The Dividend Cafe

Today's Post - https://bahnsen.co/3CKX1o6 I gave a speech this week at a large economic symposium where I am blessed to lecture every summer. My talk tackled many of the themes I write about all the time in the Dividend Cafe – the impact of excessive indebtedness on macroeconomic conditions, the comparison of pre-GFC Japan with post-GFC America, the diminishing return of fiscal and monetary policy to impact the business cycle, etc. This week’s Dividend Cafe takes all these themes and lessons of so many Dividend Cafe bulletins and puts them together the way I presented them at my speech this week. And most of all, I have tried to incorporate some suggestions of what could change it all – not what will change it all, but what could. So jump on into the Dividend Cafe. From Grand Rapids, Michigan, to the Big Apple, Japanification is real. And the impact of debt on growth is the most misunderstood or ignored economic Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3NqpaFA The Bank of England surprised markets by hiking rates a half point this morning (a quarter point had been expected). Chairman Powell did his very best in front of the House yesterday to basically swear they have more rate hikes left in them (all the while swearing they are data dependent, with the apparent contradiction between promising something six weeks in advance of the data coming in that you are promising to be led by never really being explained). But then … Atlanta Fed President, Raphael Bostic, came out and said he believes the Fed should hold rates where they are now for the rest of the year … So if you don’t know what the Fed will do next, join the club. The futures market is up to a 77% implied probability that the Fed will hike at the late July meeting. I remain skeptical but not adamant. And the Fed remains content with ambiguity and public mixed messaging, with “trial ballooning” apparently a new policy tool in the toolbox. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3JpMzpy Brian Szytel here with you today, kicking off the first day of Summer with just what I know you all used to look forward to as kids – discussion on the days market action, Fed comments, and inflation. Not to worry, I won’t let you hit your Summer vacations uniformed with all thoroughly discussed in today’s podcast and video. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3JpIamG Greetings from Grand Rapids, Michigan where I spoke at a large economics symposium today, and where I will be for the next couple of days before returning to NYC on Friday. As is my intention on most weeks with a Monday market holiday, this Tuesday DC Today is basically being done with the old school “Monday style.” Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/4301I8h We have had a lot to say about housing here in the Dividend Cafe over the years, most recently here with a broad update of projections for supply, demand, and pricing, and more philosophically, last year’s bulletin here that aimed to provide a bigger picture perspective on how to think about it all. I was and am proud of both issues of the Dividend Cafe and the message embedded therein. Housing is a big part of the U.S. economy, where we live is a big part of our lives, and what it costs us is a big part of our monthly pocketbook. Yet today’s Dividend Cafe is a little different. Not only am I not offering a forecast today as to whether or not median home prices will drop -9% from here or go up +5% or some other irrelevant nonsense, I also am not speaking to some macroeconomic ramifications of housing the way many pundits do (this many construction jobs will be added or lost, or this increase or decrease will take place in spending at the Home Depots and Lowes of our economy, blah blah blah). I do happen to think most of those discussion items are silly, misguided, and misunderstood, but that is not why I am ignoring them today. Besides them being bad questions, and impossible to answer, I also have a different focus that is more important to our lives and well-being. Today I want to dig into the single biggest reality of housing that no one seems interested in talking about – and that is the cultural implications of how we have re-framed our view of residential real estate over the years. Some may prefer a discussion to the latest projections around the rocket science that is “home flipping,” but I believe our angle today is the lowest hanging fruit of how we ought to think about this subject. Let’s jump into the Dividend Cafe … Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/42KWXyW Markets rallied some more today as bond yields dropped further even though the curve inverted more (as long-dated yields dropped more than short-dated). The odds for a hike at the next meeting (which is six weeks away, I should point out) moved to 67% for a 25-basis point hike and 33% for no move again. Odds are evenly split that by the end of the year we will either be at the current level or lower, versus a further hike. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/467JeWa Brian Szytel here with you on today’s highly anticipated Fed Day. After 10 back-to-back rate increases from the Fed over the past year and a half where they raised short-term rates from 0% to just over 5% the Fed today paused (not necessarily ended) their rate tightening campaign with a ‘wait and see’ message on how their policy changes which operate with a lag will further affect the economy before their next meeting in July. The hawkish language in the statement and in the press conference afterward however left the door wide open for further rate increases should the data warrant. Main takeaways here: The median forecast for terminal Fed funds in the Fed dot plots was raised to 5.6% by the end of this year, 4.6% by the end of 2024, and 3.2% by the end of 2025. Only two committee members saw the current rate as appropriate, with all remaining 16 members supporting further 25 bps rate increases before the end of the year, nine of which saw two more 25 bps hikes. GDP estimate was revised UP to 1% from .4%. The unemployment estimate was revised DOWN to 4.1% from 4.5%. At the end of the day, 1. actions speak louder than words and I think they want to be done and 2. the economic outlook on growth and employment was upgraded not downgraded. Markets had been slightly positive most of the trading day (other than the DOW that was dragged down by just one price-weighted stock), then initially sold off over 400 points following the statement with yields rising, only then to normalize into the close. Wash, rinse, and repeat on almost every Fed day. I unpack all the nuance and what to make of it all in markets in greater detail in the video podcast link below. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3N5Vy0n So the month of May CPI report came out this morning, and xxxxxxx Those who continue to be “frustrated” by the reasonable resilience of the economy in the face of the Fed’s desire to break it are up against a few different things. (1) The utter weirdness of believing an economy must be broken to beat inflation. It is not true, and it has never been true. (2) The extent to which many corporate borrowers (both high yield and investment grade) extended the maturities of their borrowings during the COVID zero-interest rate period. This means companies are not impacted by higher rates where they don’t have loans resetting at higher rates. Of course, this is not true for all but it has been true for many. (3) How incredibly unnecessary it is to use high rates to defeat inflation when monetary policy was not the primary cause of the inflation to begin with. The issues that primarily caused the inflation of 2021/22 were rectified in the natural course of events (supply chain, labor shortage, reopening, etc.) and no the cause and effect mechanisms are all off in the way the Fed is approaching this. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3N1hlWQ Futures opened flat last night and stayed flat throughout the night up until my early morning wake-up. They inched higher in the hours before the opening. The market opened up over +100 points and stayed up through most of the day, closing near a high The Dow closed up +190 points (+0.56%) with the S&P 500 up +0.94% and the Nasdaq +1.53%. There are now less than 3,000 companies active and trading in U.S. public markets, versus almost 10,000 that are backed by private equity, and nearly 40,000 backed by venture capital. There are 32 million small/mid/family businesses. Naturally, the 3,000 public companies are what the media focuses on as a bellwether of the U.S. economy. A great call we made in 2020 was a huge boom of M&A that would come out of the low-rate and post-COVID moment. Low rates were an economic argument; the post-COVID observation was sociological (many deals got done or accelerated behind newfound catalysts). That pushed up the values of investment banks, private equity shops, private lenders, and others in the advice chain of this financial ecosystem. Massive M&A peaked 18 months ago, re-pricings have taken place, and in the ebb and flow of the M&A world we would not be surprised to see a new era of financial activity take place on the other side of this. The ten-year bond yield closed today at 3.73%, down one basis point on the day Top-performing sector for the day: Technology (+2.07%) Bottom-performing sector for the day: Energy (-0.97%) Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/42yYfgC This was a big week in the Bahnsen household, but really for many families all over the country. Joleen and I celebrated the graduation from high school of our firstborn son, Mitchell. Many of you likely had kids, grandkids, and loved ones celebrate some graduation as well (college or high school). They are all special and memorable, and if you suffer from the same chronic nostalgia syndrome that I do, maybe these events bring back memories of your own graduation. I believe some of the emotion this week was not just in seeing our own firstborn celebrate this milestone but also in the gratitude I have for the high school he attended, a passion project of mine for the last ten years. A lot more has gone into this week than meets the eye, and I feel truly blessed. Today so many young people enter adulthood with a sense of pessimism, gloom, and uncertainty. There is often widespread financial ignorance as to “how to be,” and there is almost always an underlying negativity about the economic trajectory of our communities, or country, or even the world. The positive of high school graduation can be met with the daunting challenges of adult life in the category of finance, vocation, and economics. I want to devote this week’s Dividend Cafe to that young man or woman leaving high school or college, ready to start adult life. I imagine there will be some takeaways that seem relevant to all readers. But my special focus is on those entering adult life looking for some broad, practical takeaways about finance and economics. Our entry into adulthood is hard enough as it is – there is no reason to make it harder with a stunted worldview on such an important part of human life. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com