The Dividend Cafe - Wednesday - March 12, 2025

Episode Date: March 12, 2025

Market Overview and Insights on Inflation, Interest Rates, and Mortgage Dynamics—March 12th In this episode of Dividend Cafe, host Brian Szytel reports from West Palm Beach, Florida, detailing the latest market movements. Despite some volatility in the past weeks, March 12 sees a slight improvement with minor fluctuations in the Dow, S&P 500, and NASDAQ. Key highlights include a new inflation read showing better-than-expected CPI numbers for February, and a discussion on why transferring mortgages at historical rates distorts free market dynamics. Szytel also touches on upcoming Producer Price Index (PPI) numbers and wraps up with an update on office activities and events. 00:00 Introduction and Market Overview 00:54 Inflation and CPI Report 02:25 Mortgage Market Insights 03:15 Free Market vs. Controlled Economies 05:16 Upcoming Events and Conclusion 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 Wednesday, March the 12th, Brian Seitel with you here in West Palm Beach, Florida. On actually a day with some green on my screen for once here in the past couple of weeks. Been a bit volatile and negatively so. Today we got some bounce back, although for the life of it here the last couple of days, the Dow just can't seem to manage to hold onto a rally here. It was up on the day earlier and actually closed just lower by about 82

points. So Dow was just barely lower here, about 82 points. We'll call it negative 82, the new up here for the Dow. Joking aside, the S& here, about 82 points. We'll call negative 82 the new up here for the Dow. Joking aside, the S&P did notch a gain. We had positive 0.5% and then the NASDAQ was up about 1.25%. So you got some rotation the opposite way, which is some value underperforming, some growth outperforming on the day. Interest rates were a bit higher on the day. The 10-year ticked up a couple of basis points. We closed 431 on tens and the biggest part of the day news wise was definitely a new inflation read we got CPI numbers both headline and core CPI came out at 0.2 percent for the month of February when 0.3 percent was

expected so it's a tenth better and that puts a year over year number on headline at 2.8%. 2.9% is what was expected on year over year headline and then we got a 3.1% on core. So if you strip out food and energy that's the number year over year. So also a tenth better than expected. So that's good news. We want inflation to look a little more reasonable here, especially if there's a fear or a concern that ultimately tariffs will cause price increases, which of course they will, whether it's short-term or long-term, I suppose is debatable. But the reality is for the month of February, inflation came in pretty benign. Part of that reason was the shelter number inside of there. The owner equivalent rent still accounts for about half of the 2.8

year over year but has been coming down. It was only at 0.3% for the month and that's down from 0.4 the month before. So shelter in the numbers are starting to reflect more of a reality and what's going on in housing and rents. That's a good thing. But that was the main piece of news on the day. And again, just with some selling here the past week or so, having a little bit of a consolidation in markets and to have them find some footings obviously is a good thing. There was a question that came in on mortgages and could people that are moving just have

one bank transfer the loan to the new property type of a thing instead of extend new loans at higher interest rates? And so on the surface, I know where the question comes from, there's logic to it. And actually I've gotten it several times before, but if you think about what that's doing,

it's essentially distorting free capital markets because you're saying that the bank would have to take a loss on what's issuing a loan below market rates. Well, that's not fair to the bank. The loan was issued during a period of time when that was the market rate. And financially, they set it up so that there was interest rate hedges to protect the bank.

There was a certain amount of risk taking and underwriting. It was set to underwrite a loan at a certain interest rate for a 30 year period or whatever the term was of the loan. And if you just all of a sudden change that and just say, well, we'll just keep those old terms for the new terms, even though the market has changed. Obviously that's a negative situation for the bank and not fair, but also not American

and just not the way free world works. Where they do do that by the way, is in China. And you have a communist government situation there where the government can just say, all existing mortgage rates are lower now by 20 basis points. And of course the government just pays for it. They have the ability to just unilaterally

make those decisions. And the issue with that is that it's not free market capitalism. It distorts pricing. It distorts asset prices. It distorts pricing. It distorts asset prices. It distorts how risk is taken. And ultimately, it distorts the ability for capital to trust that market and flow there.

And so it does not. In fact, the opposite happens. And you get capital outflows, which is what China deals with, wealthy in China or moving their money out of China. Because when decisions like that can get made unilaterally, it does not instill confidence and instills distrust in the opposite.

For better or for worse, the US is the most open and liquid and fair and transparent and trusted market that there is because of sticking to the rules and rule of law in the way capital markets should work. So I know that's a bit off on a tangent for a simple question, but that's the way that works. There actually are small pockets in the US where a version of that exists, and it's technically in farmland. And you can probably imagine why, just like we have daylight savings because farmers needed

it was important for the futures markets to be trading in daylight hours and these different sort of nuances in farming. The same thing can exist in some financial things, both with government subsidies, but with also lending and being able to transfer loans at existing interest rates to new farmland. But I digress, and I don't think it affects many of the listeners on this call. If it does, feel free to reach out and let me know. But as far as residential mortgages, that's not something that is considered. So all that to say, tomorrow we'll have PPI numbers. That's the producer price index. I'll be with you reporting it again from Palm Beach here. We have David Watson out here in the office today, which was a lot of fun and good to have him here in the office. And then we have a larger dinner that

we're doing tomorrow night with several different clients and prospects that should be a good event, along with our friend John Malden attending as well. So but with that, I'm going to let you go for this evening. Reach out with your questions and have a good night. Thank you very much. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC member FINRA and SIPC

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