The Dividend Cafe - The DC Today - Wednesday, March 1, 2023

Episode Date: March 1, 2023

Blog post here: https://bahnsen.co/3KW53PY ASK DAVID “In your recent random walk in the Dividend Cafe you mentioned ‘full expensing of all capital expenditures’ as part of your prescription for avoiding Japanification. Will you please explain why this is necessary and what impact it will have?” ~ Luke L. I think one of the major tenets of Japanification is “low/slow/no growth,” and therefore, an obvious antidote (tautologically) is “growth.” I think the testimony of history is a clear and particularly recent experience that in a period of low capital expenditures, which are needed to improve productivity, which is needed to generate growth, removing disincentives to such productive investment is key. Forcing businesses to make large (and risky) investments NOW, but only to deduct that expense over time, is a disincentive. Immediate cash expensing incentivizes capex, which drives productivity, which drives growth. 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 from beautiful New York City. I arrived late last night and we are here. It's the middle of the week and it is the first day of March. And we're just going to do a quick market recap today. There wasn't a whole lot of action. The chart of the Dow today went kind of up and down a little, but really the Dow was up five points on the day. The S&P was

down more, about half a percentage point. The NASDAQ was down about 0.65%. But again, with the Dow kind of ending up flat on the day, it looks sort of boring, although there were a couple little gyrations throughout the day. Energy was the top performing sector. It was up almost 2%, where utilities were the worst performing sector, down 1.7%. And the thing I'd point out is that real estate was the second worst performing sector. And that was down one and a half. And so you see the interest rate sensitive areas doing the worst. And that is largely because of bond yields moving higher. The 10-year touched 4% today. It was up eight basis points. The 10-year yield closed at 3.99%. So rates higher, rates sensitive, stock sector's doing worse, energy, materials,

industrials doing better, made for kind of a flattish day in markets and a bad day in bonds. Crude oil, by the way, was up close to 1%. It's still sitting right around $78 a barrel. For all the talk about oil and energy, what's going on, there's a clip of my appearance today on Fox Business where Charles Payne asked me, you know, what's going on with energy? It seems like it's really struggling, and he's talking about stockpiles and whatnot. But really, for all of that talk, oil closed 78 today.

You know where it started the year? 78. So it hasn't even moved. The only economic point of the day that grabbed my attention today was ISM manufacturing. I'm always amazed how quickly it comes out for the prior month. And on March 1, we get the February ISM manufacturing. We don't get non-manufacturing, which is the services sector, until later in the month. But it came in at 47.7. And the way that this works is 50 is sort of like the base, is like break-even. And anything below 50 is a negative number. Anything above 50 is a positive number, indicating expansion, whether it's new orders or supplier deliveries. There's a number of different factors that play in and they're all aggregated together to form an index. That's how manufacturing activity is measured. And anything under 50 is considered a contraction and over 50 is considered

expansion. Forgive me if I've said that in the past, but you know, there's new listeners and they matter too. So, you know, sorry. Okay. New orders were way off of higher than January levels, but still negative. And so we were at 47.4 in the total ISO manufacturing in January, came out to 47.7 in February. So, yeah, still contractionary in ISA manufacturing. And the breadth of that contraction, four out of 18 sectors were negative. Excuse me, four out of 18 were positive. So 14 out of 18 were negative. Hopefully you knew what I meant. All right. so what else i i do go into the ask david section today about someone had asked why

i suggested full expensing of capex as one of my kind of pro growth measures to deal with this japanification and i suggested in a list of things that I would do if I were king for a day, instant expensing or full expensing. And I hope most of you realize that for businesses that are going to go out and build factories or some form of capital expenditure that represents an investment into equipment and inventory, R&D, that there are rules that apply to different things as to how they, different depreciation schedules, as to how they go about deducting that. And what I'm suggesting is a cash deduction. So if you go out and spend

$25 billion right now, that you get to deduct $25 billion in the year in which you do it, if you spend $250,000 on an investment. Now, why do I want capital expenditures to get that kind of a deduction? Because I think capital expenditures are generally only done for the purpose of some sort of productive aim. Why would a company be spending money on capital expenditures if they didn't believe they were going to get a higher return on investment in the future? And a low level of CapEx of what we call in the GDP formula, non-residential fixed investment, indicates a low level of investment to the future. And so it doesn't bode well for long-term growth if you're not getting better productivity.

You're not going to get better productivity if you're not getting more capital investment. And I think one of the ways in which we can incentivize greater capital investment is the deductibility of those expenses to help de-risk the investment. And so that was the Ask David section today. I'm going to leave it there. Check out the dctoday.com for the summary, any other bullet points. There's the link to my appearance on Fox Business Today. And we'll be back with you tomorrow from New York to do another DC Today. And we have a really fun Dividend Cafe coming Friday. When I say fun, it's somewhat sober, but talking about federal debt. So anyways, that's the scoop. Questions at thebonsongroup.com anytime. Thanks for listening to, watching, and reading the DC Today. Thank you. 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 Bonson Group and Hightower shall not in any way be liable for claims and make no expressed 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.