The Dividend Cafe - The DC Today - Tuesday, September 12, 2023

Episode Date: September 12, 2023

Today's Post - https://bahnsen.co/3PExy76 Mexico has the strongest currency in the world this year. Its stock market is on fire (near the best in the world this year), It has overtaken China as the biggest supplier of goods to the United States (did you know that?). Direct investment from foreign countries into Mexico is up +40% in 2023 alone. Do you see why I refer to “near-shoring” as much as “on-shoring“? The diminishment of supply chain dependency on China in the United States is happening. But it may prove to be much more of a Mexico story than a Rust Belt story. 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. I'm actually sitting at my desk at the New York office, our studio. office, our studio. There's some tech issues. And so we're not going to wait around for that. We're just going to jump right into recording here from the desk. So that's why the change of scenery. Interesting day in the market. The Dow gave up a 200 point lead. The Dow kind of closed pretty flat on the day, but had been up, as I mentioned, 200 points. And yet you still had a really big rally in energy today and a decent rally in financials. Even though the Dow was flat on the day after giving up 200 points, the S&P was down over half a percent. The Nasdaq was down a little over 1 percent.

Both cases largely driven to technology being down 1.75 percent on the day. That energy rally I talked about was up over two and a quarter. So kind of big movements in the ups and down, the biggest gainers, biggest losers, and yet net-net, not a major substantial move by the end of the day. In fact, in the bond market, the 10-year treasury yield was only down 1.6 basis points. So you had a little bit of an increase in bond prices on the long end of the curve. Yields were a little higher on the short end. And so mixed bag, but pretty flattish in bonds as well. Oil prices, they'll close to almost $89 on WTI crude. definitely knocking on 90s door. And that was up 1.83% today. I think just kind of going around the world real quick, Kim Jong-un, the North Korea dictator,

arriving in Moscow for meetings with Vladimir Putin. I have a lot of sources. When I talk about the Beltway, Capitol Hill, economics, markets, there's a lot of information I try to no access to information on what will be happening with Kim Jong-un and Vladimir Putin. But I do suspect that it's not good. And so we'll see what kind of comes out of that. But all in all, I don't think any of us should be loving the idea of various alliances with countries that are not super aligned with the United States. A point I want to make about a topic we've been talking about a lot lately, which we're going to

be talking about a lot more, and that is this issue of nearshoring or reshoring, friend-shoring, changes in U.S. supply chain management, a lot of which will likely end up being on-shoring, but nevertheless off-shoring from China in the years to come, weakening the dependency on China in our supply chain needs. Mexico, while very few are talking about it, including us, in fairness. Mexico has the strongest currency in the world this year. Mexico's stock market has performed among the best in the whole world, very much top of the list. It has overtaken China as the biggest supplier of goods to the United States, which is not something a lot of people necessarily realize. Direct investment from foreign countries into Mexico is up 40% year to date. So I think diminishment of supply chain dependency on China is happening. And I think we should be viewing it as not merely a Rust Belt

story or a U.S. factory story or concern about U.S. labor, which is kind of my angle. end up not having enough workers in the U.S. that it requires us to play with other allies even more, Mexico being near the top of that list. Word is, and I did not get a final update on this by press time, that they're nearing a potential deal with the talks in the United Auto Worker and Automaker discussions to try to avoid a strike there. Speaking of nearing a deal, I do not think we are nearing one or going to near one regarding the government shutdown talk in 18 days. I fully expect that will happen. I think it'll be a political story and I don't think it'll be a market story. Interesting anecdote about copper prices. China's economic activity, as we've talked about

a lot, has been very weak. The U.S. manufacturing data has been in contraction mode for basically all of 2023. And copper prices are right now hanging in there. It's a confusing market signal, mixed bag of data. That's basically the scoop in markets today. The ask David had to do with if I believe the Fed sees the rise in treasury yields as problematic, and do I think that they would stop their quantitative tightening to reduce that supply of new treasuries, which is certainly putting the upward pressure on yields. And I certainly do think that they would. But this is sort of the whole point. It kind of begs the whole question. They don't see high treasury yields as problematic right now because

their very objective is to create higher yields, higher tightening of financial conditions towards their desired aim of weakening the labor market. And these are their words, not mine, of slowing economic growth to a point that they think it becomes counterinflationary. So I happen to disagree with a whole lot of premises that are embedded there. But right now, I don't think they would dispute the facts that higher bond yields are happening and that higher bond yields become an issue in some of these market-related discussions. I think the answer to your question, though, is yes, I think that they would see it as problematic eventually, but not yet. And what would they do when that happened?

Well, not only do I think they would stop quantitative tightening, I think they'll end up going back to quantitative easing. They have decided that that tool in their policy toolbox is an effective way of controlling or trying to influence the long end of the yield curve. And so I don't know that they will stop quantitative tightening before they've brought the federal funds rate down a lot, probably at least 250 basis points, it's very hard to believe that they would worry about long-dated bond yields before they've un-inverted the yield curve. And so the sequence of events is relevant. And I agree with where they'll end up going to the person who asked this question. But I think that they're going to first try to get some path to claiming a victory on their policy objective.

And then they're going to deal with the short end of the curve and only last when they deal with the long end. So that would be my longer answer to your short and very thoughtful question. All right. Clients will receive weekly portfolio holding support early tomorrow morning. And all of us will receive the consumer price index results for the month of August. Thank you. The link, by the way, to the highlight reel, if you will, of my Varney hit today at Fox Business is at the dctoday.com. And of course, always at the Bonson Group's YouTube page, which we really wish more of you would go to and subscribe. Massive, monumental undertaking, courtesy of my wonderful content department archive of all of our videos over the years at the Bonson Group's YouTube page.

With that said, thanks for listening. Thanks for reading. Thanks for watching the DC today. And we will see you tomorrow. That said, thanks for listening. Thanks for reading. Thanks for watching the DC today. And we will see you tomorrow.

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