The Dividend Cafe - Thursday - May 29, 2025

Episode Date: May 29, 2025

Market Updates, Tariffs Overruling, and Economic Indicators In this episode of Dividend Cafe, Brian Szytel from the West Palm Beach, Florida office discusses the day's positive market movements and notable economic events. Key topics include the overruling of tariffs by the US International Trade Court, revisions to Q1 GDP, jobless claims, and pending home sales data. The episode also addresses questions about high-frequency trading and rising treasury yields, emphasizing the potential deflationary impact of global indebtedness and market dynamics. Brian provides insights into the factors affecting market volatility and offers a preview of upcoming inflation data. 00:00 Introduction and Market Overview 00:35 Impact of US Trade Court Ruling on Tariffs 01:41 Economic Indicators and Employment Data 03:01 High Frequency Trading and Market Volatility 03:46 Rising Treasury Yields and Global Debt 06:33 Conclusion and Upcoming Insights 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 29th, Brian Sietel is with you here from our West Palm Beach, Florida office. On a positive day in markets, although far from the highs we saw in the futures last night, we ended up closing up on the Dow about 117 points. S&P was up 0.4% as was the NASDAQ. So a mildly positive day. Yesterday was a somewhat orderly down day. The day before

was a big up day. Up down, up down is where you have a 10-year yields dropped about five basis points that we closed at 443. So the big news was the US international trade court overruled the existing unilateral tariffs that had been put in by President Trump under the International Emergency Economic Powers Act. That's the IEPA. And markets were positive on that, basically falsely assuming that these tariffs would all be walked back. But what wasn't realized was that of course there's appeal process that can be stayed, which overturns that overruling and everything's day status quo.

And then on top of that, there's four other levers that the administration has to continue to implement or even keep the existing tariffs in place. There's different sections in the legal code that allows them to do that. They have backup plans if they need to use them for now with the overruling or the staying of the overruling at this point, which means that most of these things have been postponed anyway. And so we're trading a bit sideways in all that news on the economic side. Today, we had a few things out.

There was a revision to Q1 GDP, which actually brought it better than it was previously reported. We went from a negative 0.3 to a negative 0.2. So a 10th better. That was mainly around increased investment in the numbers. So I had initial jobless claims. They were a little bit worse than expected. mainly around increased investment in the numbers. So I had initial jobless claims. They were a little bit worse than expected. So we're creeping a little higher on the unemployment side of things.

We went up to 240,000 for the week. We were expecting 225,000. And then on top of that, the continuing claims number is now at 1.91 million. And that is the highest since November of 21. So employment is hardly softening that this, these numbers are week to week. And so we need a whole lot more of them put together to start causing any sort of alarm, but nonetheless, they've creeped a little higher here. And then we also had pending home sales that were worse than expected.

They were down 6.3% versus a negative 1% expected. Mostly all of that is going to be related to interest rate movement, volatility around uncertainty, consumer sentiment had dropped a lot. All of those things matter when people are making a big home decision like that inside of those numbers. We had an overruling, get overruled on tariffs and back to where we started. The couple of questions were in there today. One of them was on the computer-driven short-term trading.

So basically high-frequency trading and is that the result of a lot of the volatility that we see in markets? And technically the answer to that is no. High-frequency trading is a response to market actors placing trades one way or the other. They're just doing it in a much faster amount of time and processing more transactions and that provides more liquidity technically. So there's a bid and an ask spread between what someone wants to buy a stock for and what someone wants to sell it for. And so the more transactions that you get, the more liquidity you get and the tighter those spreads are. I don't see that necessarily as a negative. I do see the market actors trying to game the market and trade around things. The other question in there was about rising treasury yields, essentially, because not

only do we have deficit spending with no end in sight, and also we have tariffs that are going to raise prices. Why wouldn't treasury yields just continue to rise? The first thing I would say to that is, yields rise until they become attractive enough globally relative to the rest of global yields that they get purchased, and so there's an equilibrium to it. The idea of the bond vigilante is coming and having government bond yields be sold indiscriminately is not realistic when you have all of the things I mentioned the other day, as far as money needing to find a home to solve for future liabilities, and also it's a relative game versus other currencies and other bond yields. But the one thing I'll say too is global indebtedness is not historically inflationary.

It's historically deflationary. We've seen this play out in Japan and in Europe actually. You end up eroding growth today because you've pulled forward spending and borrowing, and then you have to service that debt. And it may not add up to a lot in the beginning. And then over a while as that debt accumulates and deficits are being spent at a greater rate than inflation and the economy can grow, you end up piling up this amount of debt. And then to service that debt is going to detract from the growth of the overall economy

that produces less inflation. It ultimately is a gravitational pull lower on where interest rates will go in that regard. And that's exactly what we've spoken about and called Japanification. That term originally, to my knowledge, was coined by my friend John Malden at Malden Economics. And if you look at what happened in the GFC and after and coming out of the GFC, the amount of debt expanded significantly as we had to sop up essentially what was private borrowing and the housing market shifted to public. In that environment, we've had instead of a 3.2 average GDP growth over 50 years, we've averaged something just less of 2%.

And so it's a pretty good case study to think about that. The comment there, my point is that it's deflationary rather than inflationary. And if rates were just to continue to go up, eventually they'd be purchased and settled out because they'd be attractive. There's a market mechanism that comes into play. So that's not something I'd be overly concerned about. Now, short term, you can have something like a pandemic cause shocks where global supply chains of course get shut down and Inflation rises because goods and services are taken off of the market. That's exactly what we're dealing with We're in the aftermath of that paradigm now Rates are coming back down inflation has come back down and we'll get a pce number this Friday That'll give us a better glimpse into inflation too that we can talk to you about on dividend cafe

So with that I'm gonna to you about on dividend cafe. So with that, I'm going to let you go for this evening. I appreciate you listening very much and I'll be back with you next week. Have a good evening. 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.

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