The Dividend Cafe

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With half of the companies having reported quarterly results, we now see +4.3% earnings growth year-over-year and +1.4% revenue growth. Of course, half is only half.

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Today's Post - https://bahnsen.co/49hz1aU

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I closed out our annual “money manager due diligence week” last week with a luncheon put on by the Economic Club of New York with Federal Reserve chair, Jerome Powell. He surprised me by saying some things that I was not expecting, and he also said a lot that I could have predicted verbatim (okay, I did predict verbatim) before the speech.

But despite all my earnest desire that the main action in markets let alone the economy not be at the whim of a few unelected academics, the Fed is the major story of markets right now. Their propensity to stay way too loose for way too long followed by a period of being way too tight for way too long is the cyclical and rotational story of our economic and market-oriented experience for 25 years.

We met with nearly twenty money managers last week (across a wide variety of asset classes in both private and public markets). We did not meet with a single one who did not bring up the Fed, the state of monetary policy, the potential direction of monetary policy, and its impact on how they think (and in some cases act).

So let’s jump into the Dividend Cafe where today is all about the Fed, the rubber chicken, and the radicals who stormed the stage before the speech began. Well, actually, we spend very little time talking about the rubber chicken or the people who stormed the stage and delayed the event for fifteen minutes while security and law enforcement did their thing. Those things really happened and were quite upsetting (especially the chicken). But the Dividend Cafe today is all about the actual words of Jerome Powell and what it all means. Off we go.

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Today's Post - https://bahnsen.co/45RiZ4B

Yesterday’s little market move was pretty weak sauce (not even 2-to-1 advancers to decliners and not even 1% in any index). Yields soared back today, putting downward pressure on the S&P and Nasdaq in a 2022 kind of day.

Yesterday, I recorded DC Today in the studio in our Newport Beach offices, had already submitted the final written edition, and then walked down the hallway to my office to eight pop-ups and notifications and alerts that Tom Emmer had removed himself for contention for the House speakership. Five minutes earlier, I had talked about how he was the most recent candidate, but I still didn’t see a path for him to get the votes. Twenty-four hours later, Congressman Mike Johnson of Louisiana is the new Speaker of the House.

In one day, our Q3 earnings season theme of divergent results amongst companies was on high profile display as the largest software company and an up-and-comer in cloud applications (Microsoft) posted positive results, while the largest search and advertising revenue firm in the world (Google) posted negative cloud revenue.

The S&P earnings yield is still higher than a 10-year treasury yield (total earnings dividend by share price). Of course, that differential is less than it has been in the last twenty years, but it is actually much more historically in line with where it was in the 1980s and 90s. The highest earnings yield in the market? Energy.

China increased its tolerance for a deficit to the highest in thirty years last night (above the 3% limit of deficit-to-GDP) and stated that deflationary risk will not be tolerated. President Xi actually made a trip to their central bank (he has never done that). The fiscal side of Japanification seems to be coming. The monetary side is the question mark.

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Markets today rallied a bit (though they closed off their highs) as Treasury yields calmed down and leveled out.

Earnings season is not even 20% complete yet, so all projections are quite premature, but thus far, revenue growth is coming in +0.9% year-over-year with earnings growth of +1.2%. There will be more meaty data to chew on in the next week and the week after that, of course.

Republicans nominated Tom Emmer as their new potential Speaker of the House, but it is highly doubtful they have the votes in a full vote of the House to get him approved.

A fair question – are many people buying Treasuries now not as a non-recession call (yields higher because there is no recession), but rather as a recession call (one will come and right now we get 5%, so buy now and then during a recession Treasuries rally and yields fall). In other words, is it a trade? And if it is one, is it a good one? Time will tell.

Was 5% the top in the 10-year? It is obviously way too early to say. It fell pretty quickly below it yesterday and today closed at 4.81%. But the bond market volatility in 2023 doesn’t allow us to read anything whatsoever into 19 basis points or 30 hours.

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So the market came into today just 300 points above its intra-day low of Friday the 6th at the beginning of this month, having rallied about a thousand points off of that in the six days that followed, but then selling off three days in a row to end last week. Bill Ackman announced this morning that he had covered his short on U.S. Treasuries (another way of saying this is that he ended his bet on rates going higher). Bonds also rallied on the news as the 10-year yield dropped 17 basis points (from +8 to -9).

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Today's Post - https://bahnsen.co/46P3YBs

Greetings from New York City, where I will be leaving very early Friday morning to head back to California for a week and where I have been in meetings all week with our major money manager partners across every asset class in which we live. I had thought about doing today’s Dividend Cafe as a sort of recap of the week, but I am going to need the plane flight home to better organize 25 pages of notes and more decks than I know what to do with. I am in content overload mode at the moment, which is one of my favorite modes to be in (often times I am in Chinese food overload mode, so “too many charts” about the economy is far healthier than “too much fried rice”). I plan to really clean up my notes and takeaways and allow more organized thoughts to create a deliverable around this week’s findings. Brian Szytel and Kenny Molina are phenomenal Investment Committee partners, and we were all richly blessed by the conversations we enjoyed this week on interest rates, economic projections, housing, credit markets, relative value opportunities, and more. So, for those who want to tag along a bit on the week, stay tuned – more to come.

But that does leave me with a Dividend Cafe to write and not a whole lot of margin in which to write it. Luckily for me (and maybe for you??), a robust set of questions has come in that I have been sandbagging, and it seems like a good time to use Dividend Cafe to answer all of your latest and greatest questions. I am quite confident these questions that have come in will reflect things on the minds of many of you, so get ready for some good takes on such subjects as fears about interruption to dividend growth, minimum wage laws, velocity and inflation, dollar strength, China, and more on the Israel/Middle East situation (discussed in last week’s Dividend Cafe).

Get ready to jump into the Dividend Cafe …

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This is Trevor Cummings playing backup quarterback for one more day. As mentioned, David will be back with you tomorrow with his weekly Dividend Cafe. Today is quite a busy one for David, as he will be attending both the Economic Club of New York for Jerome Powell’s speech and then closes out the evening at the National Review Gala.

With that said, we’ve got a handful of data and news to keep us busy for the time being. We will tackle initial jobless claims, the Philadelphia Fed manufacturing survey, existing home sales, Powell’s speech, and Jordan’s persistence.

That was a mouthful, now off we go…

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This is Trevor Cummings filling in for David Bahnsen. David is in the midst of day three of his annual TBG Money Manager Due Diligence trip. As mentioned, he will be back with you for the weekly Dividend Cafe on Friday.

Markets were a bit more active today than yesterday. We also had a rebound in housing starts, another L for Jordan’s ballot push, and Biden seeking a monumental aid package for Israel.

And off we go…

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Today David Bahnsen is on day two of the annual TBG Money Manager Due Diligence trip in New York. This is an exciting time of the year as our investment committee dives deep into all the portfolio particulars and then surfaces with a plethora of content to share with our clients as well as some actionable portfolio items. I believe this is year 18 of this trip and something that I know (1) David greatly enjoys and (2) has a meaningful impact on how we manage capital for our clients.

Thank you, David, and we look forward to welcoming you back for the Dividend Cafe on Friday.

With that said, I, Trevor Cummings, will take the reigns today and walk you through the latest market happenings.

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