The Dividend Cafe

Today's Post - https://bahnsen.co/3GnL8pE

Rarely have I hyped up a Dividend Cafe so much and set you all up for such disappointment. The topic I write about today is one that has been on my mind and in my research orbit for a long time, and on a couple occasions I actually teased up that it was coming, only to pull the plug and defer publication to a later date. Well, that later date is today.

We know the huge hype around Artificial Intelligence in 2023 – not merely in stock prices, but throughout society. On a daily basis we hear of some reference to how AI may change education or business or politics or, my favorite, farming. And as is always the case, this “hype” has a foundation to it – there is a profoundly interesting evolution in technology playing out that will change the way a lot of things are done. It will involve policy adaptations, cultural pushback, misallocations, great advancements, and, yes, certain negatives. All of these things are par for the course in a world that grows – that is, a world that was created to see human beings innovate around the raw materials they were given. Someone should write a book! But fundamentally, artificial intelligence is a big deal, even if the early years of its introduction will be filled with misunderstanding and wrongly directed reactions.

But people do not read Dividend Cafe for my assessment on the technological or even cultural context of new innovations. Rather, our job here is to assess a whole host of subjects for their economic and market impact – particularly for investors (and to be more particular than that, for our investors, that is, clients of our firm – or those of you who will be clients of our firm). The Artificial Intelligence story is an investor story, too, and that requires a sober reflection on a lot of things. Today’s Dividend Cafe is that sober reflection.

Let’s jump into the Dividend Cafe …

Links mentioned in this episode:

Today's Post - https://bahnsen.co/4115jTU

A BIG divergence today between the more value oriented DOW which jumped 520 points today, and the more technology heavy Nasdaq down .23% as interest rates broke the trend and rose today. Coincidently, I wrote yesterday about the sensitivity in the part to the market that has had the most multiple expansion tethered to falling rates as having potential for disappointment. Both PCE inflation data coming out in-line with expectations and a stronger growth print in the Chicago PMI’s moved rates up today as much as yesterdays decline in continued bond market volatility.

Links mentioned in this episode:

Today's Post - https://bahnsen.co/3N5Ec4C

A mixed but ultimately flat day of trading in stocks following another decent move up in bonds as the 10 Yr came down another 8bps to 4.26%. Hard to believe we were north of 5% just last month. I was actually expecting yields on 10’s to pick back up after a better than expected upward revision to Q3 GDP mid morning, but this bond market is dead set on lower rates in 2024. All eyes will be on the inflation read tomorrow with PCE to see if that changes the narrative.

If the seven largest US technology companies were its own sector it would make up 18.2% of the market cap of the MSCI World Index and account for only 10% of the earnings. In comparison, the entire Financials sector in the MSCI World index equates to three precent less at 15.1% by market cap, but makes up over twice the earnings at 21.9%. Valuations may be a poor timing tool short term, but they do matter longer term and the multiple expansion in tech we have just seen can be easily disappointed if lower rates don’t keep pace next year.

Links mentioned in this episode:

Today's Post - https://bahnsen.co/3Gl2T9d

The market is up over 10% in just twenty trading days, a 99th percentile move if there ever was one. The rally has brought along lower-quality equities and higher-quality ones, and financials, in particular, are surprisingly strong. Defensives are not as strong (consumer staples, utilities) as more cyclical or high beta sectors, but they are hanging in there.

The dollar has dropped, and the Yen has rallied in the last few weeks, causing many currency traders to say, “Wait, it wasn’t supposed to do that?”

Markets were pretty boring again today (though to the upside), and bond yields continued their decline.

Links mentioned in this episode:

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

Futures opened last night down -40 points or so, worsened a bit throughout the evening, and this morning pointed again to a down -40 point open pre-market.

*CNBC, DJIA, Nov. 27, 2023

As a contrarian, I do not like seeing the put/call ratio and bull/bear sentiment be so tilted towards complacency. Even the VIX at $12.69 is pretty surreal.

Links mentioned in this episode:

Today's Post - https://bahnsen.co/3SR97oG

On this special Wednesday Dividend Cafe, just one day before Thanksgiving and sixty years to the day after John F. Kennedy was assassinated and C.S. Lewis passed into glory, it is my sincere pleasure to bring you the annual Thanksgiving Day edition of the Dividend Cafe!

Links mentioned in this episode:

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

Futures markets in the fed funds rate now show a 0% chance of any future rate hikes in 2023 or 2024, but then show mixed results around when rate cuts may begin (a 35% chance in March, a 65% chance by early May, an 88% chance by June). Those numbers will all change, but it is where the debate lies entering 2024.

Will the Fed’s inevitable cutting of rates be a good thing for markets? I wonder what you think? Let me put it this way … is it even possible to answer that question without any further information? Hint: It is not. Two things have to be known to better answer that question. (1) Was the cut a surprise or well-telegraphed, and (b) What. Was. The. Reason. For. The. Cut. Beware of anyone assuming rate cuts are good without a discussion of that second question.

Links mentioned in this episode:

Today's Post - https://bahnsen.co/3sAWzr1

For the second time in the last couple of months, I am going to call an audible and not publish a Dividend Cafe on the artificial intelligence moment and its relevance for investors, despite having announced I was doing so the prior week. I have actually been assembling and digesting research on this topic for many months and am quite excited for the final product to appear in Dividend Cafe. But it is too important of a topic and an issue I have worked on now too much to publish prematurely. I was in New York City the first two days of this week, Dallas the next two days, and am in California now. Between a massive amount of meetings, events, portfolio activity, flights, and all the things, I was engulfed in a different topic this week instead of finishing my other piece.

This week’s topic is pretty darn important, though. In fact, I believe it serves as the macro story of our moment. It brings in some very important history and how to think about the past in the context of the future (not exactly an old or stale topic for those who remember last Friday), but it also allows us to understand what is going on right now in a broader and more extended sense. I think where interest rates go over the next ten years matters (also a fresh topic on our minds). Still, one could argue that everything going on right now has to do with the cycle we are in, had previously been in, and the question around where we ultimately go.

So let’s hang tight on artificial intelligence and investing a little longer because this week, we have to cover a tale of two decades. It will take you ten minutes to really appreciate ten years. Let’s jump into the Dividend Cafe …

Links mentioned in this episode:

Today's Post - https://bahnsen.co/40JB5EW

It was a pretty quiet day today, although we were down almost 170 points mid-day following some slower economic numbers to then rally back to just about flat on the day in stocks. Honestly, with the significant move up this week, just seeing markets just hang in and constructively consolidate and stay at these levels (both in stocks and bonds) is a good thing and bodes well.

This week, we had lower-than-expected inflation numbers in both CPI and PPI, some weak retail sales, the largest US retailer citing disinflationary pressure, and today, we got a jobless claims number that was higher than expected. Mix all of this in a bowl, bake, and no matter how you slice it, you’ll get an unquestionably cooling economic pie. See what I did there as we head into Thanksgiving week. =)

Links mentioned in this episode:

Today's Post - https://bahnsen.co/46gNK3n

With over 90% of companies now having reported Q3 earnings, we stand at a 6.3% growth rate and well above Octobers estimate of just 1.6%. Just as I mentioned on CNBC World Monday night, profit growth is exceeding revenue growth as companies with pricing power that raised prices the past year due to inflation are showing margin expansion as some of those input prices ease. Also, for all you wondering, it really was just CPI and not my global television debut that fueled the market rally the following day.

Links mentioned in this episode: