Today's Post - https://bahnsen.co/3Pe4vqK

Brian Szytel takes on DC Today through Wednesday, so we leave you in his capable hands!

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Today's Post - https://bahnsen.co/3Pe4vqK

The right thing to do with Dividend Cafe the weekend USC football season is beginning is just replay last year’s edition over and over again, one of my favorite Dividend Cafes of all time … But alas, I have never rehashed old material for a Dividend Cafe since this weekly writing began in September of 2008 and I won’t start now. Fresh and new every week is the commitment, so fresh and new you shall receive (no matters how much Fight On it sometimes entails).

You may have heard that tbere are other things happening in the world besides USC’s imminent kickoff to their season. As I type Fed Chair, Jerome Powell, is preparing to speak at Jackson Hole, Wyoming. In the last 15 months or so he has raised the federal funds target rate over 5%, something nearly 100% of economists would have predicted would break the back of the economy a year ago. Here we are a year later, and not only is the economy not broken, but markets are not all that distraught, either. They aren’t great. And economic growth is tepid. But nothing has broken. Yet.

But we are not exactly out of the woods, either. And in fact one could argue that the damage done from the Fed’s tightening has surfaced (or is about to surface) in less obvious ways. And that is the subject of this week’s Dividend Cafe. Maybe the Fed wants to create 7% unemployment (because, you know, more people unemployed brings down prices). Maybe a lot of economists predict that will happen (and were predicting it 18 months ago). But whether economic recession should happen (it shouldn’t) or will happen (TBD), there are certainly other looming problems that warrant discussion. And for that discussion, you will want to jump in to this week’s Dividend Cafe!

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Today's Post - https://bahnsen.co/44urVw5

Nasdaq futures were up over 1% this morning with technology exuberance following NVidia’s big earnings beat last night (the stock itself was up 10% pre market). So why did the stock end up closing just flat? Valuations do matter. We talk about it often but excitement over AI or other shiny object parts of the market get priced in with lofty expectations almost always well ahead of any reasonable realities (aka buy the rumor sell the news).

Down day in markets overall in a wide trading range on they day. The Dow was up over 220 points and closed down -373 points. The Nasdaq was up over 1% this morning and closed down -1.87%, and yields were higher across the curve. The Fed economic policy forum started today in Jackson Hole WY, with comments out tomorrow. We had jobless claims come in better than expected, and headline durable goods orders miss, and our August doldrums in markets continued so a few things to walk through in todays video podcast link below.

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Today's Post - https://bahnsen.co/44nfT7G

Markets caught a little relief today, and the biggest AI chipmaker seems to have hit it out of the park after hours (we’ll see what holds tomorrow). Bonds rallied substantially, and so as bond yields fell, equities rose …

There has been chatter about rising credit card delinquencies. Let’s be clear – rising from 2% to 2.6% is an increase, but this is an increase to the average of the last ten years, which is exactly 2.6% since 2011. And for the twenty years prior to that, the average delinquency rate for credit cards was 4.4%. There is nothing, yet, that is concerning or prophetic in the credit card delinquency data. Not yet.

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Today's Post - https://bahnsen.co/45fwZGb

This was the fifth day out of six that the Dow was down.

China is defending its weakening Yuan currency by making it more expensive to bet against it (raising the funding costs makes it more expensive to short). They face a pickle of wanting looser monetary policy to support their weaker economy but wanting a stronger Yuan as their currency has depreciated in recent months.

The UPS workers finalized their $30 billion pay raise.

How distorted are things in the market right now? The Nasdaq was UP +1.6% yesterday, yet 67% of the stocks in the index were negative.

The 2/10 curve is now only 69 basis points inverted (it had been well over 100bps at the peak).

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Today's Post - https://bahnsen.co/44nVfEQ

A Monday DC Today, the way it is supposed to be today.

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Today's Post - https://bahnsen.co/44fYpKv

I am not sure it has gotten nearly the press it deserves, but the one economic story that has managed to get the financial press to talk about something besides the Fed’s rate plans and “will we or won’t we” talk regarding U.S. recession has been the state of China’s economy. Don’t get me wrong – it has hardly been barn-burning stuff, and press coverage has been limited to more substantive financial media (as opposed to the news that everyone watches, reads, and clicks). But there is increasing conversation about the state of China’s economy and what that means to the rest of the world.

If the coverage was merely, “China’s economy is not good,” it would be a pretty boring story. One of the reasons the story has a little interest to people is that after two years of hearing nothing but the “inflation” word when discussing places like the United States, the United Kingdom, and the European Union, the Chinese economic conversation is carrying with it the word “deflation” – and that seems to have people’s ears perked up (even those who have no idea what it really means).

In this week’s Dividend Cafe we are going to take a look at the state of affairs in China and offer a little forecast as to where they may be headed. More important than current conditions, as I see it, is what they plan to do about it all. I will propose in the Dividend Cafe that China’s response will be every bit as relevant to the United States (and the rest of the globe) as it will be to China.

So jump on in to the Dividend Cafe, and let’s see if “Chinafication” is about to be a buzz word for the rest of the world.

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Today's Post - https://bahnsen.co/3E5y8nq

10-year yields rose to 4.29% today on the way towards the October highs of last year at 4.34%, and the yield curve steepened with 2/10’s now at 65 bps. Today we saw jobless claims come in slightly better than expected and an upside surprise in the Philadelphia Manufacturing Survey data, both supporting higher growth expectations which is what moved rates on the long end for the day. Even though stocks and bonds sold off today, I am sticking with good economic news and still being good myself.

For all the back and forth on where rates will go, what the Fed will do, and will those things need to get restrictive enough to break something in the economy, so far, it has yet to materialize meaningfully. Keep in mind also that 10 YR rates floating around the mid 4’s, are hardly anything new. The 1960s, 1990s and 2000s all averaged as much, with plenty of positive real growth in GDP. The difference now is we have a vastly expanded global indebtedness paradigm, so the sustainability of how long growth can last along with higher rates comes more into question, and I suspect both will come in as time goes on.

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Today's Post - https://bahnsen.co/3EicX1X

Following yesterday’s dismal economic data out in China and the largest rate cut there in 3 years (mind you, we are only talking about 15 bps), there was some add-on stress revealed in the real estate and financial markets today. One of China’s larger wealth management and shadow banking firms, with over $138B in assets, missed some repayments on some of its investments and is under review.

It is too early to tell if more financial contagion will occur definitively, and of course, you have a government there that can act if needed, but having managed client capital through the GFC in the US myself, a declining real estate market followed by several cracks like this in the financial system are eerily familiar warning signs and worth following. I do suspect the likely path is continued easing in monetary policy and, eventually, some form of stimulus to revive the Chinese economy, but since I know David will have more insight in this Friday’s Dividend Cafe on the subject, I will leave it there for now.

Interestingly in Asia, however, is Japan’s economic resurgence. Japan’s GDP last quarter was up a shocking 6% q/q on exports (recall how weak the Yen has been), which was the best organic reading since 2015. Going around the horn to the US, we had Fed minutes released from July’s meeting, leaving further potential rate increases on the table and some better-than-expected housing and industrial production numbers out. So what do you get with such a divergent economic paradigm amongst the first, second, and third largest economies of the world?

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Today's Post - https://bahnsen.co/44d1yL0

One of the things I used to get most frustrated by in the 2000-2007 period of artificially low interest rates, or 2010-2016, or 2020-2022, is how people assumed a central bank reducing rates was a good thing, when the only reason the Fed was doing it was because they believed things were bad. In other words, yes, a rate cut or low rates may (in many cases but not all) boost asset prices, but if the rate cut is coming because of fears of economic weakness (or actual economic weakness) there is ample reason to believe the celebration should be delayed. Now, I believe the Fed has rates way too tight right now and I further believe it is for all the wrong reasons. Yet if the Fed were cutting, not because they realize they over-did it, but rather because we were seeing screaming, severe recessionary conditions, does anyone believe that would be a positive thing?

The People’s Bank of China unexpectedly cut rates last night because things there are terrible. The Shanghai Composite Index was down -0.49% and the CSI 300 was down -0.31%. U.S. futures dropped -250 points and as I type the market is down -300 points (the final closing numbers are below). The reason risk assets responded negatively to what people intuitively (and naively) think is a good thing (i.e. unexpected rate cuts)? Because the rate cuts are due to things being, ummmm, bad. China’s situation now is case in point. This was the PBOC’s second rate cut this summer. Consumer spending, industrial production, and business investment were all less than expected. And everything happening there is teeing up this Friday’s Dividend Cafe on what I see as pending Chinafication – not the economic softening itself, but the response to the softening and what that creates.

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