Today's Post - https://bahnsen.co/3RMxbqz

A second down day in the new year, and of course two days isn’t a trend but frankly after nine consecutive positive weeks in markets, some consolidation and back filling is healthy and welcome. I do hope you all are feeling as refreshed and recharged after your Holiday time with family and friends as I am, and while there was less Christmas snow in Utah then I would have liked, there is plenty of fresh market data for us to go through today.

While 2023 saw an outperformance of growth over value, as it essentially just recouped what it lost the year prior, its interesting to note the recent shift the other way. From the lows of late October, the SP500 rallied 17%, but the equal weighted index outperformed large cap tech by a shocking 5% with a rotation to value. As David mentioned this morning on CNBC, starting point valuations can be critical for investor outcomes. With an average estimate for earnings in 2024 at $244 a share, the SP500 trades at 20X earnings. Equal weighted, you get something closer to 16X and some of this recent rotation appears cognizant of those other sectors offering better relative value. Could this continue? Well, while markets were meaningfully higher last year, the largest flows still went to money market funds at +$1.34T, which now hold a stunning $5.87T of cash (aka dry powder).

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Today's Post - https://bahnsen.co/3NNxO27

This is a tough DC Today to write because I have to resist every temptation to start doing my “year behind” review or “year ahead” projections now. I am deep into the writing and preparation of that annual endeavor and I am really hopeful that the final product will be informative and profitable for all of you. In the meantime I am back from my Christmas week away with my family and excited that 2024 is here. This annual “white paper” I am in seclusion working on will be out this MONDAY, the 8th, as a special release Dividend Cafe. As I read, research, and write over the next three days in between sessions of hanging upside down in my closet, Brian Szytel will take on the Wednesday and Thursday DC Today task.

2024 started off with more of a 2022 vibe than a 2023 one as the Nasdaq dropped -1.63% and the Dow rose a tad.

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Today's Post - https://bahnsen.co/41vu6Qo

It is the end of 2023 and we are entering the Christmas weekend. I am off to a land far away with my family and am looking forward to spending the holidays in the snow. The calendar year for markets still has a week to go (with the exception of Christmas Day on Monday), and by this time next week we will have brought 2023 to a close. I will avoid saying anything else due to the never-ending superstition that us money managers live with regarding our ability to make things worse by daring to say something prematurely. Let’s put it this way … I went to the Duke game at Madison Square Garden with my son on Wednesday night and Duke (my college basketball love since 1990) was up by 11 points with eight seconds to go. My 13-year old son was celebrating the win and I scolded him – “it’s not over, son!” You know – that famous 11-point play – what can I say. Better safe than sorry.

Anyways, I thought it appropriate as we approach the end of the year to reaffirm some of the truly evergreen realities of dividend growth investing. Not only am I committed to dedicating one Dividend Cafe per quarter to this subject (minimally) but I also believe this final 2023 edition ought to address some really important realities in the present state of markets and our investing philosophy brought to life. It is incomprehensibly fun for me to write on this subject. This subject is embedded in my being.

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Today's Post - https://bahnsen.co/41AnBfi

Markets rallied today after their sell-off yesterday, moving up +322 points on the Dow. Some of yesterday’s heightened downside does appear to be related to zero-day option expirations, something so silly, stupid, and complex that I will spare you all the details.

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Today's Post - https://bahnsen.co/47gk0nS

A quiet day of trading as markets head towards the Christmas holiday on Monday and things slow down.

The US is one of many countries where inflation readings and projections are being reduced. The UK had a much lower-than-expected November inflation reading yesterday at 3.9% y/y versus a 4.3% expected and down from 4.6% the month prior. Not surprisingly, Gilt yields moved dramatically lower, and futures were priced in 150 bps of BOE rate cuts next year.

PPI data in Germany today was also below expectations. While the ECB noted it would maintain rates where they were last week, I expect that narrative to change next year if we continue to see numbers like this, especially once the US starts cutting. Global central bank policy, as does trade and currencies, tends to be tethered—this and more in today's video podcast.

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Today's Post - https://bahnsen.co/47VBffb

Today saw risk assets rally yet again with the Dow closing at another all-time high.

It is interesting to see health care as the sector holding the defensives and lower beta names down. Consumer Staples and Real Estate have broken out a bit and Utilities have at least awakened, but Health Care has been the laggard.

The Bank of Japan extended its policy of negative interest rates (it has been seven years now, for those counting), though most believe they will hike the policy rate up to 0% in 2024. The Yen remains quite weak against the dollar.

Oil is down $20 from where it was in September (note, that was before the Hamas attack on Israel on October 7). The VIX is at $12.50, pretty close to the lowest it has been in five years, Credit spreads have tightened by 60 basis points just in the investment grade side, with high yield spreads tightening a full percentage point (and that is basically since Halloween). It would be hard to make up a series of data points that reflect a more favorable sentiment for risk assets than this.

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Today's Post - https://bahnsen.co/3NuO33W

When one buys stock in the secondary market they are buying from Mr. Jones and Mrs. Smith, and the money is not getting to the company – that is correct. But there is a very important thing being missed when one concludes that therefore no money is being productively deployed. Namely, the existence of a secondary market is why a public market can raise money to begin with for primary productive purposes. When investors buy equity in a company that does go to the company for growth capital, productive use, etc., they do so with the knowledge, intent, and awareness that the money is going into a liquid, secondary market. That reality impacts the attraction of capital and it impacts the valuation of capital. Take away the ability for Mr. Smith to sell to Mrs. Jones, and you take away the marketplace for BIG INVESTOR to invest directly in BIG COMPANY.

Supplementally, many times companies are doing secondary offerings in the public market where money is coming straight to the company. And finally, dividends are paid to investors who often do directly productive things with them. Where do these dividends come from? The productive profit-making activities of the underling company. Rinse and repeat.

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Today's Post - https://bahnsen.co/3TrUXux

I did a Dividend Cafe exactly six months ago about housing, focusing then on the duel economic and cultural reality of what was going on in the housing market. I think another six months gone by is a pretty good amount of time to now re-address this vital subject in American life. Housing is, for some, a crucial part of their economic story. Even for those smart enough not to think of their house as a “retirement asset” it is still a crucial economic consideration. Almost everyone I have ever met needs a place to live, and the ones I met who did not had very odd theories on the JFK assassination. Very few people own an asset with as much leverage attached to it as their home (assuming one puts 20% down they are 4-to-1 levered on the purchase; imagine buying $1 million of stock and only paying $200,000 for it). Housing costs (monthly) from rent or mortgage to property taxes and maintenance and insurance are the highest percentage of the monthly outflow of nearly every single family in America (even many who do not have a mortgage).

Beyond the economic reality of housing, from the silly (it is an “investment”) to the practical (it cost money to live somewhere), there is a deeply personal reality to housing, including for yours truly. People make memories in houses, they associate periods of their life with where they live, and they form families and social connectivity around houses. And even with all the suburban model has done in a postmodern culture to undermine community, many people’s “houses” are also part of their “neighborhoods” – a Tocquevillian concept we’d be wise to re-affirm. This subject matters.

So today in the Dividend Cafe I want to “check in” on the subject.

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Today's Post - https://bahnsen.co/4aigyM6

Well, and there you have it – coming out of a global pandemic where the world shut down and reopened and supply chain disruption and pent-up demand caused 9% inflation, the Fed raised rates 525bps in one year, inflation fell back down without rising unemployment, the economy still grew, and as of yesterday, the Dow closed at an all-time high. I really don’t think, in all humility, there was anyone out there (including yours truly) that would have predicted all that. Now, there is still more time to go before I think you can officially fly the soft landing flags, but we are getting close after yesterday’s Fed meeting and statements.

Adding to that narrative, we had some encouraging retail sales and jobless claims data today that had markets higher again. Also, the good ole three handle 10yr is back! We closed below 4% today down another 11 bps at 3.91% on 10’s for the day. Does all this sound too good to be true? I assure you there are still plenty of things in the world to worry about, but my sense at this point, with a dearth of large economic data coming out before the year-end, is that we will head into the holidays feeling a little more merrier than we did last year. =)

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Today's Post -https://bahnsen.co/46RNNmw

This may have been the least anticipated Fed Day in nearly two years, with the futures market serving up a 100% chance of no rate change ever since the last Fed meeting. That said, the Fed chair talking after a rate announcement always has the possibility of moving markets. Today, he moved markets. That he didn’t even remotely push back against market expectations for rate cuts next year was a surprise, but the dot plot actually showing three rate cuts in 2024 was a huge surprise. Now, I have been saying it for months, and fed futures have been forecasting it, so maybe this market response seems overdone – but for Jay Powell to just say it? Today was like reading a future history book.

I think it is important to note that the Fed Funds Futures are currently pricing in a 100% chance of a 100 basis point reduction (1%) in the Fed Funds Rate by this time next year. There is a 24% chance of it being down 1.25%, a 37% chance of it being down 1.50%, and a 26% chance of it being down 1.75% – all by next year. The most “hawkish” expectation is a 100 basis point cut.

All stock market indexes were up the SAME. And I am pretty much sure this was the biggest bond rally of my career in a single day, as the 2-year yield dropped THIRTY BASIS POINTS and the 10-year dropped EIGHTEEN BASIS POINTS. Ay yi yi.

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