The Dividend Cafe

Today's Post - https://bahnsen.co/3leNG2y This is Trevor Cummings, and I am sitting in for David Bahnsen to bring you DC Today. There is a common idiom in the English language, “Wait until the dust settles.” This adage encourages one to be patient until they have more clarity. Investors crave clarity, and when things become too foggy or dusty, investor anxieties skyrocket. These anxieties surface as market volatility, which you are currently enduring. At this stage, everyone is still sifting through the rubble of SVB to separate substance from hysteria. I want to encourage you to read David Bahnsen’s special Silicon Valley Bank Dividend Cafe, which was published Monday. Our intent here at The Bahnsen Group is to keep you informed and guide you through the dust. David will even be writing a Dividend Cafe piece on Friday dedicated to the plethora of questions we’ve received this week – you won’t want to miss that. With that said, let’s talk about what happened around the markets today… TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3Td4dAJ ASK DAVID “What do all these things happening with Silicon Valley Bank and the FDIC mean for small and regional banks? Are those banks going to have to pay even more in deposit rates to lure and retain banking customers?” ~ Dave That is certainly a concern, yes – that even with FDIC protection and solvency issues addressed, the smaller banks may be forced to really punish their own margins with punitive levels of interest paid on deposits. I personally believe the next few days are critical to getting a feel for what the aftermath will mean for regional and small banks. I expect there may be a better answer for “super regionals” and a worse answer for “community/small” banks, but both customer sentiment and policy ramifications are still in the TBD phase. Moody’s did put six good-sized regional banks on review for a credit rating downgrade, citing the level of uninsured deposits and mark-to-market losses in their asset portfolios. But at this time, there has been no need for these banks to sell hold-to-maturity assets. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Blogpost - https://bahnsen.co/3mQzT2N There is really only one story in financial markets right now, and that is the collapse of the Silicon Valley Bank and various ramifications from that. We sent a special Dividend Cafe on all of that and more this morning!!! If all you do is read one thing, read that. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Blogpost - https://bahnsen.co/3mK2RRS Today we are going to talk about something no one else seems to be talking about, and that may be one of the worst things imaginable for financial media ratings if it ever gets out. It is not controversial. It is, to me, somewhat obvious. But it is highly counter-cultural, and as I say, for many, it is highly problematic. Jump on into the Dividend Cafe! Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Blogpost - https://bahnsen.co/3YGi43n A big market sell-off again now means the market has gone up 1,000 points and down 1,000 points in the last nine days. And Happy Anniversary (14 years ago today) to the generational market bottom in 2009 out of the Great Financial Crisis! Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's post: https://bahnsen.co/3SXObdT Key Economic Points of the Day: ADP reported 242,000 private sector jobs created in February. The correlation between the ADP and BLS numbers each month has not been very tight for a while now. Job openings came in at 10.82 million for February, 300k higher than expected. It had been 11.2 million last month. The trade deficit came in at $68.3 billion in February, a little less than expected. Total trade was up +7.6% versus last January ($18.1bn), indicating ongoing improvement in supply chain conditions versus a year ago. ASK DAVID “I noticed Sen. Elizabeth Warren grilling Jerome Powell yesterday, and her main point (that the primary causes of inflation and the only tool the fed has to fight inflation are disconnected) sounded familiar. Would you have ever guessed that you would find common ground with a left-wing Senator from Massachusetts? She did have to get price gouging theory in there though …” ~ Jack B. I’ve said this countless times – that though the progressive’s motives are to pin the blame for inflation on “capitalist greed” (the most preposterous theory imaginable), the right’s agenda here will leave them regretting it when economic opponents are the ones making the case that, no, people having jobs is NOT inflationary. Inflation is a highly toxic issue politically, no doubt, and parties not in power will make hay of it when they can just out of political reality. But the need of the hour is economic growth, and for the right to join the fray in alleging that growth and jobs are inflationary is absurd. For Elizabeth Warren to be the one making the case that the Fed is about to do more harm than good is heartbreaking to this movement conservative. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3mrIiJz Key Economic Point of the Day: Futures market completely flip-flopped – went to a 70% chance of a half-point hike at the next meeting, with a 30% chance of a quarter-point hike (had been 30% and 70% just yesterday) ASK DAVID “What do your most recent observations in the city tell you about the state of the New York City office market?” ~ Anthony The fact of the matter is, anyone walking around the 40’s or 50’s (streets) on Tuesday through Thursday can tell offices are not merely 50% occupied in midtown – it is closer to 85% on those days. Where the vacancies lie are in bad and antiquated “old” products. The better quality class B and certainly class A office product is full 3-4 days a week, and tenants are renewing leases. A 10% vacancy rate that has gone to 20% inclusive of ALL NYC office products is really not that bad considering everything that has transpired. If you asked any office landlord 30 months ago if they would be content with the scenario they face now by February 2023, they would have killed for it. The leverage landlords are carrying is case by case, too, but if you all are asking whether or not foot traffic is back, New York City is utterly packed. There are moving parts, no doubt, and a new and class-A product is in the best position. But once again, the death of office, the death of going to work, and yes, the death of New York City, as painfully misdiagnosed. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

I have written about excessive indebtedness many times in these Dividend Cafe pages, including a piece nearly two years ago that I think has held up quite well. Lately I have written about Japanification, which is not quite the same topic (though there is certainly heavy overlap). I have long believed in treating the disease, not the symptoms, and I didn't even go to medical school (in fact, if I had, it seems these days I'd be less likely to believe that). That may be an overused cliche, but it has utility when it comes to how we think about our personal lives, our health, our finances, and so many other things. And when it comes to the issue of Japanification I think the overall subject will be served to look with more granularity at the nature of the excessive debt to which I refer. This is a seriously action-packed Dividend Cafe, and if you do not agree after reading it you are entitled to a full refund of your subscription price. Let's jump in to the Dividend Cafe ... Blog post here: https://bahnsen.co/3KMCDrK Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3ZCSvkX So the market followed its robust January returns with a -4% drop in the Dow for February and a -2.5% drop in the S&P 500, and the bond market dropped -2.7% on the month (though almost every index we track across stock and bond markets was still positive on the year through February, just much less so than previously). A few comments on today’s action here Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Blog post here: https://bahnsen.co/3KW53PY ASK DAVID “In your recent random walk in the Dividend Cafe you mentioned ‘full expensing of all capital expenditures’ as part of your prescription for avoiding Japanification. Will you please explain why this is necessary and what impact it will have?” ~ Luke L. I think one of the major tenets of Japanification is “low/slow/no growth,” and therefore, an obvious antidote (tautologically) is “growth.” I think the testimony of history is a clear and particularly recent experience that in a period of low capital expenditures, which are needed to improve productivity, which is needed to generate growth, removing disincentives to such productive investment is key. Forcing businesses to make large (and risky) investments NOW, but only to deduct that expense over time, is a disincentive. Immediate cash expensing incentivizes capex, which drives productivity, which drives growth. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

This is Trevor Cummings filling in for David Bahsen as he is traveling back to our New York office today. First and foremost, I want to encourage you to check out David’s Dividend Cafe published on Friday. David covered a myriad of topics in a potpourri fashion, and all of these tidbits are what bubble up from actual clients and readers’ questions. Having attended countless number of David’s speaking engagements, the concluding Q&A is always my favorite; the Dividend Cafe this week reminds me a lot of one of those Q&A sessions. Alright, without further ado, let’s jump right into what was happening in Markets today as we close out the month of February. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

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

Link to Dividend Cafe: https://bahnsen.co/3jErUVn I wrote last week about the multi-year (and indeed, multi-decade) beliefs we have about macroeconomic conditions. In a nutshell, I made the case that we face a form of “Japanification” where the diminishing return of fiscal and monetary efforts to goose our economy from the impact high debt has had on its growth leads to yet more debt and also less growth, all as part of a feedback loop. I wrote the week before about the uncertainty of what will happen in the economy this year and presented the most objective cases I could both for and against a 2023 recession. The market seems to be voting against a severe recession this year so far. This causes me to believe a recession is more likely. Many of the most famous “perma-bears” of our land have heavily leaned into the assurance of a severe recession. This causes me to believe one is less likely. (I really do crack myself up). A fair question out of the “longer-term” outlook we have (Japanification) and the “shorter-term” outlook we have (recession possibility without recession certainty) is why we see Dividend Growth as an extremely compelling solution in these scenarios. Dividend Growth Equity investing is “risk investing” (there is no maturity date where a par value is promised by the federal government). There are plenty of forms of risk investing, and I want to explain why I believe dividend growth is uniquely suited for these moments. So jump on into the Dividend Cafe … Links mentioned in this episode: [DividendCafe.com] https://bahnsen.co/3jErUVn TheBahnsenGroup.com

The DC Today - Thursday, Feb 9 - https://bahnsen.co/40IKvQA Ask Trevor “It doesn’t seem like stocks have a believable catalyst to go up from here, wouldn’t it be wise to sell stocks and buy a short term treasury for the guaranteed interest?” I can sympathize with the premise here – if earnings face some headwinds, and rising rates compress multiples, you want to know what drives stock prices higher from here. The real answer is I don’t know and this is the right answer because it is unknowable. Now, we could craft a reasonable narrative of what could happen, and how things might play out, but we’d never speculate on a hypothesis like this. For me, I like to approach portfolio construction by categorizing each dollar into one of two categories – money earmarked to be spent in the near future and money set aside to grow over the long run. With this framing in mind, a conversation about swapping stocks for treasuries is an apples-and-oranges discussion. Stocks will irritate you in the short run, and yet history has shown a reward for the patient long-term investor, we call this a risk premium. Portfolio design made simple is all about matching the appropriate investment based on a well-defined time horizon. If you ever find yourself trying to invest long-term monies in short-term solutions or vice versa, you are participating in some version of market timing. Based on my own experience, I know I can’t time the markets in a consistent or profitable manner. I also know I have never really met anyone who can. So, if it walks like market timing, talks like market timing, it’s probably market timing, and you can’t count me out. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Good afternoon, Brian Szytel here with you today on this down day in markets following yesterday’s unconvincing (to me, at least) Fed-led rally. Today there is more chatter from several other Fed Presidents I’ll discuss, along with some comments on inflation, recession indications, and some takeaway comments from last night’s State of the Union address. Plenty to go through, including my Super Bowl prediction at the end, so I’ll let you hop into the podcast link below from here and reach out with any questions, as always. US futures opened last night down slightly, losing a little ground through the night, pointing to a down 100-point open at home, while Europe, in contrast, continued to hold gains. Markets opened in the red by about 110 points but were back toward fair value within the first hour of the morning session. Dow: -207 points (-.61%) S&P: -1.11% Nasdaq: -1.68% 10-Year Treasury Yield: 3.63%%, down 4.7 basis points on the day. The 2/10 yield curve is inverted by over 80 bps. The 3mo/10YR curve is inverted by 108 bps. Top-performing sector: Real Estate was the best-performing sector today at -.29%, although all sectors were in the red. Bottom-performing sector: Communication Services are down -4.13%, largely due to Google being down over 7% on the day. WTI Crude Oil: $78.41/barrel, up +1.63% Links mentioned in this episode: [TheDCToday.com] https://bahnsen.co/3xdfw1m DividendCafe.com TheBahnsenGroup.com

Lots of chatter from Fed Governors these days with Kashkari saying we need higher rates for longer, Bostic in Atlanta saying January’s jobs report speaks to another rate hike (which was already priced in), but now today Jerome Powell basically reaffirming his message of last week, which is one of an imminent pause. Right now, we see a 91% chance of a quarter-point hike at the next meeting and a 70% chance of one more quarter-point hike after that. Dow: +266 points (+0.78%) S&P: +1.29% Nasdaq: +1.90% 10-Year Treasury Yield: 3.68% (+5 basis points) Top-performing sector: Energy (+3.08%) Bottom-performing sector: Consumer Staples (-0.36%) WTI Crude Oil: $77.37/barrel (+4.40%) Key Economic Points of the Day: Bond yields have jumped 37 basis points since the 1st of the month on the short end of the curve The trade deficit came in at $67.4 billion for December, a tad less than expected. Exports were up +7.6% last year (energy had to help) and imports were up +2% on the year. Those divergent rates led to a decline in the trade deficit, but unfortunately, a decline of -2.5% in total trade for Q4 and -1.1% for Q3 brought total trade for 2022 down to just +4.4% versus a year ago. Links mentioned in this episode: [TheDCToday.com] https://bahnsen.co/3DPsyG2 DividendCafe.com TheBahnsenGroup.com

Futures opened last night down -80 points and stayed down near -100 points into the evening. This morning futures pointed to a down -200 point open pre-market. The market opened down -150 points, worsened a bit, and then steadily improved throughout the day. The Dow closed down -36 points (-0.11%) with the S&P 500 down -0.61% and the Nasdaq down -1%. We are exactly halfway through earnings season (that number will explode higher this week) and revenue growth appears to be tracking towards +4.6% year-over-year (a tad better than expected) with earnings decline tracking towards -2.7% year-over-year (a bit worse than expected). Full-year earnings now sit at $224 expected, a +2.2% increase over the $219 of last year. Profit margins declining from 17.7% at their peak early last year to 16.2% is the big reason for the delta between revenues and earnings. Expect all this to update a lot in the next two quarters. A clear by-product of the weakening dollar: Companies with high foreign sales are outperforming companies with low foreign sales. It would sure seem one of the biggest stories of January was narrowing credit spreads (note here the spread compression in Investment Grade corporate bonds over the last three months). This has facilitated one of the biggest bond market rallies I have ever seen. The ten-year bond yield closed today at 3.65%, up 12 basis points today Top-performing sector for the day: Utilities (+0.87%) Bottom-performing sector for the day: Communication Services (-1.31%) Nigeria presently ranks as the #1 nation in the world for use of cryptocurrency. Thailand and Turkey round out the top two. These three countries are known for the heavy presence of a criminal underground which may possibly (just maybe, possibly) explain some of this. Links mentioned in this episode: [TheDCToday.com] (https://bahnsen.co/3DKsV4G) DividendCafe.com TheBahnsenGroup.com

I have a view of where the United States is in its economic cycle that I have had for quite some time, and that has substantially informed many of the macro assumptions I bring to portfolio management. I have shared this overarching worldview many times over the years in Dividend Cafe and elsewhere, and I am constantly refining it, analyzing it, and even challenging it. It has the word “deflation” in it, though I really believe the term “Japanification” is a better encapsulation of my perspective. “Deflation” is often associated with “depression” and no one in their right mind believes we are in another “great depression.” And of course, the boom of inflation that we saw in 2021 and 2022 did not create a lot of discussion about the threat of deflation (like worrying about freezing to death in a heat wave). But temperatures do get very cold in the same places that they get very hot (I just made up that analogy right there). And as I have written before, there was nothing in the 2021-22 inflation that remotely contradicted my macroeconomic thesis. So what I want to do today is re-hash the greater macroeconomic view that I believe properly frames our perspective at The Bahnsen Group. Some history is needed, some updated data, and some general understanding of what is making this road to Japanification tick. I promise it won’t be boring. Okay, I don’t promise it won’t be boring if you are still reading desperate to get to some juicy tabloid gossip. But if you are still reading because you need a little more E-conomic talk and a little less E! Channel in your life, then you have come to the right place. Let’s jump in to the Dividend Cafe … Links mentioned in this episode: TheDCToday.com [DividendCafe.com] https://bahnsen.co/3JBih4f TheBahnsenGroup.com

ASK DAVID “Could you give us some tips on what we can do to fight ESG?” ~ Mark S. It is the subject of much obsession at places like National Review’s Capital Matters, and I am engaged in many efforts to fight for the interests of shareholders when it comes to the activity of corporate managers taking their P’s and Q’s from the radical and incoherent agenda of various fads and virtue-signaling alphabet soup movements. I have primarily noted that ESG has really been more of a marketing tactic for Wall Street to raise money at higher fees than anything else. But there is no question that there are many other consequences and intentions behind the movement, and that the movement’s lack of clarity and specificity as to what “environmental, social, and governance” principles they advocate has rendered it a moving target. I commend Aswath Damodaran of NYU for his frequent wisdom on the issue, and I will soon be posting more about general shareholder activism and rights and what TBG is doing in this regard. Links mentioned in this episode: [TheDCToday.com] (https://bahnsen.co/3JyLk8w) DividendCafe.com TheBahnsenGroup.com

ASK DAVID “When you talk about a stock on television, but then later end up selling as your viewpoint changes, do you publish or broadcast your new view somewhere?” ~ Tom As for the more practical aspect of your question, no, we really couldn’t possibly be responsible for “running a portfolio on TV” if you know what I mean. Updating what we have added and subtracted and bought and sold and when and why would require a really different forum to take on that responsibility. We are never making Buy or Sell recommendations on TV, but rather just speaking at a point in time as to what we are doing and why. People use that information in a number of different ways, but I would never recommend one use it as a holistic portfolio strategy (partially for the very reasons you cite). Our clients, obviously, see the whole enchilada week by week etc. (our WPHR is sent to clients every Wednesday, and yes, regulatory requirements render that a client-only communique). I hope this helps. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

ASK DAVID “Would you mind giving me your Cribb note version of your expectations on the USD’s devaluation now that Saudi Arabia (and probably others) are willing to trade oil for other currencies than the US dollar? If you expect a significant currency related (not just inflation related) devaluation, do you have an idea of how we can offset that?” ~ D.M. The main thing to say is that: Saudi has not yet done it, it will take a while to happen, it may happen at very small levels, and we do not expect a significant devaluation from this alone. We do believe it is a shot across the bow geopolitically, but not in fundamental forex (yet). The major thing for investors to understand is not that the collapse of the dollar is imminent (I wish I had one dollar for every time someone has suggested that or fretted over it in front of me over the last 25 years, for I would surely have a great deal of very spendable and exchangeable and useable dollars). Rather, it is that China is desperately seeking international legitimacy for their Yuan. The rest of this subject is mostly noise. Links mentioned in this episode: [TheDCToday.com] https://bahnsen.co/3JMMeP1 DividendCafe.com TheBahnsenGroup.com

Futures opened last night down -50 and were down -85 into the evening. This morning markets pointed to a down -265 open pre-market. Futures would improve in the next three hours before the opening. The market opened down just -80 points and then went positive before then steadily declining throughout the day. The Dow closed down -261 points (0.77%), with the S&P 500 down -1.30% and the Nasdaq down -1.96%. January looks to be the greatest month for bond market auctions in history, with every single auction printing below-market yields. More demand than supply across the yield curve; each auction of new treasury debt means one thing – these buyers don’t believe these yields will last. Only 29% of companies have reported Q4 results so far, so it is really too early, still, but thus far, we are tracking for year-over-year revenue growth of +4.2% and year-over-year earnings contraction of -2.9%. Full-year earnings estimates started the year at $225 on the S&P 500 and are now sitting at $220. The ten-year bond yield closed today at 3.54%, up two basis points on the day. Top-performing sector for the day: Consumer Staples (+0.07%) Bottom-performing sector for the day: Energy (-2.29%) Earnings in energy currently make up over 12% of the S&P’s earnings, but Energy is currently only 5% of the S&P 500 by weighting. That 7% differential between earnings contribution and weighting is the highest it has ever been. Links mentioned in this episode: [TheDCToday.com] https://bahnsen.co/3JqiqaH DividendCafe.com TheBahnsenGroup.com

The month of January has launched 2023 in a very different direction than 2022 thus far. I do not mean because markets are up thus far whereas they were down in 2022 (though technically both of those things are true). But beyond the mere directional change in markets (which could reverse at the drop of a hat), the themes and factors influencing markets – in other words, the stuff that matters – has changed. Moving way down the totem pole has been what the Fed is doing or is expected to do, and moving way up in priority (to the very top) is what will happen in the economy as a result of what the Fed has already done. I am going to elaborate on what that means in today’s Dividend Cafe, and more importantly, make the case for and against a 2023 recession. And I hope that after reading my case you will decide I have made the perfect call … Let’s jump in to the Dividend Cafe. Links mentioned in this episode: TheDCToday.com [DividendCafe.com] https://bahnsen.co/3WIokXu TheBahnsenGroup.com

Dow: +204.45 (+0.61%) S&P: +1.10% Nasdaq: +1.76% 10-Year Treasury Yield: 3.497% (+3 basis points) Top-performing sector: Energy (+3.32%) Bottom-performing sector: Consumer Staples (-0.28%) WTI Crude Oil: $81.04/barrel (+0.89%) Key Economic Point of the Day: Weekly jobless claims again reflected the strength of the labor markets with initial claims coming in at 186,000 versus a median forecast of 205,000 A reminder, all of this coming on the heels of daily reports of layoffs from some of the top employers in the country The 2022 4th quarter GDP number came in at 2.9%, slightly above the median forecast of 2.8%, and buoyed by continued solid consumer spending Durable goods orders came in at 5.6% compared to a 2.4% forecast, but a quick look behind the curtain shows that much of this was lifted by a 116% spike in aircraft orders ex-transportation new orders actually declined U.S. new home sales edged out the forecasted number, reporting 616,000 on a median forecast of 615,000, and marking a three-month trend of rising new home sales Note, the year-over-year figure here is still down nearly 27%, completely driven by higher borrowing. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Dow: +10 points (+0.03%) S&P: -0.02% Nasdaq: -0.18% 10-Year Treasury Yield: 3.45% (-1.8 basis points) Top-performing sector: Financials (+0.74%) Bottom-performing sector: Utilities (-1.36%) WTI Crude Oil: $80.49/barrel (+0.45%) ASK DAVID “This statement in Brian’s response to yesterday’s question caught my eye: “…because inflation is ultimately driven by demand.” I find this interesting because I believe I have heard you say, quite emphatically, that inflation is first and foremost a supply side phenomenon. So is this simply a theoretical disagreement among peers or am I misinterpreting something? ” ~ Mike Inflation, by definition, is one or the other or both. “Too much money chasing too few goods (or services)” – it is an algebraic expression that can have one or both inputs contributing (MV=PT) I believe this recent moment’s inflation (2021-22) was clearly supply-side-driven. The context of Brian’s full paragraph with that one line in it makes clear his view’s alignment with mine. Links mentioned in this episode: [TheDCToday.com] https://bahnsen.co/3Haj3Cb DividendCafe.com TheBahnsenGroup.com

Futures opened last night about even give or take 20 points, and stayed that way until early morning when we began moving lower and then notably so pointing to a down -150 point open. We opened down about -170 points but were down north of -250 after the first 20 minutes of trading. Around 1145 EST we had slightly better than expected PMI data released and fully recovered the morning losses trading sideways with a small upwards bias the remainder of the trading day. We closed positive on the Dow but slightly negative on both the SP500 and Nasdaq. Dow: +104.41 (+.31%) S&P: -.07% Nasdaq: -.27% 10-Year Treasury Yield: 3.46%, down -5.6bps on the day Top-performing sector: Industrials up +.65% Bottom-performing sector: Communication Services -.69% WTI Crude Oil: $80.16/barrel, down -1.79% Key Economic Point of the Day: A flash read today on US Composite PMI data showed a slight improvement over December, although still handily in contraction territory and the slowest since last October at 46.6 from 45 the month prior. Manufacturing PMI was little changed at 46.8 up from 46.2 with Services PMI at 46.6 from 44.7. Could the data in the chart below pick back up above 50 into positive territory before we end up registering an official recession this year, of course, but that economic margin is about as thin as it gets right now. For what its worth, this PMI data point is what led to markets recovering after the mornings initial sell off and was a ‘less bad’ read following December – not so bad that we fear recession is immanent, but cool enough to back the ‘Fed will pause soon’ narrative. Interestingly enough, the flash PMI read today from the Eurozone actually showed it barely bump back into expansion territory from 49.3 last month to 50.2, although not sure I would call that robust. Links mentioned in this episode: [TheDCToday.com] https://bahnsen.co/3RbWe5R DividendCafe.com TheBahnsenGroup.com

Futures opened last night pretty close to flat (down -20 points) and stayed right there into the evening. This morning futures pointed to a dead flat open pre-market when I first woke up. The market opened flat but moved up from there and stayed up with a few zigs and zags along the way (see chart below) The Dow closed up +254 points (+0.76%), with the S&P 500 up +1.19% and the Nasdaq up +2% The worst performers of 2022 are so far the best performers into 2023, partially as tax loss selling leads to re-buying post-wash sale rules. The “dividend payers” outperformed the “non-payers” in the S&P 500 by 23% last year. Dividends paid in the S&P 500 last year were $563 billion, the highest amount in history. Dividends were 26% of the return of the market in the 2010s and the 1990s but 100% of the return in the 2000s (when the market had a negative price return). Prior to that, dividends had averaged between 40% and 70% of the market return every decade for fifty years. The current dividend payout ratio of the S&P 500 is 33%; it has averaged 48% for nearly a hundred years but has not gotten back to that average since the financial crisis. Selectivity is crucial. The ten-year bond yield closed today at 3.52%, up 3.7 basis points on the day. Top-performing sector for the day: Technology (+2.28%) Bottom-performing sector for the day: Energy (-0.20%) TIP spreads show implied inflation for ten years at 2.1% now, down from over 3% less than a year ago. Shorter term inflation expectations (5-year) evidenced in the TIPS market (treasury inflation-protected securities) has gone from 3.6% at the high to 2.1% now. Whether 10-year or 5-year, the bond market has seen a collapse in inflation expectations in recent months. Links mentioned in this episode: [TheDCToday.com] https://bahnsen.co/3QZ6Y7w DividendCafe.com TheBahnsenGroup.com

FOR ACCESS to CHARTs described in this episode, click here - https://bahnsen.co/3DnVULR I wrote a piece for the Dividend Cafe in May last year about the subject of housing and having re-read it this morning, I wouldn’t change a word. But those more evergreen principles don’t take away the appetite many have for the current state of affairs. Economic conversation right now largely centers around recession questions, and discussions about financial markets are understandably focused on the stock market. Yet right in the Venn diagram of both the economy and the market is the state of housing, and almost every person I know lives somewhere. So this topic is perhaps more relevant in a practical sense than many of the others that garner our attention. I sometimes avoid this topic because that relevance is so misunderstood and misapplied (i.e. “if I could just know what would happen to house prices in the next few months, I would know if I should buy or rent” – or worse – “if I just knew what would happen to house prices in the next few months I could resume my foolproof home-flipping plans”). But as you shall see in today’s Dividend Cafe, our interest in the topic of housing is for a different application altogether. Let’s jump into housing yet again, in the Dividend Cafe … Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

I, Trevor Cummings, am honored to be filling in for David Bahnsen today. I hope you will join me for the video and/or podcast, as I provide you with the daily happenings around markets. Please don’t miss out on the “Ask David” section below, as we’ve fielded this same or similar question quite a few times recently. Without further ado, off we go… Dow: -252.26(-0.76%) S&P: -0.76% Nasdaq: -0.96% 10-Year Treasury Yield: 3.395% (+2 basis points) Top-performing sector: Energy (+1.11%) Bottom-performing sector: Industrials (-2.08%) WTI Crude Oil: $80.47/barrel (+1.25%) Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Dow: -614 points (-1.81%) S&P: -1.56% Nasdaq: -1.24% 10-Year Treasury Yield: 3.37% (-16 basis points) Top-performing sector: Communication Services (-0.93%) Bottom-performing sector: Consumer Staples (-2.65%) WTI Crude Oil: $79.25/barrel (-1.16%) Key Economic Points of the Day: The Producer Price Index (PPI) saw outright (and rather significant) DEFLATION in December, with prices dropping on the month -0.5%, well more than the -0.1% expected. November’s number was adjusted downwards by -0.2% as well. The 7.4% year-over-year number came down to 6.2%. The CORE number is down to 5.5%. Wholesale gas prices dropping -13.4% helped the cause, as did the food index’s -1.2% decline. Energy/gas prices have helped downward pressure in recent months, and that could/likely will reverse in months ahead even as other inflationary data see more downward pressure. I expect the core vs. headline reads to potentially diverge significantly in the months ahead. Industrial Production fell -0.7% in December and was actually down -1% when you factor in downward revisions from past months. Manufacturing led the way down. This was the largest monthly decline in more than a year. On an annualized basis, Industrial Production is down -5.2% in the last three months. Microsoft joined the fray of huge tech companies performing massive layoffs as they announced plans to lay off 10,000 employees (5% of their workforce) Retail sales fell -1.1% in December, mostly in line with the level of disinflation of gasoline prices we saw last month. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Futures opened last night pretty flat (down a pinch) and dropped to down -50 points or into the evening as the Cowboys were having their way with Tom Brady. This morning futures pointed to a down -50 point open pre-market and that went a bit lower after results from Goldman Sachs. The market opened down close to -200 points and fell further in the next two hours before leveling around that low throughout the day. The reason for the Dow’s much worse result than the other two is that really the Dow’s drop was led by just two financial names. The Dow closed down -392 points (-1.14%), with the S&P down -0.20% and the Nasdaq +0.14%. The year is off to an interesting start – with just nine days of trading behind us (due to two Monday holidays so far), a lot of “shinies” are up on the year, and yet market breadth has been very strong with the highest percentage of stocks in a 10-day advance since 2020. As good as some of the shinies have done, the equal-weight (average stock) is still doing better than the index itself (cap-weight). The ten-year bond yield closed today at 3.55%, up four basis points on the day A pivotally important fact – yes, bond yields are all down, BUT they are down proportionately (essentially, the 2-year has dropped 30bps AND the 10-year and has dropped 30bps, meaning the yield curve inversion has NOT improved) Top-performing sector for the day: Technology (+0.44%) Bottom-performing sector for the day: Materials (-1.07%) I want to make sure I consistently reiterate my theme with data around the history of growth-value rotations (primarily, that they are secular decade-type rotations, not quarterly or annual ones) Links mentioned in this episode: [TheDCToday.com]https://bahnsen.co/3IUuwbA DividendCafe.com TheBahnsenGroup.com

Last weekend I watched a new documentary series on Netflix called Madoff: The Monster of Wall Street. Some of you know I am a bit of a geek for all things Wall Street history, and I seriously doubt you would believe me if you knew how many documentaries, fictionalized movies and TV shows, not to mention real books, I have taken in over the years covering various elements of Wall Street history. Many of them have a protagonist (at least from my perspective), and many cover the escapades of either the evil or the incompetent. This latest Madoff series manages to do both – cover the evil and the incompetent. But the entire Bernie Madoff saga also reinforces one of the most important and actionable realities of investing, universally applicable and relevant to all. And it really has very little to do with the red flags to avoid when it comes to international Ponzi schemes. Don’t get me wrong – I remain earnestly opposed to Ponzi schemes. =) But there is another lesson in the Madoff saga that transcends even that, and it applies to the core of human nature. And that is the subject of today’s Dividend Cafe … Links mentioned in this episode: [Episode Blog Post] (https://bahnsen.co/3QCrOcE) TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Dow: +269 points (+0.81%) S&P: +1.28% Nasdaq: +1.76% 10-Year Treasury Yield: 3.54% (-7.6 basis points) Top-performing sector: Real Estate (+3.60%) Bottom-performing sector: Consumer Staples (+0.06%) WTI Crude Oil: $77.71/barrel (+3.45%) ASK DAVID “The US government has stated that it will purchase crude oil to replenish the strategic reserve once the price hits $70. In effect, this seems to indicate that the government will purchase millions of barrels at $70. Does this function as a price floor? And, if so, what impact does a government-created price floor have on markets?” ~ Keith So just by way of clarification, they have indicated they want that to be the rough price level at which they will transact, but their rough and very ambiguous guidance on the subject would indicate the intent of more a floor than a ceiling and yet, if the price does not go (or stay) there, it may not be a price at which much transacts. The government cannot make the market cooperate. But to the extent the market expects that level to be a rough “floor,” I suppose one could assume in their economic calculation that some of the left tail risks of various price collapses are less likely. The problem is that they can change their mind, and any number of events could happen (upside or downside) that alter the economics here. What market actors ultimately know is that there is a forced buyer in the marketplace, and supply calculations, profit expectations, and a number of numerical considerations around production can be performed with that intervening fact lingering. It does suggest a certain backstop in matters which provide a bit of an asymmetrical risk/reward (in the producers’ favor). Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Dow: +269 points (+0.81%) S&P: +1.28% Nasdaq: +1.76% 10-Year Treasury Yield: 3.54% (-7.6 basis points) Top-performing sector: Real Estate (+3.60%) Bottom-performing sector: Consumer Staples (+0.06%) WTI Crude Oil: $77.71/barrel (+3.45%) ASK DAVID “The US government has stated that it will purchase crude oil to replenish the strategic reserve once the price hits $70. In effect, this seems to indicate that the government will purchase millions of barrels at $70. Does this function as a price floor? And, if so, what impact does a government-created price floor have on markets?” ~ Keith So just by way of clarification, they have indicated they want that to be the rough price level at which they will transact, but their rough and very ambiguous guidance on the subject would indicate the intent of more a floor than a ceiling and yet, if the price does not go (or stay) there, it may not be a price at which much transacts. The government cannot make the market cooperate. But to the extent the market expects that level to be a rough “floor,” I suppose one could assume in their economic calculation that some of the left tail risks of various price collapses are less likely. The problem is that they can change their mind, and any number of events could happen (upside or downside) that alter the economics here. What market actors ultimately know is that there is a forced buyer in the marketplace, and supply calculations, profit expectations, and a number of numerical considerations around production can be performed with that intervening fact lingering. It does suggest a certain backstop in matters which provide a bit of an asymmetrical risk/reward (in the producers’ favor). Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

A little early morning volatility but then a small rally on the day in markets. Read below, listen, watch – the choice is yours! MARKET ACTION Dow: +186 points (+0.56%) S&P: 0.70% Nasdaq: 1.01% 10-Year Treasury Yield: 3.62% (+10 basis points) Top-performing sector: Communication Svcs (+1.29%) and Consumer Discretionary (+1.26%) Bottom-performing sector: Consumer Staples (-0.16%) WTI Crude Oil: $74.66/barrel (flat) Key Economic Points of the Day: Used Car Prices dropped -15% year-over-year in 2022 (from where they ended 2021), the largest single-year drop on record. This came, of course, off of large increases in 2021. The Fannie Mae Home Purchase Sentiment Index was up in December versus November but basically right at the all-time low set in October. 21% of people surveyed said they believed it to be a good time to buy. The NFIB Small Business Optimism Index dropped to 89.8 from 91.9 in December, the lowest since June of last year. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Futures opened last night up +40 points and were up over +80 points by bedtime. This morning futures pointed to a +100-point open pre-market. The market opened up +150 points and got up over +300 points before falling just over -100 points. A 450-point delta between the high and low levels today … The Dow closed down -113 points (-0.34%) with the S&P 500 down -0.08%, and the Nasdaq up +0.63% as Tesla and the chip sector rallied substantially. The massive rally Friday saw 7-to-1 advancers to decliners, fairly solid breadth. The top 20% of companies paying out cash dividends as their primary cash outlet were down -2.7% last year compared to the top 20% of companies doing the highest stock buybacks (which were down -13.3%). This is comparing apples-to-apples – top performers compared to top performers by their primary cash outlet vehicle. The ten-year bond yield closed today at 3.53%, down 4 basis points on the day. Top-performing sector for the day: Technology (+1.09%) Bottom-performing sector for the day: Health Care (-1.66%) Revenue growth is expected this year in each sector of the S&P besides Utilities and Materials (and a very slight top-line revenue decline is expected in Technology). The more significant factor will be margins and where overall profit levels come in, though if earnings are revised downwards as time goes on, I suspect it will have more to do with lesser-than-expected revenues than it will have lesser-than-expected margins. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Dividend Cafe Link - https://bahnsen.co/3Z98Le5 I’ve lost count of how many years now we’ve done this, but it is a lot, and it is one of my favorite projects every year. I thoroughly enjoy the research that goes into it, the writing that creates it, and the accountability that comes out of it. I will refrain from the temptation to start waxing and waning now and just say that I hope you find this year’s Year Behind, Year Ahead white paper profitable. It’s going to be a wild year. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

A solid day for the energy sector and some key blue chip companies but downside across most market sectors. Dow: -340 points (-1.02%) S&P: -1.16% Nasdaq: -1.47% 10-Year Treasury Yield: 3.72% (+1 basis point) Top-performing sector: Energy (+1.99%) Bottom-performing sector: Real Estate (-2.89%) WTI Crude Oil: $73.80/barrel (+1.32%) Key Economic Point of the Day: The ADP jobs number for the private sector came in at 235k for December, well above the 150k projected. Naturally, futures went down on the news. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

The new wing of the TBG offices in Newport is now open. We are excited for you to come see it. I believe it is now 28 out of our 50 people that are based in Newport, soon to be 30 out of 52 (we are hiring two new Tax Services people this month). The new space gives us extra space we needed for our Solutions Department from last year’s growth, more space for additional future growth, new offices for key partner-advisors, additional space for our growing Tax Services Department, and additional client conference room meeting space. Come visit any time! Today’s market action was up and down but mostly up … Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

I began writing this from Dallas, Texas this morning, where yesterday USC suffered a heartbreaking loss in what was one of the most exciting Cotton Bowl games ever. I am back in Newport now, where tomorrow morning we reveal the new large office expansion to our team (same floor, same building). It has been a labor of love, I assure you. We have added new advisor offices (we have a new advisor starting in Newport Beach and another new one starting in Nashville next week), but mostly the Newport expansion houses new members of our Tax Department, Planning Department, Research, and Trading. It is really beautiful space. Today’s DC Today is the normal Monday format of DC Today and, obviously, the kick-off to 2023! There is a 27-page white paper coming Friday in the Dividend Cafe providing the most comprehensive recap of 2022 and forecasts for 2023 we think you will find anywhere. I hope you find it to be a labor of love, too. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

https://bahnsen.co/3uYu6c0 Virtually everything going on in markets right now (or so it would seem) has to do with what central banks are doing (or are projected to do). It certainly is not true in reality – the things happening today that will ultimately determine investment outcomes in years to come will have far less to do with the cost of capital and far more to do with human action – but in the day-to-day volatility of market price levels, I have no choice but to pretend. Well, “pretend” is not actually the right word – it is more an acknowledgment that the world we are living in gives a lot – and I mean a lot – of attention to the Fed in one’s outlook on financial asset pricing and economic health. The current obsession with the Fed (as in the immediate 2022 and soon-to-be 2023 period) revolves around inflation. We have had a cult-like obsession with the Fed for over 25 years, so it is not inflation that created the Fed’s place in our hearts and our wallets. But right now, inflation is the cause du jour – the rationalization for 24/7 coverage of the Fed, and certainly the Fed’s stated rationale of heavy activity in financial markets. Much of this is with good reason. Much of it is so misguided that I don’t really believe I am hearing what I hear some days from people I know [used to?] know better. But all the talk about the Fed right now is tied up with all the talk about inflation, and therefore a re-visit on the inflation subject is in order. Jump on into the Dividend Cafe, and may our investigation of the state of the nation when it comes to inflation bring some revelation about the Fed’s imagination in matters of monetary administration as we pursue our goal of wealth creation. Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com