The Dividend Cafe - The DC Today - Wednesday, May 17, 2023

Episode Date: May 17, 2023

Today's Post - https://bahnsen.co/3OnePfQ So markets rallied hard today as both sides in this Biden/McCarthy negotiation assured listeners that a default won’t happen. Here’s the lay of the land in the debt ceiling debate: It is fair to say “deadlines” thrown out for various actors in this are more bark than bite – negotiating tactics and all that stuff. No one can really say when they have to start prioritizing payments because they don’t know what exactly June 15 tax receipts will look like. There will be lots of “rounds” in this negotiating process The White House largely believes it is more to their political benefit to be seen as getting a deal done than to be seen as fighting with the Republicans Noise is not material to a portfolio. One need not know what happens between now and whatever the X date is to know that on the other side of the X date, it will be like this noise never happened. For us contrarians, it is worth noting that cash levels are now the highest they have been all year and bond allocations are the highest they have been since 2009. And the recent Bank of America survey had money managers the most pessimistic as they have been all year. Keep this up, and we may end up seeing a full-blown boost of economic expansion … =) 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. I have just literally walked into my apartment here in New York City, been on a plane all day coming out from Southern California, fought the traffic from JFK in my car service through Queens over the Queensborough Bridge into Manhattan to run up and record this for you. And I bring with me a rally day in markets. Dow up 408 points, both NASDAQ and S&P up about one and a quarter as well, literally within a few basis points. All three indexes up literally right around that 1.25% level on the day. Basically, both Speaker McCarthy and President Biden saying, we don't have a deal yet.

We're not done. But no, no, no, we're not going to default on the debt. And the only thing I want to say is I think there's days the market's going to drop for no reason around, oh, my gosh, they don't have a deal. And I think there's days that the market's going to rally higher for no reason. Like, oh, yeah, good news. They promised they're not going to default. So let me just tell you something.

They're not going to default on the debt. It's all been a big lie to begin with. But beyond that, I still think the glass is half empty side of where we go between now and the end of it. We'll have deals that fall apart before a deal that gets done. That's just my experience with this and my read of what the politics are like. So the kind of major points I want to offer on the debt ceiling thing, and then I'll give a few other little tidbits and I'll let you go.

I don't know when they'll have to start prioritizing payments. But that is prioritizing payments is different than a debt default. That's the big point I've been making for months and months and months and months, that a debt default is a technical term, meaning the missed principal or interest payment on a treasury bond. It's not going to happen. Prioritizing payments, which they've had to do dozens of times in my lifetime, and it's ugly and it's weird and it's political and it's not good, but it's not a death default. I suspect that there will come a push up against that wall before they actually get there for the

simple reason that the politics are just not such that either side is likely to fully go along with what the other side's doing without there being some sort of crisis moment. But how the Treasury Department, Janet Yellen, excuse me, Secretary Janet Yellen keeps coming out and saying, on this date, we could run out of money or this date, we're gonna have to do this or do that. And I don't know how they know the date when the January 15th tax payments are not known. January 15th is a quarterly estimate date and the collections of which, you know, there's a certain range they can certainly know they can project. But as far as like running out of cash, you could be up or down a hundred billion dollars,

you know. So I just, I don't, I think there's so many different knobs that can be and will be turned that expect a lot of rounds back and forth in this negotiating process before we get there. The White House largely believes it is more to their political benefit to be seen as getting a deal done than it is to be seen fighting with Republicans. The Republicans in the Senate see it the same way, better to get a deal done. And many in the House see it the same way. And I would imagine Speaker McCarthy as well. There's definitely an element of the Republicans in the House that do believe it's to their primary, meaning the political benefit in a primary, to be seen as not getting a deal done. And so, you know, that's just part of the deal here. Noise, which is what I'm describing that

will happen is not material to a portfolio. You do not need to know what happens between now and X, whatever the X date is that this stupid thing is done, you don't need to know what happens between now and X to know that on the other side of X, it will be like the noise never happened for one's portfolio. So we have absolutely no intention of trading this thing. And I don't recommend anyone do so. By the way, as far as contrarian thinking goes, do with this what you will. Cash levels are the highest they've been all year, um, in terms of the Bank of America, uh, which kind of gold standard of institutional portfolio surveying, um, and bond allocations are the highest they've been since 2009.

Now, of course, bonds are the most attractive they've been since 2009 as well. Do with that what you please. But keep this up. You may end up seeing a full-blown rally here. Who knows? 400 points today. We had been down other days. So there's just a lot of teeter-totter going on. That's exactly our forecast. We don't think much of it one way or the other. What was up most today? I believe it was financials were up over 2%. Yes, indeed. Utilities were down a tiny bit. It's an interesting comment on breadth. You had consumer staples were right at the flat line, down 10 basis points. Utilities were down 36, but with Dow up over 400 points, you don't usually have a couple sectors down. So it'll be interesting tomorrow to see the total

advance decline line. Crude oil rallied over 2.5% today. Bonds pretty much flat. The 10-year was up two basis points to 3.57% on the 10-year treasury yield. Housing starts were up 2.2% in the month of April. That was basically in line with expectations, a little bit better. But they're down 22% housing starts year over year, with single family residents down 28%, which is massive, and multifamily apartments down 11%. Somebody asked me in the Ask David section what my thoughts are on a flat, excuse me, a fair tax. This proposal that several have had for, you know, it's been around a couple decades now, the idea of a sort of national sales tax to replace a national income tax. And I provide my answer in DC Today written. I would do it right here on the podcast

video, but we don't have time. So go to the dctoday.com if you want to hear what I think about fair tax. I think I've given you the rest of the info. Look forward to any questions you have, questions at thebonsongroup.com. Thank you as always for listening. Thank you as always for watching. And thank you for reading the DC Today. Securities are offered through Hightower Securities LLC. Advisory services are offered through Hightower Advisors 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. Thank you. 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. Thank you.