The Dividend Cafe

Early December is a tough time of year for my writing inspiration. I have soooooo much I want to say about 2020, but we really aren’t done yet, and this year as much as any other, affirms the reality that a lot can happen in a few days, let alone a few weeks. I also have a lot I want to say about 2021, but my “forecast” and “positioning” perspectives for the year ahead are also better served later in the month or early next month. Patience is a virtue, and as much as I am excited to delve into a yearly review and yearly projection, we are a few weeks off still.

Every year the first couple of weeks of December have a few things in common – we are too far away from recapping the year we are in, we are too far away to start making the year ahead predictions, tax-loss harvesting needs to be executed, various holiday and seasonal events and tasks take center stage, and yes, regular market and news “stuff” takes place.

This week’s Dividend Cafe will jump around a bit but offer a bit of history, a bit of present market tension, and of course, a bit of looking into the future.

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David L. Bahnsen with Scott Gamm - Market Outlook National Video Call

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I have to say there's nothing more important than the basic conversation of optimism vs. pessimism. Not only is the topic of extreme importance to me personally, existentially, emotionally, and spiritually, but I was convinced then, as I am now, that there is lasting investment significance to the topic – one that matters to the financial results of real people with real goals and real objectives.

If you fast forward from the levels of uncertainty that existed in markets (and in the society) 6-8 months ago, some may conclude, “okay, well now I am an optimist, because we see a couple vaccines coming and a lower mortality rate than we feared then, but then we saw no such thing, and pessimism was in order.” And if pessimism vs. optimism is to be determined by circumstantial conditions at a moment in time, it is fair enough. If optimism is to be recovered as a hindsight tool for use after conditions have improved, I can understand that assessment (i.e. pessimism when one doesn’t know what is going on; optimism once they see things having gotten better).

But of course, that is not what it means to be an optimist or a pessimist – to form a viewpoint or personality impulse (dare I say, a character impulse) as a backward looking response to then-known conditions. In today’s Dividend Cafe, we are going to unpack this more, and seek to understand why this topic is not just relevant to investors, but perhaps at the very heart of what it will mean to be a successful investor. I am optimistic that you will find it rewarding.

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Bahnsen Group, CIO and Founder David L. Bahnsen has a lively discussion of the markets and the economy with Scott Gamm from Strategy Associates.

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I wrote this week’s Dividend Cafe on Thursday morning, something I haven’t done for a Friday publication in a long time. For virtually all of 2020 there was a huge focus on making the distributed commentary as “current” as possible before submitting. Markets were moving so quickly that if the focus of the commentary was on what was happening in the markets, any delay between submission and distribution was likely to result in some part of the message being “obsolete” by the time it got to you, the readers.

Indeed, as I type this beautiful Thursday morning, I have no idea what the markets will do on Thursday, let alone Friday. But I don’t particularly care, for reasons I will explain inside the Dividend Cafe.

I have been writing the weekly market commentary since the financial crisis, and a large portion of you know. I am grateful to all of you who have stuck with the reading of this for so long. It has really always been written “as I go” throughout the week, sometimes with a lot of weekend reading the week before driving some of the message, and almost always with bit by bit writing throughout the week leading to the eventual finished product. I may get inspired on a Monday morning about emerging markets and write something then, and find a development in rate policy on Tuesday and write more still, then. It has always been the culmination of many hours of reading and writing work throughout a week.

Well that brings me to this week’s Dividend Cafe, and the topic of the here and now. Some reflections are in order, and I hope my reflections will resonate with you to some degree, and even provide some investment application that speaks to your situation. So without further adieu …

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November 3 has come and gone, and while the results may not yet be fully etched in stone, we have a pretty good feel for where things are headed. I suspect there are two camps of you who read the Dividend Cafe, and I do not refer to partisan leanings. What I mean is that I imagine many are excited to not hear about the election any longer, and then there are many who want to wrap their arms around everything as fully as possible (as far as what it all means to the economy and markets, etc.). I want to do a bit of both, personally. I want to accommodate that latter group today, providing as much useful analysis of where we go from here as possible, and then I look forward to having a lot less to say about the political implications of, well, most things.

The fact of the matter is that the political dynamic (a) Always affects markets to some degree, not just in a week like this one; and (b) Always has much, much less of an impact than people believe it does. Policies matter. And there are impacts in both macro and micro parts of the economy and investment markets that stem from policy decisions. But many investors have been utterly confounded over the years (including this week) by markets seeming to respond differently than they expected in response to some political outcome.

Investors who find themselves surprised by a market reaction to a particular political outcome that is different than they expected it to be can be forgiven since truth be told, market reactions confounding people’s expectations is the normal state of affairs. Much of it has to do with the ability of markets to have already priced in a certain outcome before it happens, meaning what seems to be a market response to something is really the market now adjusting to something else – that the market was ahead of the news headline.

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Post Election Perspective on Markets with David L. Bahnsen and Scott Gamm

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I thought it appropriate to devote this weekend’s Dividend Cafe to the election, now that this long-awaited event is almost here. I thought about calling it an “Election Eve” edition, but considering 82,042,050 people have voted as of press time pre-market on Friday, which is about 64% of the total number of people who voted in all of 2016, it hardly feels like “election day” is “election day” … Hopefully it will just be the day they count the votes.

One way or the other, we are well into voting (28.3 million people have voted early in-person; 53.6 million people have returned mail-in ballots; 36.7 million people have outstanding mail ballots; and then there are all those who vote on Tuesday). And we are getting closer to this year's election being over. It has been the strangest election season I can remember when all is said and done.

But today in the Dividend Cafe we’ll make it a little more personal, a little more specific, and with apologies to those looking for me to throw punches, a lot less tribal. Opinionated? Yes. Fiduciary? Above all else. Objective and fair? To that end I work.

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There are a couple things going on right now at The Bahnsen Group that make this a very fun time of year, and a very fun edition of the Dividend Cafe. I wrote last week about the annual money manager due diligence trip I have done since 2006 and how important it is to our business (and to our clients). The meetings of the last couple weeks, this year, coincide with the launch of our “Operation Magnify,” the largest portfolio undertaking we have ever experienced at our firm.

So today’s Dividend Cafe takes the reasons Operation Magnify became necessary, juxtaposes it with this COVID moment (what it supposedly means, what it most definitely does not mean, and what some think it may mean), and then applies lessons learned from our recent meetings and collaborations.

But the topics I want to dive into today are leaps and bounds more relevant to investors, long-term, than whatever uncertainty volatility the election results create. And like many understandings of the connection between politics and our portfolios, I believe the topics I am addressing today are riddled with misunderstanding.

“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” (wrongly attributed to Mark Twain).

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We look at the state of the markets with the election a couple weeks away, what we mean by “post-COVID” market realities, and spend time reviewing some of the major takeaways of our recent meetings with New York City portfolio managers.

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