The Dividend Cafe - The Dividend Cafe Monday - April 22, 2024

Starting point is 00:00:00 Welcome to the Dividend Cafe, weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Well, hello and welcome to the Monday edition of Dividend Cafe. And so if this sounds a little different to you, it's because we are officially launching the new DividendCafe.com today. And this Monday edition will be a regular feature of DividendCafe.com today. And this Monday edition will be a regular feature of Dividend Cafe going forward. But for those of you that have been listening to the DC today and reading the DC today, let alone the old COVID and markets days, it won't be really all that different. We will just simply be posting it all under the Dividend Cafe website. that different. We will just simply be posting it all under the Dividend Cafe website. And every Monday, continue to give you this longer form, a lay of the land across markets, public policy,

Starting point is 00:00:53 the Fed, housing, energy, all of these different categories I've long tried to address over the weekend and into the Monday to launch each and every new market week. over the weekend and into the Monday to launch each and every new market week. I'll continue to do a video, continue to do a podcast. And when I'm unable to do it, my very capable co-CIO, Brian Seitel, will take over those duties on Mondays. But we're looking forward to continuing that. And then just to quickly remind everyone that Tuesday, Wednesday, Thursday, we'll no longer do a video, but we will still have a podcast and

Starting point is 00:01:26 a daily market recap. The Ask David section has now become an Ask TBG section, and I'll be answering questions. Brian will answer some, but we're opening it up to other categories besides markets and investing, questions about tax and insurance and planning and various personal finance elements. We have other leaders and experts in our firm that will take some of those questions and we'll have that on the homepage of DividendCafe.com and we'll put one question and answer per day in the daily email blast. Uh, Friday market recap will now be available as well. We haven't done that in the past. And then the normal dividend cafe of Fridays will continue to come with my own weekly macro market commentary. So that is the lay of the land.

Starting point is 00:02:18 There will be questions and things that come up along the way, but essentially, if it seems like much you do about nothing, the reality is that we were very purposely and strategically trying to consolidate to one brand, one list, one property that becomes our sort of hub of thought leadership, the content that we put out. And then from there, wanted to get the programming and the schedule and the resources right. And this is what we've settled on. I say it at the end of Dividend Cafe today in the written version online, but I want to say it now in the video and podcast. A lot of manpower went into this, a lot of ideating and discussing as to what made the

Starting point is 00:02:58 most sense. We got good feedback from readers and listeners, but then really the both content and experience team at the Bonson Group, Brian Glenn and Lucas and Mina and Jolene all did an awful lot of work. And I'm grateful that rather quickly, in less than a month's time, we were able to stand this up and implement this new plan. Let's move into what we have to talk about here today. It's kind of a lot, and that's what happens when you get me by myself over a weekend. A lot more to read and write and talk about. The issue about how futures open up on Sunday night, I've included that in the Monday edition ever since it was originally called COVIDinMarkets.com. And that was the reason, by the way, is that we were in a moment in 2020 where everything that

Starting point is 00:03:51 was happening in markets that was violent, either up or down, almost everything was happening outside of market hours. Something would happen. They'd announce, you know, 60 million people were going to die. And then the market would drop 2000 points in the middle of the night. And then they'd announce, hey, it turns out you can get medicine at Walmart and no one's ever going to get sick. And then it would be up 2,000 points. And so in this day and age of really bad information and really bad application and really bad policy, there were really bad markets. And most of the bad information and really bad application and really bad policy. There were really bad markets and most of the badness was taking place after 1 o'clock p.m. Pacific and before 6.30 a.m. Pacific. And so the futures, the overnight action mattered a lot more. Now,

Starting point is 00:04:37 I've been following the futures Sunday nights religiously since September 2008, because at that point, it wasn't the COVID experience, but it was similar. It was just sort of the trauma of what was happening in, again, off-market hours, but nevertheless, getting some sort of price discovery in futures as to what to expect where we were in the points which, let's see, first it was my anniversary weekend in 2008 with Fannie and Freddie going into conservatorship. And the next weekend it was Lehman Brothers going bankrupt and then so forth and so on. I won't do my whole standard financial crisis recap talk, but that's a really fun one too, if you're ever interested.

Starting point is 00:05:24 standard financial crisis recap talk, but that's a really fun one too, if you're ever interested. But anyways, I don't think that a lot of people reading Dividend Cafe Care on Monday, what futures did Sunday night. So I may be kind of rethinking inclusion of that. Although if you must know, futures were up last night. But the market did open up a hundred points today and then it gave that back almost immediately and it was kind of back to the flat line. And then it went up about 400 points and it kind of gave that was over a three hour period. It was a nice steady rally higher in the Nasdaq, S&P and Dow all up about a similar amount. And then in the final hour and a half of trading, it gave back a decent portion, but nevertheless, still closed up 253 points today. So that was up 0.67% in the Dow. The S&P was up 0.87% after a brutal day on Friday. And the NASDAQ was up a little over 1% after a brutal day Friday, down over 2%.

Starting point is 00:06:20 Last week was the S&P six week in a row, sixth week in a row that was down. Excuse me, throughout April. I don't think that's right. I think I'm saying that wrongly. Either way, the S&P was down on the week last week a little bit and has been down a pretty good amount since the month of April. I think that there's an important behavioral lesson in what took place last week. The Dow was dead flat on the week. It had been up 211 points on Friday. And what do I mean by

Starting point is 00:06:54 behavioral lesson? The weekend prior, Iran launched 330 missiles and drones, various murderous instruments at Israel, a nation state attacking a nation state. And it is true that they were virtually all shot down and defensed against. But you have this massive attack. And if I say to you, this attack's happening, what do you think markets will do a week later? I don't think very many people would have guessed it would be flat. markets will do a week later. I don't think very many people would have guessed it would be flat. And if I say to you that the country attacked, Israel would be retaliating with another attack on Thursday. So you now have two major military conflict activities happening within one week. You're not really generally expecting a flat week. Well, there was a piece I'd read that was actually written about seven years ago by a gentleman, Ben Carlson, who I like reading from time to time.

Starting point is 00:07:52 And he pointed out the Dow was down 30% when World War I started. This is obviously 110 years ago. But it ended up being up 87% from the time the war started to the time the war ended. The Dow was up huge immediately after Hitler invaded Poland in 1939. It was up 60% during the Korean War. It was up 43% from the time US troops went to Vietnam to the time we exited, announced we were leaving 1973. Now you can say, okay, 43%, another pretty good one. Although that was an eight year period, it was only up a compounding, let's call it 5% per year. And once the troops were out of Vietnam,

Starting point is 00:08:37 the market dropped 40%. So up as they were in, and then actually came down when they were out. So up as they were in and then actually came down when they were out. I didn't realize this. Even during the 13 days of the Cuban Missile Crisis, the Dow was down only 1% when the world was allegedly on the brink of nuclear war. And then it was up 10% on that whole calendar year. calendar year. I mentioned all these historical points to make the point that there are very few things that confound investors more than trying to do market timing and market prediction, market forecast, market entry, market exit around geopolitics. It's just not logical or commonsensical. Now, there are generally logical and sensical reasons why things happen, but they're not visible at the time people are responding and they require nuance and complexity. And they also discard the fallacy that markets are only one thing going on at once.

Starting point is 00:09:38 So, for example, in the mid-70s, you can go, wasn't US leaving Vietnam good for markets? Well, maybe. But what about what was happening in the economy at the time? What about what was happening in monetary policy at the time? What about what was happening with oil prices at the time? So you can have certain things of peace and bliss coming to some element of the world stage. But if that's coupled with various economic vulnerabilities, markets got a price when they got a price.

Starting point is 00:10:05 economic vulnerabilities. Markets got a price when they got a price. And that's why I think last week was a sort of microcosm of a larger principle that foreign policy does not make for good market forecast. Just for what it's worth, the market drop on Friday, NVIDIA was down 10% in one day, over $220 billion of market cap. And I put a chart of it in there just so people kind of get a look at the hockey stick growth up. And then it's now down close to 20% from where it had peaked. And then there's also a second chart that shows a correlation with NVIDIA lately and Bitcoin, and people can draw their own conclusions from the chart. Correlation is not causation, but it's worth understanding all the rules of the road out there. Speaking of that magnificent seven, Microsoft, Google, Facebook, and Tesla. You notice I said Google and Facebook because I don't say Alphabet or Meta. All four of those

Starting point is 00:11:03 mag seven names are in the earnings calendar for this week. So we're now into the fun season this week and next week of S&P earnings results. 10-year bond yield was flat today, closed at 4.61%. Top performing sectors today were technology and financials, both up about a quarter percent. The bottom performing was materials and it was up 10 basis points. So it's one of those days, every sector up in one day. Year to date, energy is the top performing sector. Real estate is the worst performing. If you look at subsectors within it, a more speculative form of tech that it takes away some of the big cap growth names, but just looks

Starting point is 00:11:45 at kind of those arc level names. It's the worst performing subsector. Interesting comment that 87% of the companies in our country that do revenue over $100 million a year are private companies. Now, we talk a lot about the backbone of the economy as small business, as family-owned business. I don't disagree. And I think it impacts a gazillion number of Americans. And so when people are saying that to generally draw a distinction between small business and publicly traded companies, the stock market, the S&P 500, it's a legitimate distinction that sometimes there are things in the jobs front, the stock market, the S&P 500. It's a legitimate distinction that sometimes there are things in the jobs front, the profits front, the confidence front that are just different between

Starting point is 00:12:31 small business and big cap companies. But what I'm sharing here is not really those, you know, $200, $300, $400 billion market cap companies, let alone bigger that we think of as kind of Fortune 100, nor am I thinking of small businesses that might do a million a year in sales or 5 million a year in sales, something like that. $100 million revenue companies. So these are pretty good size. And yet 87% of them are privately held. It's a testimony to the robustness of capital markets

Starting point is 00:13:05 in America. Scalable, substantial companies of size are often private, not available in the public sector, where illiquidity makes sense for an investor, which it often does not. But where it does, private equity has a really substantial opportunity set. That's the reason I brought this up. For those paying attention, the short position that many speculators have in the yen right now is the highest it's been in almost 20 years. Take that for what it's worth. The House on Saturday passed a $95 billion aid package for Ukraine, Israel, and Taiwan. It adds some sanctions to Iran. It sets the table to ban TikTok.

Starting point is 00:14:00 $61 billion of that $95 is is aid uh targeted for ukraine um all of the components that passed there were kind of three or four different uh pieces were reasonably bipartisan i mean there was a faction in the house that wanted to stop it but didn't have anywhere near the support to do so um just a quick comment i guess i don't even really know why i put this in but i did so i want to share it with the listeners and viewers uh a 269 to 269 tie in the electoral college out of the 538 votes that are cast what would it take to hit that i mean do i think it is likely of course not that you know you have all these different things that have to kind of line up. But do I think it's possible? I very much do. And for the simple reason that if I said to you,

Starting point is 00:14:56 do you think that Trump can win Nevada, Arizona, and Georgia? I think a lot of people would say yes. I think a lot of people would say they think he will win those. I happen to think he will win one of those three and possibly more. But regardless, everybody would say it's in the realm of possibility. It wouldn't end those three. And then if I said, do you think it's possible that Joe Biden will win Michigan, Pennsylvania, and Wisconsin? I think most people would say, yes, it's certainly possible. Some people may disagree about who they think is more likely or less likely to win there, but it's possible. But that's exactly what it would take if all the states play out as are routinely expected.

Starting point is 00:15:32 And Michigan, Ohio, excuse me, excuse me, Michigan, Pennsylvania and Wisconsin go to Biden and Arizona, Nevada, Georgia go to Trump. And then one, remember, Nebraska splits its electoral college up by congressional district. And there's one congressional district that went for Biden in 2020, but Trump in 2016. And if that goes back to Trump, that puts him at exactly 269 and Biden at 269. So I don't have anything to say about it other than that. There's a lot that would have to happen for all those stars to align. You could have one of these candidates win six or seven of the battleground states. You could have the other one win six or seven. There could be a very even split of battleground states, but not even in the exact way I just mentioned that therefore throws off the 269 apiece. throws off the $2.69 a piece. Regardless, I throw it out there to just say those are states to watch and that's math to watch and math and states that I'll be continuing to keep my eye on. Fun fact, 28% of US homes that have three bedrooms or more, which is a lot of them, 28% of them are owned by

Starting point is 00:16:40 people over the age of 60 and 80% of those say they have no intention of selling until they move on. Millennials with children own just 14% of the three bedroom or larger homes in America. So there's a demographic reality of play to the frozen market, not just interest rates, but an increasing amount of homes are owned by a demographic that is not as interested in selling and is less likely to have some sort of dynamic mobility in their home status. Right now, we got a 16% chance of a rate cut in June in the Fed Funds futures. So expect that to get to zero, more likely than not. And a 43% chance of a rate cut in July, but a 65% chance of a cut by September. So that's all you're really dealing with the market having

Starting point is 00:17:35 from the beginning of the year pushed out expectations about five, six months. Oil close today, pretty darn close to flat at $82 on the day. Midstream energy was up 1% last week, even as oil and the S&P 500 were both down closer to 3%. Against doomsdayism, you ready for this? One third of the income ever created in human history, the aggregate population of the world and the income created, one third of it was created in the last 20 years. How much has extreme poverty dropped globally in the last 20 years? 130,000 people per day have moved out of extreme global poverty? How many fewer children died in 2022 versus 2002 in the last 20 years? 4.4 million less. Do with that what you want on all three of these metrics.

Starting point is 00:18:39 No one is arguing that nothing negative has happened in the culture, in society, in the world over the last 20 years. But one cannot look at the various elements that have gotten worse without looking at things like the broad categories I just gave you as some form of relevant data in the way we think about these things. The Ask David inside today's Dividend Cafe, which you can also find on the homepage at dividendcafe.com, addresses the difference between value investing and dividend growth investing, why we see dividend growth as sort of a subset, what some of the nuances are. I'll let you read that answer. We have a big week ahead. The Fed's favorite inflation metric, the PCE, comes out Friday, as does Q1 GDP.

Starting point is 00:19:33 So we will see a couple of big economic points by the end of the week. And in the meantime, I'll close with Confucius saying, if you're the smartest person in the room, you are in the wrong room. Thank you for listening. Thank you for watching. And thank you for reading the brand new Monday version of Dividend Cafe. Have a good night.

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The Dividend Cafe - The Dividend Cafe Monday - April 22, 2024

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