The Dividend Cafe

It was a very choppy (up-down) day in markets, to say the least. The chart itself is testimony to how much the market could not make its mind up today. A few nuggets to chew on here …

MARKET ACTION

Dow: -39 points (-0.12%)

Core retail sales were up +6.5% year-over-year in October and up 0.7% on the month (double what was expected).

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MARKET ACTION

The Producer Price Index only rose +0.2% in October, half of the +0.4% monthly increase that had been anticipated. And much of that lower figure came from a decline of -0.1% in services, the first decline in wholesale services costs in two years

ASK DAVID**

~ Cindy W.

My view has been for quite some time that it is a non-productive investment. What I mean by then is that it does not generate any cash flow and does not have any internal earnings stream, so the value becomes a matter of speculation or supply/demand around use. But gold is not really owned much for industrial use, and even its cosmetic use is somewhat limited, so those who own gold or silver for investment purposes must defend the notion of gold being a sort of inflation hedge or currency proxy. And maybe it will be that someday, but that day is not the last 42 years, where gold is down by -50% relative to inflation – a stunning and shocking fact to all who hear it.

At the end of the day, gold can go up a lot, and it can go down a lot, but it rarely does what people seem to want it to do when they want it to do it.

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Today’s DC Today is monstrous and requires you to listen to the whole thing. Election aftermath. Fed expectations. Inflation changes. Huge rally days. So much updating.

TheDCToday.com

Greetings from Nashville, Tennessee, where I will be necessarily giving you a shorter Dividend Cafe today, but one you may find quite interesting nonetheless.

I am sure some of you would prefer we just stay out here in Nashville. But alas, we live in crazy times.

And speaking of crazy, I want to talk today through a few charts, quickly, that cover the subject of energy investing and technology investing. The angle is a bit different than many choose to take.

Let’s jump into the Dividend Cafe …

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MARKET ACTION

Dow: +334 points (+1.02%)

Key Economic Point of the Day:

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Market Action

Futures opened down nearly -200 points last night but got back nearly to the flat line by bedtime as Japan and Hong Kong markets were rallying. Then this morning, futures pointed to a +170-point open pre-market.

It would be malpractice not to start with this chart. One thing I have said over and over is that I believe equity volatility does not stabilize until the ascendant dollar reverses. Friday’s drop in the DXY was the worst day for the dollar since 2015 and the second worst day since the financial crisis (h/t Jim Bianco). Now, the dollar was still UP on the week – we are hardly in a trend of dollar reversal. Volatility is still the story, not a weakening dollar. For now.

We are up to 85% of companies reported for the quarter now (Q3 results), and revenue growth looks to be +11% year-over-year with earnings growth of +4.3%. And the earnings outlook for 2023 has only come down from $252/share for the S&P 500 to $233, meaning either this will end up being a very, very mild recession, or else there is more room to go for downward revisions of 2023 profits.

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I appreciated the very kind words I received about last week’s lengthy Dividend Café, and hope the message coming out of that annual week of meetings was clear and useful for readers. I struggled with where to take Dividend Café this week as last week’s covered so many topics, the Fed’s announcement this week was no real surprise at all, and I desire to write less about the Fed in the Dividend Café. On that last part, it isn’t going to happen – and that’s not merely because of my not-so-secret obsession with monetary economics. I may believe (and I assure you, I do) that the Fed policy framework of this era has given a way higher role to the Fed in modern economics than is appropriate, but believing it shouldn’t be is different than believing it isn’t such. So yes, the Fed is going to be a heavy theme in Dividend Café for years to come (whether I like it or not).

But if there is one thing I am obsessed about more than monetary economics, it is dividend-growth investing. And I think you will find some observations about dividend equity investing to be very relevant to the paradigm in which we find ourselves.

So today is not quite Fed-free, but it is rich in dividends, the very rewards I want for investing clients. Let’s jump into the Dividend Café …

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MARKET ACTION

Dow: -146 points (-0.46%)

1.485 million continuing claims (up 47k, most since March)

I am sitting on cash – about 75% of my investable assets. What would be a good philosophy of when to get back into the market and how? I am a believer in dividend based investing.”

~ Adrian

One first has to start with the basic principles – not getting invested in a dividend equity portfolio with cash is a riskier than getting invested in one. The reason not to invest immediately is either (a) A belief about market timing that is not grounded in reality, or (b) A desire to not invest all at once at an inopportune time (that being revealed to you in hindsight, not in advance). I reject reason A and am sympathetic to reason B, as long as one does the needed self-assessment to see that reason B is psychological and emotional, not financial or rational.

I have no statistical or empirical argument for one over the other as it pertains to how to deploy the second 50%, but feel strongly about getting 50% of uninvested cash at once.

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I would have to go back and look at the exact shape but I believe the market action today was quite identical to the last time the Fed announced a known rate hike, where the market bad been down, rallied huge to the upside on the news, sold off substantially, rallied all the way back, then sold off into the close with no new news. It’s all just so, so dumb. But I have more to say than that here …

MARKET ACTION

Dow: -505 points (-1.55%)

ADP private sector number came in at +239k for October vs. 198k expected. BLS jobs report is Friday

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MARKET ACTION

Dow: -80 points (-0.24%)

ISM Manufacturing fell to 50.2, just barely in expansion mode, and the weakest figure since May 2020. New Orders and Backlogs reflected contraction, and only 8 of 18 sectors saw growth on the month.

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