The Dividend Cafe - The Dividend Cafe Monday - May 20, 2024

Episode Date: May 20, 2024

Today's Post - https://bahnsen.co/3ypYWzx We recap market activity on Monday, May 20th. The Dow started positively but lost momentum, closing down 196 points. The S&P and NASDAQ saw modest gains. ...China's market performance may be indicating an upward trend. Additionally, there was news about a helicopter crash in Iran, potential Middle Eastern tensions, and upcoming OPEC meetings. There are possible changes in capital reserve requirements for U.S. banks, the employee retention tax credit, increased tariffs on China, and the impact of these policies. We look at homeowners and renters in the U.S. Lastly, insights into recent Fed speeches and their stance on inflation and rate adjustments Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Transcript
Discussion (0)
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. Welcome to Dividend Cafe this Monday, May the 20th. And we started out this morning slightly positive. We were actually above the $40,000 level on the Dow for first, say, two, two and a half hours of trading and then lost some momentum throughout the day. The Dow ended up closing down 196 points. Both the S&P and the Nasdaq actually registered modest gains on the day. And even with the sell-off, really, with the volatility index of VIX in the low 12s, really wasn't much of a down day. So I'd call it quiet. Yields were up just slightly. 10s were up about two basis points on the day, closed at 444. So there you
Starting point is 00:00:51 have it for a little market recap. There's an interesting note in there about China's markets being at 20% year to date and more and more percentage of stocks in China trading above their 200-day moving average in basically a market that's been more or less left for dead. If you look at a 10-year or a 20-year chart, they're negative, quite negative. These things just have a funny way of quietly and slowly and discreetly creeping higher again before really anyone notices, because the flows that we're seeing in ETFs and funds and things are not only still abysmal, but they're still negative year to date. So there aren't too many participants catching on.
Starting point is 00:01:31 And I think it will take some time before there's more conviction before that happens. Top news story for the day was the helicopter crash killing Iranians, President Raisi and his foreign minister and six others. And it looks like it's an accident. It was a blizzard type conditions and a lot of fog. I think it was a 30 or 40 year old helicopter on top of that. And they tried to set it down in that storm and ultimately all perished on board. So the existing supreme leader of the country has been there since I was in grade school in 1989. The existing supreme leader of the country has been there since I was in grade school in 1989. Kemeny said business will continue on as usual for the country.
Starting point is 00:02:09 But some potential Middle Eastern tension around that. There's also an OPEC meeting in June. And so some of these things definitely matter from an energy perspective and just volatility perspective. Some lobbying from some of the big banks is resulting in what could turn into a reduction in capital reserve requirements for large U.S. banks. This is like the FDIC, the Federal Reserve, the Comptroller of the Currency. They've already slated an increase, but they may decrease it by around 20% based on some
Starting point is 00:02:38 of these lobbying efforts, which would be technically stimulative, since that's where the velocity of money in the economy comes from. It's banks lending money. And so if they have to withhold less in capital reserves, that would theoretically provide more to be lent out in new loans, as long as people will take the loans at higher interest rates. There is now over a million applications to the IRS for the ERC. It's that employee retention tax credit. I just mention it there because it equates to roughly $100 billion up to that, something like that, which would be, again, fiscal stimulus essentially going back into the economy right around the time of the election. Food for thought there. There is increased tariff from the Biden administration on China and this sort of ongoing geopolitical tension with China. And that speaks to a lot of things.
Starting point is 00:03:31 The comment was put in there originally by David and I added to it. But it's also hand in hand with this deglobalization and regionalization theme that we're seeing across the world as these things play out. Tariffs make things cost more expensive, increase the cost of them. And then those widgets get made different parts of the world as these things play out. Tariffs make things cost more expensive, increase the cost of them, and then those widgets get made different parts of the world without tariffs. And so that's part of that ongoing theme as well. And it is interesting to note that for how much these policies were more or less hated by the Biden administration in the last campaign, not only are they kept in place, tax rates are still the same and the tariffs are still the same, but they're going to be increased here. Go figure there from a partisan perspective. On rates in housing, 25% of mortgages, I'm sorry, 25% of
Starting point is 00:04:17 homeowners in the country don't have a mortgage, 35% of Americans rent, And then the 40% of Americans that have a home, own a home with a mortgage, most of those have termed out their debt into lower interest rates. And so that's one of the reasons why we've had a little more resiliency in this rate tightening cycle, at least on the consumer side. And so they're in the Fed land. There was quite a bit of Fed speak, frankly, on the economic front today, there wasn't really a whole lot of new news. We get a beige book, or the minutes, sorry, released from the last Fed meeting on Wednesday. So we've got that going on. Today, there was different speakers, Jefferson, Bostick, Mester.
Starting point is 00:04:57 They mixed bag, citing inflation moving in the right direction, but still needs to be more to come before they can actually lower rates. And my comment was just keep in mind, they've already curtailed quantitative tightening here. So there's about a 65% chance now that there'll be the first rate decrease in September. And ultimately where it goes over time in a perfect world, which of course it isn't a perfect world, but all things considered equal, something around a Fed funds rate 1% above inflation seems realistic, at least to me and to us. So that would call it inflation at around 2, then you're looking at a Fed funds at around 3, and we're at 5.5. So when would they start on that path? We still think it's Q4 roughly this year. So more to come there.
Starting point is 00:05:43 There was a comment, or at least on the question and answer section that David took about the amount of government debt basically in the dollar and will it become more weak or replaced or something like that. It's just a relative game. You have to understand that the Eurozone and Japan, technically from a demographic perspective, are in worse shape than the US. And so those debt to GDP ratios are worse, and behind it, the economies are slower. And so it's hard to replace a dollar with some other currencies. In other words, what would be the other currency at this point? Not to say that it's okay for these government deficits and debt levels, but that's just the world that we live in
Starting point is 00:06:20 at this point. So with that, I'll let you go get to your Monday evenings with hopefully your families and reach out with questions, please. I'll be around all week. I know David's traveling here a little bit, but I look forward to hearing your questions and I'll be back with you. Thanks so much for listening. 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
Starting point is 00:06:57 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. Thank you. 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.

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