The Dividend Cafe - The DC Today - Wednesday, September 27, 2023

Episode Date: September 27, 2023

Today's Post - https://bahnsen.co/3rtSIve The market opened up a bit and got up nearly -150 points before dropping nearly -300 points (an intra-day swing of over -400 points) before rallying back a few hundred points and closing down just -68 points. Who knows what the next two trading days hold but right now the only asset class on my screen up on the month is the DOLLAR. Bonds, Gold, Europe, Emerging, TIPS, Small Cap, Tech. Utilities – you name it, all down. The dollar, up nicely (DXY). At this time we expect the government shutdown will kick in on October 1 (this Sunday). Jamie Dimon, CEO of JP Morgan, said yesterday that if rates were to get to 7% you would see a deflationary asset unwind and a lot of asset bubbles burst. The media ran with the comment as if he were predicting that rates would go to 7%, which of course, he was not. 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. Hello and welcome to the Wednesday DC Today. We just now have two days left in the third quarter, two days left in the month of September. And today we got a little whipsaw within the day. Let me just quickly go through the market highlights and lowlights of the day and then talk about a few things. The Dow opened up this morning and got up as much as about 150 points. It fell 300, almost 300 points from there, and then went up almost 300 points, and it closed down 68. But you had over 400 points of intraday up and down movement, and so there was a bit of volatility up and down within the day. The S&P closed dead flat. I mean, flat, flat, flat. And the NASDAQ closed up 22 basis points. So all of the indices remain down on the month.

And the only thing on my screen, now again, I'll give a quarter end more holistic summary of this next week, because who knows where things go in the next two days. But right now, on the month, you have gold down, you have bonds down, you have global bonds down and tips, inflation protected bonds are down, tech down, utilities down. down, utilities down. And yet the dollar, the US dollar is what is up on the month. And I don't really see any other asset class of note that is up. So not a lot of people would have predicted the US dollar being the big performer here. I think it's now up a little over 6% since it had kind of hit this little cyclical low back in July. And there's some currencies that it's up almost 10% against in that time period. So on the day, though, when I talk about the S&P being kind of flat and the Dow barely being down after being up and down hundreds of points,

you had energy up 2 and a half percent on the day. And maybe that's not a big surprise when oil was up a massive 3.65%. WTI crude closed well over $93 a barrel, getting close to $94 a barrel. So this is another major story and needs to be understood. Now it's happening at the same time with bond yields. It's happening at the same time with the global bond story that I maintain is one of the bigger stories. I'm going to kind of sum up what all of this means in a moment, but the oil story shouldn't be ignored.

Utilities, on the other hand, were down 1.9 percent. So that's a pretty heavy differential in one day between the top and bottom performing sector. Having four and a half percent separate the best performer from the worst performer is extremely abnormal. But that was the kind of day it was. The government shutdown, I think, is coming on Sunday. The Senate looks like they have a continuing resolution to pass, but it has obviously no support coming in the House. And then the House might have been able to push forward here a few appropriation bills. They did get a procedural vote to do so, but obviously it's not going anywhere in the Senate and perhaps not even out of the House. And so you have a couple of different things being done, but none of which would stop a shutdown per se.

It might provide, depending on the way certain things go, the political cover that some people have versus others could change. But not the fact that it sure appears the shutdown is inevitable at this point. What else did I want to cover? a shutdown is inevitable at this point. What else did I want to cover? The biggest story I think right now, and I'm trying to figure out the right way to articulate this, but something I spent a lot of time thinking about today. I'd read a good little bulletin from Peter Buchvar, who I read every day. And I've read more and more from some kind of longer macroeconomist on this theme in the last few weeks. The Fed, as you know, did not raise rates last week. And as you know, at their last meeting in July, they did not raise.

So you could say, oh, they stopped tightening a couple of months ago. And when they look to whether or not they want to continue tightening, they now can do so with every single condition they would look at tighter. But it's tighter without them tightening. And that's really a classic case of the financial markets doing the Fed's job for them. The Fed can say, well, hey, look, we feel we have more work to do. I totally disagree with all of it. But they can say we want to tighten.

to do. I totally disagree with all of it. But they could say we want to tighten. And yet the 10-year bond yield is up 70 basis points from where it was not very long ago. That's a lot of financial tightening and high yield indexes and basically any reference rate. You look at mortgage rates significantly higher. So a lot of tightening has happened in the financial markets without the Fed doing the tightening. That's kind of the issue going on right now is does the Fed end up saying, OK, the markets did our work and did they even take credit? Did they kind of prodded the markets in that direction? I don't really care about the credit who tries to take credit for things. My point being, that may be how this is playing out and that it is a forward-looking deal right now. And then the Fed can say, okay, the work has been done for us. I wouldn't make a prediction about it. I'm just giving you a predicament. You have tightening going on without the Fed having gone tighter and that's the situation.

What else? There's a Ask David today that's kind of a longer answer but I would like you to read it at the dctoday.com. Somebody had asked and they put a lot of thought into their question, you know, isn't it true that we talk about debt, households, companies and then countries, which is what I talk about a lot, the sovereign excessive indebtedness of not only America, but many countries around the world. In the context of that, it's hurting us in the future. And the person was wondering, well, shouldn't we be looking at what it does in the present? If we can do stuff in the present, why would we think about the future? Does the future even really exist? I don't really know what that means. And are the repercussions, if it's bad, it would be bad in the present, not the future. So why are we focused on the future? And there's a lot wrong with the

question. Like all the premises are just flat out wrong. I mean, first of all, the future most certainly does exist. If you don't believe so, rewind this tape and then start at the present and you will then find out that the future did indeed exist as the present moves forward. This isn't as tricky and clever as people want to make it sound. Here's the deal. The notion that debt is harmless if it can be done in the present just has so many counterfactuals to it that debt can be harmless in the present and not harmless in the future. And stock prices do not get pummeled when there is dangerous debt in the present until they do. until they do. And the Lehman and Bayer stories of 2000 and Fannie and Freddie and, you know, I can go on and on of 2008 are kind of obvious. But even for a household, debt levels that get higher, but there's still the cash flows. But see, the problem with a plan to service debt is that plans get disrupted by reality, by lost jobs, by declining tax revenue, by inadequate amount of passengers using the

MTA or the San Joaquin toll road. The debt conditions stay where they are, even when revenues to service the debt doesn't. And the unknowability of future revenues is where the risk of the debt is. So I don't think that we're on to something clever to try to think about debt only in the context of the present, not the future, a futuristic understanding of the risk of debt, and a futuristic understanding of the known knowns of debt. I will have less resources in the future if I take on debt because there will be resources that will be needed to pay the debt in the future. And it could be worth it and it could not be worth it, but you can't say you will still have the same resources if you will by definition

have to have less. And less, of course, what the debt is being used for is to finance a productive activity that grows the revenue on top of the debt. And if someone wants to make the argument that that's what most households are doing or that's what most governments are doing, I would love to see that argument. But the only exception may be where there is a productive use of debt is primarily in the corporate sector. Okay. So a few little basic things of debt is primarily in the corporate sector. Okay. So a few little basic things from yours truly here in the DC today. I will be in meetings tomorrow afternoon. Brian Saitel will bring you the DC today for Thursday, and I'll be bringing you a Dividend Cafe Friday morning. I do look forward to seeing you at the Dividend Cafe. Reach out with any questions as always. Happy debate watching tonight.

Take care. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC, member FINRA and SIPC, with Hightower Advisors LLC, a registered investment advisor with the SEC. 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. 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 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.