The Dividend Cafe - The DC Today - Tuesday, February 20, 2024

Episode Date: February 20, 2024

Today's Post - https://bahnsen.co/48o28b5 I love this long-form DC Today and I love writing all the things that go into it. A Monday holiday weekend just gives me even more time and space so hopefully all the things today fill your cup. Dividend Cafe went into the mailbag and provided some key economic definitions, some commentary on the Fed, a better understanding of capital spending, alternative investments, and even a reference to Steve Martin. Lots of great questions with succinct, understandable answers! 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 DC Today. It is now Tuesday, February 20th. Brian Seitel with you here, popping in to do the recording and some of the fill-in work on today's long version of DC Today per the holiday, President's Day yesterday. Much of this was

written actually by David. But kind of a quiet day in markets. At the highs, we're probably up around 30 points. At the lows, we were down 150. And we made a push towards the end to try to get back to fair value, but never really got there. We closed down 64 points on the Dow and a basis point lower on 10s at 427. So rates and markets held in their fine. It was interesting that market really didn't pull back all that much today, although the volatility index actually went up more than I would have assumed. It was up something like 9% on the day. Just a heavy correlation recently with the US dollar and stock prices. And we've seen this in history, but

sometimes they'll decouple. Well, you'll get a weakening dollar and a following market or a strengthening dollar and a rising market. Now it's the opposite. Strengthening dollar means falling market and weakening dollar means stronger market. Part of that is because, you know, weaker currency globally after such a run-up in the dollar versus everywhere else is technically a good thing within reason for exports. There was a New York judge that issued a judgment against former President Donald Trump for $354 million for overstating his net worth on loans, which is a fraud claim. We've written about this quite a bit. And frankly, David has written about it more than I, but there is the widened smell myth that

is going to renew child tax credits and offer business deductions across the board. So like RMD tax credits, depreciation, capital expenditure, and all these deductions that were set to expire to look like they're going to get extended and they're going to do it. Probably if it goes through the Senate, it's already gone through the House overwhelmingly, and I believe it will go through the Senate, but it'll be retroactive for 2023. So now the onus is basically how fast can they get that done as all of us are trying to do our taxes at this point in February. So that's something that is quite significant. On the economic front, there was producer prices for the month came out in January. The year over year number is 0.9%. So that's a very disinflationary number from where

it was for sure. And then for month over month figures, we've had deflation, frankly. And so those numbers are pretty shockingly low. The goods number was down 1.7%. So deflation and goods. Services were still up a few percentage points, 2.2%. But offsetting those two, and you just get a really small number. And again, I think as we've talked about, this is what we've been seeing with inflation coming lower pretty much across the board. Both energy and food were lower in those numbers. We wrote in the housing section, multifamily construction was down 30% in January versus the January of last year. was down 30% in January versus the January of last year.

That's a big number. And it's down 40% from the year before, 2022. So we had basically an underbuilt multifamily apartment building market in this country. That was ramped up a whole lot. And then now that's kind of coming off a little bit. And these markets are trying to settle. We've had some stretching commercial real estate that we've already seen. And this is some multifamily numbers that frankly, this is how price is correct. You get overinvestment, the pendulum swings a little too far, and then it comes back the other way. And that's what we're seeing there. Also on the residential side for housing, housing starts, which are obviously

a forward-looking indicator. We're looking at shovels going in the ground to build a new house. Forward-looking, we're down 15% in January. So housing is still stuck. Multifamily is a little different animal that I'm talking about. I'm speaking mainly of residential, but there just aren't transactions going on right now. And part of it is because interest rates are high. And so people with low rates don't want to move and get higher rates. But then also that it's very well telegraphed that rates are likely going to go lower in the near future. And so why lock in something long now and you can wait eight months or 12 months or whatnot and get something like a lower interest rate on your mortgage. A couple of interesting statistics. There's

fewer home sales per real estate agent happening right now, speaking of my previous comment, happening right now than ever before. So it's a tough business to be in, unfortunately. I'm sure that it'll normalize and pick back up as it always does as markets tend to be cyclical. But there's not a whole lot going on for realtors right now. In fact, the lowest ever. So tough business. As far as employment goes in that industry, there's only about one out of a thousand people in this country, broadly speaking, across all 50 states that are real estate agents. So one in a thousand, it's not very many.

You know, if you look at states like some of the sunshine areas like Arizona and Florida, it might be closer to the three range, three out of a thousand. But still, it reminds me a little bit of the 2008 period where you had just an over abundance of building contractors and construction leading into that downturn. And then it literally did wipe out a lot in the downturn. And we're still feeling that even today, you know, it's come back a whole lot, but, you know, it can be industry changing. And I don't know that that's necessarily the case inside of real estate yet. But with these numbers like that, I think if it's prolonged, you can see something similar where people move on to different careers. It's a great business, obviously. So that's not what I'm saying.

It's just that right now it's tough out there. David had a nice thing. And again, steams day ism. It happens to be a country that we have exposure to in our emerging market portfolio. But, you know, India in 1993 was 51% had access to electricity, 51%. So only half the country even had electricity. 93 was when I was in high school, so not that long ago, because I'm very young.

I'm kidding. But anyways, now it's 98%. So basically, I mean, from half the country to 100% of the country. And what my memory serves is a pretty short period of time ago is a pretty positive phenomenon. In the energy sector, we talked a little bit about just the performance of midstream energy and how well it's done. These pipelines now, TBG is an investor in these companies, but these pipelines have done well year to date. They're up something around 7% if you looked at the index in midstream. And Canada has been a little weak spot in there, some of those names, but by and large, still very

positive. And that's coming after a couple of really quite positive years in the space. So there's a lot of good things going on in that market. And part of it was, again, when I talk about the pendulum, it was a huge overinvestment of capital expenditure in 15 and 16, 2015, that really came out of that market. And now these companies have just gotten so much leaner and meaner and better run and better capitalized and leverage ratios are lower and coverage ratios on payouts are higher and all these great things. So it's a space that we tend to like. There was a question in there about Fed futures. What does it mean? I mean, they're futures contracts that trade just like a futures contract would trade, for example, on the price of orange juice

or pork bellies or soybeans. You can also have a futures contract that trades on the direction of Fed funds rate. And so that's what we're mentioning when we talk about that. If you look at the different prices of where those options get priced, you can get a probability very easily, very easy calculation of the probability of where markets are pricing and Fed funds rate to go. And so that's what we're talking about sometimes when we mentioned Fed futures, it's probability of where rates will either go up or down over the next call it month, two months, three months, that type of thing. The other part to the question was, is there money on the line? And there is because someone's paying a premium to buy that option, to buy that futures contract.

And so they can either make money if they're correct in that directional play or lose money if they are not correct before the expiration date. So all those things to say, Fed Minutes will be out tomorrow and we'll have some of that to talk through. I'll actually be with you on the full DCT, DC Today tomorrow and go through it all. But nice one today. And again, thank you for listening. We appreciate it very much. Please do send your questions and we'll talk to you soon. 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 Thank you. or investment opportunities referenced herein will be profitable. 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.

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