The Dividend Cafe - The DC Today - Tuesday, June 13, 2023

Episode Date: June 13, 2023

Today's Post - https://bahnsen.co/3N5Vy0n So the month of May CPI report came out this morning, and xxxxxxx Those who continue to be “frustrated” by the reasonable resilience of the economy in the face of the Fed’s desire to break it are up against a few different things. (1) The utter weirdness of believing an economy must be broken to beat inflation. It is not true, and it has never been true. (2) The extent to which many corporate borrowers (both high yield and investment grade) extended the maturities of their borrowings during the COVID zero-interest rate period. This means companies are not impacted by higher rates where they don’t have loans resetting at higher rates. Of course, this is not true for all but it has been true for many. (3) How incredibly unnecessary it is to use high rates to defeat inflation when monetary policy was not the primary cause of the inflation to begin with. The issues that primarily caused the inflation of 2021/22 were rectified in the natural course of events (supply chain, labor shortage, reopening, etc.) and no the cause and effect mechanisms are all off in the way the Fed is approaching this. 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 Tuesday DC Today. We had an exciting day in markets started early this morning with the monthly report of the Consumer Price Index. I do think on Monday, I accidentally said it was coming on Wednesday, and the correct day for CPI is always Tuesday. So forgive me for the error, but the CPI number that came this morning was 0.01% month over month in consumer inflation. And that means a 4% year over year, down from 4.9% in 27 months. And even with that said, the owner's equivalent rent was coming in at 8% year over year with current monthly rents coming in at 8.6%. And that number is likely much closer to 2% in real life. So I have calculated that of the 4% inflation at a 34% waiting for shelter, that roughly 2.16% of it is coming from a shelter number that I think ought to be much less. So

look, you can turn the knobs a little bit one way or the other, but I do believe you're somewhere around a 2% CPI year over year number if you were properly waiting shelter. waiting shelter. And so the markets did rally on the news. The Fed is at this point in the futures market, well over 90% probability of just a pause tomorrow. Yet the number in July is up to a 65% implied probability of a rate hike next month, but no rate hike tomorrow on Fed Day. So the Dow today was up 145 points, which was close to half a percent. S&P was up about 0.6, 0.65 percent. And NASDAQ was up 0.83 percent.

But the leading sector today was materials, which were up a whopping 2.33% on the day. And then I always love the days when every sector is up, but technically utilities were down by six basis points. So really close to the flat line, but nevertheless, the one sector on the day that was technically in the red. sector on the day that was technically in the red. In terms of oil prices, they were up 3.23% today. So again, as oil hits into the kind of low to mid 70s, it is tended to check back. As it checks back to the mid to high 60s, it tends to move forward. We've been in this kind of 67 to 73 range for WTI crude for a little while now. I don't have a lot of commentary to add on what the Fed will or will

not do tomorrow. I do think what they'll do tomorrow is nothing. But then I think they'll come out and say like, oh, no, this is not a long pause or a pivot. We're just going to take a month off and then we fully expect to be back at it next month. And it does beg the question as to why they would. Now, look, do I think there's an increasing possibility that they will end up not raising rates in July? I do. But it's just so tainted by my belief that they shouldn't be that. Who knows if I am confusing what is versus what ought to be. I believe that the Fed tomorrow will jawbone one way or the other. It's very

possible, as I always say the day before Fed Day, that you'll get some enhanced volatility in the aftermath of what they do. The bulk of the time that is meant in a kind of flattish day up until their announcement, then a bit of a rally into the announcement, then a sell-off into the close, and a lot of it just having to do with the way in which trades are wound or unwound coming into that moment. And I don't know exactly what offsides positioning you would expect on a day like tomorrow when almost everybody's expecting them to pause. And then if people say, well, it's the language that they'll use to describe July, I got to think everyone's expecting them

to talk as if they will be raising in July. That's certainly my expectation. So don't care about much of any of that short term, long term. I think that the Fed's decision that they should keep going until they break something is why we're even having this conversation. And what it is that they will break and what they think that will accomplish for inflation when inflation is coming down the way that it has been, I cannot answer. But you certainly know that I'm critical of it. So that's where we are. Pretty broad update in the markets today, and we'll come back at you tomorrow. Actually, my partner Brian Saitel

will be bringing you DC today tomorrow as I'll be out in the afternoon, and I'll be back with you on Thursday, okay? Thanks so much for listening. Thanks so much for reading. Thanks so much for watching the DC Today. 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

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