The Dividend Cafe

I am doing three things in the Dividend Cafe today that I pretty much never do. For one thing, I am blatantly ripping someone off (you’ll see; it’s not as bad as it sounds). Secondly, I am getting pretty biographical (though I guess I do that every once in a while; last week being the most recent example). And then finally, I am really focusing on one pretty specific and even granular investment topic. Now that, I do every now and then – but not like this. You’ll see.

So jump on into the Dividend Cafe to see me rip off someone else’s work, talk about a very personal and biographical aspect of my life, and apply it all to a really specific investment lesson and principle – one that should not be missed.

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I really do not know how today’s Dividend Cafe is going to be received. I obviously believe in every word of what I have typed or I wouldn’t have typed them, yet I have found two things to be the case in my efforts at thought leadership in matters of markets and economics:

(1) People sometimes do not like it when I veer off of a stock market focus, and

(2) People do not like hearing what they do not want to hear

The first one is more problematic when it comes to things like the bond market or public policy or monetary policy or alternative investing – the excitement of the stock market sometimes has to take a backseat to other matters that are absolutely integrally connected to it!

But the second one is what I am worried about today. In over 20 years of professionally stewarding client assets, I have never seen investors be as emotional about any “asset class” as they are about housing. And if all that meant was “people are nostalgic and protective about where they live” – that would be one thing. But that is not what I mean. Opinions about the residential real estate market are, shall we say, sometimes laced with emotion, sometimes perhaps delusion, and often with various presuppositions that are hard for me to make sense of at times.

Housing is back front and center in financial discussions, and all I want to do today in the Dividend Cafe is make sense of it, and give you some wisdom and insights that I believe will be useful in a holistic commentary of the day. So to that end, I work. We’ll still be friends if anything I say bothers you.

Let’s jump into the Dividend Cafe for a special Housing edition …

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I have done something really fun with today’s Dividend Cafe – at least fun for me. I have taken the most common questions I receive these days from clients, in emails, in meetings, in interviews, etc., and compiled a set of answers that walk through the big issues of today. I think you will find it valuable.

I doubt I cover everything on your mind here, so by all means fire away with new questions ([email protected]). You may just see it covered in The DC Today, and you will certainly hear from me personally.

In the meantime, let’s jump into the Dividend Cafe.

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I had fun writing today’s Dividend Cafe and I think you may very well have fun hearing (and reading) it.  I also think some of you may be mad at me for it.  I hope I am wrong.  I believe there are a multitude of messages in the Dividend Cafe this week that are vital for investors in this current era, and the one that is to come.  I also feel these messages are timely.  Jump on in …

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Market volatility is on a roll, with the VIX now double the level it started the year at. This week saw the biggest up day we have had all year, followed the very next day by the biggest down day of the year.

A lot is happening, and we can and will unpack it in today’s Dividend Cafe, but we will not leave it there. The takeaway today will be what to do about it (or not do about it), and that is why you should enter the Dividend Cafe. Knowledge followed by action. To that end we work.

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Recession.  The dreaded word, “recession.”  For those who have lost their job in one, it can feel like a depression.  For those who kept their own job in one but saw their portfolios drop, or saw neighbors or loved ones lose their jobs, or experienced a decline in income or business revenue, it may not have had the existential punch that it did for others, but it generates unpleasant memories of unpleasant times.

There is a lot of talk about a recession right now, some of it imbecilic, some of it overtly political, and some of it, quite substantive and important.  But if the Dividend Cafe exists to bring simplicity and honesty to topics that are often spoken of with too much complexity and/or abundant dishonesty, the task at hand is readily apparent.

And so we will look at recession reality in current times, when, what, and why, and unpack the investment implications on all of it.  I will always do my best at the simplicity part (I know I miss the mark there sometimes).  I will be unrelenting in the honesty part.  But as far as the pleasant part of it all, well, let’s just say my focus is on the honesty part.

Jump on into the Dividend Cafe …

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Volatility, Rate Hikes, Inflation, and so much more on this Dividend Cafe Special Edition Podcast

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If there is one thing that animates me it is the application of real-life economics to investing. I have always been obsessed with economics – both theory and application – but it is in more recent years that I have really found it a calling to synthesize the foundational truths of economics to financial markets.

And truth be told, that calling transcends the applications of economic theory to financial markets. I believe properly understood economics has profound implications for all aspects of human living. My extra-curricular endeavors in economics (the book I wrote last year, the class I teach at the high school I co-founded) are all extensions of this passion I have for a free and virtuous society. But yes, applying these things to financial markets is my real passion, and the inability and disinterest the financial advice community has for applying economic principles to markets is a constant source of irritation.

Today’s Dividend Cafe is about the labor market – the state of jobs in America. For 99% of the media and even economic analysts these days this is an econometric subject. In other words, it is a data point that provides an input to a spreadsheet, and from there carries some numerical relevance to another input (i.e. if wages are here or unemployment is here, then consumer spending is possibly going to be here, etc.). Worse, it is often just a mere political data point, perhaps an even more imbecilic understanding of work than even reducing it to an economic data point.

But economics is the study of human action around the allocation of scarce resources. Our understanding of what is happening and not happening in the world of work will be improved to see it through the lens of the human person. Political and econometric reductions will tell us almost nothing, and in fact, may tell us things that aren’t true at all.

Investors and actors in financial markets need a fuller understanding of current realities in American labor. To that end, we work … (see what I did there). So jump on into the Dividend Cafe.

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In this market-shortened week I thought a shorter Dividend Cafe may be appropriate, especially as we prepare for a long weekend and the Easter holiday. More on that below …

And not only do I think I controlled the length of this week’s Dividend Cafe (within reason), I also took advantage of the week to dive into a topic that is almost entirely avoided by the media and investing public. I can’t really explain why we mostly ignore private equity and private credit when we discuss financial markets. I understand public stock markets have a certain sensationalism to them, not to mention clear pricing visibility that facilitates a lot of noise. But the private markets are just as much the real economy as public markets, and if the heart of free enterprise is where there is human action, I assure you private markets are deep into the capture of human activity (for good or for bad).

But it is not enough to “talk” about private equity and private debt as if they are either “good” or “bad” investments. There is a complexity here that requires a bit of unpacking, and the unpacking of complexity is the business of the Dividend Cafe.

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From the seat of a person who dispenses financial advice for a living, one could be forgiven for believing there must have been a time in the recent past that was quite idyllic. Why? The constant chorus of those concerned about “new instability” or “these difficult times” or “all this uncertainty” all implies one thing: That there must have been a time where stability and certainty ruled the roost.

Today we are going to do a little history lesson, and by the end we’ll draw a few conclusions. The point will not to be wrap current economic or political circumstances in a pretty bow – but rather, to contrast the present to the past with history and logic.

The conclusions will either concern you or encourage you. But the information will be informative.

So jump on in to the Dividend Cafe.

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