The Dividend Cafe - The DC Today - Tuesday, November 29, 2022

Episode Date: November 29, 2022

An interesting but not especially noteworthy day in markets today, and we have all the commentary you need right here MARKET ACTION Dow: +3 points (+0.01%) S&P: -0.16% Nasdaq: -0.59% 10-Year Treasury Yield: 3.75% (+5 basis points) Top-performing sector: Real Estate (+1.71%); Energy +1.28% Bottom-performing sector: Technology (-0.98%) WTI Crude Oil: $78.64/barrel (+1.81%) Key Economic Point of the Day: The Case Shiller Housing Index dropped for the third month in a row, now down -13% since August. ASK DAVID “How fair is it to compare the relationship between FTX and Alameda Research to the relationship between the U.S. government and the Federal Reserve? Alameda was using client money to buy up FTX’s token (FTT) in order to bolster the price of the FTT. How much different is that from the Fed using taxpayer money to buy US treasuries?” ~ Marty There are a few pretty substantive differences worth noting. First, the Fed doesn’t actually use taxpayer money to buy treasuries, though it is taxpayer money that is being paid back to the Fed (that is what a Treasury bond is). But the main difference is that the Treasuries on the Fed’s balance sheet are backed by the full faith and credit of the U.S. government, and no principal or interest payment has been missed in nearly 250 years. Alameda was backed by FTT, which is worth less than a beanie baby. 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 DC Today. We have closed out Tuesday, November 29th. We now have one day left in the month of November. And then, of course, we enter the final month of the year on Thursday. It'll be December the 1st, and then we'll be in the real home stretch. Today kind of seems, I guess, like a pretty boring day in markets. At the end of the day, the Dow closed basically flat. It was up 0.01%, three points. So yeah, I mean, a dead flat day. At one point it was down, let's see, I believe down as much as 200 and up as much as 80. And so you had a 280 point swing, not a ton compared to the real volatile days. The S&P was down 16 basis points on the day and the NASDAQ was down 59 basis points.

So that goes along with our worst performing sector day was technology, which was down 1%, some continued pressure on some of the big cap FANG type names. The best performing sector was real estate, which I believe was the worst performing sector yesterday. And it was up a whopping 1.71%. And then energy was up 1.28%. Oil was up 1.8% on the day, closing close to $79 a barrel. So you had a kind of high dispersion results among sectors today. Actually, the 10-year bond yield was up five basis points to 3.75%. So still quite a bit lower than we have seen, but nevertheless, up a tiny bit today in the bond

yield. I want to make a point about what I think is the consensus view as to what was the cause of yesterday's volatility. And I'm fine with that consensus conclusion that the protests throughout China and the tension around stricter lockdown policies, some of which were getting downright militaristic and totalitarian. Imagine that, somehow militarism and totalitarianism being involved with locking down a society. But nevertheless, the issue of market volatility around China, I guess I want to offer a little perspective. I don't think that it doesn't matter what's going on with the supply chain side. I think it does matter. I think that the delay in China joining so much of the rest of the world in reopening and

normalization because of the heavy role China plays as a global exporter of goods has inerrantly caused higher price inflation than we otherwise would have and put downward pressure on economic productivity. When you have a vital part of your supply chain not working or offline, it's going to have that knock-on effect. And it's marginal now. It isn't as holistic as it was, let's say, in 2020. But nevertheless, there is a reduction of output capacity as a result of what is going on within China. And so you say, well, should the market be going down 475 points on a Monday based on the tensions of what are going on right now between Chinese leadership on lockdowns, a zero COVID policy, and their population protesting against it?

My answer is I don't think it should. I mean, the market's going to do what it's going to do day by day. The real answer actually should be that we shouldn't care. But that's a way of saying kind of the same thing. Effectively, here's what I will tell you. The Chinese economy is going to reopen. It will. to reopen. It will. And the time period, which is already far longer than it ever should have been,

I think that seems indisputable. The White House seems to agree. I think anyone who listens to me knows what I think about the futility and the delaying of the inevitable in these types of things. So I'm not going to sit here and relitigate COVID policy. My point is, when it comes to the market, we're trying to evaluate what exactly to expect with Chinese reopening. And what I would say is, whether it is tomorrow or next month or three months, you pick, it's going to reopen. And therefore, if the markets have some sort of discount priced in around the fact that there is not full capacity from the world's largest exporter of goods, then you would think there'd be some upside. And if there is some trepidation as to how long it's going to be, you would think that whenever it gets resolved, whether it's in one day or several months,

that that represents an upside issue. Along the way, I think it's got to be more noise. I can't imagine that for any investors, whether China reopens tomorrow or in a few weeks or months, it makes that big of a difference. And yet I think the ultimate kind of terminal spot where China says like, oh, yeah, science. And by the way, their own opportunity costs to be fully participating in world economic affairs. I think this is kind of an inevitability. So I want to throw that out there. I think this railroad strike is going to end up being averted.

It's not totally clear to me that that's a done deal. I always, as a kind of public policy guy, perk up a little bit when I hear somebody like a Bernie Sanders and somebody like a Marco Rubio saying the same thing. It generally means that there's some kind of an issue that is going to block something. And that's the case here. The White House has said they want to force through legislatively on ending to the potential railroad strikes where there are four out of the 12 railroad unions that are not cooperating with the compromise

that was reached between labor leaders and the White House a number of months ago. And now you have someone on the far left, like Bernie Sanders, and someone on the right, like Marco Rubio, both saying, well, no, I mean, we don't think the government should oversee, kind of, you know, override the union workers and their demands here. So regardless of whether there's politics involved, even the Biden administration is very hesitant to kind of do this. But I think they're looking at the political risk of alienating some labor, some union workers against the larger risk of what could happen in the economy if there is a railroad shutdown. So I would anticipate that the strike is averted, but there's some political or collateral

damage out there going on. And we'll keep an eye on it until it's done. The dollar status remains very, very important to markets. It's something we're watching each and every day. And I just wanted to throw out there, I think a good portion, I'm going to have a whole segment on what this means in 2023 in the annual white paper that I always do where I'm recapping the year that was and forecasting the year ahead. And I just really believe that the U.S. dollar represents a big part of what the story for risk assets will be going into next year. All right, I'll get ready to wrap it up. In housing today, the Case-Shiller Index, which is a composite of home values in 20 cities. So it's not nationwide. And you can imagine the 20 cities are generally a little larger. So people could think it doesn't necessarily correlate great

with suburbia. But nevertheless, prices were down 1.2% on the month, and that represents three months in a row where they're now down 13% since August. So pretty much exactly what we forecasted the beginning of the year and throughout the year of a slowdown in volume first and leading to a slowdown in prices as actual executed trades of housing take place. By the way, the FHFA, the Federal Housing Finance Authority, that sets the limits for Fannie and Freddie loans at what the conforming level would be. Look, I recognize a lot of our clients are not necessarily looking at conforming loan limits. Either they're not using loans or they use other non-bank lending facilities or they're a jumbo size mortgage. But look, there are an awful lot of people in the country, far, far more who do than

don't, who utilize the conforming loan limit. more who do than don't, who utilize the conforming loan limit. And they raised the low level to $726,000 today, at which you have Fannie and Freddie involvement, which is, of course, a quasi government subsidy. So at something in the range of 70% to 80% loan to value, you can infer that that means that that level is applying to basically million dollar homes. And this is the low level. So you say, well, what about more expensive areas? I mean, David, you live in Newport Beach and Manhattan and so forth.

Well, those counties of higher prices have already been at million dollar loan limits of Fannie, Freddie. The 726 applies to the whole country. That's the low level. And then it tiers up based on county pricing from there. So we've come a long way. If those you remember when the conforming loan limits were at $437,500 for a very long time. The jobs data comes Friday.

Jay Powell is giving a speech tomorrow, Wednesday at Brookings Institute. I got to think there will be some volatility and trading nuts on this around that. My dividend cafe on Friday will be about the Fed. And then finally, just before the market closed and I came to record, the USA beat Iran in World Cup soccer by a thrilling score of 1-0. And so because I talk so much about football and basketball, both sports and then various teams that I care about, I felt I owed it to those of you who are big soccer fans to note that the U S will now advance after two ties. I think one of which was zero,

zero and one of which was one, one, and now they won one, nothing. So if you've watched all three games of the USA and the world cup, you've seen something like a three to two score total between three games put together. So fun stuff. Okay. I'll quit making fun of soccer now. Three to two score total between three games put together.

So fun stuff. Okay, I'll quit making fun of soccer now. And of course, I am happy the USA beat Iran for a lot of reasons. If you have any questions, email them to questions at thebonsongroup.com. We do have a question in today's DC Today where someone was curious about a potential parallel between the Fed and FTX, this crypto scandal firm going on right now. And I kind of clarify a few things that might be worth your read. I'll leave it there. Reach out. Thanks so much for listening to the DC Today. Thank you. LLC. This is not an offer to buy or sell securities. No investment process is free of risk. There is no guarantee that the investment process or investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities referenced herein may not be

suitable for all investors. All data and information referenced herein are from sources believed to be reliable. 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. 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.