The Dividend Cafe

Today's Post - https://bahnsen.co/4598Q3a

I hope (and assume) that long-time and regular readers of Dividend Café know that I am a sucker for history.  I think this is true of all history, going back thousands of years, covering many eras, geographies, nations, people, and events, but it is especially true of American history.  20th-century American history is not very old, but wow, is there ever a lot of material there.

What happened in 1906 or 1915 or 1933 that matters to us today is “history” now – but when it was happening, it was “future history.”  It was also well before I was born.  There are, though, events in my lifetime, even my adult lifetime, that represent future history, much like the events of the early 20th century I allude to above.  Knowing that I lived through these more recent events, that I have my own particular context to add, that they were both personal and all at once cultural – it all makes my interest in “modern events” of my adult lifetime that will be “future-historical” intense and profound.  If I write too often or too obsessively about such things, forgive me, but it isn’t going to stop.  I believe living through history being made is almost as fun as studying the history that was long ago made.  And all of it I count one of the great blessings of this life.

It deeply impacted my life and allows me to obnoxiously wax and wane nostalgically, but it also deeply impacts your portfolio, even today.  For much of the last 25 years you might argue this event had the most significant market impact, period.  I am not being hyperbolic.

And that event is the subject of this week’s Dividend Café.  Let’s jump into a little modern history and a 25th anniversary you will benefit from understanding.

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Today's Post - https://bahnsen.co/468UHnU

This morning, we had a slew of economic data that moved markets modestly to the upside in stocks and bonds in a fairly positive trading day throughout the session. Q2 GDP revision was largely unchanged, jobless claims were better than expected, and Core PCE revision was also unchanged.

Yields moved lower across the curve following the releases, which put some wind in the sails for most risk assets today. The inverted yield curve is slowly but surely becoming less so as longer rates rise, and is now half of what it was a month ago at 47 bps on 2/10’s from over 100 bps.

With short rates anchored closer to Fed Funds, why are longer rates moving higher? A combination of the Fed’s QT, Japan’s exit of Yield Curve control, US budget deficits and less Treasury demand from China on falling exports.

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

The market opened up a bit and got up nearly -150 points before dropping nearly -300 points (an intra-day swing of over -400 points) before rallying back a few hundred points and closing down just -68 points.

Who knows what the next two trading days hold but right now the only asset class on my screen up on the month is the DOLLAR. Bonds, Gold, Europe, Emerging, TIPS, Small Cap, Tech. Utilities – you name it, all down. The dollar, up nicely (DXY).

At this time we expect the government shutdown will kick in on October 1 (this Sunday).

Jamie Dimon, CEO of JP Morgan, said yesterday that if rates were to get to 7% you would see a deflationary asset unwind and a lot of asset bubbles burst. The media ran with the comment as if he were predicting that rates would go to 7%, which of course, he was not.

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Today's Post - https://bahnsen.co/45cmDG2

Markets were hit again today (five out of six days to the downside) as the Biden administration announced a major antitrust lawsuit against Amazon, and general market jitters continued (despite a flat day in bond yields).

Why is the U.S. dollar up so much when things are supposed to be so bad in the U.S.? A good place to start might be the fact that yields are high and growth has been decent (and compared to other places, quite decent). Currency is a relative game, always and forever. More dollar bears have lost their faces and reputations, failing to understand that basic point more than anything else.

To be totally honest (and believe it or not, I am serious right now), I cannot remember if “net neutrality” rules were supposed to ruin the internet and the world as we know it or if “rescinding net neutrality rules” was supposed to ruin the internet and the world as we know it. What I do know, or at least I think I know, is that we used to have them (I think), and then they were rescinded in the Trump administration (I think), and it doesn’t seem like a lot of horrible things happened in having them or not having them. And then this morning, I see that with the Biden Administration now having a majority of votes at the Federal Communications Commission (FCC), the intent is underway to bring back net neutrality rules, which is either a good thing or a bad thing. I would have more to say if I could keep it all straight.

Another Fed governor is talking about a further rate hike, and futures respond by INCREASING the odds of NO further hike. Follow the fed funds futures, not the rush to a microphone.

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Today's Post - https://bahnsen.co/48qpYnM

Status of the shutdown – Speaker McCarthy is trying to split enough of the far “right” (I hate that term applied here) to avoid a shutdown. He’s currently attempting to package several appropriations bills together and send them to the House for a vote. The votes appear to be questionable as to whether or not they will be there, and this does not avoid a shutdown. These bills, IF passed in the House, have no chance of passing in the Senate. There appear to be enough votes in the House against any form of continuing resolution whatsoever that keeping the government open past this weekend is highly unlikely.

How it could play out:

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

Actually, the inspiration for this week’s Dividend Cafe is not “why markets were down this week or this month” – but rather something more substantial and thematic. There are some “whys” that are more important than “whats” right now and big picture, I felt certain macroeconomic themes we are watching were worth a whole Dividend Cafe.

That verbiage makes it sound kind of boring, but really, I am just under-selling the excitement of what lies ahead for those who jump into this Dividend Cafe … You will not want to miss the drama and fun. Off we go

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Today's Post - https://bahnsen.co/48s8IyG

The violence was most felt in the bond market as yields rallied dramatically at the long end of the curve. As yields did not move much (or at all) in the short end of the curve, you saw a fair amount of inversion eroded. It is all a rate story now – as stocks are following bonds, not vice versa. QT is tightening, and high rates are tightening (with the bond market doing more of it for them). Something has to break eventually.

The Bank of England also left its interest rate alone, pausing after 14 consecutive increases.

The House GOP was four votes short of having the votes needed to advance their compromise funding bill. Some tweaks are in motion to allow for a new vote next week.

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Today's Post - https://bahnsen.co/44YX2Am

The Fed basically was explicit in tying their “we need to stay restrictive” posture to the resilient economy (which, unfortunately to them, has been “expanding at a solid pace”).

The market was up +200 points before the announcement and press conference, it dropped -100, rallied back +100, then dropped -150 (so still up over +50 points) before closing down -77 points (but with the Nasdaq down -1.53%). Bond yields at first barely moved but then the short end moved up five basis points and the long end flattish.

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Today's Post - https://bahnsen.co/3LvZG9P

Oil hit a ten-month high this morning. Bonds continue selling off as yields continue rallying. Japanese ownership of Treasuries increased by $7 billion on the month, while Chinese holdings decreased by $13 billion.

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

Nothing like the Monday DCT with a great deal of stuff for you today about housing, policy, the economy, markets, and more!

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