The Dividend Cafe

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

Markets built on yesterdays rally today closing higher for a third straight session. For the markets, the porridge-is-just-right narrative around the balance of strong economic and employment backdrop combined with disinflation and a Fed that is now talking about slowing QT and accepting PCE at 2.6% this year (vs 2%) before they would begin cutting interest rates. Today we also had jobless claims and existing home sales both positive and supportive of that narrative as well. Keep in mind please, that markets are a forward looking pricing mechanism, and a lot of soft-landing narrative at this point is fully baked in. The question will be on fundamentals keeping up with those higher valuations names from here, and I still suspect there will be the haves vs. have-nots in that regard and the time for being selective here is very important.

Links mentioned in this episode:

Today's Post - https://bahnsen.co/43pRAau

Generally, a pretty market-friendly statement from the Fed, with some upgrading on the economy with GDP estimates moving up from 1.4% to 2.0%, they lowered their unemployment rate forecasts from 4.1% to 4% and raised the Core PCE forecasts by two-tenths to 2.6% for the year (and we are already at 2.8% now mind you).

Links mentioned in this episode:

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

Markets built on gains quite nicely throughout the day today, with the Dow up 320 points, on an uncharacteristically consistent trading day heading into tomorrow’s FOMC decision and statement. The back up in rates we have seen the past two weeks eased a little today as well, with 10s down three basis points, which also supported our generally positive day. We are still in the range I mentioned on the 10-year, just at the higher end of it with 4.35%, the high watermark on the year so far.

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Today's Post - https://bahnsen.co/3x6BWVi

Ask David

What will happen to tech stocks if they have poor dividends and stock price growth flattens out? Where would the value for shareholders come from? Or am I missing something or am I just worrying unnecessarily?”

~ Nathan

Some tech companies will not pay a dividend, some will, some will grow it, and some will not. Technology is way too broad of a sector to answer in the context of monolithic treatment of dividends. What is constant where there are technology companies that pay consistent and growing dividends is that the company is mature, has recurring cash flows, and management that has exited the ego phase of corporate oversight.

Links mentioned in this episode:

Today's Post - https://bahnsen.co/3IEE4WR

Dividend growth investing is counter-cultural. It goes against the grain of “hot dots” and “shiny objects.” It functions outside the fads and fashions of the moment. And it insists that ancient ideas like “cash flow matters” are still relevant today (amongst many other ideas). It seeks performance and productivity but not popularity. It flows from a belief system and not a crowd. It is, indeed, counter-cultural.

It also is not always understood correctly. Several misnomers persist that, if better understood, could jeopardize its counter-cultural status. One of my great fears in life is that dividend growth investing recaptures its status as “the known best way to do equity investing.” All things being equal, if dividend growth investing became a consensus understanding of the masses, I still wouldn’t change my belief system one iota, but I prefer running a portfolio at 15.2x forward earnings when the market is trading at 21x … the “non-shininess” of the strategy adds value.

Nevertheless, when it comes to the Dividend Cafe, it is my sworn duty to inform, educate, equip, and edify, so clearing up misnomers is not just allowed but required. If enough people read and adopt the truth, I may have to sacrifice the counter-cultural status of dividend growth, but I’ll know I did the world some good. So today, we shall clear up a couple of things and even dig into some recent history.

And as is always the case with financial markets, the more you understand the past, the better prepared you will be for the future! Jump on into the Dividend Cafe …

Links mentioned in this episode:

Today's Post - https://bahnsen.co/4cjgL2o

Markets were lower on the day with some higher than expected Producer Price Index numbers for the month of February that were up .6% versus .3% expected. Keep in mind, the year over year number on that same headline gauge is only at 1.6%, albeit up from the 1% read the month prior. If we annualize the last three months that included some of the higher figures, we get to around 3% year over year. This may not be exactly where we want to be at this point, but as I have mentioned, the path towards our target was just never going to happen in a straight line either.

Commercial real estate values have begun to show some recovery in the past few months. The chart below shows both the decline in values we just went through and the beginning of recovery, but more importantly, the 20%+ run up that preceded it. The protective equity during the recent decline in values was hugely inflated leading into it, so when we hear about a looming crisis in something like commercial office loans, from an LTV perspective there was already a larger cushion, and borrows make payments when there is equity. I am not saying there isn’t stress in non class-A office, but if prices are leveling I am not sure it will materialize into more at this point.

Links mentioned in this episode:

Today's Post - https://bahnsen.co/3wTpet0

The Dow eked out a small gain, with both the SP500 and Nasdaq closing modestly lower. Yields drifted a little higher today

Links mentioned in this episode:

Today's Post - https://bahnsen.co/3wT2REd

A positive trading day in stocks with a fresh new read on CPI that was largely in line with expectations, with both Headline and Core up .4% for the month of February. While these are close to the same print we got in January that caused our 1.5% selloff, February’s read was priced in at this point, and if anything, more reaffirmed that the prior month ticking higher was more a one-off than a new longer-term trend. Yields were modestly higher across the curve, and Fed futures are at 60% for a June rate cut at this point. There is plenty of data from now until then, but all things being equal, our disinflation narrative remains intact.

A quick state of the US labor force:

The overall participation rate is still historically low at 62% (67%+ would be cooking with grease). Demographically however, with still positive population growth in the US, compared to declining population numbers in some other parts of the world (i.e. Europe, Japan, China), there is an advantage.

Links mentioned in this episode:

Today's Post - https://bahnsen.co/43bfaYw

Links mentioned in this episode:

Today's Post - https://bahnsen.co/49VU9Du

It's been a weird week to pick a topic for the Dividend Cafe.  I have about six topics mapped out for future Dividend Cafes, yet none of them grabbed me to do this week.  I took an Acela to DC from New York on Wednesday late afternoon and felt pretty inspired about one topic, and then felt inspired about another as I took the train back to NYC 24 hours later.  I did a panel with David Malpass, recent president of the World Bank and Treasury Department Deputy Secretary for three Presidents, at the Library of Congress yesterday, and when I came off that stage, I had a whole new inspiration for today's Dividend Cafe.  I did a podcast with John Mauldin earlier in the week that put many ideas on the table (as all my talks with John always do).  We had a State of the Union address last night and experienced "Super Tuesday" just a few days ago.  The White House announced plans for credit card fee restrictions this week.  And the Fed announced a reversal of plans for onerous new "Basel 3" capital requirements on banks.

Do you see what I am saying?  I have had one idea, inspiration, or fodder after another for this Dividend Cafe all week, and when it comes time to put pen to paper, the only choice I have is to do …. All of the Above!

Jump on into the Dividend Cafe.  We have a lot to talk about!

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