The Dividend Cafe - The DC Today - Tuesday, May 23, 2023

Episode Date: May 23, 2023

Today's Post - https://bahnsen.co/41Xc7Rq The drama in Washington is supposed to be all the rage and I am torn because I do know it is the primary mover in minute-by-minute market fluctuations, and I also know it may be what readers most want to know about (adding to the burden to write about it here, which is the purpose of DC Today), and yet the whole thing annoys me so much I wish I had the option of a protest abstention. But I don’t. As of press time today the basic update is that talks are dragging on and this is somehow news. Both sides continue to say “default is off the table.” The press is acting more recklessly than I expected them to, and I expected full-blown beclowning. It is really hard for them to perform worse than I thought, and they are. 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. Well, hello and welcome to the Tuesday edition of the DC Today, coming at you again from beautiful and a little warm and muggy Nashville, Tennessee. Markets dropped a little today. Actually, not all that bad in the Dow. It was a little worse in some of the S&P NASDAQ areas, but nothing all that severe. It's only debt ceiling stuff and more or less nothing really to report, actually. The drama, you know, with the negotiations, all the rage, there wasn't any breakthroughs that announced an imminent deal. There wasn't any, you know, falling apart of the deal. And I'm telling you, it's going to kill me if I have

to just keep saying this stupid nonsense every day. But I don't really want to ignore it because I think some of you want to know, and obviously it's what the media is talking about, but when the news is they're talking and, oh, there's no deal. And what if there isn't? And then, oh, looks like they're making progress, but they're still not done. And so kind of making a story out of where there isn't a story, it really bothers me. And it isn't the way I like to communicate with my clients. And yet there isn't a whole lot going on in financial markets at the moment. And that's sort of what the volatility is around and people trying to front run and guess and all that stuff.

And that's fine. That's what traders do. But it isn't really what we do. And yet I have to talk about the story behind it anyways. So forgive me if I'm cranky about that. But it isn't really the fact that I have to go talk about this stuff. It's that the press is be clowning themselves, and it bothers me. So I'm sharing a little from my heart with you, but I'm actually not

because I'm holding back substantially of what I really want to say. I put a little chart in the DC Today today that I think just captures the shiny object moment of the last couple of years beautifully in visual form. And there's a company called Zoom that was in the news yesterday having released their quarterly earnings. And I think a company called Zoom that was in the news yesterday, having released their quarterly earnings. And I think a lot of you have heard of it because a lot of people use it all the time. We use it quite a bit on various video communication devices. Many people had never heard of it before COVID. And it was a stock that was trading about $70 before they shut our world down.

And it went up to nearly, nearly 600 bucks. And now it's back around 70 and just seeing the chart of that mountain. Um, it, you could almost fill in any number of other companies. Some have not been so lucky as to come back to a pre COVID level, or even a little lower and pre COVID level. In this case case. Some have gone far, far, far lower than that. And I've talked about those, you know, like beyond meat type vegetable plant or plant-based meat product things and Peloton issues with the exercise bike stuff. Anything related to kind of, I don't know, shiny objects of that period of time. Some have gotten just killed for worse than even their pre-COVID number.

But the visual that is in the dcaday.com today I think is worth remembering for a lot of reasons. Not because it won't happen again for humans, but I hope it will never happen for clients of our firm. Okay, so Dow was down 231 points, which is about 69 basis points as a percentage. S&P was down close to double that at 1.12%, and the NASDAQ was down nearly double that at 1.26%. And you had materials, technology, and communication services, all three down 1.5%. That was most of the market drag.

Energy, which has not been a outperformer as of late, was up over 1%. So that was the one positive sector. And oil prices today were up over 2%, coming back to $73.5 per barrel. The bond market didn't move much. Tenure was up a little bit as the yield came down two basis points. But there was some volatility in the up and down movements, and that was largely around just the stuff with the discussions going on with Speaker McCarthy and some of the delegation of negotiators with the House and with the White House. New home sales for the month of April, the volume of transactions was up 4.1%. And that was all from over 100% of that was in the South and the Midwest. And you had a decline of transactions in the West and the Northeast.

the West and the Northeast. Median prices nationwide now are down 8.2% from a year ago. And if you think April of last year was about the peak of prices, it may end up being May, but the median prices now, you're going to start to get that base effect of where they are now versus the high level of roughly a year ago. My thought all along has been that we're looking at somewhere in the range of 10% to 20% of what they'll drop from, and they're now at 8.2%, so we're getting kind of close to that level. The other economic data point came today was ISM. Manufacturing was down a little, not much, but down, showing some contraction, and then services were up,

so the blended global ISM number was actually up on the month, but again with a little bifurcation between goods and services. We've seen that for a little while. Somebody asked me and asked David if I was worried about money market funds right now kind of getting all the rage, and is this a sign when everyone's piling into something, almost sort of my shiny object thesis but even just the general reality that a contrarian like me is dealing with where when everyone's going into something doesn't mean it could potentially become a big problem but i do want to point out i have written a divin cafe on this in the in the

past and i didn't put the link of that old one in i'd have to go find it but um you know these things when we talk about people piling in and then a bubble forming and collapsing, it does always involve debt. I mean, people are buying the bubbled asset class with levered dollars. And that's really where you get something systemic. And that's where you get something more violent. And the question is whether our money market could break a buck. But you have to remember that the underlying assets in a money market mutual fund are the most liquid assets in the world. And we're talking about commercial paper, AAA type credit qualities, CDs at banks, and then, of course, treasury bills are the lion's share. treasury bills or the lion's share. And then when people bring up the reserve fund, the primary reserve fund was a money market that in the two days after Lehman Brothers declared bankruptcy,

allegedly broke a buck that they were looking at a bid of 97 or 98 cents on the dollar on the screen. And the Fed quickly came to work and the treasury panicked and all these things. And there's some truth to it, but you got to remember that there's two different things that we just did. Does the money market fund have the liquidity to meet redemptions? That's a liquidity question, and my answer is yes. And then on the solvency side, was there underlying price deterioration that comes out from a credit impairment. And you had one money market fund for about five minutes that really ended up having no deterioration, but the Fed had to make some liquidity available, but basically fear of what their exposure to either Lehman or AIG was back in that very specific moment of September

08. So then that was a solvency question. So I don't think that people right now are questioning the solvency of the ingredients inside of a money market fund. And I don't have any concerns about the liquidity. So a whole lot of people piling in with unlevered dollars, just isn't the type of thing we're talking about generally, when we refer to everyone, you know everyone tipping a boat over by going to one side of the boat. I hope that makes sense. There's kind of a categorical difference in that liquidity versus solvency issue is one of the most important things in corporate finance to understand. So clients are going to receive their weekly portfolio holdings report bright and early tomorrow morning. Governor DeSantis of Florida will be announcing his entry into the presidential race tomorrow on Wednesday.

And, of course, we'll continue with the media's soap opera around this debt default, debt ceiling stuff. Who knows what will happen? Expect some volatility before this is done and expect that volatility to be part of what gets it done. But in the meantime, it is immaterial to you, you great collectors of dividends for years and years to come, how this Beltway drama plays out and let alone how the media covers it along the way. Thanks for listening. Thanks for watching. Thanks for reading the DC today. And I will see you tomorrow, Wednesday. Take care. Advisory services are offered through Hightower Advisors LLC. This is not an offer to buy or sell securities. No investment process is free of risk.

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