The Dividend Cafe - Thursday - February 27, 2025

Episode Date: February 27, 2025

Market Decline and Economic Data Analysis In this episode of Dividend Cafe, Brian Szy tel covers the market's downturn on February 27th, noting significant declines in the NASDAQ, S&P, and Dow indexes with a shift from growth to value stocks. Key economic data discussed includes a steady Q4 GDP growth at 2.3%, better-than-expected durable goods orders, and initial jobless claims at 242,000. He also addresses the impracticality of returning to the gold standard, the nuances of inflation control, and the broader implications for economic stability and growth. The episode concludes with insights into the housing market's current stagnation and a look at central bank roles in economic regulation. 00:00 Introduction and Market Overview 00:51 Economic Data Insights 02:10 Housing Market Update 02:40 Discussion on Gold Standard and Inflation 04:15 Central Banks and Economic Stability 05:10 Conclusion 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. Welcome to Dividend Cafe. This is Thursday, February the 27th. Brian Seitel with you here on, unfortunately, a pretty down day in markets overall, although continued rotation from growth to value, the Dow was down, but it was down about 0.45%, which is 193 points.

The S&P, which is more tech heavy, was down 1.6%, and then NASDAQ, which is mostly tech heavy, was down 2.8%, so that's a big sell-off on the NASDAQ. You're getting a lot of momentum taken out of some of these AI related names, mainly in the market on that side of things. And there's been a big outperformance of value and a big outperformance of things like defensives, dividends, staples, healthcare, things like this in what we've seen.

Yields were flat on the day, so we didn't have a big move in tens. We got a one basis point increase. We closed at 427. A good amount of economic data was out today. Most of it frankly was fairly good. So some of this stuff, while it didn't move the bond market at all is just causing a wake up call on some of the overvalued parts of the market. We got a second read on Q4 GDP.

This was in line. It was 2.3% before we got 2.3% again. So still pretty solid GDP growth for Q4 GDP, this was in line. It was 2.3% before we got 2.3% again. So still pretty solid GDP growth for Q4. Porridge is just right is what I'd call that. Not too hot, not too cold. We did get a durable goods order today that was significantly better than expected. It was up 3.1. We thought 2.0 was about to be expected.

So better read on durable goods orders. And David had a piece in there about initial jobless claims. We registered at 242. I've been writing about this for a while, but anything basically below 250 seems to be in the OK zone. We've been flirting around the 200s for a long time and then slowly up to the 220s. But here on the week, we're at 242. So that's percolating towards that kind of threshold that gets people's attention, gets the Fed's attention and gets our attention. The one thing that I'll say and David wrote about is just that these are weekly numbers, so they can be volatile. So

we've got to string four, five, six of these things together to really paint a clear picture and we're just not quite there yet. For all intents and purposes, the labor market is holding in just fine. Then January, pending home sales, we're actually a record low. We were down 4.9%. We were down five and a half percent at two months ago, but just in total number terms, it's lower than it was. And so that's the record low number there. Again, just a housing market that stuck.

That's really the story behind that. And just the lack of transactions and a large amount of inventory and all of the things that we've spoken about largely around the increase in interest rates and different things causing people to not want to move. So there's just a stuck place there. There was a question in there about should the US go back to the gold standard? And if we end inflation, does the economy stop growing? I'll answer the second one first. David had a nice write up in there on these, but it's not feasible for the

U S to go back to the gold standard at this point. So the genie has been left out of the bottle and there isn't really a way back to it. So the economy is too big. The money supply is too big. It's just not really realistic for that to happen. So I put that aside. And then as far as inflation goes, look, it's either positive, flat or negative. It doesn't necessarily mean the economy would stop growing if we end inflation, but if you end inflation, the problem is you get declining prices. The pendulum tends to swing, so having it just sit at zero is not realistic.

It tends to swing either positive or swing negative. Both of it's too positive and too negative is very bad. Both central banks, policymakers, and frankly, citizens won't tolerate it. It's a sweet spot of a low single digit amount of inflation seems to be the, again, the porridge is just right, where people can live lives and have a better standard of living for their future generations than maybe what they had. Inflation is too high and it rocks the boat one way too much and then too low. Obviously, you get a spiral.

Japan dealt with this for 30 years. Prices are continuing to decline. There's no propensity to spend at all. You just want to save because whatever you're going to buy will be cheaper tomorrow. And so why buy it today? Why invest today if what you're going to invest in will be less expensive tomorrow? And then it's self-perpetuating and it's very dangerous. Central banks are built to defend against it. That is their mandate, it's full employment, it's stable prices, that's what they try to do. Of course, the Fed in the US and around the world

has done what central banks weren't originally designed to, which is use their balance sheet to be the buyer of all things at last resort and try to stabilize the markets. That wasn't part of their mandate. And that's what has shifted in this whole paradigm. And ultimately what comes of that is inefficient capital. Capital needs to be created.

It needs to be destroyed when things don't work out. There has to be risks that are taken and calculated. And when you get something that diffuses or models that natural reaction in economies and markets over time you may end up just with careful what you wish for which is just lower growth, lower investment, less upside and ultimately a stagnating standard of living for future generations. So there you go that's what's on my mind for today. Again it's Thursday afternoon here we'll be back with you tomorrow on Dividend Cafe in the long form and then we'll be off to your weekend. I'll be in our Palm Beach

office next week. Please reach out with questions, and I wish you, if I don't talk to you, I wish you a lovely weekend. Thank you very much. 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.

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