The Dividend Cafe - Thursday - May 22, 2025

Episode Date: May 22, 2025

Market Updates and Economic Perspectives: May 22nd Edition In this episode of Dividend Cafe, host Brian Szytel provides a market update for May 22nd, recording shortly before market close. He discusses the positive market movements with the Dow, S&P, and Nasdaq all up, and explains the decline in interest rates following a poorly received 20-year auction. Brian sheds light on the recent reconciliation tax bill progress in the House of Representatives, highlighting the SALT deduction cap increase and other tweaks. He addresses misconceptions around treasury auctions and stresses historical treasury rate averages. The episode also examines the US debt situation, potential economic solutions, and the strong labor market evidenced by better-than-expected jobless claims. Brian concludes by honoring Memorial Day and welcoming audience questions. 00:00 Introduction and Market Update 00:51 Tax Bill and Legislative Updates 01:31 Treasury Auction Insights 03:09 Debt and Economic Strategies 06:11 Memorial Day Tribute and Economic News 07:38 Conclusion and Farewell 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 Thursday, May the 22nd. Brian Seitel with you here today on some regain of ground we lost yesterday here in an upmarket. Now I'm recording this about 20 minutes here before the close. I've got a eighth grade graduation to get to here for my daughter, Sophie. So I'm very proud of her. But in the meantime, markets were up and I wanted to get this out to you all here because

I don't think things will change a whole lot here in about 15 minutes. But that said Dow was up about 200, a little over 200 points. S&P was up about half of a percent. NASDAQ was up almost 1%. And rates moved lower. Again, yesterday there was a big back up in interest rates on a 20 year auction that went quote unquote poorly. And I'll talk about that in a second, but rates came back in today.

Ten year was down four basis points were at 454. So there you have it. There was a reconciliation tax bill that went through the House of Representatives. And there was a couple of updates and concessions made to get it through the House, which has a very slim majority. But the salt deduction cap was raised from 10,000 to 40,000. There is an income phase out at 500,000 jointly filing that's in there, but it's an increase there nonetheless.

And then you had some small tweaks on the Medicaid dates and some IRA tax credits and things, but it's off to the Senate now. So this is still very early innings because it's the process really is now just getting started here on this big, beautiful bill as they call it. But at least there's some progress being made. There you have it there. And then going back to what I said about the 20-year auction yesterday, I just wanna put things in perspective here a little bit.

When the headlines say that it was a terrible auction, or it was awful and all these things, I wanna keep some things in mind. Number one, the ask, meaning the rate at which the auction had to clear at, was a stunning 1.2 basis points over what was hoped for, meaning what the wear was originally priced. The coverage ratio, meaning the amount of people wanting to buy it versus the average, the average is about 2.57 times. So there's two and a half

times more people, more money trying to buy the Treasuries than they exist in supply. This was about 2.46. I'm just telling you, those things are minuscule. So if the comments are that the bond vigilantes are back because of a 1.2 basis point difference on the declaring rate or a slightly lower coverage ratio, this is just par for the course. And I'd throw all that out the window and then put it in perspective where rates actually are because everybody that I read and talk to is telling me that they've risen so much.

We started the year at 458 on tenure. Today we closed at 454. So I'll call that the same. So no rates aren't up, they're the same. Second would be that on top of the treasury auction realities of what I just mentioned, that the mean over 100 years of this country's treasury rate, the 10-year treasury rate over 100 years has averaged 4.5%. So that's exactly where we are today. So just keep some of these things in mind when you read about things running away or

treasuries going to zero because nobody wants them or Japan, China, and the UK are dumping them. Things like that's just simply not true. And none of that is to say that the amount of debt that I'm dismissing it. Okay. $36 trillion is just an unfathomable amount of debt to be servicing at these interest rates. It's one thing when rates were at 2%, anywhere from 0 to 2%. Now that we're in the 4.5% range, it puts it at 18% of total tax revenue. Historically, anything above 14 percent of tax revenue is

where the dial shifts from government stimulus and lower tax rates and different plans to heat up the economy into austerity, essentially what we saw in Europe 10 years ago, where there's some really drastic cuts that have to get made, the entitlement programs, so on and so forth. None of that has happened yet. And we're still at a quote unquote OK place here. And we're making progress. Although that is not comfortable either. Progress can be difficult. And partisanship aside, and this isn't a positive comment

one way or the other, but what is going on here are three things. To solve this issue we have, which is too much debt and trying to whittle it down, or at least freeze it so we can grow our way out of it, you can raise tax revenue. Technically that's what consumption tax is, that's what a tariff is. It's attempting to raise tax revenue. I think the difference is that it's intended to charge other people, meaning other countries, when in reality it ends up getting passed through

to our own population. So it's essentially a tax increase. But it's raising tax revenue. We'll see where it shakes out as far as the rates go in these different countries. But that's one way. The other thing is to decrease spending and you can say that Elon Musk or what they're doing with Doge isn't to your liking. I'm all for it. But just understand the attempt here is to try to decrease spending. Now what they're gonna end up doing is basically kind of a drop in the bucket here for what is ultimately the big expenses, which are entitlements, Social Security, Medicare, Medicaid, and defense. And so those things are much tougher conversations to have, but we'll start with, I guess, trimming some fat on government waste. And then the third thing is to try to grow the economy.

Let's grow our way out of it. The supply side tax bill that they're working on is attempting to do that, to provide more incentive for the private markets to get bigger. We want a smaller public market, which is inefficient. We want a larger private market, which is efficient, productive, and innovative. And then also with deregulation, those two things are another way to tackle it. So technically what is being done now is attempting to do all of those things at the same time. And I think that has made some people uncomfortable. But nonetheless, I think it is a step in the right direction

versus complacency. So there you have that as far as some of my opinion and some of the realities of what is going on. But all that aside, the idea of the US not paying its bills is a silly notion. We have a printing press. We have the largest economy in the world. We have the largest military in the world. We have the largest tax revenue source in the world. So, yes, we can pay our bills.

And the demise of the American spirit or innovation or America being vitally important to the global stage is just silly. It's for the foreseeable future going to be. And then, of course, just because it's Memorial Day coming up here on Monday and this is Thursday, I did want to give just some respect to, of course, all the fallen heroes that made any of this stuff possible, me talking about it. Us living in the highest standard of living on God's green earth that exists. All these wonderful things we owe it to those people are our heroes that have

fallen here on Memorial Day on Monday. So I wanted to give mention there as they won't get a chance to otherwise. But there was a couple of pieces of positive economic news in the calendar today. We had initial jobless claims that were better than expected, meaning just below what was expected at 227, 230 is what consensus was. So the labor market continues to be strong. It continues to be resilient and positive. And then he also had a flash number on PMI

and both services and manufacturing that coincidentally came out at the same number. It was 52.3, which was both ahead of expectations and then also well into expansion territory. So those things are positive. And then he had existing home sales while it missed was still a 4 million, which is basically the number we've been at for several years. Inventory is rising in existing homes. And so it's at about a five year level here, expect prices to probably

soften. But all that to say the hard data, which is different than the soft data, things like how people feel and sentiment and such is not showing the US economy in dire straits here. It just isn't. So we're going to keep moving forward. With that, I'm going to let you go for this evening here. I've got a ceremony to attend, but I wish you well. I love your questions. Please reach out with them anytime.

And again, if I don't speak to you, happy Memorial Day weekend. Hope you have a good one with your family, your friends, and your loved ones. Take care. I'll talk to you soon. 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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