The Dividend Cafe - The DC Today - Tuesday, May 30, 2023

Episode Date: May 30, 2023

Today's Post - https://bahnsen.co/3qlozNA “I agree with you overall concerning shareholder vs. stakeholder priorities in a company’s motivations. It did occur to me, however, that often the bad behavior examples provided by the advocates of the stakeholder paradigm don’t really involve a company acting in the best interests of shareholders, but rather having a near-sighted, excessively short-term focus on quick returns at the expense of sustained gains. My question is how in a dividend-growth framework you and your team balance the near- and far-term in a company’s approach in such a way as to genuinely promote the interests of the shareholder.” ~ Jeff M. But of course here is the exact point – no system of investing I have encountered seems to directly and specifically focus on long-term decision making vs. short-term noise more than dividend growth! If the entire focus is on long-term sustainability of growing cash flow, various quarterly efforts at “quick returns at the expense of sustained gains” can’t possibly be tolerated. They are disqualifiers. Now, how much companies really do that is another story, but the point is the qualitative and quantitative criteria for stellar dividend growth companies are the very things that call for long term prudent actions versus short term myopia. I cannot say this enough: Dividend growth over time is both the signifier and the consequence of a well-run business. 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 DC Today. However, with our Monday format, because of the Monday holiday, I still approached DC today as if it were a Monday, where I kind of go through the old format and there's quite a few different categories of things. And, you know, back in the old days, a public policy day like this with the debt ceiling announced would get all the attention. And I did that and yet still have a few little tidbits I want to cover about housing and the Fed and, of course, markets overall and some of the other types of things. Let me just start, though, with the debt ceiling issues, because if I start talking about today's market action and some of the other things that are far less important. My suspicion is I'll end up going too quickly over the debt ceiling stuff. First of all, let's just be clear. It hasn't passed yet. I do think it's going to. And I've been following

very closely kind of the political tea leaves. The general rule of thumb, there's a political commentator who I read every single morning. I subscribe to his work. His name is Mark Alperin and used to be a Bloomberg. He's a media pundit, but he's an incredibly astute political commentator. But he had a line this morning that if AOC and Marjorie Taylor Greene are both a yes vote, then a bill will pass. Now, he also had a line about if they're both a no vote, it will pass. But that was meant to be somewhat funny. The fact of matter is you have two kind of polar opposite and pretty far extremes of their own respective parties that are both indicating support of this. And there's a whole lot,

there seems to be many more in the Republican side than Democrat side that are both indicating support of this. And there's a whole lot, there seems to be many more in the Republican side than Democrat side that are going to not vote for this in the House. And there's certainly louder noises being made from certain elements of the Freedom Caucus than there are from the Progressive Caucus that had also voiced some displeasure with this. But no, I think they're going to have the votes to get across the finish line, and there hasn't been any noticeable attempt to separate from the work Speaker McCarthy has done here. Now, what is it that they've done exactly? Well, first of all, this will suspend the debt ceiling through the end of next year. So it kind of takes away any further

shenanigans till after the election. And whatever Congress ends up spending, it authorizes them to issue the debt necessary to do that. And you say, well, why would we want to issue no debt? David, you talk about excessive indebtedness all the time. If you're fearful of Japanification, indebtedness all the time. If you're fearful of Japanification, wouldn't we want the ability to limit the debt? And my answer is, well, of course, but the way you, in my opinion, do that is to don't spend the money. So the idea that we're going to approve spending the money, but then not approve paying for it is a little odd. And so I can be a fiscal hawk and a and and a fiscal conservative and all these things that i happen to be and still not believe that the debt ceiling is the way i want to go about fighting this battle but needless to say um it's difficult to cut spending out and this bill

does actually cap uh both military and non-military discretionary spending for the next two years at a meaningfully lower amount than it otherwise would have been. It rescinds $28 billion of unspent COVID relief money. $28 billion is not a huge amount in the grand scheme of this multi-trillion dollar budget, but it's real money, obviously. You know, $28 billion here, $28 billion there. Pretty soon you're talking about real money. And it adds work requirements to the food stamps program for many of the

recipients up to age 55. It has exemptions for veterans and homeless and things. But that was a line in the sand before, a red line that President Biden and many progressives said they weren't going to go for, and that made it into the final cut. It cuts or redirects $21.4 billion of the $80 billion in new funding for the IRS. It's actually only a small amount that is cut, a billion or two, and then redirects a pretty fair amount to other usages. And so that's a bit more nebulous, but nevertheless, substantive in the sense of many were not expecting that would be there. It definitely streamlines a lot of the federal energy permitting approvals, the programs around energy permitting approvals. And that's a big deal on the energy front. And then I noticed that Senator Manchin at West Virginia got his Mountain Valley Pipeline deal into this, which if you recall,

was something he wanted as part of the Inflation Reduction Act, the so-called Inflation Reduction Act. And then after that bill passed, they took it away. And now it looks like this may finally get in there. One other item of note, the student loan payments that have been on pause for over three years now, where payments had not been required throughout the COVID moment. And, you know, COVID was kind of a long time ago at this point. And yet that student loan pause is still ongoing. That will be resumed. So I think, look, my prediction all along, which appears likely to end up being wrong,

was that I thought the deal would have to fall apart before a deal ended up happening. And I still believe if the deal were to fall apart at this late moment, that whatever the response to that would be in financial markets would immediately then be the catalyst to get a deal done. So I wouldn't care one iota about any kind of disruption from the deal falling apart because that deal falling apart would be, in fact, what ends up gluing a deal together on the back end. But I don't know that it will fall apart at this point.

It looks as if it'd be really hard to believe the Democrats would pull the rug out from under President Biden. And even though there are some Republicans that appear to be mad at Speaker McCarthy, I think some of that may be more performative than substantive. And I also think it's just in a minority position where they'll probably have the votes to get it done anyways. But if a Jim Jordan were to reverse or something, that could change. But so far, I expect that to pass tomorrow. Okay, in the market today, the Dow had opened up in the futures last night. And keep in mind, it's a Memorial Day, Monday evening futures market. I've learned over the years not to ever take Monday holiday futures all that seriously. But they were pointing up about 75 points.

They petered out throughout the evening. I woke up this morning at 3.30. They were up 75. And then they petered out a little bit throughout the morning. And then the market ended up opening down. It kind of went up for a minute and then it was down 100 points within 10 minutes of the market being open. And it traded within a 200 to 250 point range all day, but then kind of rallied up in the final hour and a half or so of trading, closing down just 50 points, just 0.15% of the day.

With the S&P literally dead, dead flat, up 0.0%, and NASDAQ up 0.3%. The top performing sector of the day was consumer discretionary. It was only up 0.7%. And then the worst performing was consumer staples. So two totally different ends of the consumer spectrum, one up nearly a point, one down about a point. So the bond market rallied pretty hard today. You had the 10-year closing at 3.69% down. The yield was down 12 basis points on the day. And basically from the two year through the 10 year, every point on the yield curve, the yield was down somewhere between

12 and 14 basis points. So pretty meaningful rally in treasury bonds after having sold off a bit last week. OK, so you call this interesting. Imagine how the Fed feels. I think the Fed's quite frustrated by it. The S&P earnings are now up to $222 a share for a full year projection for this year, which would end up being dead flat on the year, not the earnings erosion that those who believe you need a recession to cure inflation are praying for. It's a very odd market right now. The S&P is kind of at year-to-date highs, but only 44% of the companies in the S&P are even above their 200-day moving average. And over 100% of the gain in the S&P so far this year has come from the 10 largest companies,

not even cherry picking 10, which is odd enough, but the 10 largest, meaning the bottom 490 companies have a negative aggregate return on the year. So just very odd issues happening within the market. Nothing that I think is forcing a whole lot of conviction, to be quite frank. So I went through the debt ceiling deal, our predictions there. Consumer confidence came in a few points above estimates. I think about that. New orders for durable goods were up over 1% in April. March's number for durable goods was revised up another half point. That looks like it's a good thing, but then you see under the hood that actually almost all categories of durable goods orders last month were down. It's just that it was up so much in defense aircraft and defense machinery that it offset some of that. On the housing front, mortgage applications

for new purchase are down 30% year over year. And the S&P CoreLogic Price Index saw housing prices up 0.6% year over year. You were up year over year last March, 21%. The year before that, 13%. last March, 21%. The year before that, 13%. You got to go back all the way to 2012, 11 years ago to see a year over year move in the month of March. This teeny tiny, basically flat. Not flat, by the way, in New York City. New York City apartments hitting a new all-time high in rents per street easy. Data firm that logs all of this quite carefully. So there you go. Definitely futures for Fed funds are now back to pricing expectation of another rate hike. It's about 60% odds of a rate hike. And that 100% chance of a rate cut by the end of the year has now come all the way down to a 45% chance. So markets repricing expectations day by day. The against doomsdayism is worth your read. There's a link to an article

there. So I'll let you click to that at the dctoday.com and ask David is always worth the effort. I'm going to leave it there. We'll be back with a normal DC Today tomorrow, Wednesday, the last day of May, May 31. But if you do get a chance to go to thedctoday.com, there's a picture and a little story there. It's like less than one paragraph, but just worth reading for a number of reasons.

But I'm going to leave you in total suspense and yearning for this information. So you'll go to the website, check that out. Thanks for listening. Thank you for watching. And of course, thank you for reading the DC Today. I will see you tomorrow. The Bonson Group is a group of investment professionals

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