was increased by four-tenths of a percent. It's at 4.3%. So it speaks to basically what we already or what we spoke about earlier after the Fed minutes, which is economic activity that was deemed to be moving lower isn't. It's looking pretty good for the most part. But inflation is still kind of sticking around a little bit. And so that's going to keep the Fed on watch and probably keeping those rates up where about where they are, maybe a little bit higher before the end of the year. There was some, I have some data on real estate in here. We peaked last year at about 48, a little less, 47.7 trillion.

Last year at about $48, a little less, $47.7 trillion. And we're down by about 5% year over year, which is about down $2.3 trillion. So in dollar terms, it's one of the largest years of value in real estate decline since 2008, which was, of course, the financial crisis. But just keep in mind, that's after a pretty big run up, both in absolute values and dollar terms, in percentage gains over the past, you know, call it two, three years. There is a chart that I have in there, which caught my eye today, which is just this, you know, the US dollar moving, which was moving lower now for six months or maybe not quite six months. It's been moving lower now for several months, we'll call it, say, a quarter. And part of that is because rates have moved so far so fast. It was deemed the economy, economic activity would slow down, slower economic activity, lower GDP equals weakening currency.

And that started to reverse here and fairly meaningfully into 2023. And the reason is that capital around the world flows where it's most rewarded. And so the US is the rates on in our treasury market in our in our currency are higher than the rest of the world. And so money is going to come out of things or want to come out of things like JGBs or yen out of Japan and come into the US dollar and the treasuries where it can get four, and in some cases on the short end, 5%. So you get an increase in currency because of that reason. In relative terms to other economies, the US is also, frankly, in better shape. The economy is quite robust here. And while Europe has surprised a little to the upside recently, which was counterintuitive, at least for me, a lot of the rest of the world is fairly mixed bag.

And I think closer to their terminal rate versus us, which I think will end up going a few more rate hikes than some of the other countries. So, again, that moves currency a little bit. Let's see what else I've got here. So again, that moves currency a little bit. Let's see what else I've got here. So we talked a good amount about some of the Fed minutes earlier in the week, and I'll leave that be. You know, for what it's worth, there was an interview on CNBC today with Jamie Dimon, who markets pay attention to. You know, it's a real big money center bank he's running there.

And he talked about that he didn't have his recession book out yet. He still thinks there can be a soft landing for whatever that's worth. It's another soft landing kind of guy. I did have a comment on the Q&A session that I got. I think the question was yesterday or the day before about this term no landing. So we've spoken about the soft landing narrative. We kind of get that, which is the porridge is just right. The Fed could increase

interest rates. The economy doesn't go into recession, but inflation goes right back to 2%. And then off we go again, and the next business cycle is extended. The hard landing obviously is the opposite of that, which is that they raise rates too far, too fast. The economy slows down too fast. We actually do go into contraction, into recession. And that's how we get to our 2% target on Fed funds. The no landing is like the interim of those two things, in my opinion. But it's basically just that the Fed increases interest rates, but inflation doesn't go down and the economy continues to expand. And that's not where we are. I mean, inflation has come down. So you can't argue against that. I don't know that it's come down as much as everybody would like to see it come down, but it has come down. And so we're

on that right path. And I think ultimately, whether we get a soft or a hard landing, the no landing is just the middle point between those two things. So I think it's a bit unhelpful that the media has used that term so much, frankly. But that was the answer to that question. The last comment I'll make, just because, again, if you're watching media news, this comes up a lot, but the equity risk premium, which is basically just the earnings yield minus the 10-year treasury in the market

to kind of give you a value of the market separate than like a PE ratio to kind of see historically where we are. Yeah, it's showing the lowest number since we've gotten since the financial crisis. Yes. Part of that is because we've got a treasury that has gone up quite a bit, frankly doubled over the past 12 months. And so that minus part on that equation is pulling those numbers down. But I would point out, if you look at all the sectors, so that's the market, but then if you peel it out and you look at each individual sector, the energy sector really does still offer that better risk reward skew to most other sectors by a big factor, 2 to 3x most of the others. And I guess my comment to that is just

that we've seen energy trade in this range. It was around 75 today, it closed. And I don't know that that's necessarily a bad number. I view it as the porridge is just right, which is that it's come down. And so from an inflation standpoint, that's a good thing because that's a big input cost for most of us and most people and the economy, but it's hanging, hanging in there in this nice range where it's still very profitable. And, and so we still find value in the sector, even though it has, it has run, it was up last year and it's up this year as well. But, but all that said, I appreciate you being with run. It was up last year and it's up this year as well. But all that said, I appreciate you being with me. It's been fun the last couple three days to be with you. I know David is enjoying his family trip out there in the Bahamas, and I know he's excited to be back and get with you on D.C. Sorry, Dividend Cafe tomorrow,

and then back with you on D.C. today on Monday. But with that, I'll sign off and let you get back to your evenings. It's been fun. Reach out with questions. I really do appreciate all of them as always, and we'll talk to you soon. 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. 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 representations or warranties as to the accuracy or completeness of the data and other information, or for statements or errors contained

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