The Dividend Cafe - The Dividend Cafe Monday - July 15, 2024

Episode Date: July 15, 2024

Today's Post - https://bahnsen.co/4cWEcOw Surreal Weekend, Market Insights, and Political Developments In this episode of Dividend Cafe, David reflects on a surreal weekend that included a failed assassination attempt and delves into the current political climate as the Republican convention kicks off. The announcement of JD Vance as former President Trump's running mate and President Biden's internal party challenges are discussed. The episode explores the implications of the upcoming presidential election on U.S.-China relations and the regulatory environment. Market updates cover the Dow hitting an all-time high, bond market trends, and sector performance. Key developments also include a federal judge dismissing a classified documents case against Trump. Other topics include foreclosures, potential Fed rate cuts, and the impact of technology-driven employment growth. The host concludes with a deep dive into inflation theories and monetary policy, highlighting the importance of a rules-based approach. 00:00 Introduction and Weekend Recap 00:49 Political Landscape and Market Implications 04:46 Market Performance and Analysis 07:53 Economic Indicators and Reports 10:59 Inflation and Monetary Policy Discussion 14:39 Closing Remarks and Upcoming Events Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

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 what is actually very bizarre Monday Dividend Cafe, just a surreal weekend. And in a lot of ways, there's a lot of market activity going on. And there's all the stuff that I normally talk about, and we're going to talk about it. And there's no reason not to. I mean, the assassination attempt on Saturday failed. And so in one sense, it's okay, there's a lot of normalcy, we can just talk about bonds and yields and all that. But like, I'm still struggling with the fact that it was

that you're talking about a centimeter away from it not being normal, from it being this national situation that is really, in a lot of ways, kind of unthinkable. And so the political moment, the Republican convention starting tonight, today, President Trump, the Republican convention starting tonight. Today, former President Trump announced his selection of current Ohio Senator J.D. Vance to be his running mate, to run as vice president, along with former President Trump as they seek the White House in November. Polling data, betting odds, and things like that are pointing to that being a much more probable outcome than many would have guessed. The current President Biden is dealing with a lot of mutiny efforts within his own party and own infrastructure, their donor base, Hollywood,

other key figures in the Democratic establishment that seems to have tapered down to some degree. The betting odds, for whatever they're worth, have picked back up to a much higher assumption that President Biden will end up being the candidate. Some people may think that's a good thing. Some may think it's a bad thing. What's interesting is some who are not Biden supporters may think it's a good thing. Some may think it's a bad thing. What's interesting is some who are not Biden supporters may think it's a good thing because they believe he's more beatable. Others may feel differently. There's all kinds of different ways to go about looking at this.

From a market standpoint, the presidential election outcome has implications in U.S.-China relations. U.S.-China relations has implications when it comes to foreign trade with U.S.-China relations. U.S.-China relations has implications when it comes to foreign trade with U.S.-India relations. Emerging markets investors have a lot of skin in the game on those topics. All investors, U.S.-centric, are exposed to the regulatory environment, the tax environment. There's a certain part of the 2017 tax bill that sunsets at the end of 2025, a year and a half from now. Not all of it does, but a good portion of it does. And so therefore, we require an extension from whosoever in power at that time. International, domestic, tax, regulatory, energy policy, I think, sticks out primarily. It's on my radar because of our heavy focus in

the energy sector as investors at the Bonson Group, particularly around LNG, liquefied natural gas, and some of the regulatory impediments that have been in place in the current administration. So there's a lot to think about with that. And yet then also from the vantage point of the country, I don't care how much somebody dislikes President Trump. There are Republicans like me who have really never been a big fan. There are Democrats that can't stand them. There's a lot of strong emotions for and against Donald Trump, obviously. But nobody could possibly want to be in a country where a significant leader, let alone a president, let alone a former president,

could have a bullet nick their ear and miss running right through their head on national television. And so it's a surreal moment and it's sobering. And I hope that a lot of the rhetoric calms down. And markets have taken it in stride, but I don't know what markets would have done with another centimeter of movement. We need to talk about markets, but I just want to put that on the table that we're sitting here in the middle of July. The Republican Convention starts tonight. The VP was just announced today. So there's a long way to go. A week or two ago, there was all the drama about who the candidate would even be on the day. I just

suspect we're in for a weird few months. It's already been a very weird few weeks, and I don't think that's letting up anytime soon. And I'll leave it there. The Dow today was up over 200 points, closed at an all-time high, by the way, up a little over half of a percentage point. S&P was up a quarter of a point. The NASDAQ was up 40 basis points. The market breadth substantially improved last week. You probably had one of the biggest weeks you've had in a while with the even weighted leadership is so narrow that the cap-weighted index is outperforming the even-weighted index by that much, how does it normally resolve itself?

Some would say, well, the laggards can catch up to the leaders. And mathematically, that is true. That is not generally how it happens. Mathematically, that is true. That is not generally how it happens. Generally, the overvalued components have to decline in addition to the undervalued components repricing. There's mathematical possibility, but there's also historical tendency. We'll see what happens here.

The Russell 2000, the small cap index, was up another 1.8% today, but it's up almost 8% since last Monday, in the last week. So a really substantial rally in our small cap sector, not just the total sector itself, but the breadth within it. 64% of the companies in the Russell 2000 are now above their own 200-day moving average. It's quite substantial. In the bond market, the 230 spread, so the two-year yield and the 30-year yield, is uninverted for the first time in over, it's pretty much just flat. I think they're each at about a four and a half percent yield. The 210s, which is the more traditional spread metric, The 210s, which is the more traditional spread metric, has not un-inverted yet. It has a ways to go, but it's all steepening slowly but surely. And we'll get there at some point in time.

230s kicked it off today. Energy was top performing sector today, up over 1.5%. Financials were up almost 1.5%. And then the worst performing sector was utilities. They were down 2.39%. It's funny. I mean, I'm sitting here talking about, because the assassination attempt is one of the biggest stories in a long time. And I totally forget to mention that a federal judge threw out one of the substantial cases against President Trump today dealing with the classified documents. That case was not likely to go to trial before November anyways. Legally speaking, I suspect it was the strongest case relative to some of the others. And yet the judge today has totally

thrown it out on the basis of it being a violation of the appointments clause. And there's some legalese in there that you can look at yourself, whether you're a lawyer or not a lawyer, form your own opinion. But that's a story that, let's put it this way, normally would have been the biggest story of the week. And it made like my fourth story here today. Okay. Economically, consumer confidence fell on Friday. I don't really care. Never have, never will. There's a chart at DividendCafe.com straight from the U.S. Bureau of Labor Statistics. Client had pointed it out to me. I had not seen it. I was blown away, and I want to share it with you.

I circled a few things in the chart, but you have to go to DividendCafe.com to see what full-time workers who work from their employer location at some outside workplace, generally an office, what they are reporting for hours worked in a day versus what those who are self-declared, what they're working in a day and work from home. It's a fascinating, in a day and work from home. It's a fascinating, actually governmental reported survey at the BLS website. Foreclosures, by the way, the Adam report came out last week for the middle of the year, where it had been at 177,000 either foreclosures or default notices. And a lot of default notices do not go all the way to foreclosure. But that number of 177,000 in the first half of the year is down four and a half percent from what it was in the first half of last year. But it's an

eight percent increase over what it was in the first half of 2022. But nobody was defaulting in 2022 just based on where markets were at the time. And anyone who was in a position after default was probably in a better position to just sell. So New Jersey and Illinois, the highest foreclosure rate in the country, but it's 0.21%. So it's a high rate, relatively speaking, but a very low rate, absolutely speaking.

The highest growth in foreclosures year over year is Kentucky. They're up 73%, but you're talking about a 73% increase from a very low number to a still very low number. So just want to put all that data out there. Speaking of numbers, 88% chance of a Fed rate cut in September, 100% now priced in the futures market for November. So there we go. Oil today closed to $82. Midstream companies have begun reporting they were up again another one percent last week against doomsdayism. I finished this series we'd gone through of the seven laws of pessimism. And now today I wanted to share from a Goldman Sachs research report, 60% of workers today are employed in occupations that did not exist in 1940.

percent of the employment growth over the last eight years has been driven by technology-driven creation, innovations in totally new occupations. I think that's, if someone's able to interpret that somehow as a negative, if someone's able to not see in that the overwhelming positive, then they have to explain it to me. A thoughtful question from Ask TBG, and we're going to close out with this. Someone's saying, I know you don't subscribe to the theory that money supply is the sole driver of inflation, that you don't believe in the MV equals PT and whatnot, but I'm curious on your idea and what your take is on the idea of a monetary rule to constrain inflation. Would you think binding Fed monetary policy to some measure of economic growth targeting nominal GDP would help prevent wild inflationary cycles? And the

reason why I had to print that is because the premise in it is completely untrue that I do not believe that inflation is a monetary phenomenon. I always have believed inflation is a monetary phenomenon. But like Milton Friedman, I believe it is when there is too much money chasing too few goods. And so therefore, the supply side of the economy is half of that equation. I very much believe MV equals PT, which is Irving Fisher's equation theory, that money supply times velocity equals the price level times the supply, total amount of transactions. And that's a tautology, an equation that helps us calculate where money supply fits in to the price level. But see, that M is one of the variables, the M of money supply that helps involve solving for the P,

which is the price level or whether or not inflation. It isn't the only one, though. So it isn't that I don't agree with the quantity theory of money. It's that I do agree with it. And it itself says that velocity matters and that the supply of goods and services matter. And so, therefore, there are other variables that play in. Now, that's one thing I just want to clarify because I just couldn't sleep at night. I care so much about this issue. I devoted so much of my own study and writing to this that if I've given anyone the impression that I don't believe in the quantity theory of money, we have a major problem. However, to the person's question,

To the person's question, I don't know if nominal GDP targeting would necessarily prevent any possibility of inflationary cycles. I certainly believe that some rules-based approach with monetary policy is superior to not having a rules-based approach that is highly discretionary and highly interventionist. But that isn't necessarily just about the inflationary outcomes. It also speaks to the distortion of economic signals. It speaks to the misallocation of resources, including the resource of capital, that when Fed policy is not rules-based, is too arbitrary, too discretionary, and we distort economic signals, price discovery, and so forth, that we almost assure ourselves of malinvestment that has to be purged out, and suboptimal resource allocation that limits

economic growth. That's my biggest basis for advocating for rules-based approach, and it's less focused on its impact on the price level, but I don't deny that there could very well be a benefit there as well. Great question. Long answer. I'm sorry. I'm going to leave it there. You have the Republican convention this week. You have a weekly portfolio holdings report coming on Wednesday. We'll have our normal questions and what's on David and Brian's mind each day this week, the podcast, all the fun things, and then a heck of a lot going on earning season. So our whole investment committee is very busy dealing with analysts and company outcomes and certain potential portfolio adjustments.

So all that to say, reach out with your questions because I sure love answering them. Have a wonderful Monday night and God bless America. 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

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