The Dividend Cafe

Today's Post - https://bahnsen.co/3XrRlJ6 At the ECB Forum in Sintra Portugal – Powell, Lagarde, and Baily all had hawkish comments on inflation and tighter central bank policy needed to contain it. However, all three felt that could be done without inevitably causing a recession. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3pr9HgK So another day gone by and I don’t think the world knows much more than it has 24 hours ago about Putin and the weekend coup threat. Natural gas prices have jumped from $2 to $2.80 BTU in just 15 days or so (+40%) and not surprisingly energy stocks with a natural gas focus have done much better than those exclusively focused on crude oil. One of the energy bear arguments seems to have really dissipated, and that was the idea that exposure to higher rates would be catastrophic for the highly levered energy sector (in 2020 it was often said that the debt cliffs these companies have would usher in a wave of bankruptcies). A new survey from the Dallas Fed of 150 oil and gas companies indicated that less than 20% see tighter credit conditions having a significant impact on their business. New home sales were up +12.2% in May (volume) with supply down to 6.7 months (had been 7.6 months). My study is starting to indicate a worthlessness to national supply data when some markets are so substantially under-supplied and some suffering from big over-supply (making the aggregate number like the guy whose “average temperature” is found with one arm in the freezer and one in the oven). But what I would point out is that median sales prices have dropped -16.2% (for new homes) since their peak, right in the middle spot of that 10-20% drop I predicted (though this is just new homes, not existing, yet). Seattle and San Francisco, by the way, have seen double-digit median price drops of existing homes. Hmmmmm Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3NMJ3bk Top News Stories Friday night the absolutely fascinating news hit that a coup d’etat was underway in Russia, or at least an attempted one, with mercenary chief, Yevgeny Prigozhin, leading troops out of Ukraine and into a city south of Moscow with significant military headquarters for Russia. Putin, of course, called the act a treasonous betrayal and vowed revenge. As the day went on Saturday it was announced that a truce had been reached and Prigozhin had called off the march on Moscow, and would be allowed to peacefully enter Belarus. But then over the next 24 hours more and more news and analysis came that seemed to indicate that, ummmm, maybe that wasn’t going to prove an entirely safe exit plan for Prigozhin. The entire question comes down to whether or not this indicates the beginning of the end of the Ukraine war, and it is too early to tell. If nothing else, it still indicates a vulnerability for Putin, especially if reports are true that other Russian generals and oligarchs were actually favorable (quietly or out loud) to what Prigozhin was doing. I wouldn’t read too much into kneejerk responses from anyone, but it all does seem reasonable enough to say that (a) Putin’s position seems weaker than at any time since he took power, and (b) An internal Russian move may be a more likely end to Putin and the aggression against Ukraine than anything else we have seen so far. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

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

Today's Post - https://bahnsen.co/3WZi5jG It has not been a great week for global bonds with extra rate hikes as of late in Canada and Australia as of late and a re-pricing of Fed expectations here in the U.S. has kept bond yields on the short end of the curve higher, and even flattened the curve a tad with longer-dated yields coming up. We are still sitting at just a 74% chance of a pause in Fed action next week (in the futures market), meaning there is a 26% chance of another quarter-point hike. But there is a 64% chance of a rate hike in July … In the meantime, jobless claims flew up to 261,000 this week from just 233,000 last week, a large and unexpected move that we will need until next week to see if it is just noise this week or the start of something more substantial. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3Joqzf1 Big rally in Energy and Real Estate today even as other markets stalled and reversed. The media world went into a trance this morning before the market opened on the news that CNN’s CEO, Chris Licht, had been fired. Though not much of a market story, it distracted everyone for the day and allowed it to be a mostly boring day in the world of financial media. As expected, Mike Pence, Chris Christie, and Doug Burgum (billionaire Governor of North Dakota) have all entered the Presidential race this week, vying for the Republican nomination. Add them to the list that includes Donald Trump and Ron DeSantis as top candidates and then Nikki Haley and Tim Scott, and you have basically 7-10 total candidates, two of which poll high, three of which poll a little, and the rest of which poll basically not at all. It’s going to be a wild summer. And I am sure at some point, I will have to talk about it more in terms of policy and market implications, but we are nowhere near that point yet. For now, my forecasts are rather simple: I am dubious that Joe Biden will end up being the Democrat nominee; I am highly dubious that former President Trump can win a general election; and I believe there is a candidate or two who could beat President Trump for the Republican nomination, but am as unsure as anyone else as to whether or not that will happen. There are so many wildcards out there right now; predictions are a fool’s errand. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3X7RBwR A flattish day in markets but a big rally in Financials … The SEC is suing Coinbase, the major publicly traded exchange for cryptocurrency, for violating securities laws and defying regulatory requirements. This company is down -80% in value from its high, and now there exists an investigation or active charges with every major crypto exchange firm. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3qnOZyl Ask David “With regards to the debt ceiling compromise, you point out that it suspends the debt ceiling entirely through the end of 2024. What I do not exactly understand is if the spending growth has been capped, then why would an increase in the debt ceiling be needed at all? ~ Mark The part you’re missing is revenue. We can reasonably know what expenses will be now, and they will be reasonably limited. So yes, that should take the need for much borrowing above a given ceiling off the table. But revenue is a big variable, and especially in a deeper recession, it can drop well below the expenditure line, enhancing the need for deficit borrowing. The variability of revenue is massive. Think of a 1% drop in the total GDP of the economy. Then think of an average drop of revenue as a % of GDP of 2-4% per recession. So $24 trillion GDP goes to $23.75 trillion, and then the tax receipts go from 19% of 24tn to 16% of 23.75tn – essentially, lost revenues of roughly $750 billion. That could add 50-75% to the deficit and would be funded with debt issuance. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3qmaIH8 For a long time there was only one country on earth dealing with a bubble that had burst, spending way more than it was bringing in, seeing revenues decrease, juggling banks that weren’t actually solvent, and running extreme monetary policy to try and keep all the holes in the dam from bursting. That country was Japan in the 1990’s and into the next decade. For over 30 years now they have favored radical fiscal and monetary policy as a means of dealing with their economic woes, and the result has been well-documented in these pages of Dividend Cafe. The balanced budgets and high real GDP growth rates of the American economy in the 1990’s went away when our own credit bubble burst in 2008. Asset prices fell, deficits exploded, and the Fed played pharmacist to it all, providing ample medicine to make it all feel better as we muddled through. Japan now has ample company to the fundamental shared sickness of “excessive indebtedness.” Across the developed world those Japan-like characteristics of high debt, muted growth, and monetary discretion are now par for the course (see: America, Europe). Today we’re going to look at a few things with Japan and see if we can’t learn a little about the future state of the American economy and policy. It is one thing to refuse to learn from the past. It is another thing all together to not even learn from the present. Let’s jump in to the Dividend Cafe … Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3C3vY77 As expected, the House passed the McCarthy-Biden debt ceiling bill, and the Senate will do their part by this weekend. The bill passed by a vote of 314-117, quite the nail-biter, with 165 Democrats voting yes and 149 Republicans voting yes. This allows us to now change our focus to the next end-of-the-world moment. Do not fear – it will not take long – a new culprit for the cause of Armageddon will arrive shortly. And the media will be ready to tell you what it is. Futures are now at a 78% chance of a Fed Rate pause at the June 14 meeting (it was less than 40% just two days ago). Several Fed officials have come out jawboning the idea of a pause. I think there is almost a 0% chance that these Fed officials making public comments to this effect do not mirror the view of Chairman Powell himself. The world’s largest chipmaker most connected to Artificial Intelligence is trading at a mere 197x earnings now, which is just the bargain basement level of 23x gross sales. It is sort of surreal to see this kind of excess and froth just a year after all these other shiny objects got taken to the woodshed. Human nature is immutable. C3.ai, a leading artificial intelligence software firm, is down -30% in the last 24 hours as numbers came in vastly below expectations. I bring this up because they are all over the news since, well, they lose $260 million per year on gross sales of $266 million per year. That negative -98% margin being attached to a $6 billion market cap is, shall we say, a sign of the times. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - The debt ceiling bill has gotten through the House Rules Committee and it appears nearly certain that the House will have the votes tonight for passage. What happened here proved to be even less dramatic than I predicted, and I was predicting that the media posture here was recklessly and shamefully melodramatic. I promise you this, though – no one will learn anything, and everyone will take the bait again next time, too. Media reports that some hardliners on the right were going to look to oust Speaker McCarthy over this bill were, well, totally untrue. One of the big themes in the market right now is the relative weakness of defensive sectors like Consumer Staples, Health Care, and Utilities. And for a contrarian like me, it makes me like them even more. The momentum is in one very narrow space right now. That boat has a capsize risk in front of it as 2023 progresses. In the meantime, 4% of the large cap universe is at a relative high right now, while 25% is at a relative low. Weird wacky stuff. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3qlozNA “I agree with you overall concerning shareholder vs. stakeholder priorities in a company’s motivations. It did occur to me, however, that often the bad behavior examples provided by the advocates of the stakeholder paradigm don’t really involve a company acting in the best interests of shareholders, but rather having a near-sighted, excessively short-term focus on quick returns at the expense of sustained gains. My question is how in a dividend-growth framework you and your team balance the near- and far-term in a company’s approach in such a way as to genuinely promote the interests of the shareholder.” ~ Jeff M. But of course here is the exact point – no system of investing I have encountered seems to directly and specifically focus on long-term decision making vs. short-term noise more than dividend growth! If the entire focus is on long-term sustainability of growing cash flow, various quarterly efforts at “quick returns at the expense of sustained gains” can’t possibly be tolerated. They are disqualifiers. Now, how much companies really do that is another story, but the point is the qualitative and quantitative criteria for stellar dividend growth companies are the very things that call for long term prudent actions versus short term myopia. I cannot say this enough: Dividend growth over time is both the signifier and the consequence of a well-run business. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - We live in interesting times. Is that fair to say? Does anyone disagree with that? I didn’t think so. Now, I didn’t say, “We live in unprecedented times.” I think there are a lot of reasons to barely ever say that (Ecclesiastes 1:9 is a good place to start). I certainly understand that some things seem unprecedented, and many times the particular manifestation of something may be unprecedented. But honestly, most of the time, people say something is “unprecedented,” they are just a person who does not value the study of history very much. I value history a lot. I believe in almost all disciplines, a better understanding of history is needed for a better understanding of the present and to be prepared for the future. Current social unrest is not unprecedented. Neither is political tribalization. Neither are class divisions or any of the many other things adding to societal angst. It is somewhat arrogant to believe we are the first people in the first time in history to experience a certain thing. So I prefer the word “interesting” to “unprecedented.” And one of the things most “interesting” right now is the state of corporate America. For some, corporate America is not doing enough to save the environment or participate in various social or political causes. For others, they have stepped knee-deep into a political and cultural agenda that is detrimental to their well-being as a company. Today I want to talk about the concept of shareholder engagement, what it means, what it ought to mean, and what The Bahnsen Group is doing in this regard. You may find it not political or audacious enough. You may find it too opinionated. You may find it outside the core of investment advice. You may find it the heart of investment advice. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/45JhuqH The debt ceiling discussions advanced today though no final deal was struck. The adjectives and nouns across the headlines refer to “fresh urgency,” and “potential default,” and “sensitive phase”. The Fed seems to be telegraphing a “pause” at the next meeting … The new language being thrown out is whether or not they are “pausing” or “skipping.” The Artificial Intelligence space is rallying like crazy as one of the good companies that make money reported a huge quarter, which naturally led to a big rally in the bad companies that don’t make money … One year ago today, the market closed 32,637. Today it closed 32,765 – up 0.39% in one year. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3Mxdgto While everyone tosses and turns about the debt ceiling debate in Washington, I want to remind everyone what is the real scenario playing out in the economy. The Fed’s tightening may or may not “succeed” in their mission to destroy those inflation-creating jobs (their words, not mine), but it certainly will succeed (and has already) in tightening credit. Essentially a trillion dollars leaving the banking system is a lot less monetary base for lending. Funding costs for banks are much higher. And overall bank lending is collapsing. These things are all known. Now, one can argue much of it is priced in. And one can certainly debate if it leads to a deep recession, or a shallow one, or a soft landing, or my own hypothesis, a more “narrow, targeted” recession, but it is the issue in front of us. What ends up being the impact across the broad economy and to corporate profits of the inevitable decline in credit as a result of this financial tightening? And then, of course, how does the Fed handle their inevitable back-peddling of the mess they create? It’s all so weird to watch play out. The impact of tightening credit – the variables around that will be real in six months. Almost nothing anyone else is talking about right now will be. Food for thought. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/41Xc7Rq The drama in Washington is supposed to be all the rage and I am torn because I do know it is the primary mover in minute-by-minute market fluctuations, and I also know it may be what readers most want to know about (adding to the burden to write about it here, which is the purpose of DC Today), and yet the whole thing annoys me so much I wish I had the option of a protest abstention. But I don’t. As of press time today the basic update is that talks are dragging on and this is somehow news. Both sides continue to say “default is off the table.” The press is acting more recklessly than I expected them to, and I expected full-blown beclowning. It is really hard for them to perform worse than I thought, and they are. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3Mz8Q5k All eyes are on the talks between Speaker McCarthy and President Biden regarding the debt ceiling and what negotiated bill may or may not be possible. They met earlier today and re-convene this evening. Over the weekend, President Biden said they were considering invoking the 14th amendment to declare the debt ceiling unconstitutional, something he previously said was a non-option. Most pundits do not believe it will go there, and if it were to, the Supreme Court would certainly have to take it up immediately with almost no chance of the court ruling with the White House. Discretionary spending caps are reportedly the new sticking point, which is just dumbfounding to me. (00:00) Introduction (00:45) Markets Today (02:00) Is it Sustainable? Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/458Bjr7 Everybody is aware of the challenges that have surfaced in regional banks this year and the fears that such problems will become more contagious in other banks as well (other regionals, smaller banks, community banks, etc.). I am not sure that the reasons for the challenges are fully understood, and that is partially because, in the immediate aftermath of the Silicon Valley Bank failure, some may have been quick to find a simplistic explanation that confirmed their priors as opposed to the more nuanced and multi-faceted explanations that were probably more accurate and helpful. Regardless of how the three bank failures of 2023 came to be and how people have thought about or processed those failures since they occurred, there are forward-looking questions that many are asking. The answers to these questions have ramifications for three different categories of economic actors. And those three categories around the future of banks, systemic risk, and general real estate investing in our country (amongst other things) are the subject of today’s Dividend Cafe. If you aren’t tantalized yet, you will be. Jump on into the Dividend Cafe … Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/42OsEsd Welcome to DC Today, I am Trevor Cummings filling in for David Bahnsen. Today we have an update on unemployment claims, existing home sales, daily market moves, and even Donald Trump shows up in today’s Ask David. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3OnePfQ So markets rallied hard today as both sides in this Biden/McCarthy negotiation assured listeners that a default won’t happen. Here’s the lay of the land in the debt ceiling debate: It is fair to say “deadlines” thrown out for various actors in this are more bark than bite – negotiating tactics and all that stuff. No one can really say when they have to start prioritizing payments because they don’t know what exactly June 15 tax receipts will look like. There will be lots of “rounds” in this negotiating process The White House largely believes it is more to their political benefit to be seen as getting a deal done than to be seen as fighting with the Republicans Noise is not material to a portfolio. One need not know what happens between now and whatever the X date is to know that on the other side of the X date, it will be like this noise never happened. For us contrarians, it is worth noting that cash levels are now the highest they have been all year and bond allocations are the highest they have been since 2009. And the recent Bank of America survey had money managers the most pessimistic as they have been all year. Keep this up, and we may end up seeing a full-blown boost of economic expansion … =) Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3IgucD9 All eyes were on the White House today as debt ceiling talks continued. The report after talks ended today that “no deal has yet been reached” was, ummm, not a story. I remain skeptical that a real deal gets done before there is a real deadline and moment of hysteria, but I do still believe these talks set the foundation for what that eventual deal will, in fact, be. The word that the White House is willing to accept discretionary spending caps, clawing back unspent COVID dollars, and work requirements for some social safety net programs, if true, does seem to me to mean a deal will likely, in the end, get done. But there is a lot of wood to chop, as the great Rene Aninao likes to say. As for all that recession talk, estimates are still for a slightly up quarter in terms of real GDP growth for Q2, but with Q3 and Q4 being the likely entry period for GDP contraction. Chapter 11 bankruptcies were up +43% in Q1 versus Q1 of last year. Now, bankruptcies a year ago were down -32% from the year prior, so there was clearly a low base effect going on. But overall, I do believe we are seeing increasing problems surface in small businesses where access to funding is becoming an issue. With all the talk about the U.S. dollar year-to-date, I thought it worth pointing out that while the Euro is up a whopping +1.8% YTD to the dollar on the year, and the sterling pound is up +4% to the dollar, the U.S. dollar is actually up versus Chinese renminbi, Yen, South Korean Won, South African Rand, and Australian dollar. In other words, people have no idea what they are talking about. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Debt ceiling talk and other cool things today in the special Monday edition of DC Today … Today's Post - https://bahnsen.co/3o2Wdad Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3ptUr29 We are going to do something a little different today in the Dividend Cafe, or at least different from what I normally like to do. While “current conditions” are less interesting to me in the Dividend Cafe, various macro themes and long-term trends represent the focus of this weekly missive. That said, every now and then, the news cycle and state of affairs in financial markets warrant a little “refresher,” and that is what today’s Dividend Cafe will be. Come for the debt ceiling talk; stay for the first principles. Perk up your ears around election talk; tune in (or out) on recession chatter. We have all the things today – even the things I hate talking about most. It’s a “lay of the land” Dividend Cafe … Jump on in! Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3MjilGN The Ask David is so long below I will put most of the writing attention on that today (see below). Interest rates all dropping and fed rate expectations in the futures markets strike me as the major market story of the day (and week). And seeing bond yields collapse on the front end of the curve in perfect concert with the media wailing over imminent debt default is, well, a perfect encapsulation of everything. People are paying higher prices and accepting lower yields for something about to default, eh? Okay. Off we go … Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/44MFjx8 So the CPI today came in today at 4.9% year-over-year, the lowest we have seen now since April of 2021. 5% had been expected so it is another month of slightly lower than expected year-over-year movement. And yet … Shelter is showing an +8.1% year-over-year price inflation still now in April. Yep. +8.1%. So, at the 34% weighting you can surmise that 2.75% of the inflation is, well, poppycock. That puts the actual present CPI somewhere between 2% and 2.5% which last time I checked is the Fed’s target. Used car prices are down -6.6% on the year (deflation). Gas utilities are down -2.1%. Medical care was only up +0.4% on the year. Food and transportation, though, are still showing higher annualized price increases. It is interesting to hear people talk about a slowing job market as Job Openings (JOLTS) started the year at 11.2 million and are now at 9.6 million. I am not sure I have ever heard nearly 10 million unfilled job openings described as a “slowdown” before, but you do you boo. Now, the CEO of ZipRecruiter did come out and say, “demand for recruiting services is declining” – which may mean things are slowing down (and also may mean hiring is so easy right now less people feel the need to use recruiters, but I digress). I do think there is no question that companies are paring back new hires, but I also think some industries (see: tech) were way, way, way over-hired. Bottom line, I don’t see anything contradictory (or complicated, for that matter) about saying these two things at once – (1) The job market is good; (2) It may be headed towards “less good” than it has been. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/42ACgWM The total amount of commercial bank deposits that have left the banking system since the Fed began hiking rates is now just shy of $1.1 trillion. Money market mutual funds have taken in $751 billion. Of the total aggregate move higher in the S&P 500 so far this year, 93.5% of it has come from the 20 largest companies in the index, with 6.5% coming from the remaining 480 companies. This is not the stuff sustainable market moves are built on. CPI comes tomorrow along with more hand-wringing on the debt ceiling. Good times … Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3HL0cPd There are reports about the White House being open to a short-term debt ceiling increase, and I actually don’t doubt the White House would do that, or even that they may be willing to give up some energy permitting reform as a trade-off to getting that done. What I am skeptical about is whether or not the Republicans would agree to that (it is possible, but not assured) and then whether or not Democrats would agree to the energy side of that (I consider that improbable). We shall see. 43 Senate Republicans signed a letter over the weekend supporting the House measure for some spending restraints tied to a debt ceiling hike, so even apart from House blockage, if a clean hike is put forward, it faces a filibuster in the Senate. More and more Democrats are wanting some negotiations to take place. A lot of eyes are on what may or may not happen with FDIC coverage in light of the current regional bank saga: Congress sets the statutory limit on FDIC deposit coverage, not the executive branch and not the FDIC itself. The key word here is “statutory.” There is not a lot of Congressional momentum for broadly increasing FDIC limits, though there probably would be if some legislation came forward with nuances (i.e., company payroll accounts, etc.) The FDIC has the authority to name a bank a “systemic risk” and therefore ensure all of its deposits (as they recently did with Signature Bank and Silicon Valley Bank two months ago, but did not need to do with the First Republic since JP Morgan took over) “Big” banks already have systemic risk classifications (and received various increased regulations out of the Dodd-Frank legislation because of the SIFI classification). The aforementioned labeling of SVB and Signature as “systemic risks” happened ad hoc Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3VABmav I think this is a good week to do something many people will not be expecting. I don't do clickbait, and I loathe the sensationalism of most financial writers. But because most financial writers make their living writing about finances and I make my living managing real finances, I have never been captive to the sensational. I can just call balls and strikes, be my authentic self, and share a point of view that I believe is rooted in truth and cogent thought. I can be wrong, but I am not ever melodramatic. So when I say this week's Dividend Cafe may be unexpected, it is more about the sentiment and buzz in the air these days, not about me or any "shock and awe" I am going to deliver. And in fact, the surprise may take the opposite shape of what you expect. So jump on into the Dividend Cafe, and let's look at the shockingly unexpected news that, wait for it - the American economy has not been the dystopian nightmare many have assumed it to be. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3VGvMUb A huge theme right now in market punditry is that small caps are under-performing big caps, and that this speaks more to macroeconomic reality than the fact that big-cap companies have mostly hung in there. As the reasoning goes, small-cap companies are more dependent on banks and financing and credit conditions and so struggle more than large-cap names in periods of fed tightening or bank distress. Of course, the corollary to this is that small caps underperforming going into a recession has always led to small caps out-performing coming out of a recession, but all of this is much more useful in hindsight than foresight. But I would say that I think small caps lagging large caps in periods like this is less related to credit conditions and more related to economic growth. Small cap names in the public sector are more tethered to revenue growth than big cap names, as big cap names have far more control over margins than small cap names do. Revenue is the most tethered to economic growth, and small cap names are more tethered to revenue. If we could look at an index of non-public small businesses, I would imagine it would reflect far more reliance on credit conditions (and of course, the economic cycle), but alas, such an index of non-public small businesses does not exist. But within the universe of publicly traded small cap names, my operating thesis is that revenue growth follows economic growth and big-cap names have more levers at their disposal to squeeze earnings out of slowing revenues than small cap names do. I have no idea when the cycle bottoms and when it turns, but I do know small-cap’s valuation relative to big-cap is looking quite interesting right about now. Take it for what it is worth. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/42hbBOA So the Fed today raised rates a quarter point as expected, now to a range of 5%-5.25%. They indicated a “wait and see” approach about the next meeting though futures right now reflect a 91% implied probability that they are done raising rates. The language change of their statement implies that this is correct – this time, they are really done. TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3LLhr5A Regional banks were hammered today as clearly, the fear is contagious at this time, with some major regionals down -15%, -28%, and even others still down -9% to -12%. Short selling has picked up substantially in this space, so there is a need to watch it rationally and not technically. The basic criteria for them to look for are easy – high amounts of low-rate mortgages on the books, a big gap between mark-to-market values and posted values of the bank’s assets, and the existence of commercial real estate. The average 3-month CD rate of a bank with $10-50 billion in deposits has gone UP by 0.24% since Silicon Valley Bank failed. The average 3-month CD rate of a bank with over $250 billion in deposits has gone DOWN by 0.36%. This is basically the story of what has gone on – a 60 basis point competitive disadvantage for small banks versus big banks in less than two months. So that the Fed would be looking to hike rates in this environment is an act of sheer ignorance, and some may say malice. More on that tomorrow. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/419OGnL The big news of the week has been First Republic Bank’s fate, which at midnight last night was still up in the air. By 3:30 am ET, the situation was clarified in the newswires – First Republic was put into FDIC receivership, and the FDIC was concurrently entering a purchase and assumption agreement with JP Morgan. All 84 offices of First Republic Bank in all eight states they are present will open as branches of JP Morgan immediately. JP Morgan has assumed all deposits and essentially all assets. Banking customers retain FDIC protection, and JP Morgan backs uninsured deposit levels effective immediately. Customers do not need to do or change anything to have all this affected. This covers $229 billion in assets and $104 billion in deposits. JP Morgan and the FDIC have entered into a loss-share agreement on the residential and commercial loans of First Republic, and the FDIC estimates it will lose a total of $13 billion in all of this. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3ncX8V7 The subject of bank stability has really been a big conversation topic since the failure of Silicon Valley Bank and Signature Bank back in mid-March. People have wondered who was to blame, what went wrong, what could have been different, and what else is still going to happen that we may not know about. I have written in these pages already about Sunday afternoon dramas and the market instabilities that generally create such events. Notice how I worded that, for it was intentional. Sunday afternoon dramas do not create market instabilities; market instabilities create Sunday afternoon dramas. And as we navigate through a change in the present financial cycle, a little perspective is warranted on what has been driving financial cycles. In fact, if we do this well we may just understand not only how this fits into Sunday afternoon dramas and the broad reality of market disruption risk; we may also understand a lot more about the federal reserve, interest rates, and basic financial behavior. So let's jump into the Dividend Cafe ... Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3oR1amD Rally day and then some as earnings continue to outperform expectations. Add that to a weaker-than-expected economy (because everyone knows bad news is really good news in Fed-bizarro land), and voila – the Dow goes up over +500 points. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

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