The Dividend Cafe - The Dividend Cafe Monday - November 25, 2024

Episode Date: November 25, 2024

Today's Post - https://bahnsen.co/4eLbosP Thanksgiving Week Market Recap and Key Economic Updates In this Monday edition of Dividend Cafe, David Bahnsen, managing partner at The Bahnsen Group, presents a market breakdown and discusses significant economic events. The Dow sees a noteworthy rise of 440 points while the bond market experiences a significant drop in rates. Bahnsen also shares insights on sector performances, the positive sentiment in U.S. households regarding stock returns, and Scott Bessing's nomination as the next treasury secretary. Other appointments and economic policies are examined, along with market sentiment surveys and housing loan statistics. The episode concludes with personal reflections on Thanksgiving week and sports victories. 00:00 Introduction and Market Overview 00:37 Stock Market Highlights 01:45 Bond Market Insights 02:52 Economic Sentiment Analysis 03:56 Treasury Secretary Announcement 05:55 Policy Objectives and Economic Goals 07:37 Additional Appointments and Speculations 08:33 Financial Regulation Updates 09:15 HELOC Balances and Mortgage Rates 10:29 Thanksgiving Dinner Costs and Doomsdayism 11:30 Closing Remarks and Personal Updates 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 the Monday edition of Dividend Cafe. I'm David Bonson, your managing partner at the Bonson Group, and it is Thanksgiving week, late into the month of November. This is as good as it gets in the United States of America, my favorite time of year. And I'm looking forward to giving you today's kind of market breakdown and a few other things that have broken in the world and in the national stage. Let me get the market stuff out of the way. I'm a little scatterbrained right now. It's been a crazy day and lots and lots of things going on, but we're going to make it count today. So the Dow was up over 440 points, right at 1%. I think you all know that the Dow was up 10 points last week. So there

was a big rally after the election, then gave a little bit of a back in the next week, and then another big rally. So the beat goes on. The S&P was up 30 basis points today. The NASDAQ just right behind that at 27 basis points, almost a third of a point for both of the other two sectors. But you had real estate today up 1.28%. And the real story, and everyone just loves, loves, loves talking about the stock market, especially on a 400-point Dow day. Understand, by the way, I just said the Dow is up 440 points. For most of my lifetime, that would have been one of the biggest days of the Dow history. And when you're talking about a denominator that's getting extremely close to 45,000, 400, 500 points isn't what it used to be. And that counts on the downside too, I should add,

because of math. But here's the thing. The bond market was the real story today. You had a significant drop in rates that rallied bond prices significantly. The 10-year down 14 basis points, back down almost to 4.25. So not only did it not breach 4.5 when yields had been moving higher, although it got very close, but it's now closer to 4.25. And so when you have the 10-year down 14 basis points, again, that's the yield down 14. So the prices are up. Just rate-sensitive sectors rallied significantly. Real estate being the biggest today.

You also had materials, health care, consumer discretionary all up right around one. Energy's been on a tear. right around one. Energy's been on a tear and midstream last week was up over 5%, up over 60% on the year now. But then today you had oil prices down 3% on the news of some chatter about a ceasefire in the region. And you know how those things often play out. how those things often play out. A few other market comments I want to make. 51.4% of U.S. households in the Conference Board survey. So this is a very well-known kind of market sentiment survey that's been administered weekly for, I think, since the 80s. And it's at an all-time high of households who expect positive returns in stocks in the immediate future.

And so I ask the question rhetorically, is this bullish or bearish? And my answer is yes. And what I mean by that is, short term, bullishness like this can be a very self-fulfilling prophecy, some form of momentum and optimism and animal spirits that kind of keeps the party going. form of momentum and optimism and animal spirits that kind of keeps the party going. As a general historical indicator, you guys know I have a contrarian bend in me, and I do not generally think positive sentiment is a great thing. I really love buying when sentiment is negative more. And so, again, this is more a byproduct of broader index investing than choosing one's

spots. But be that as it may, it's worth pointing out. So much of what we're going to spend our time talking about here is the announcement that came Friday night of Scott Besant ending up getting the nod to be the next Treasury Secretary of the United States. Scott, I believe, is a dependable pick. He has a very strong familiarity with capital markets, has been in financial markets most of his adult life, and certainly, I believe, to be a more ideologically grounded kind of a first principles type of a guy in terms of economic footing than many who could be considered for the position. President-elect Trump has not yet named a National Economic Council director,

which I think is going to be important for sitting at the nexus of policy and legislation and just overall policy objectives administration, finding out a game plan to bring those things to the financial markets, to the business community, as well as to Capitol Hill. Gary Cohn served in that role for almost a year in the first administration and Larry Kudlow for over three years. And I am told that it's between the two Kevins, which is Kevin Warsh, that is the front runner to succeed. Jay Powell is the head of the Fed when his term ends in May of 2026. So there's talk of putting Warsh at NEC now. There's also talk of Kevin Hassett moving to the role.

Kevin Hassett had been in a similar role as the chair of the Council of Economic Advisors in the first Trump term. And so if either one of those Kevins, I think would be an outstanding pick. But let's get back to Scott Besson at Treasury. He has talked to great deals, written some op-eds. He's messaged well what his approach to this is. Most of it's been very articulate, very thoughtful, but very growth driven. And obviously, the challenge is always taking what you say you want to do to a position that you can get it done. But he's talking about a framework of 3-3-3, which is cutting the budget deficit to 3% of GDP. It's over 7% now. It's inexcusably too high.

So there's a need to cut the level of deficit spending, but then also to improve the denominator because he's purposely phrased this goal as a ratio. So you help your deficit divided by GDP both by cutting the deficit, the numerator, and increasing the GDP, the denominator. Again, this is math. The second objective was pushing real GDP growth to 3%. is math. The second objective was pushing real GDP growth to 3%. I will be a lot more optimistic about getting the deficit as a percentage of GDP down to 3% if we do get 3% real GDP growth. Both of those goals are vitally important to our quality of life, are vitally important to

economic vitality, and both, I think, are wonderful things to lead with, especially if they're accompanied by policy objectives to help bring it about. Then the third was to pump out an extra 3 million barrels of oil per day. That again, I believe is a wonderful objective, supply driven, more infrastructure, more geopolitical sovereignty.

And obviously it helps bring prices down when demand is what it is and supply comes higher. If you move the supply curve that way, you put downward pressure on prices. Whether or not the producers themselves want an extra 3 million barrels produced, that's a different question, But I think that the potential new Treasury Secretary is right to focus on production and that objective. So all that said, a couple other announcements that did come in. Brooke Rawlins, named Secretary of Agriculture. I'm a very big fan of Brooke's. And then Representative Lori Chavez de Riemer

for Labor Secretary. And I'm going to put some of the personal things aside and character things aside as some of the other candidates, including one who's no longer a candidate. This is the nomination so far that concerns me the most for a variety of reasons, impacting labor, impacting right to work, impacting regulation. This is a move that a lot of unions have been happy about, but I do not think is compatible with other parts of the economic agenda. So we'll watch this closely. If I were a betting man, I would say that she is going to get approved, but it will be with Democrat votes, that there will be more than enough Republicans to stop it, but then more enough Democrats to cross the aisle to vote for it. You can do with

that what you will. Also some chatter that current Fed governor Michelle Bowman is in line to replace Michael Barr as the vice chair of supervision at the Fed. Now, some of this stuff starts to get a little boring. I promise you it's not boring in financial regulation. The Fed, especially since the financial crisis, has a lot of power around the regulatory apparatus of our financial regulation. The Fed, especially since the financial crisis, has a lot of power around the regulatory apparatus of our financial system. And Michael Barr has been one that Wall Street did not care for. And Michelle Bowman is a respected name. It'll be interesting to see what happens there. And then I'm also hearing Todd Zwicky, who's a law professor at George Mason, as a lead candidate for the Consumer Financial Protection Bureau.

There's a chart at Dividend Cafe today on HELOC balances that is showing it being back to the highest level as a percentage year over year. stratosphere, not even in the same galaxy of where people were drawing from home equity lines of credit back in 2005, 2006, and 2007 compared to now. But year-over-year growth versus paydowns is net positive. It has not been that way most of the time since GFC. Look at the chart. You can see why I'm concerned. Another thing that is fascinating is how many people must be doing it at very, very high rates. Because just the regular mortgage rate had gone from 7% to 6.1, back up to 6.8. I imagine they dropped a lot today. But HELOCs generally trade at a 200, 300, 400 basis point premium to a first lien mortgage. So a lot of people apparently don't cash out use of their home credit lines, probably something near 10%. The Fed odds of a rate cut next month are down to 55%, still over half, but they were at 180, then 70, now all the way down to 55.

And even in January, it's only a 66% odd in probability implied in the market. I already did oil prices, a wonderful chart on against doomsdayism showing the price of a Thanksgiving dinner in time price. The amount of hours that a blue collar worker had to work to pay for a Thanksgiving dinner, even as a turkey dinner has gone up 102% in the last 40 years, which isn't that much. The amount of hours when it has to work to pay for it has gone down from 3.2 hours to 1.9 hours. That is the right way when things are essentially bought in dollars and paid for with time. And that's the right way to look at it. And what could be better evidence against doomsdayism than a more compatible price, which is, by the way,

even year over year down 8.8%, just in nominal dollars. But last year was very, very expensive. Still is. But what's more lovely than the idea of people being able to work less to pay for one of the most important meals of the year? I am going to leave it there. There is some closing comments that some of you may want meals of the year. I am going to leave it there. There is some closing comments that some of you may want to read about that. A USC-UCLA game, it was not a thing of

beauty, but the outcome nevertheless ended well, as did the Cowboy victory, as did my beloved Pacifica Christian Tritons winning their season opening basketball game against the 10 times larger local public school, Edison High. So a trifecta of wins for your managing partner this weekend, which is nice and something to be thankful for this Thanksgiving week. You'll get your daily recap Tuesday. You will not get weekly portfolio holdings report clients Wednesday. You will get the Thanksgiving edition Dividend Cafe Wednesday, and that'll be it for the week. Thanks for listening. Thank you for watching, and thank you for reading the Dividend Cafe. The Bonson Group is a group of investment professionals registered with Hightower

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