The Dividend Cafe

I understand it may seem odd to devote a Dividend Cafe to the particular subject of the Energy sector in a week of surreal market volatility and media obsession over the Fed. But in fairness, I write about the Fed almost every week, plus four days a week in The DC Today, and the entire subject of monetary theory underlies all that we do in capital allocation at The Bahnsen Group. Our nuanced views on the role the Fed currently has in financial markets are known, and to co-opt my planned Dividend Cafe subject yet again to cover the thrilling story of the Fed moving interest rates exactly how we knew they would, is not going to happen.

But the Fed was not the only story (non-story) this week. Markets are in a pattern of daily incoherence as traders, algorithms, novice investors, speculators, and other such inconveniences work through the challenges of a paradigm shift. What the futures say at night has nothing to do with what they will say in the morning which has nothing to do with what they will say at the open which is fully disconnected from intra-day activity which then leads to a totally unpredictable market close. Then, rinse and repeat.

So I’ve written about our low opinion of “shiny object” investing, and the avoidance of such has a lot to do with the way our January has (thus far!!??) gone. But the energy sector is up +18% this month as of press time in a YTD market that has a Nasdaq down -15% and S&P 500 down -10%. We need to look at that. Is Energy becoming a new “shiny object”? Is the sector a trade or a long-term opportunity? What aspects of energy investing appeal to us right now? Where do environmental, political, and macroeconomic concerns fit in? These subjects all deserve their own Dividend Cafe, and that day is today.

So jump on into the Dividend Cafe …

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I telegraphed last week a special Dividend Cafe on energy today, and I reiterated that plan several times in DC Today this last week. But as I began pulling it all together in my hotel room here in Washington D.C. at 4:00 this morning, it occurred to me that we appear to be living through a market doing much of what I have been talking about for a very long time, and that I have an obligation to make Dividend Cafe as current and relevant as possible. The treatment on the Energy sector I want to present must be written, but it can wait one more week. That topic is no less significant, but from a timeliness standpoint, the market events of the week (and really of all 2022 thus far) provide a golden opportunity to reinforce some more practical investment lessons right now.

As a general rule I do not like the idea of making Dividend Cafe a weekly response to headlines or market circumstances, and have mostly avoided doing so for quite some time now. But this week’s Dividend Cafe is not a mere “this week in markets” play. Rather, I want to use the obviously predominant story in financial markets to illuminate a few key elements of our thinking at The Bahnsen Group. In other words, the inspiration is some current market action, but the lesson is far, far more evergreen.

And I think it is going to really surprise you.

So jump on in to the Dividend Cafe …

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2022 is just two weeks underway, other people are joining me in no longer saying Happy New Year, the NFL playoffs are finally starting (a week later than ever before), and the college football champion has been declared. Coming into the new year was the time to forecast what we expected for the year – but now, we are actually in it.

And speaking of those forecasts, I will keep the white paper in front of you here. But I think we are due for a little update on a few big macro issues, so update you we will. From the glorious spot of the 2022 TBG offsite where our entire team has spent the last day and a half meticulously working on improving our business (in some really significant ways, I will add), today’s Dividend Cafe covers a lot of bases.

I have written ad nauseum about the fact that much of what we discuss when we discuss macroeconomic outlook is really about the state of debt in our economy. Much of what we think and ponder about the Fed comes down to debt considerations. There is much to evaluate on the periphery, but debt levels sit at the middle of a lot of these peripheral concerns, and I will tell you that I am seeing more and more people make truly faulty assumptions that I believe are headed to a bad place.

This is a topic that will illuminate and inform your understanding of many things, and the only place I know to do it is in the Dividend Cafe.

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CIO and Managing Partner - David L. Bahnsen

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Markets followed up their monstrous week by dropping a bit to start this week, then rallying back to even mid-week, to sit somewhere between flat on the week and down ~100 points or so as I prepare to go to press.

The Nasdaq, though, didn’t fare so well on the week, dropping -600 points (-4%) as of press time and warranting a distinction in this week’s Dividend Cafe on how one may want to think about their assets in the Fed regime ahead.

This one week aside, and the never-ending obsession with the Federal Reserve well-baked into our societal financial fabric, there is a lot to say about a changing of the guard at the Fed, and this week’s Dividend Cafe is devoted to just that. Some things are, no doubt, changing, but other things, as you will soon see, are not changing at all. Understanding all this may be the best Christmas gift I can offer you this glorious holiday season.

Slide down the chimney into this week’s Dividend Cafe …

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As I type on Friday morning well before the market will open for the day, the Dow is up ~1,200 points on the week, basically right back to where it was the day before the Omicron news and market sell-off, and the futures are pointing upwards for today as well (of course, anything can happen on that front).

A week ago, I devoted the Dividend Cafe to discussing why I felt the Omicron story was a bad joke of a market mover, and we walked through a little COVID Market history. But I didn’t end on a sanguine note – I reminded you that there are vulnerabilities in the markets and that chief among them was the anti-fragilities created by excessive monetary interventions, and of course, basic valuation concerns where some euphoria may be overflowing.

Today we’ll leave Omicron in the rearview mirror where it belongs and where the media has conveniently left it just 10 days or so after dramatically different assertions. But we’ll dig deeper into a couple of things that warrant our understanding – an understanding that is not the same as concern or worry.

Come on into the Dividend Cafe …

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It has been a wild week in the markets, with the -900 point drop of last Friday (Thanksgiving weekend) followed by a +235 point gain Monday, a -650 point drop on Tuesday, a -460 point drop Wednesday (after being up +500 points earlier in the day), and then a +620 point increase Thursday. As I type Friday, we are down -120 points, having been up +160 points earlier, so currently (at press time) reflecting a -330 point drop on the week. Now that’s a lot of ups and downs for -330 points, don’t you think?

But market ups and downs are not a problem for real investors, so why do I mention this volatility at all? Don’t people invested in the stock market (and more specifically, in the earnings streams of the great companies that make up the market) know that markets do this, and in fact, normally experience much more volatility than we have seen this year?

I would hope so. I know our clients do (how could they not?). But the subject of today’s Dividend Cafe is not the mere reality of market volatility, especially when such volatility is a mere 3% or so off of market highs. I mean, really. No, the subject of today’s Dividend Cafe is those who may be unfazed by market valuations and euphoric concerns, but go hysterical over the omicron variant.

In other words, we want to look at that which does not play into our thinking, and that which does, and why we think the media and so much general investor consciousness have their fears and non-fears exactly backward.

So jump on in to the Dividend Cafe. It will be worth your time.

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I know it is not the edition some of you look forward to most each year, devoid of such enticing topics as monetary policy and market valuations, but it is one I genuinely enjoy writing each year. Today’s Dividend Cafe captures some Thanksgiving reflections from yours truly, the author of each week’s Dividend Cafe but also the Founder and Managing Partner of this firm. I remain in a daily state of overwhelming gratitude for so, so much, that this Dividend Cafe Thanksgiving reflection is just a cake walk to write.

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