The Dividend Cafe - The DC Today - Tuesday, May 16, 2023

Episode Date: May 16, 2023

Today's Post - https://bahnsen.co/3IgucD9 All eyes were on the White House today as debt ceiling talks continued. The report after talks ended today that “no deal has yet been reached” was, ummm, not a story. I remain skeptical that a real deal gets done before there is a real deadline and moment of hysteria, but I do still believe these talks set the foundation for what that eventual deal will, in fact, be. The word that the White House is willing to accept discretionary spending caps, clawing back unspent COVID dollars, and work requirements for some social safety net programs, if true, does seem to me to mean a deal will likely, in the end, get done. But there is a lot of wood to chop, as the great Rene Aninao likes to say. As for all that recession talk, estimates are still for a slightly up quarter in terms of real GDP growth for Q2, but with Q3 and Q4 being the likely entry period for GDP contraction. Chapter 11 bankruptcies were up +43% in Q1 versus Q1 of last year. Now, bankruptcies a year ago were down -32% from the year prior, so there was clearly a low base effect going on. But overall, I do believe we are seeing increasing problems surface in small businesses where access to funding is becoming an issue. With all the talk about the U.S. dollar year-to-date, I thought it worth pointing out that while the Euro is up a whopping +1.8% YTD to the dollar on the year, and the sterling pound is up +4% to the dollar, the U.S. dollar is actually up versus Chinese renminbi, Yen, South Korean Won, South African Rand, and Australian dollar. In other words, people have no idea what they are talking about. 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 edition of DC Today. A little bit ugly of a day in the markets. Dow down about 1%, S&P down about 0.6%, NASDAQ down about 0.2%. No real particular news. We weren't expecting any kind of a debt ceiling deal. And in fact, a meeting there wasn't even starting until near the end of the market day, and the market had

been down all day. Home Depot did release earnings this morning and had quite a few negative things to say about some of the economic landscape. So there's always different things that could potentially play into a day like this. But I think that this is something I want to continue to reiterate. This is what you expect right now. You have uncertainty around Fed and recession. This is what you expect right now. You have uncertainty around Fed and recession. Not a lot of particular new uncertainty in the banking sector, but not any resolution per se either on the regional banking side.

And then I think just the headline issues around what will surely be a more drawn out affair than maybe people realize with this stupid debt ceiling negotiation stuff. I think you can expect some elevated volatility for a little while. That's the main thing I'd say, by the way, as I am watching the way I expect a deal to come together with Speaker McCarthy and the White House, I'd still, I've been pretty much in the camp from the beginning that they're going to end up getting a deal. And that they will put us through a whole lot of drama along the way. And by us and they, I don't mean that they as necessarily the politicos involved, but I think the media is really enjoying this moment. I do think that,

by the way, I'm not joking. So look, I don't know why they would get a deal done without a peak level of hysteria. You know, it's just way too calm and easy to announce that everybody kumbaya'd on this thing already. So I think it gets, you know, a little bit more dramatic before they announce a deal. But along the way, they're behind the scenes getting closer and closer to shaping the formation of what will end up being a deal. And right now it seems pretty obvious to me that the three major areas are going to be the discretionary spending caps, which I'm hearing the White House is going to allow. And I talked about why that is yesterday. The clawback of COVID, unspent COVID money. I would imagine they put some restrictions on it and qualifiers, but that one strikes me as just not very politically advantageous to fight over

either, but definitely on the social safety net side, attaching a work requirement to spending that is currently part of social safety net spending, there's some drama around that. And I think that what we're hearing from yesterday is room for the White House to be on board with that around food stamps, room for the Republicans to be on board with not doing it around Medicaid. That seems to be where this whole thing will head. And it wouldn't surprise me at all if they get a deal done there. But I don't think they're going to get a deal done there now just because I think you have to first have just all

kinds of drama and hysteria. And I expect that'll happen. Okay. Few economic data points I wanted to go through. Chapter 11 bankruptcies in quarter one were up 43% from last year. And you go, oh my gosh, that looks terrible. It's the end of the world. Everybody's going bankrupt. But then you realize that chapter 11 bankruptcies last year in Q1 were down 32%. So it looks like you're just sort of trading different base effects where the number was way up from a number that had been way down. And it's a little bit skewed and, in fact, probably more normalized at this time. Now, do I think small business bankruptcies have probably risen?

Less access to some venture capital on a smaller scale, less access to bank credit. I think that's very, very likely, yes, and will probably worsen. Industrial production was up 0.5% in the month of April, yet auto production up 9%, which made up for other parts of manufacturing that were down. Utilities output was up over 3%, and yet mining output was, excuse me, utilities production was down over 3%, and yet mining output was, excuse me, utilities production was down over 3%, mining output was up a bit. So kind of a zig and zag, but all things being equal, the industrial production number blended came in pretty okay, up half a point. I'm doing a lot of talk these days about the US dollar. I want to reiterate,

year to date, the dollar is down against the euro a little bit, the sterling pound a little bit. And some other emerging markets like Mexico, Brazil, it's down pretty nicely. But it's up on the year against the yen. It's up on the year against China, Yuan. It's up on the year against South Korea, Yuan. It's up on the year against Australia, dollar. It's up on the year against Australia dollar. It's up on the year against South Africa Rand. I may have missed a couple in there. So it's year to date. It's really kind of a mixed bag for the dollar. A lot of volatility around a lot of currencies when there's a lot of central bank of various country unpacking and maneuvering to deal with. Okay. I think I covered all the market data for the day. The

10 year bond yield was up about three basis points. Communication services was again, the top performing sector. Real estate got hit hard today. I think it was down over two and a half percent, which in a single day is kind of a bloodbath. What did I want to cover? The final thing is this question I was asked last night on CNBC Worldwide, the clip, which is in the dctoday.com. It really bothers me when I see clickbait in the media about so-and-so says market to drop 20% or so-and-so says market about to rally. And last night what CNBC did is they played for me live on air a clip from one very, very, very, very, very, very famous hedge funder I've known of since the 1970s

who's saying the market's going to be ripping higher for liquidity reasons and other stuff. And then another manager I was not familiar with saying market's going to drop a lot more. And they go, what do you think? What do we say? And of course, the answer is there's always, every single second, every single day, I can find you two celebrity money managers, two high profile hedge funders, one of which is saying up, one of which is saying down, one of which is saying left,

one of which is saying right, anytime. And if that appeal to authority is supposed to be an argument for an investment policy, we have a really big problem. I noticed in the 13F filings this week that the guy who is famous for having shorted housing in the movie, The Big Short, and really intelligent guy, I like hearing him sometimes on media or Twitter or something. But then you pointed out that he had bought heavily on all these regional banks, including some that are no longer with us in March. People that were like a part of a high profile trade, including three or four different hedge fund guys that are known to have having shorted some form of housing or sub prime back in 07. And it's 2023 right now. I mean, dear Lord, it's 16 years later.

And we're still sitting around talking about one of these trades, which for some of these people was brilliant. And some of them may have been the luckiest thing God ever let walk through the door. And we're sitting here talking like we're supposed to care what these people are doing 16 years later. It's utterly foolish. It is not how you formulate investment policy to look at what famous people are doing and saying, oh, look. And you say, well, wait, they're smart. They know what I do, but there's someone else doing the opposite of them. And that person's smart. So what do you do now? And by the way, that assumes these people are even really doing what they're saying they're doing, which is another story. So my point being that when you follow along in financial media and hear different things about so-and-so saying this, doing this, against that, it's not the way to think about managing capital.

It's not pertinent to your money, to your goals, to your ideas. And the very best case, if you just want to stay with intellectual humility, I find these people intelligent. I'm interested in what they have to say. There's plenty of people I read for what they want to say with intellectual humility, I find these people intelligent. I'm interested in what they have to say. There's plenty of people I read for what they have to say. But them merely saying it and two people offsetting one another, at the end of the day, you do not have a coherent, actionable anything. And that needs to be said. Appeal to authority remains a logical fallacy. Thank you for listening.

Thank you for reading. Thank you for watching the DC Today. I will record tomorrow, as long as there's no issues, me getting into midtown Manhattan. I believe I will be in town in time to record as the market closes. I fly out very early in the morning. Looking forward to getting to the world's greatest city, New York. Thanks so much. Thank you. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary and does not constitute investment advice. The Bonser Group and Hightower shall not in any way be liable for claims and make no express 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. 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.