The Dividend Cafe

Today's Post - https://bahnsen.co/3V6B23f The House Rules Committee voted at 2:20 am to send the House spending legislation to the floor for a vote, implying that Speaker McCarthy has the 218 votes needed to pass a debt ceiling increase that also cuts $4 trillion from government spending over the next ten years. We watch and wait. The Fed Funds Futures have come down to a 77% implied probability of a quarter-point rate hike next week (it had been 93% a couple of days ago). That’s still pretty high and still pretty close to a “sure thing,” but maybe if the First Republic Banks continue that you see in the news, it won’t be a sure thing. That issue is the primary driver of markets right now, today even outweighing what was a pretty solid beat from some big tech companies. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3LESWXT It was sell-off mode today in stocks, with the Dow down -1% and the Nasdaq down -2%, yet it really was the -50% drop today in First Republic stock that seems to be the catalyst for the market turmoil (the drop lower in the broad market that accelerated around 10:00 am PT was just minutes after the acceleration of sell-off in First Republic).  Of course, the challenging news there was known all afternoon and night yesterday and all morning today, so it was really a mid-day realization that those problems are not going to be easily resolved (selling assets and raising new equity), and then the broad market has to digest that spill-over effects that could create. Lots more earnings news to come this week. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3oDNT0y Earnings season is off and running and, so far, looks pretty good (or at least not that bad). But it is really early, and the heart of earnings season will be this coming week and next week, and we will keep you posted each step of the way. Dividend Café took a real look inside the inflation story of the last couple of years, particularly the lag effect of shelter. But it did so not merely in how it overstates the CPI now but how it understated it in 2021. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/40qjm3u I enjoyed a wonderful dinner with my long-time friend, John Mauldin, last week, and something we discussed is going to be the subject of today’s Dividend Cafe. John is one of the most well-known newsletter writers in our industry, and I have been reading him every single week – no exceptions – for 23 years. Around ten years ago, after a shared CNBC appearance, he and I became friends and quickly connected the dots that John actually knew my late father and even published some of his writings back in the early 1980s. A small world, indeed. Well, since then, John and I developed a friendship of our own, I am a regular speaker and panelist at his annual Strategic Investment Conference, and we are known to do dinners together that can last for four hours, with all aspects of the economy, the market, the Fed, and the American political system on the table for discussion. At this dinner event last week, John brought something up that inspired me for this week’s Dividend Cafe. You will not be surprised to hear that it is going to involve the Fed, inflation, and all the adjacent topics that so energetically fill the pages of Dividend Cafe quite often. So jump on into the Dividend Cafe … Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3mP5Ad0 The talk is warming up for the debt ceiling debate to become a major market story for a time. As I was writing months ago, there is no leverage for the Republican House if they don’t first pass their own debt ceiling bill (essentially, a bill they actually pass with 218 or more votes that does raise the debt ceiling but gives House Republicans what they want by way of spending cuts). It is what John Boehner first did in 2011 that then forced the Obama administration to have to take a stance against it, and then ultimately pushed that stand-off to the point of the “sequester” where hundreds of billions of dollars came out of the deficit. In this case, I (a) Do not know if Speaker McCarthy will get his 218 votes, (b) Do know that the Biden administration will oppose whatever that is, and (c) Do not know what the twists and turns will be when they find themselves at their version of a “Boehner-Obama” stand-off. I only know this: Without “A” – there is no “B” or “C.” So we shall see if the House GOP can pass a bill and then take it from there. A debt ceiling lift that comes with the spending cuts they want does force the White House into a tougher political play (they can’t see the Republicans are forcing the government to default if the House has actually passed a bill to not do so). But these things have a way of moving and shaking quite a bit before we get to the end, and I can promise you media coverage of it all is going to be … unhelpful. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - Day-to-day bond volatility continues to be quite elevated, and very few are really talking about it. I believe as QT inevitably moves to QE (or at least non-QT), you will see bond volatility come down. Equity volatility already has. 80% of days in January were up or down > 1%, 74% in February, 65% in March, and just 36% so far in April. Hmmmm … I have spoken a lot lately about the American consumer slowing down only when they lose access to credit. Until then, spend spend spend (in fact, the predominant economic philosophy of American policy for the last 75 years has actually sought to intellectually codify this behavior as our patriotic duty). Revolving credit right now is 6.2% of disposable income, not even up to the 6.6% average it was for the last ten years, let alone near the 9% level it averaged in the decade up to the financial crisis. All that to say – debt levels for consumers seem high; debt levels as a percentage of income are not. So my expectation is … spend, spend, spend. Beware of people who tell you, “The consumer is about to crash and burn,” when they have been saying that over and over and over and over again for years. There is an incorrigibility to perma-bears that can only be called dishonest if we don’t see it all for what it is. Also, who cares if people spend a little less and save a little more? Do you really, actually, seriously think that would be a bad thing? Come on. Anyways, another pretty boring day in markets and all the recap is below, along with a great question on commercial real estate and the banking sector. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/40eo9VP I would say, at this point, the market is definitely pricing in yet another rate hike at the next FOMC meeting two weeks from today (futures are up to 87% implied odds). Markets obviously haven’t cared much. Bond yields today didn’t move a lot. Sometimes you have to report what is and not what ought to be, and sometimes what is or what will be is different than what is or what appeared to be just two weeks sooner. Nevertheless, I take it not merely as the Fed likely hiking one more quarter-point in May but the Fed likely cutting more aggressively when they swing the pendulum back the other way. I don’t like any of it, to be honest. The spread between BBB’s and BB’s (low-end investment grade and high-end junk bonds) is a mere 150 basis points – well below the 200 basis points, we have seen a few times in recent months when it looks like credit is about to weaken. Corporate credit has hung in there remarkably well throughout this cycle, for now, despite all the recession talks and doom and gloom of Fed tightening. It almost feels like the Fed can’t be satisfied until they break corporate credit, only, when they do (if they do?), they then will feel like they have to immediately put it back together again, but they can’t put it back together again if they don’t break it first, and I have the distinct impression that is frustrating them. As for what to like within markets, we like dividend growth stocks, always and forever (surprise). But it does seem to me the clear trend for extracting liquidity from the system favors value over growth and less shiny assets than those that have been shining. We shall see. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/40b95Ih Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/4018FUN This is a unique Dividend Cafe but one that I think will have something for everybody. It speaks to a mentality and a framework that has more than just economic ramifications. It was inspired by a conversation I had with my wife on Wednesday night about some other things, and as our conversations often do, led to another track that led to another track that led to this inspiration for Dividend Cafe. At the end of the day, investor behavior will always be the primary determinant of investor outcomes. And investor behavior is deeply tied to how one views the “last dollar on the table.” In fact, even outside of one’s investing life, their view of the “last dollar on the table” is likely to be highly relevant to the outcomes and experiences one will have. One might even argue the “last dollar on the table” is the most expensive dollar one could ever pursue – financially and otherwise. Let’s jump into the Dividend Cafe. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/43GLAdk The markets went into big-time rally mode today and, of course, had already rallied a lot from mid-March levels. The CPI number was quite disinflationary yesterday, as Trevor walked you through in the DC Today, and we saw the disinflationary report in CPI yesterday and now further disinflation in PPI today (producer prices). Headline PPI was down -0.5% on the month when no change was estimated. The core PPI number year-over-year is now +3.4%, down more than 50% from its peak level a year ago. It had been +4.8% YOY just one month ago. But the Headline PPI is now up just +2.7% from a year ago, a massive drop and substantial wholesale disinflation that screams for … A rate hike??? Dear Lord. March 2022 headline PPI: +11.7% March 2023 headline PPI: +2.7% Okay. Don’t get me started. But did the market rally today because it is now even more obvious that the Fed should not be hiking anymore? Well, if so, the Fed Funds Futures aren’t showing it (still 66% implied odds of a quarter-point rate hike). Do markets rally because of what the Fed ought to do or only what the market believes it will do? The former is unlikely last time I checked. Yet markets today clearly said some form of “risk on,” and the reality is that the Fed either gets it or they don’t. The end is near. At least for this rate hike cycle. Credit is contracting. And both stocks and bonds seem to be seeing some form of easier path ahead. Listen or watch today’s comments and check out the Ask David below for the pivotal question about the dollar everyone is asking. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com