The Dividend Cafe - The DC Today - Thursday, November 9, 2023

Episode Date: November 9, 2023

Today's Post - https://bahnsen.co/40yBPwn We started off todays session in another quiet day, until about 1PM ET when we had an abysmal 30-year treasury auction on $24B of notes that moved rates higher across the curve that gave us our first down day in November for the SP500. With an increased supply in new issuance to fund a $2T budget deficit and a dearth of large buyers like our own Federal Reserve and other large Sovereigns it took higher rates to get this auction to close with the lowest bid to cover ratio in weeks. 2’s are back over 5% and 10’s were up 11 bps. Oil was flat on the day but down 7% this week back to pre-war levels, and while energy stocks have given up some gains as well keep in mind that the sector in large remains in an uptrend with 94% of the energy name complex has a 50 day moving average above its 200 day. I am far more focused on fundamentals like the increase in CAPEX in our names recently than technicals like this, but note worthy of its relative strength amongst other sectors nonetheless. Powell’s comments today at the IMF cited that Fed officials were ‘not confident’ they were restrictive enough with rates to bring inflation back to 2%, which added to todays give back in stocks. So, the market tea leaves yesterday read his statement as dovish and today hawkish, and so there you go. I get into why this day-to-day Fed obsession shouldn’t matter to investors, and more in todays video podcast link below. 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. Good evening and welcome to DC Today. I am with you, Brian Zytel. It's November the 9th and good to be with you here on DC Today. We actually had a little bit of a market sell-off. The market opened up. I actually thought I was going to write something like Groundhog Day. It seemed very similar to yesterday. It was just sort of benign, low volatility.

And then around one o'clock or so, we had a treasury auction on 30s. It was $24 billion go out. And it was just sort of a dismal or abysmal, really, auction result. The bid-to-cover ratio was in the low twos, meaning two to one. It was something like two and a quarter, I believe. We've been in this sort of the two and a half range for a long time, including the past couple months. It just means the amount of bidders that are coming in versus the amount that's being auctioned. And so it was a lower amount there. And then so the rates have to close higher in order to get the deal done.

So rates kind of went up on the day around one o'clock. Initially, 30s were up 20 basis points. They came down from there. They ended up up maybe 12 basis points on the day. But twos went over 5%. Tens were up 11 basis points. And so bad treasury auction. Clearing price was higher than expected,

sorry, lower than expected on the price, higher than expected on the yield to get it done. And that sent markets lower. And then you also had comments from Jerome Powell today from the IMF. There was a panel that he spoke on today that was deemed more hawkish. He basically said he wasn't confident. This is sort of during a back and forth, but he said he wasn't that Fed officials weren't necessarily confident that they had done what they need to as far as restrictive word confidence goes, because I think they would prefer to exude confidence at most times. But nonetheless, it's, you know, yesterday we got what was perceived to be dovish. Today we get what was perceived to be hawkish. I don't know that there's a perfect way to say anything these days. I just think from an investment standpoint, you know, long term investors. I mean, it really doesn't matter. Day to day stuff like inflation is coming down. Energy inside of inflation that we were worried about with things like Ukraine, with things like, you know, things like Iran and Israel and these sort of wars that could cause energy spikes has come now down.

Energy oil is back to where we were pre that. You know, we're in the high 70s now or mid 70s actually. It's in the range of where we've been the last couple of years. It's just back to that range. And we were above it because of this geopolitical risk out there. So we were worried about that causing inflation to be more sticky and that has now come off. And so with that, with employment starting to cool and with what they have said and telegraphed with what Fed futures are pricing in, which is a 90 percent chance that they're done, I just think we can go on and just say that they're likely done at this point and just

sort of move on. And it really should always come back to fundamentals anyway. So there shouldn't be around what one person says about something that is, frankly, completely unknowable. So fundamentals in markets are, are okay. And that's what we'll take, especially with what we're doing at Bonson group.

So, you know, the part of the auction closing it kind of worse pricing on the day, you know, it does have to do with, you know, a $2 trillion deficit that we're dealing with in this country. And we're dealing with the reality of a decreased amount of huge buyers of our treasuries out there.

The Federal Reserve in this country isn't there to buy as they're letting their balance sheet roll off. And governments such as China and other big sovereign governments are technically buying less, part because of fundamentals. Their economies are a little slow, and so they have less money to invest, and then part because of sort of a decoupling of of policies and things. There was a jobless claim number today at 217,000. We were expecting 218. It's basically in line there, But last month was revised up and continuing claims were a little higher. So while we still have unemployment that has, again, gone up from three and a half to three nine, it's still very low. In historical terms, we are seeing some cooling in the labor market, which I guess is good and bad. I mean, it's what the Fed was hoping for so that they can

claim victory on inflation as going by the Phillips curve, but it's not necessarily good with less people working in this country. I have some sort of evergreen comments in the Ask Brian section, and it's a real life thing. People ask about what we do, why we do it, And it's a real life thing. People ask about what we do, why we do it, how we do it. There is some secret sauce that's hard for me to just lay out in an email or something to it all. But at the end of the day, I mean, we're screening things on a quantitative basis because you sort of have to start there.

You have to go through hundreds and hundreds of names. And the only way to start that process is with quantitative metrics, starting out with an above average yield compared to the market average, a higher percentage of free cash flow coming through those businesses and just more durable business models as we kind of look through those companies. But from there, it's a very active approach. It's very much a human element that is going through and we're looking at fundamentals of each business. We're looking at the financials. We're listening to earnings calls. We're understanding management's direction and history and tenure of dividend growth. What kind of commitment is a part of company ethos? Is there a long track record of it? Those types of things. And yeah, we're looking for value. We're, you know, we're looking for companies that

we feel are undervalued based on those fundamental qualitative metrics that we've examined, where sum of parts is equal to more than what the current trading price is. And those are all very much human decisions within the investment committee of TPG that really can't be replicated just by definition, because we're people and there's only one of us that we're going through and doing it. So it is a unique strategy as compared to other strategies that trade out on the market. There's plenty of dividend growth strategies out there, but most of them are quantitative only. And we add something a little different than that. But at the end of it all, getting to a point of having consistently rising income every single quarter for clients that either gets reinvested in compounds even faster or provides lifestyle protection and inflation

protection to expenditure, meaning that because your income is growing every single three months, the rise in inflation affects you less. Your purchasing power is protected. Those sort of evergreen things are just core to what we do. They're fundamental. And I enjoy answering questions about them. And if you have other questions, I encourage you to reach out and ask us. We're here for that. But with that, down day, first down day in the month of November, it's going to happen. Not to worry. We'll be back with you soon. I'll be in New York next week working and doing meetings and some TV things. And I will be back with you on DC Today on Wednesday and hope to hear from you before that. So with that, I'll send you a good night.

Bye-bye. 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. Securities are offered through Hightower Securities LLC. Advisory services are offered through Hightower Advisors LLC. Thank you. advice. The Bonson 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 in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced. Such data and information are subject to change without notice. This document was created for informational purposes only. The opinions expressed are solely those of the Bonson Group

and do not represent those of Hightower Advisors LLC or any of its affiliates. Hightower Advisors do not provide tax or legal advice. This material was not intended or written to be used or presented to any entity as tax advice or tax information. Tax laws vary based on the client's individual circumstances and can change at any time without notice. Clients are urged to consult their tax or legal advisor for any related questions.