The Dividend Cafe - The DC Today - Wednesday, August 2, 2023

Episode Date: August 2, 2023

Today's Post - https://bahnsen.co/3DGpZpC Fitch (the least known of the three major credit rating agencies) downgraded the U.S. from AAA to AA+, citing growing fiscal deterioration and overall debt burden. Now, you might be thinking, “oh no this sounds really bad,” and certainly anyone who doesn’t think the debt burden in the U.S. is really bad has, shall we say, not let the medication wear off … But on the other hand, not referring to the debt itself – just referring to Fitch saying all this, you also might be thinking, “ummmm, did you guys just return to the office yesterday?” All headlines and Johnny-come-latelies aside, treasury yields laughed off this announcement today. We should note, S&P moved the rating to AA+ twelve years ago. If one were looking to understand financial market responses to U.S. sovereign debt reality, they would be more focused on the ramifications for liquidity in the financial system (Fed actions with easing and tightening and levels of reserves in the banking system) than the ability to repay debt. The latter is simply not a concern. The former is a volatile, uncertain, and unstable tale that ebbs and flows and impacts all sorts of risk assets. The ADP jobs number once again blew out, this time at 324k private sector jobs created in July (versus 190k expected). We shall see what BLS says on Friday. More than 40% of companies in the Russell 2000 (small cap index) have NEGATIVE earnings. Small cap benefits from active management. 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 Wednesday edition of DC Today. Just some quick comments for you today, not a lot of extensive commentary. It was a weird day because the NASDAQ was down over 2%. It was its worst day to the downside since February. The S&P was down 1.38%. The Dow was down 350 points, down 1%. And yet, the breadth of downside wasn't that bad. Consumer staples were up. Healthcare was up. Utilities were dead flat. So you had defensives all kind of up and yet a lot of downside on the risk assets. Please don't believe the nonsense. And I mean just comical nonsense

that today's downside was related to this Fitch downgrade of the U.S. credit rating. The S&P downgraded the S&P's credit rating, excuse me, S&P downgraded the United States credit rating from AAA to AA plus 12 years ago. And I think the S&P is up 400% in that time period. Fitch did it yesterday. Congrats to them. At the time S&P did it, I think we had 10 trillion of debt. We now have 32 trillion of debt. And they expressed worries about the excessive debt. The market, the bond market, the global currency market, I mean, there isn't a person on earth who didn't know the state of U.S. debt situation. It's something I talk about all the time and my belief in the stagnatory realities that come about as a result of excessive indebtedness. as a result of excessive indebtedness. But as far as its impairment to the U.S. ability to make a principal and interest payment on debt, which is what credit rating agencies are supposed to be monitoring, it's preposterous. And so I think it is irrelevant if one wants to call U.S.

debt worth AAA or AA+. I certainly think Fitch, which is the third player of the three major rating agencies between S&P, Moody's, and then Fitch, I think that their take doesn't matter to anyone. I think what matters is excessive indebtedness. It matters to economic opportunity. It matters to future expectations of economic growth, but does not matter to the credit rating. And I think that this is what is so strange. But again, the markets were down about 100 points at the open. Fitch did this yesterday. The down 350 came about literally every kind of half hour. We just went down a little bit more is that you'll see the chart in the dc today of daily our market action today was intraday was very steady down throughout

the day markets are up so much in the last four six eight weeks so there's one thing you hear me say over and over again on this podcast please remember that markets do not need a reason to go down they don't need a reason to go. And that attempt to try to find a particular single cause to market move one way or the other is always going to be met with inconvenient truths. Today is one of those days. The 10-year was up four basis points. So that's how worried the bond market was about the ability of the government to pay back. And everything under 10 years on the yield curve, the yields were down. And the 10-year was up four basis points,

so it closed at 4.08%. So that sounds like a real massive credit scare to me. That's really kind of the newsworthy event of the day. The markets, like I said, technology was down two and a half percent and the consumer staples were up a quarter point. So you had some sector dispersion. We've certainly seen plenty of it the other way as well throughout the year with defensives down and technology and consumer discretionary and other things like that up. So I'm going to leave it there for the day. I'm looking forward to being back with you again tomorrow in the DC today and definitely looking forward to a really fun Dividend Cafe on Friday.

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