The Dividend Cafe

Today's Post - https://bahnsen.co/4796XFZ

David Bahnsen is traveling today and I, Trevor Cummings, will be filling in to provide you with the daily happenings around markets on this beautiful summer day.

The market hit a 52-week high, the Dow is on its longest win streak (8 consecutive days) since September 2019, headlines were captivated by a slew of corporate earnings reports, we have new housing starts data, and of course the best part – Ask David. Please join us for all of this and much more.

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

After crickets last night in futures, we opened up nicely on the day right out of the gate and continued to trade higher in both stocks and bonds throughout the entire session closing just off the highs. For all those waiting for the data or news indicating some recession shoe to drop we just aren’t seeing it and flows are quietly but steadily moving more towards risk assets with short positions covering. Its still early innings in earnings season with only about 9% of companies reporting so far, but with the majority of the largest banks out and beating expectations, a common theme: resiliency in the US consumer offsetting the negative affect of yield curve inversion on net interest margins. Also of note, high yield bond spreads are at the lowest level in over a year at 380 wide, a full 100bps lower than they were at the start of the last recession in comparison.

So there you have it, markets remain resilient, and are now up 27% from the October lows, and we continue to climb this wall of worry in another heavily doubted equity bull market. Check out the podcast video today for more color on my resiliency theme and more.

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Today's Post - https://bahnsen.co/3Q15Bql

Economic Front

One of the economists I read every day who has been screaming non-stop for 18 months now that we are entering a recession sent a “reminder” email this morning that we are “still likely” to enter a recession. And maybe we are. First of all, broken clocks and all that stuff. But secondly, I think the question about if and when we enter a recession now misses the point. Short term, these people obviously don’t know. Additionally, no one knows what it would mean to markets if we did. No one. But longer term, we don’t need to know if there is a Q4 2023 or a Q1 2024 recession to know that we do face significant excessive indebtedness that matters for the next 10, 20, 30 years. I remain mystified by why these chicken littles can’t focus on a long term reality we do know versus a short term reality we do not.

Consumer confidence jumped to 72.6 from 64.4 last month in the latest University of Michigan Consumer Confidence survey. This is the highest since September of 2021. Current conditions and expectations were both higher. Two quick caveats: (a) I have always found consumer confidence to be worthless; (2) Pre-COVID it was at 101, so putting the index in perspective, it is ahead of expectations, ahead of recent prints, and yet well below prior level.

China’s Q2 GDP growth missed expectations, coming in at +6.3% year-over-year but slowing to just 0.8% from Q1’s growth rate (which had been +2.2%(, which was a surprise. Retail sales are not huge, capex is muted (as their property sector stumbles), and youth unemployment is over 21%.

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

I am writing this week’s Dividend Cafe from Reagan International Airport in Washington DC. I recorded the video and podcast from my hotel room last night. I am soon departing for Memphis, TN where I am speaking at a conference Friday and Saturday before returning to New York. I was in DC to speak to a very large group of college students at George Mason University on free market economics. I had taken the train in to DC yesterday from New York after my flight to DC on Wednesday got cancelled just minutes after speaking to a symposium in south Orange County on the ESG investing movement (you can guess what perspective I brought to the subject). I made it to that conference after having a flight from New York Monday sit on the tarmac for four hours waiting for fuel. So from New York to California back to New York to Washington DC to Memphis then back to New York again, all in six days. It’s been a week.

In the meantime, I scrapped plans for a Dividend Cafe on plans for the American supply chain and what those changes may mean for the American economy, and instead have elected to do a refresher on dividend growth. I plan to do a “dividend growth” focused Dividend Cafe once a quarter, and this seemed like a pretty good day to do it. Not to brag or anything, but I can write a Dividend Cafe about dividend growth quite intuitively (which I guess bragging about that would be like bragging about one’s speech and debate achievements in high school to the football team, which I will just anecdotally mention is not as cool a thing to do as it may sound).

Dividend growth is, after all, the very end to which we work.

Links mentioned in this episode:

Today's Post - https://bahnsen.co/3Ddn2fV

Earnings season is officially underway (companies like Delta and Pepsi released today, and a slew of big banks release tomorrow).

The annual inflation rate came in yesterday at the lowest level in more than two years.

The dollar is at its lowest level (against a global basket of different currencies since April of last year.

Senator Warren is officially now yelling for Chairman Powell and the Fed to stop hiking interest rates (I have been waiting for a populist backlash; I just didn’t know if it would be from the right or the left first; now we know).

China exports fell -12.4% last month (year-over-year), with 11 months in a row of declining exports to the U.S. Hmmmmm …

Jobless claims came in at 237,000, heading south from the averages north of 250k we had been seeing!

Producer Prices are up +0.1% year-over-year. +0.1%. Zero percent inflation in wholesale prices. Now, let’s be real honest about something here. This is mostly a story of what we call “trading base effects.” Last year at this time, the YOY PPI was +11%, so that number was so silly that a year later, being up +0% is less profound than it may seem. But of course, the same was true before (only on the other side of the math), where a high YOY number was a by-product of the prior year’s price collapse. And we are supposed to do calculations off of these distortions?

But there is genuine price deflation in the producer prices (year-over-year) of processed and unprocessed core goods. Commodity prices are down. Supply chains have normalized. Wholesale prices have moderated entirely and are very likely heading lower based on manufacturing data. TIP spreads are showing implied inflation expectations of 1.95% for the next two years. Over five years, 2.19%.

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Although closing off the highs, stocks and bonds rallied today on cooler-than-expected CPI data, with the headline now at 3.0% year over year. With a 90% chance in fed funds futures still pointing to a 25bps rate increase in two weeks, it was as interesting to see the expectations for a rate cut pull forward from May of next year to March.

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

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Today's Post - https://bahnsen.co/46Mbde0

Markets today rallied even with all eyes on tomorrow’s CPI number. Three Fed governors have doubled down on the need for more rate hikes in the last 24 hours.

China is releasing a wide array of policy support measures to support its floundering property market and construction industry.

Warren Buffett/Berkshire Hathaway has taken a 75% interest in one of the country’s major LNG export facilities (liquefied natural gas). For those keeping track, we only have seven operational facilities in the country that can currently export LNG.

There is a longer-than-normal answer in Ask David today because the question was a very thoughtful one. Check it out below!

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Today's Post - https://bahnsen.co/3NJ2dO3

I hope you all had a wonderful Fourth of July holiday. I love Independence Day, and I love celebrating America’s independence. I love the Declaration of Independence (and I should add, it has quite a bit of economic messaging in it). And of course, having the time to celebrate summer, family, friends, and all the traditions and customs that go with the Fourth of July is time well-spent.

I devote this week’s Dividend Cafe to your questions for us – the top inquiries, questions, and inquiries that have hit our inbox over the last week or so. The topics cover the whole gamut this week and I think you will find it fruitful and edifying.

So jump on in to the Dividend Cafe, and let’s answer your questions!

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Today's Post - https://bahnsen.co/3NJs88A

One of my least favorite things I see analysts do on Wall Street is take various historical incidents and attempt to extract likely future market behavior from it. “7 out of the last 9 times a team from California won the World Series, the market was up over the next 120 days” (or something like that – I made that one up to make a point; actually, that example there would be significantly more logical than some of the nonsense I routinely see).

This morning I read a report that said “nine of the last nine times the real Fed Funds rate was rising, the S&P 500 was up.” Okay, fair enough. Not super helpful predictively, though, since one only knows what the period of time the real Fed Funds rate is rising in hindsight (from a start to an end), and periods within it can be quite negative (see: 2022). But then this report went on to say: “in the 12 months following a period of a rising fed funds rate the market was up double digits four of the nine times and down in the remaining five.”

Crystal clear. Now who won the World Series last year?

The ADP jobs number came out showing explosive June private sector job creation (+497k, double expectations). Leisure and Hospitality was nearly half of that, so it does seem a bit lumpy. Of course, we also know weekly initial jobless claims have been rising, so there is a bit of a mixed bag in the labor data with the skew still being to the positive side. We shall see what the BLS report generates for June tomorrow. Bond yields went up and stock futures went down after the ADP report.

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Today's Post -https://bahnsen.co/3ricXf2

I am hopeful all had a wonderful Independence Day spent with family and friends in celebration of the 247th year of the greatest country to ever inhabit the Earth.  The biggest news on the day was the Fed minutes that were released, indicating the rationale behind their decision to pause and hold rates steady last meeting while leaving the door open to raising again in the near future.  While the decision was unanimous, the discussion revealed a debate by some on moving rates up 25 bps last week.  The next FOMC meeting is out on 7/25 and 7/26, and while we do get some employment data this week, I think it will be less relevant than the consumer price data we will get a week from today that will ultimately drive their next decision on rates.  It does appear the Fed is erring on the risk of recession over the risk of having to repeat the 1970s style stop and go on Fed policy.  All said, it was a low-volume trading day following the holiday and the first full trading day in the second half of the year that was modestly negative in stock and bond prices throughout.  All discussed and more in today's video podcast link below.

Brian Szytel

Source: https://www.usatoday.com/story/money/2023/07/05/ups-teamsters-negotiations-end-as-strike-looms/70382580007/

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