The Dividend Cafe - The DC Today - Tuesday, February 6, 2024

Episode Date: February 6, 2024

Today's Post - https://bahnsen.co/4bqijHA Markets traded modestly higher following global markets, particularly China, where broad indices closed higher by over 3%. Markets in China have given up over $7T in market value since peaking in March of 2021, and last night’s move had less to do with actual news than I think it just did with an oversold bounce on potential stimulus. I do suspect there will be more from the government there to stimulate the economy and a severely over-levered real estate market sooner rather than later. Slower growth in China, means less Yuan to recycle back in US Treasuries, as that share of ownership continues to decline. There are still plenty of long-dated liabilities that need to be funded domestically with pensions and insurance companies and the like, but the supply this year will be massive with $8.9T in maturing Treasuries. Add on another $1T or more in deficits, and we will need to see over $10T absorbed in markets this year. This, along with the fact that government interest payments have already doubled from $350B in 2021 to now $700B, just has me skeptical that the Fed will continue to sell $60B a month with QT for a whole lot longer. It was less of a data-driven market day, other than a host of Fed President comments, which I will sum up to effectively ‘…yeah, what he said…’ reiterating Powell’s Fed policy comments last week about more time needed with rates. 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, welcome to DC Today. Brian Seitel with you this Tuesday. It is February the 6th, and a bit of a quiet day in markets. We traded up this morning, maybe 50 points or so off the open following China's move up overnight. There was really not a lot of news there either, frankly. But with the market that's just had a tough go of it for the last two years,

it's wiped out about $7 trillion worth of market cap. I just really think it was more of a bounce in an oversold condition. But there was some hint at maybe a meeting with the president there would solicit some stimulus into the market. There was a sovereign wealth fund that bought some exchange traded funds there too. So again, not a lot of news, but the market in China was up 3%. So global markets followed a little bit from that. And most of our market action today was positive. We actually closed up 141 points on the Dow, which in percentage terms these days is really not a huge move, but about a third of a percent roughly, but closed at the highs for the session. So not all bad.

NASDAQ even eked out basically a flat return, slightly positive on the day. So all in all, fairly modestly positive trading on the day. Not a lot of data out today. There was a couple of Fed presidents speaking today, really just reiterating what Powell said last week. So there's some follow through and that rates need to stay longer here for a period of time to show more proof in numbers and data that inflation is in fact at 2%. One of the things I noted was, with the slowdown in China, economically speaking, and market related, there has been less yuan, less local currency to be recycled back into U.S. treasuries and U.S. dollars. And so that percentage of ownership continues to decline in China. And it's notable just because there's a good amount of supply coming this year. I say a good amount because there's about $10 trillion coming to the market in 2024 of new treasury issuance. There's an $8.9 trillion amount that's coming due or maturing. And then with deficits that are going to be somewhere north of a trillion, you get to that $10 trillion mark of new issuance for 2024. It's just a lot to absorb. You have things like long-dated maturities, long-dated liabilities like pension accounts, retirement accounts, insurance companies that need to fund those obligations with long-dated treasuries.

And so there is demand there. And I suspect it'll get sopped up in global markets without an issue. But it's just a lot of supply to think about with the world's largest buyer buying less, which was historically has been China. is the best way I can describe it. It's an overlevered, overinvested, overbuilt real estate market in China, and that is deflating. And as we know here in the US, a deflating real estate market can be very difficult in financial conditions. That's what we went through in the financial crisis. It's frankly what Japan went through in the 80s as well that lasted for 30 years essentially. So we'll see how those things play out in that big economy, the world's second largest economy. In the US, with that issuance, interest expense for this country, as we issue those treasuries, has now doubled. It was $350 billion, and we're

at about $700 billion, which is about 17% of total intake of about 4 trillion or so into the government coffers. But all in all today, lower volatility day, the VIX is hovering in the low 13s. So we're sort of getting through this. The new section today I thought was nice that David put in there was what's on David's mind. And he'll just write something that pops in or that he's thinking about or something that he's dealing with or working on for the day to be included in these write-ups for the day. So it's instead of just being one or the other, it's an and for as far as both of us reporting on these daily market moves. But he talked a little bit about Facebook's dividend announcement and how that

doesn't necessarily put it on the radar of our dividend growth portfolio. It's nice to see them doing that because there's an amount of cash that they have where they can do that. They can return some of that to capital to shareholders. But it really is just a 0.4% yield at this point. And it's not really just that, although that in and of itself being about a third of what the S&P is, would be enough to stay off of our screens. But it's more internal management commitment to an ethos of growing a cash flow stream to shareholders. It just doesn't really exist yet. I still think it's a positive, and David wrote this as well, for the overall sector and technology to be returning some capital, not just in the form of share buybacks, but in the form of dividends. So we'll see if that's a trend that continues. And overall, I suspect it's a positive thing.

But but it isn't something that we have geared to go into the into our portfolio anytime soon. You know, there was a survey, there's a Fed survey out about lending standards in the country. It's a senior loan officer survey that is not honestly really that widely followed. But it did show a slightly tightening lending environment in fourth quarter, mainly in commercial real estate, which I think most would intuitively guess, non-GSC backed residential real estate loans, and then credit cards. And really, that stuff is just because rates have gone up so much, it's to be expected that you'd have a lower demand and then more scrutiny from banks and a little bit tighter lending standards. For 2024, that's expected to resume, particularly with rates coming back down a little bit. I put an Ask Brian section in there today. Very simple question, and it's a very simple answer, really, which is I get asked this a lot. There's a lot of inbound interest coming into the Bonson Group on a daily basis of folks out there hearing about us and wanting to be clients.

And it's just a common question, you know, tell me about a typical portfolio. And I can talk about qualitative things of how we manage money and those sort of things. But when you just, when there's a simple question about, that I got about asset allocation, there just isn't a predetermined and a preset answer to that. We design each allocation specific to each client. So you just get a wide range of variability. Some clients that have 100% in stock, some have close to 100% in alternative type of investments based on other things they have going on in their life and other holdings, frankly. So all that to say, a little answer, a Q&A session there on something that's asked all the time.

Tomorrow, I'll be with you back on DC today, as I will on Wednesday also. That'll be sort of, or Thursday, forgive me, as well. And that'll be sort of our normal cadence that we'll get into with these things. And I'm excited about it. So with that, I appreciate you listening. I appreciate your reading, as I always do. I encourage you to reach out with your questions and have a wonderful night. Thank you.

The Bonson Group is a group of investment professionals registered with Hightower I encourage you to reach out with your questions and have a wonderful night. Thank you. 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

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