The Dividend Cafe - The DC Today - Thursday, March 30, 2023

Episode Date: March 30, 2023

Today's Post - https://bahnsen.co/3G3Vdsa So the market went up again today, went negative in the middle of the day, then rallied back in the second half of the day (see chart below). The FDIC is looking to move the cost of the recent bank failures to the banks that didn’t fail (read: to their customers), Sen. Joe Manchin has decided he regrets his support of the “Inflation Reduction Act” atrocity, I wrote of extraordinary bond market volatility two days ago, and then we went two days in a row with bonds frozen in time, and Dr. Anthony Fauci has himself a speaking gig (not sure if it will be virtual or not?). I remain convinced that the key issue adding to profitability in the energy sector going forward is constrained supply, much of which is a decision and some of which is circumstantially forced. Sen. Manchin’s op-ed mentioned above may reflect a sitting U.S. Senator shocked – shocked! – to discover that many do not want to facilitate U.S. energy independence, but it is not a shock at all. And what it does is make the sector even more attractive as it pertains to legacy and incumbent assets, pipelines, and producers. The sector is capital constrained, which boosts expected rates of return for the capital that comes in. It is supply constrained, which boosts prices and margins for the supply that comes online. And it is sentiment constrained, which boosts risk premium around as a contrarian reality. It will ebb and flow, no doubt, but what the opponents of our U.S. energy sector never understand is that all the bad things are actually good things for investors. 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 Thursday edition of DC Today. I actually just ran up to the room to record. I've been at a summit meeting here in Washington, DC. I spoke earlier in the afternoon and there's been a number of other speakers and sessions. We have a big dinner event tonight and then I am flying home tomorrow back to California. But of course, did not want to leave you hanging. So I'm up here to record this podcasting video and bring you a couple daily market thoughts. The first thing I want to say, just as far as the market itself goes today, is the market got up a couple hundred points and then went down, actually went negative at one point. And then it came all the way back by the end of the day.

I think, let's see, no, we closed up 142 points. So not all the way to its high of the day, but nevertheless, another triple digit move higher. I also want to call myself out on the bond volatility factor. I wrote, I believe it was two days ago about how we've had a bond market rally. We've had high equity volatility. And then the thing that people are not really talking about is how incredibly high the volatility in the bond market's been. And then we have, since I wrote that, had two days in a row where you would think the bond market died. It just hasn't moved at all. And so this is the life I chose. But bond volatility had been very high, and then I wrote about it, and now the last two days it has not. What else in the world?

The FDIC's move to take some of this $123 billion they want to recuperate and ask the big banks to kind of pick up the cost, I think is a little odd, but I expect that they will end up. It's just that I don't want to say that the big banks are going to pay for it because they're not. They will pass on that cost to customers. It will be priced either through higher rates on money they lend or lower deposit rates on money that customers deposit. And of course, other expenses or fees or costs, little things like that. But that is apparently where we're headed is to kind of have some of the successful banks cover the cost of the ones who implode. So I'm watching that carefully. I also watched Senator Joe Manchin today.

It was the first thing I read when I woke up this morning was an op-ed from Senator Joe Manchin in the Wall Street Journal expressing his regret for voting for the Inflation Reduction Act and saying how he felt like he's been hoodwinked by the president and others around the energy intentions and spending and debt reduction intentions. And because I'm in Washington, D.C., when I read it, I thought about trying to find him and have a little face-to-face conversation because it was just so surreal to me. But instead, I just drank coffee and worked. drank coffee and worked. The senator, of course, I'm not going to get into the politics of it, but I think that in terms of the impact of that bill on inflation, on spending, the idea that they were ever going to take any revenue generated and pay down debt with it, I hope he didn't really think

that. That might make things worse for me personally. But the fact of matter is that we are really in a logjam about getting some permitting approvals through and concluding the major pipeline that runs through West Virginia that the Senator wanted. And I want to transition that to some comments about the energy sector, because I do believe that this speaks to the paradoxical bullish case. The things that are being done to limit the building of new pipelines or permitting of new pipelines or limit the building of expanding capacity for production are, in fact, a case for bullish investment. The fact that it's capital constrained forces a higher expected rate of return

on the capital that does go into the sector. The fact that it's supply constrained forces prices higher. The fact that the sentiment is so negative in a contrarian sense ends up pushing risk premium higher. So all of these things, I think, are very unfortunate to the society, but not unfortunate to investors in the energy sector, as we have seen the last couple of years and I believe

we'll continue to see, even though there will most certainly be peaks and valleys and stops and starts and things along the way. Nevertheless, I believe a lot of people, unbeknownst to themselves, are working to make the energy sector a more attractive space to be invested. So that's the bulk of what I have here from Washington, D.C. Like I said, no real movement in the bond market. The worst performing sector today was financials, and it was the only negative sector. And it was down about a quarter of a percent. And for the second day in a row, real estate was the top performing sector, up one and a quarter percent. And then you have the Dow, NASDAQ, and S&P each up somewhere in between 40 and 70 basis points, respectively.

Two different Q&As again. So many questions coming in to ask David that I've been doubling up for a couple weeks, and I'll continue doing that as long as questions are coming in. And if they settle down, I'll go back to one a day. I hope you're liking the new written DC Today. By new, all I mean is I just sit down and start typing, and whatever happens, happens. I enjoy writing it that way better. I hope you're enjoying reading it better. And that's all I got. Thanks for listening to, watching, and reading the DC Today.

It's a very fun, very important Dividend Cafe tomorrow, Friday. And then I will be coming back to Newport Beach, California, where instead of this absolutely breathtakingly beautiful day in D.C., which is just quintessential spring weather in our nation's capital, I understand that Newport is continuing to see record rainfall. It's been one of the rainiest winters and now into the spring in Newport in history. So there you go. Thanks for everything. We'll see you tomorrow at Dividend Cafe.

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