The Dividend Cafe

The weird week in the markets doesn't change what I want to be doing with each Dividend Cafe.  As of press time, the market is up ~1,000 points on the week, with pre-market futures on this Friday pointing to a +100 point open.  The day-to-day and week-by-week movements in the market are not the subject of the Dividend Cafe, but they are what we do each Monday through Thursday at The DC Today.

This week it is tempting to dive more into the cluster of these infrastructure talks. On Thursday, there was a White House briefing that it was a done deal; on Friday, it appears to be falling apart; I can write about all this now, but I think by the time it hits your inbox, the deal may be back on, and by the time you are done reading it back off.

Yet, in these "current events," there is, indeed, a "timeless principle" that warrants immediate application.  A week ago, markets were experiencing nearly irrelevant levels of volatility - and the media declared it the new apocalypse as they went about drooling on themselves in a sea of inaccuracies about what the Fed did, said, and meant.  A week later, markets have been rallying, and the new question is what to do about "investing at the top" (it is "new" in that the last time I heard this concern, was almost three weeks ago).

So I want to dive this week into some fun history, some actionable application out of that history, and leave you with some crucial reminders about markets.  These things will be useful whether the market is down a thousand or up a thousand next week.

Come on into the Dividend Cafe ...

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We had an interesting week in financial markets … The Fed did exactly what they were expected to by any reasonable person – nothing more, nothing less. They acknowledged the economy is improving, they said they were “talking about talking about” slowing down their quantitative easing. And they indicated two years from now as a time where the fed funds rate may be 50 basis points higher than it is now (may it be so).

And that was it. No actions, policies, or steps. No commitments, promises, or assurances. Just loose language around some policy measures that are (a) Brutally obvious, (b) Not remotely hawkish, and (c) Not nearly enough if the conditions people are saying they are worried about are actually present.

So how did people respond? After three months of people saying “inflation is here” and the “Fed must act” – what happened?

Commodities got hammered, and the yield curve flattened more than it has in ages.

You can’t make this stuff up.

But rather than re-hash what I think the Fed will do, or what they should do, or what is going on in the inflation ad nauseum discussions, I think this week’s Dividend Cafe needs to better unpack what the real, actual, accurate under-current is to all of this.

More or less, every single topic being discussed right now has as its true foundation the reality of debt. The accumulation of debt. Concerns about debt. Plans for more debt. Questions about servicing of debt. The promise of debt. The fear of debt. The cost of debt. For a four-letter word where 25% of its letters are actually silent, this is a pretty potent word in 2021 economics.

And it is the subject of this week’s Dividend Cafe. Let’s dive in.

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With the key market insights of the season, David L. Bahnsen takes questions from the public. Hosted by Scott Gamm of Strategy Associates.

Links mentioned in this episode:

We had a reasonably boring week in the markets (as of press time, which is after the market open on Friday, the Dow is modestly down on the week but no up or down day this week was particularly significant), but it was somewhat less boring in economic news.

What I want to do today is look at the variety of economic news circulating and apply a market perspective to it.  My view is very simple as to the dangers around most conventional methods of receiving that news and most conventional methods of applying that news to investment practices: The news itself is prone to sensationalism, and the application of the news is prone to over-reactionism.

Put differently, the incentive structure behind how most people receive their news is flawed (and in this case, I am talking about economic news, but my statements here are true in all forms of news).  And the incentive structure in how investment applications are delivered is substantially flawed, not to mention divorced from personal financial reality.

I unpack all of that this week, and do a look at the current news, and provide wise investment applications for you - within our framework - where the incentives are right, the temperature is moderate, the perspective is sober, and the culture is fiduciary.

Links mentioned in this episode:

For now (even from my spot out of the country), I do keep my weekly streak alive with the Dividend Cafe. Going back to the week of Lehman’s bankruptcy in September 2008 I have missed just one weekly commentary, and this weekly podcast really is one of the things I love most about my job.

Today’s may be a little shorter than normal, and it is primarily Fed-oriented, but I am quite happy with some of the subject matter covered and hope you find it simple, readable, and useful.

If it turns out that this week’s Dividend Cafe speaks to you more than normal, perhaps I will have to open an office in the spot I have recorded it so that the magic can be repeated.

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There is no shortage of investment symposiums to attend in my business. Whether it be events put on by the big firms I have worked for over the years (UBS, Morgan Stanley), or symposiums sponsored by various money managers and asset management firms, or just independent groups putting on their own show, I am quite sure I have attended over a hundred such events in the last two decades or so, and probably spoken at a couple of dozen myself. While there is always something to be learned at every event, some are surely better than others. The quality of the events, the quality of the speakers, and the candor of the speakers in the message they deliver can vary a great deal.

I consider myself an incorrigible consumer of information and perspective and have been obsessed with growing my capacity for investment and economic thought since the turn of the century. These events can be a waste, or they can be utterly thought-provoking or somewhere in between. One develops an instinct over the years for which events and organizations and speakers will be worthwhile and which will not. And this brings me to the subject of this week’s Dividend Café …

I have already revealed where I am going with this the last couple of weeks, so there’s no need to hide the ball. The Mauldin Strategic Investment Conference took place (virtually) in mid-May, and it most certainly represents one of the truly spectacular conferences I have ever been a part of in terms of content, speaker quality, and diversity of thought. I chose to turn my major takeaways from the conference into a Dividend Café because I basically think Dividend Café exists for me to share what is most on my mind with our clients … And I assure you these takeaways from the conference are what is taking up most of my headspace these days.

Links mentioned in this episode:

I thought I would do something really fun with this week’s Dividend Cafe, but just as soon as I typed that I realized that, like beauty, fun is in the eye of the beholder. But what “fun” thing I was going to do was write a full recap of the recent Mauldin Strategic Investor Conference that took place from May 5 through May 14, and use that recap to capture some of the profoundly important takeaways that I want to share with readers of the Dividend Cafe.

However, for that to be “fun” for me I need to do it thoroughly, and this week was a hysterically insane week here in the California office between projects, portfolio work, client meetings, morning research, DC Today, and all the normal things. I also got inspired by another few things this morning, and so I am going to call an audible and use next week’s Dividend Cafe as my Mauldin SIC recap, and use this week’s for a whole different kind of fun.

Now, I kind of lied. I said that I was saving my Mauldin SIC recap for next week (and I am). But the truth is that some of the things I get into this week are itches that were somewhat scratched at the conference. So consider this a tease into next week, and I promise I will make it all worthwhile next week.

I disagree with a lot of what I heard at the conference. I agreed with a lot more. Anyone who agrees with everything that everyone says is a compass-less fool. But that conference did for me what I earnestly want the Dividend Cafe to do for you every single week – foster thought and consideration.

The conclusions that come out of that? Well, to that end we work.

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David L. Bahnsen and Scott Gamm discuss the market happenings of the day.

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Anyone who knows me personally knows that I loathe melodrama. And hopefully, anyone who has followed my writing for any period of time, especially my financial writing, knows that I hate click-bait, hype, exaggeration, dramatic hyperbole, shock and awe, and other such media-friendly tactics designed to scare, provoke, or just plain manipulate us.

I believe almost every day I am writing The DC Today is a boring day in the grand scheme of things. Markets may be up or down a lot on a given day, but as a goals-based investment advisor, with a few exceptions, those day-to-day movements in markets are almost entirely irrelevant. Some days have legitimate policy news, and every day has some aspect of economic information or perspective (Fed, housing, COVID, energy, etc.) that I genuinely love sharing. But it would take a lot for one of my daily investment pieces to warrant some kind of a, “not this is a day that changed history!”

This week saw the highest levels of market volatility we have seen all year. It was primarily in high tech and small-cap and more growthy/saucy parts of the market, but the Dow had a couple of big down days, Japan got whacked, and it was the kind of day where financial TV media ratings are up 40% or so from the norm.

And I am of the belief that this was a big, profound, and potentially impactful and historic week. At least, I think it will prove to be.

I just don’t think the bigness of this week had anything to do with market volatility. I don’t think it had anything to do with tech, with the Nasdaq, with Japan, with the CPI number, with bond yields, or anything else in that vein.

So what do I mean? Why am I being “dramatic”? And what does it mean for you as an investor?

Jump on into the Dividend Cafe … (and no, this is not melodrama or clickbait; I am just out of room in my intro letter) … =)

Links mentioned in this episode:

One of the questions I get asked the most is, “what scares you right now?” Clients ask it every now and then, or some version of it, but I also get asked in various TV interviews that ever-so-compelling question, “what keeps you up at night?” There is one particular problem with the question I want to address in this week’s Dividend Cafe, and I want to provide a really thorough answer to it.

What is the problem with the question, “what is keeping you up at night?”

The problem is that the real question the person asking means to ask is, “do you think the market could go down?”

It’s a dishonest question, but probably not intentionally so. It’s a couched way of basically asking something reasonably worthless and unhelpful. Why is it worthless and unhelpful? Because the market can always go down, and anyone asking the question knows it, or anyone invested in the market ought to know it.

But, but, but you say – aren’t there times where it is extra super-duper extra likely to go down? And wouldn’t that have you worried? The answer to those two questions is, “of course not, other than in hindsight,” and “not at all.”

But, but, but, I say – if one ever just asked the question, “are there macroeconomic conditions that bother you, that you really dislike, that even though they don’t foolishly lead you into market timing or false prophesy or clickbait dis-ingenuity, you really are troubled by?”

Well, that question I can answer, and I will …

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