The Dividend Cafe

Well, I am back from my family’s little jaunt through the Bahamian Seas and am grateful to Brian Szytel for filling in with the DC Today for a few days last week. I hope you will find today’s old-school long-form DC Today informative. I will bring you the DC Today from New York on Wednesday and Thursday this week, as well as Dividend Cafe on Friday. Trevor will handle DC Today duties tomorrow as I fly after the market close to the world’s greatest city. Blog post here: https://bahnsen.co/3ksS6me Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

As I am out of the country these last few days with my family on a brief trip as the kids enjoy a week out of school, returning today, I am doing this week’s Dividend Cafe “old school” – which is to say, jumping around topic to topic and answering a handful of questions along the way. I love the “single topic” Dividend Cafe writings each week, but every now and then, it is fun to mix it up a little, especially from a top-secret overseas destination! Let’s jump into the Dividend Cafe … Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Brian Szytel here with you this up day in markets albeit in a choppy 500 point trading range of a session this holiday shortened week. I have some important updated economic numbers, along with comments on currency and real estate you will want to be sure to check out. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Coming off the worst day of the year yesterday we get some market recovery and a little volatility relief with rates coming off yesterdays highs. Today is a more Fed heavy podcast with meeting minutes released which I discuss along with some economic takeaways on the day Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3XR3bLi Good afternoon, Brian Szytel here with you today, helping you navigate in a sea of red ink in today’s trading day. A volatile day with the VIX up big, with much of the narrative revolving around interest rates moving higher across the spectrum, along with mixed earnings and economic data and all of which I fully unpack in today’s video podcast Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Link - https://bahnsen.co/3IxtjXf Since the new calendar year began just about six weeks ago oil prices are basically flat, having started right around $80/barrel and still sitting now right around the same level.  The energy sector indices are all up on the year, somewhere around +1%, so nowhere near the level, the market is up year-to-date, but up nicely nonetheless.  It's not been a rally mode, but it's not been a sell-off, either. Yet there is a lot going on under the surface.  One can be forgiven for being suspicious of the idea that both the commodity side and public equity side can stay flattish and benignly boring for long. My goal in this week's Dividend Cafe is to update our macro perspective on the energy sector and offer some correct practical suggestions around investing in it.  It's a little economic, a little political, a little global, and a lot of fun.  But you knew that already ...  So let's jump into the Dividend Cafe! Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

ASK DAVID “Do you buy this stuff from Larry Lindsey and other economists like him that are worried that financial conditions are good enough that the Fed needs to assume their tightening is ‘not tight enough’? The reasoning seems to be that the Fed should take a message from financial conditions that they need to be tighter. Should the Fed be responding to financial conditions?” ~ L.K. I disagree with Larry Lindsey emphatically on this. It’s inherently contradictory – if the Fed were to try to let financial conditions drive monetary policy, then financial conditions would price (or try to price) how and what the Fed would be reacting to, giving the Fed a constantly moving target. The Fed influences yields and multiples and spreads; to then be influenced by yields, multiples, and spreads is perpetually circular and incoherent. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Link - https://bahnsen.co/3xqUhJS ASK DAVID “If valuation matters at the time of purchase, why would it not matter at the time of reinvestment of dividends from that same company purchased?” ~ Steve The simple answer is – it does, and if we felt a company’s valuation was so excessive that we didn’t want dividends reinvested in that company, why would we want to own the company at all? So the question about reinvestment always answers itself. If a dividend shouldn’t be reinvested in the company issuing it, it shouldn’t be owned at all. We apply the SAME criteria to holding a stock that we do buying it – that is, valuation sensitivity and risk/reward prudence. Now, why would we potentially reject a stock at $225/share, buy it at $150/share, and then still keep it when it is back above $200/share? Is it a matter of just liking it differently now versus when it was first at $225? Less subjectively than that, the entry yield was likely different, the free cash flow projections were likely different, the buffer of safety was different, management forecasts of dividend growth were likely different, and where the company or economic cycle stood was likely different. So criteria always include different inputs and points of emphasis and focus at different times and therefore at different prices. A company can be at 20x earnings and $100/share, and then 10x earnings and $200/share. Valuation, not price, always and forever. But along with valuation are Free Cash Flow, growth rates, dividend yield, capex expectations, and much more. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Link: https://bahnsen.co/3E7qE3V The CPI number for the month of January came in at +0.4% for core inflation and +0.5% for headline inflation, exactly in line with expectations. The year-over-year number is down to 6.4%, vs. the high of 9.1% last summer, and less than last month’s 6.5%. This represents seven months in a row of a declining inflation rate. Core goods have now deflated by 4.8% on an annualized basis over the last four months. The deflationary drag of core goods will wear off in the months ahead as the year-over-year comparison wanes (lower comparative number, otherwise known as base effect). Shipping Costs from China are down -90% from a year ago and it seems some people just want to act like that is a small factor in all of this (or prices being 10x higher than they are now was a small factor in the previous goods inflation). I remain mystified by this willful blindness. “Owner’s Equivalent Rent” was up +0.7% on the month and 7.8% on the year. Uh-huh. The disinflationary impact from shelter is expected to become visible in the data from March through the end of the year (last March people were still signing leases higher than those the month before, but by spring the rents peaked and then downward pressure began in earnest in the second half of the year, so that gets picked up in year-over-year numbers this year). I believe the impact of this will be worth three full percentage points to headline CPI by the end of the year (meaning, shaving three points off). Some other analyst estimates have it between 2.5% and 2.8% of a downward impact. The new category of “super-core” inflation – that is, inflation on that which is left when you exclude food, energy, and housing, is sticking around 4% right now. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Link: https://bahnsen.co/3HXUEAl A rally day in the markets, telling you exactly what the markets think about the theory of extra-terrestrial attacks from UFOs… More below! Dividend Cafe took a stab Friday at applying our present economic outlook (short-term and long-term) to the logic of dividend growth investing. Off we go … Market Action Futures opened down -70 points last night just as the Super Bowl was kicking off so I figure anyone trading futures at that time was a weirdo. By bedtime, they were down over a hundred points, and at wake-up, they were basically flat. The market opened up by +75 points and rallied higher throughout the day. The Dow closed up +377 points (+1.11%) with the S&P 500 up +1.14% and the Nasdaq up +1.48%. With almost 70% of the earnings season now complete we are tracking 5% year-over-year sales growth and a year-over-year earnings decline of -2.8%. Full-year earnings estimates continue to sit at $224/share from the S&P 500. An interesting summary from Strategas Research comparing both economic data and market data now to the same in September of last year (so five months ago). All market indices are higher. Gas prices are lower. Inflation is lower. Oil prices and long-term bond yields are essentially the same. Unemployment has stayed very low. S&P earnings estimates are lower and the fed funds terminal rate is higher. When you add it all up, markets do not believe the fed funds terminal rate and short-term upper range is going to hold. The ten-year bond yield closed today at 3.70%, down four basis points on the day. Top-performing sector for the day: Technology (+1.77%) Bottom-performing sector for the day: Energy (-0.60%) Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com