The Dividend Cafe - Thursday - September 4, 2025

Episode Date: September 4, 2025

In this episode of Dividend Cafe, host Brian Szytel breaks down the latest economic data releases and their impact on the markets. He discusses the paradox of "bad news is good news" in the current market environment, analyzes labor market trends, and explains how Federal Reserve policy and interest rates are influencing investor sentiment. The episode also features a thoughtful exploration of the Fed's expanding powers, the risks of market intervention, and a lighthearted close with NFL season excitement. 00:00 – Introduction & Market Overview 00:24 – Anticipation for Non-Farm Payroll Report 00:46 – The “Bad News is Good News” Paradox 01:03 – Economic Data Recap 01:48 – ISM Services & Jobless Claims 02:43 – Q2 Productivity & Market Performance 03:27 – The Federal Reserve’s Role 04:42 – Expansion of Fed Powers 06:00 – Risks of Market Distortion 06:36 – Final Thoughts & NFL Kickoff Have questions or want to hear more on a specific topic? Reach out to the show! 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 back to Dividend Cafe. This is Thursday, September the 4th. Brian Saitel back here with you on a day where we got a good amount of economic debt out across the board, mostly good, and I'll go through all of it. The markets were up on the day largely around some of the component of those economic reports that were actually negative with regard to payrolls in the labor market because tomorrow, and I've spoken about this now for a couple of weeks, but since the last non-farm payroll report that we got in July was such a miss, we've been anticipating the one coming out this month, which comes out tomorrow technically. So that's what markets are paying attention to the most. and markets were up a little bit today based on some of the labor data that was a little weaker today, which just gives the market more confidence

than the Fed is going to cut rates. So that's really what we're talking about. Bad news being good. And for whatever it's worth, I am hopeful that the non-farm payroll number tomorrow disappoints the market and there's actually a larger number of jobs created because ultimately that's good for the fundamentals long term.

But that's the world we're living in now. The market is hoping for a punchball that gets brought back with lower rates. And that's why we're a little higher here on the day. We had a couple of other pieces of economic news out. There was ADP private payroll number, as I mentioned. We got a miss on it. This was a 54,000 print versus an 85,000 expectation.

All of the gains, by the way, were all in leisure and hospitality. So people have jobs. There are positive wage gains. We grew wages at about 4.4%. We know inflation is around 2.7. So you've got people with basically full employment here, more or less, some wage growth that's positive. And people are using that to go on vacations and do fun things around services and experiences and so on and so forth that's showing up in the private payroll number. We also had an ISM services number out that was better than expected and also firmly in expansion territory.

It was a 52 print that's up from last month's 50.1. And again, anything over 50 is expansionary. And then to juxtapose that positive number, a little miss on initial jobless claims. We got a 237 versus a 231 expectation. So marginally higher. Again, that's the good old bad news being good here for markets and rate cut expectations. But we've just been inched up from the low 200s to then in the 220s and now pretty consistently in the mid to high 230s on jobless claims. So something to pay attention to.

The continuing claims number that said was actually a little bit better this time. So some positive silver lining in the inside of the number, at least. And then the last thing we had was Q2 productivity. This is the final number. We had a preliminary read of 2.4% that actually got revised higher to a 3.3% number. And that was ahead of consensus. So four different pieces of news out on the day. Markets seemed to like it.

Dow closed up 350 points, which is about 7 tenths of a percent. We got S&P up about 8 tenths of a percent, and NASDAQ was up just about 1%. So tech has recovered here last couple of days with some positive news and momentum inside of that particular. In a 10-year yield today, again, rates are dropping because of the jobs data, and we've got a six-bases point decline on tens, closed at 416. We've been steadily moving now lower on 10-year yields towards that forehandle. And so tomorrow we'll be really telling. We'll see if we can get that even lower or if it actually is good news,

meaning more jobs and it moves back higher. The question in there today was a one about the Fed of Reserve. And essentially, it's citing the comments that David and I make sometimes around the Fed of Reserve and us wishing there was a more free rate discovery in the market. That would be better. And the question is, why don't banks just do that anyways and why are they tied to Fed funds?

So the banks basically are tied to Fed funds because the balance of reserves they hold that the Federal Reserve earns a certain rate. And then the funds that they borrow from other banks are set around that overnight lending rate of Fed funds. And so ultimately it gets priced into every loan that a bank has to make because they have to make a certain profit margin themselves. And so if Fed funds is 4%, they're going to charge something more than that. If Fed funds is 2%, they have to charge something more than that, so on and so forth. And that's normal stuff there. I don't know that we've spoken really negatively about how the money supply is regulated and how interest rates are deemed to be set around a dual mandate of price stability and full employment. But what we do talk about is there's been a lot of expansion of the Fed's powers, and this is around a certain verbiage inside of a Section 133, where it uses terms like unusual and exigent circumstances to set the Fed's ability.

to do different things and be more basically aggressive to save the day, to be the buyer of last resort. I guess I'm not completely opposed to the idea of making sure that our way of life doesn't go to zero in some alien attack or something like that. So that's not what I'm saying. But just keep in mind during the GFC and then again during the pandemic and even more so during the pandemic, how easy it was to expand these powers. You've got to be careful what you wish for because basically you've got partnership with the treasuries that has created special purpose vehicles, SPVs. This was expanding during the CARES Act during the pandemic.

But they have the ability now to lever up, have a certain money from Treasury, have a certain guarantee, so that the mandate of not having something default from the Federal Reserve Balance sheet is still kept, and you're able to buy things like corporate bonds, which do have default risk, municipal bonds, which do have default risk, high yield, municipal bonds, high yield corporate bonds, and even exchange traded funds, which were perpetual securities. So that's not the original design. Now, granted, markets have changed. The world has changed. We've evolved. So having some ability for governance to evolve with it makes sense. But just keep in mind when you're doing those things, you're distorting what is a normal and

natural and organic price discovery process. And there's a slippery slope to that in a free market society because you end up with players that otherwise should have failed that don't fail. Think of Japan with how they propped up their banking system in the 80s when it otherwise would have collapsed. You ended up with zombie banks for 40 years and you ended up with no growth for 40 years. I'm afraid of some of those things. I'm concerned about them. I don't want to feel the short-term pain either.

But ultimately, in order to heal the patient, sometimes getting through the tough part of recovery is needed rather than just being addicted to. to some sort of a painkiller forever and ever. There's a diminishing return to that, and there's a destruction of what would otherwise be organic price discovery. That's my comments and all that. Long answer to a short question,

but something I'm passionate about. I hope you enjoyed reading it or listening to it. If you want me to expand on it or talk about it, theologically, or more about it, just let me know. I'm happy to do that, what these things mean to our society and the way that the United States works and how free markets work and capitalism works. But with that, I'm going to let you go this evening again.

It's Thursday night. And with this Thursday night, I'm very pleased and happy. Frankly, I'm embarrassingly elated to tell you that the NFL is starting again. And for some reason, the older I get, the more excited I get about the National Football League is having something to look forward to at the end of my day. But we've got the season opener tonight with the Cowboys versus the Eagles. I'll be watching. I know that's David's big team.

Maybe I can even place a gentleman's wager with him. and take the other side to make the game more interesting. We'll see. I don't know. We'll see what I text. In any case, great to speak to you as always and be with you on Dividend Cafe. Reach out with questions and we'll talk to you soon. Thanks again. The Bonson Group is a group of investment professionals registered with High Tower Securities LLC, member Finra and SIPC, and with High Tower 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 risk. There's no guarantee that the

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