The Dividend Cafe - Wednesday - August 26, 2026

Episode Date: August 26, 2026

Brian Szytel reports markets were essentially flat, while bonds moved as the 10-year yield rose 3 bps to 4.66; oil was slightly lower amid ongoing Strait of Hormuz deal talk. Economic data was mostly positive, but headline PCE was 0.3 vs 0.2 expected (3.7% YoY) while core PCE matched expectations at 0.2 (3.3% YoY), lifting Fed futures to a 40% chance of a September hike, which he views as largely a token 25 bps timing debate into Q4. He previews Jackson Hole and Fed hawk Warsh, focusing on potential balance-sheet discussion amid Treasury plans to issue more short-term debt and buy back about $4B long-term. A listener question prompts discussion of debt absorption, real yields, overindebtedness as deflationary, and currency depreciation as a release valve, citing Japan’s weakening yen alongside rising JGB yields. Other data: durable goods 1.1% vs 0.5%, personal income 0.4% vs 0.2%, spending 0.2, and Q2 GDP unchanged at 1.5% with nominal GDP in the 6s. 00:00 Market Wrap Overview 00:25 Bonds Oil Geopolitics 00:55 PCE Inflation Update 01:38 Fed Hike Odds 02:06 Jackson Hole Treasury Moves 03:09 Balance Sheet QT Talk 04:04 Debt Issuance Explained 05:16 Japan Yen Release Valve 06:04 Other Economic Data 06:45 GDP And Closing 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 into Dividend Cafe. This is Brian Sightel, your host this evening here on Wednesday afternoon, August 26th. So we've got a market that was completely flat on the day. So this is somewhat unusual. I don't have a lot of dramatization here. The S&P was basically exactly flat, more or less. The same with NASDAQ and the Dow was down about 50 points. So not much moving on stocks at all. The move today was more in the bond market. You had 10-year sell-off a little in price and yields were up three basis points.

We closed at 466. And oil, about unchanged on the day, we were down about half of a percent or so. There is more talk of potential deal in the Strait of Hormuz between Iran and Amman and that whole situation is just ongoing. So I'm going to set that aside for a little bit because really the news on the day and there was a ton of economic data out that was mostly positive. But on the inflation front, we got the PCE number. On headline, this includes food and energy, was actually a little hotter than expected by 10th.

We got a 0.3 figure versus 0.2 expected. That put the year-of-year number at 3.7% on headline PCE. If you take out food and energy, obviously the area. round deal has caused energy prices to be all over the map. So if you take that stuff out, you were in line, you got a 0.2 for the month and now a 3.3 for the year. So, you know, 0.2, 0.3, those numbers are a little higher than what is wanted because we're looking for a 2% annual target on inflation. Those numbers are all a little bit above that. So the point is whether markets are pricing in a rate hike in September or not. Technically Fed Futures went up today on this news. So Fed futures are up to a

40% chance of a September hike. But if you just think about one rate hike of 25 basis points, number one, I would call it token. It's not moving things a whole lot. And number two, we're really going to argue over September or October or December. This is just going into Q4. So I suppose I don't really care if they're going to do it as to when. But we've got Jackson Hold Friday that will give Warsh a microphone to most likely job-owned more, he's been hawkish on most of his rhetoric, and it's caused the yield curb to shift upwards and do some of the financial tightening for him without actually having to do anything. All that to say, when Bessenton Treasury have now said they're going to issue a little

bit more on the short end and buy back, call it $4 billion on the long end, what I'm curious about is if Warsh talks about the balance sheet, because any sort of operation, open market operation that the Fed is going to do on their end has the potential of being at somewhat at odds if the treasury is doing something different. There's a chance that the treasury was a little half hazard or just appeasing political aspirations to try to get long end rates to come down because they're tied to mortgage rates. But I'd be a little surprised if it was just done in a total vacuum and there was no communication at all between Bessent and Warsh. So anyways, that's what I'm looking at. That's what I'm curious about. Warsh has been a very big advocate for reducing the footprint of the balance sheet.

And technically, they stopped QT in December of 25 coming into this year for all of a week. And then they started to add to the balance sheet a little bit. Part of the reason is the repo market had drained down to about $3 trillion in liquidity, and they needed to provide some grease for those wheels. They've added a total of $120 billion since that point. So there's a little bit of expansion going on, but just a little bit. The point now will be, in order to shrink balance sheet, you can continue to let it run off and have bonds that mature not get reinvested, or,

you can actually sell bonds. And like I said, either way, the tug of war will be between what the open market stuff the Treasury is doing now, because that's something that is unusual. Okay, I'm going to leave that there for a little bit and talk about the question that came in. This was talking about the issuance of debt and over history. This particular reader happened to be from New Zealand. And the backstory was talking about just the history in the 80s of how an increase in supply will eventually just get absorbed, and the pricing of debt is more centered around inflation expectations and real return demands versus anything else as far as supply and demand. So my comment is this.

Debt issuance can be absorbed, yes, as long as the coupon is perceived to be something above inflation, so a real return, and also that the currency itself is going to hold its value and be repaid. I can set the repaid part out for all countries that have printing presses, and most of them do effective printing presses. So there's that. But as far as the release valve, when you have over-indebtedness, this is a deflationary pull. It's pulling consumption forward, and it's at the cost of an interest expense in the future that diminishes future consumption. In and of itself, it's somewhat deflationary, and deflationary tends to pull down interest rates as well. And the release

valve is usually a currency that ends up depreciating. And the interesting thing about what's going on in Japan these days is not only has this experiment, we've called it Japanification, been going on for 30 to 40 years now, but you're seeing the yen dramatically weakened this year and back to levels that we haven't seen since the 80s, the mid-80s, so 40 years. And I believe that's that release fail, because what's happened is interest rates on JGBs have gone from 0 to 1% to now 2.5. And so if you reset the amount of debt that Japan owes, whether it's to itself, to its citizens, or to others, you start to get into, do a high percentage of total tax revenues to fund that debt. And I think that's what's happening with a weaker currency going on now. So that experiment is ongoing. But that was my only addition to this particular reader's comment on how debt works and particularly sovereign debt. Three things other than PCE were also in the economic calendar. We had durable goods orders that were better than expected by quite a bit. We got 1.1 on the month of July instead of a 0.5% figure, much stronger. then you had both personal incomes and consumer spending.

Let's do things are tethered, remember, both better than expected by double. So personal income was at point four versus a point two expected, and then consumer spending beat by a tenth at point two. Those are demand side things. Those are positive, and that it's going to feed into some of the narrative. If you've got inflation a little stickier than it should be, and you've got a healthy demand and a full employment, then tightening would make sense, at least to some degree. The last thing out there was Q2 GDP.

There was another estimate that was unchanged at one and a half percent. But just keep in mind nominal GDPs in the sixes. So when you adjust for what inflation has, then you do have a very robust growing economy overall. But with that, I'm going to leave it there for you this evening. And I appreciate you listening as always. I'll be back with you tomorrow on the dividend cafe. The Bonson Group is a group of investment professionals registered with High Tower Securities LLC, member Finra and SIPC, and with High Tower Advisors,

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