Today's Post - https://bahnsen.co/4bhe01g The Fed today did as expected, which was nothing, leaving rates in tact for what has now become a six-month pause. Chairman Powell reiterated the unlikelihood of a rate cut in March (more on that in a moment). Markets sold off with the Nasdaq especially getting pummeled (but it was already down over -1% on the day before the announcement. BUT, bond yields COLLAPSED, with yields dropping significantly making it a rare day (in the last year or so) where bonds rallied huge and stocks sold off quite a bit. The Fed futures moved down to 35% for a rate cut in March but I have to say that is shocking. I would have thought they would go to 0% (okay, more like 10%) with the Fed Chair kind of saying they are not cutting yet. My best guess is enough actors in the market just believe the inflation data will come in so improved and economic data will come in so questionable between now and March 20 that the Fed will change their minds. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3HB81Xw A pretty boring day in markets with the Dow up and Nasdaq down. A lot of eyes are on what is coming next in the Middle East after the horrific murder of American lives over the weekend. Oil prices so far are not responding with any panic. Microsoft and Google each release results after hours today. They are big companies, you may have heard. Earnings growth of +4.9% (year-over-year) is expected this earnings season from an expectation of +2.7% y/y revenue growth. We are barely at 25% of companies having reported so far so we will do a better assessment of how this is tracking after each of the next two weeks. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/48OKdeA Ask David “What is the best argument for why the distributed independent decisions of individuals, families, and businesses create more beneficial outcomes for most people than the top-down, centralized decisions of government, especially the federal government?” ~ David K. My argument is one of incentives and one of knowledge. These are two different arguments, even if they do overlap at points. Fundamentally, I believe better outcomes take place when the decision-makers reap benefits from their decisions and when decision-makers feel pain from bad decisions. I do not believe “disinterested third parties” (Thomas Sowell’s term) have the incentives to allocate and adjudicate risk and reward the way those with “skin in the game” do. But beyond the classical incentive argument, I am very much a believer in what Friedrich Hayek referred to as the “knowledge problem.” Knowledge is widely dispersed throughout a society and no central entity possesses the knowledge needed to properly steward the affairs of a diverse economy. I read the masterful essay, The Use of Knowledge in Society, by Friedrich Hayek while in high school. It was the beginning of a lifetime journey for me through Hayekian thought, particularly around Hayek’s thesis of the “fatal conceit” of central planners. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3OkKhL0 I did something fun today …  I just picked random topics from various things on my mind, in my daily reading, or across my research feed – sort of stream of consciousness – and wrote about them.  Therefore, I suspect there will be a little something for everyone today.  Hopefully, each portion is “bite-sized” enough to make it all succinct and readable, and I certainly appreciate any feedback you have to offer.  In fact, I am considering something like this in the daily DC Today (where I would write my own piece every day on whatever topic I am so inspired by that day, and let Brian run with the daily data recap).  It's all a work in progress and your comments are welcome. And in the meantime, let's jump into the Dividend Cafe - bite-sized variety and all ... Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/48LulK1 An overall positive trading day without a lot of volatility behind what was a pretty decent batch of economic data. The Dow was up well over 200 points, and the S&P 500 notched a sixth day of gains. We had the first read on Q4 GDP come in significantly higher than expected at 3.3%, with the consumer powering almost two percent of it. Both durable goods orders and jobless claims came in just enough below expectations that bonds also rallied, with the 10 YR down six basis points. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/48MsRiD We experienced positive market sentiment throughout the morning until approximately 10:30 AM, driven by better-than-expected PMI data in both services and manufacturing. It’s noteworthy that typically, indications of economic expansion don’t lead to a decline in stocks. However, despite four days of gains on the Dow, the news of improving economic data led to a loss of some early morning momentum. This occurred on a day of relatively uneventful trading as interest rates edged slightly higher. One key metric closely monitored by the Federal Reserve, The Taylor Rule, suggests that the Fed Funds Rate should currently be approximately 1% lower at 4.5%. Looking ahead, futures indicate a balanced probability for a rate cut in March. However, there is a significant amount of economic data expected between now and then that could influence this outlook. As previously mentioned, it wouldn’t be surprising if there were more discussions in March about the conclusion of Quantitative Tightening (QT), potentially easing financial conditions and essentially resembling a rate cut. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/47R5iUm A short and sweet market recap today as earnings season launches further. Small cap seems to have bounced well since its rough patch to start the year. Bitcoin has dropped -20% since its peak in the midst of ETF approval. I was on set at Fox this morning with the chair of the House Ways and Means Committee, Jason Smith. The 40-3 vote on this tax bill was shocking to me, and it sure seems to foreshadow a comeback of some of the most stimulative parts of the Trump tax bill that previously went away. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/42bAxYY Earnings seasons gets a lot more intense this week (and next). All the info around the horn on the normal categories is here in today’s DC Today. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3O8BRpX I love these “question and answer” editions of the Dividend Cafe. I should say that 100% of the questions that appear are always completely real, from actual readers, reflecting different things on your mind across a variety of topics related to markets and the economy. Today, we get to talk about what it means for markets to “price things in,” about gold, about government debt, about dividend growth, and so much more. It is digestible, succinct, easy, comprehensible, and it is about as much fun as one can have in weekend reading. Let’s jump into the Dividend Cafe … Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3vIRb6n A positive morning of trading in markets gave way to losses mid-day, only to gain it all back and then some as we headed towards the close, ending up 200 points. Interestingly, the correlation between rates and stocks today actually moved together with both rising, where the opposite has been the case much of this year. 10’s are moving further into four handle territory up to 4.14% as rates crept back up today with a stronger jobless claim number. We are at about a 54% chance on futures for a March rate cut at this point. We are still early in earnings season, but it has been notable that while 92% of companies reported thus far have exceeded expectations, 58% of them have actually traded lower on the news. A combination of some exuberance over lower rates this year coming out of markets and just some general consolidation after the year-end run-up seems to be at play. I find this consolidation healthy, and with an advance decline ratio only back to -3:1, I doubt we have seen the last of it. More in the link below. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/47HzpgS Markets have stayed in what is pretty much a buyer’s strike this month, as no violent sell-off has been forthcoming, but down days have piled up in advance of the heart of earnings season and with several Fed governors trying to modestly re-frame expectations. Odds of a March rate hike have come down a bit but still remain the most likely view in futures markets. This noise was, if you recall, a highly predictable and overrated theme as discussed in our Year Ahead piece for 2024. China’s economy grew +5.2% annualized in Q4 vs. +5.3% expected. The jobless rate sits around +5.1%. Most importantly, they indicated their third consecutive quarter of consumer price deflation (longest streak in 25 years). Did I mention this, too, was a huge theme in our Year Ahead piece for 2024? I was intrigued to see this morning that about 60% of BB and B+ rated high yield bonds are now trading above par value (it was around 20% just six months ago). That is an extraordinary rally in credit that is clearly a by-product of improved financial conditions (i.e. expectations for greater liquidity and easier access to and cost of capital). Retail sales for December exceeded expectations (shocked!) as core sales jumped +0.8% month-over-month. Online sales closed the year up +7% from the year prior, and across food/beverage/clothing there was meaningful increase on the month and year, even above what had been forecast. I expect the biggest public policy issue over the next thirty days to be a Ukraine deal tied to U.S. border security and likely tied to Israel support funds as well. The challenges to getting this done are immense. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3vEgA0Y Ask David “What is your view about investing in the Indian economy since it appears to have the potential for considerable growth and is not hampered by the regulations of the CCP?” ~ Al On one hand, India is the highest country allocation in our emerging markets strategy. On the other hand, that is not really “investing in the Indian economy” as much as it is investing in “companies that happen to be based in India.” The domestic market strength is a huge factor, but it is really more of a bottom-up than top-down decision. We are not looking for good countries but rather good companies. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/48Sg4um Before I get into this week’s wild fun Dividend Cafe on the subject of government debt, I want to make sure I do one final push around the Year Ahead, Year Behind White Paper that we published last Monday. Because of its depth and length, I imagine some of you printed the chart-filled PDF and plan to digest it this weekend. So don’t worry – if today’s Dividend Cafe is coming on top of your white paper reading, I assure you the data I cover this week about our fiscal position in America will not be going stale in the days ahead! But now we re-dive into the standard Friday routine of our weekly Dividend Cafe. And this week’s is a very cheery one, if you are cheered up by massive government spending and debt (hey, “we’re all Keynesians now,” right?). A fundamental component of our macroeconomic view going out ten years and longer is a belief in an internal tension in the American economy – that is, the extraordinary engine of growth and innovation that the greatest Western democracy the world has ever seen is and has been for 250 years, VERSUS the significant headwinds for growth created by excessive government indebtedness. The story is more nuanced than that, and I will get into those nuances and more in this week’s Dividend Cafe. Don’t think of this week’s Dividend Cafe as a position paper on how to solve for the national debt. It is not a policy paper, but rather a reaffirmation presentation of the state of affairs. Let’s jump into the Dividend Cafe! Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3NYiJuG Volatility came down and markets were flat as a pancake as we got inflation numbers that were in line with Core CPI and then just barely above on Headline by a tenth for the month. Rates moved higher initially but came off during the day with 10’s down six basis points and the curve steepening a little.  I have more on CPI below and in the podcast, but markets feeling better or worse over a tenth different than expected on CPI each month is one thing but the trend is so blatantly going in the right direction with annualized CPI over the past three months now below the feds 2% target at 1.77%,  I just don’t think it’s material at this point.  Fed futures by the way agree and were unchanged on the day still at a 65% chance for a March rate cut. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/4aN8tiB An up day for markets across the board. The drama on the SEC/bitcoin ETF deal moved today. Yesterday it was that they had approved a bitcoin ETF as expected, and bitcoin prices fell. But then they announced that, no, they had not approved it (yet), and the announcement was from a “hack.” Uh-huh. Then the chairman of the SEC took to Twitter to announce that people investing in crypto should “be cautious” due to “serious risks involved.” And today they approved the ETF exactly as had been reported yesterday. I was on Varney this morning talking wealth tax, Wall Street’s view of government spending, and dividend thoughts. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post -https://bahnsen.co/4aPFc6P Yesterday we released our annual white paper recapping all that was the year behind and all of our perspective and themes for the year ahead. We welcome you to send it far and wide, distributing it anywhere you’d wish. It is an important part of our annual process and I am proud of this year’s product, and grateful to all in my production and design teams who helped make it happen. Because we devoted Monday to this special Dividend Cafe white paper I have run today’s Tuesday edition as if it were Monday, except, you know, with Tuesday market info (I’m not that dumb as to use yesterday’s market data). Off we go … Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/41UHaPl Over the numerous years dedicated to this annual project, it has been a rewarding journey and continues to be one of my most cherished endeavors. I derive great satisfaction from the research, narrative crafting, and the sense of responsibility it instills. I sincerely hope you find value in this year's retrospective and prospective white paper. Brace yourself for an exciting year ahead! Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3Oe52YT Generally positive markets this morning lost momentum throughout the trading day with the Dow closing completely flat and both the S&P 500 and Nasdaq down a pinch. Yields were up on the day, with the 10-year back to just under 4%, and Fed futures starting to show a little less conviction on a rate cut in March (albeit still at a 64% chance). We had some better-than-expected payroll numbers today, and with slightly lower new Job openings yesterday are slowly but surely seeing a supply imbalance normalization in employment. We have roughly 162MM people currently employed in this country, with another 8.8MM new job openings posted, so call about 171MM on the demand side. The current US labor force is roughly 168MM, so while not perfectly matched (still more demand), it is getting there and what the Fed wants to see. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3RMxbqz A second down day in the new year, and of course two days isn’t a trend but frankly after nine consecutive positive weeks in markets, some consolidation and back filling is healthy and welcome. I do hope you all are feeling as refreshed and recharged after your Holiday time with family and friends as I am, and while there was less Christmas snow in Utah then I would have liked, there is plenty of fresh market data for us to go through today. While 2023 saw an outperformance of growth over value, as it essentially just recouped what it lost the year prior, its interesting to note the recent shift the other way. From the lows of late October, the SP500 rallied 17%, but the equal weighted index outperformed large cap tech by a shocking 5% with a rotation to value. As David mentioned this morning on CNBC, starting point valuations can be critical for investor outcomes. With an average estimate for earnings in 2024 at $244 a share, the SP500 trades at 20X earnings. Equal weighted, you get something closer to 16X and some of this recent rotation appears cognizant of those other sectors offering better relative value. Could this continue? Well, while markets were meaningfully higher last year, the largest flows still went to money market funds at +$1.34T, which now hold a stunning $5.87T of cash (aka dry powder). Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3NNxO27 This is a tough DC Today to write because I have to resist every temptation to start doing my “year behind” review or “year ahead” projections now. I am deep into the writing and preparation of that annual endeavor and I am really hopeful that the final product will be informative and profitable for all of you. In the meantime I am back from my Christmas week away with my family and excited that 2024 is here. This annual “white paper” I am in seclusion working on will be out this MONDAY, the 8th, as a special release Dividend Cafe. As I read, research, and write over the next three days in between sessions of hanging upside down in my closet, Brian Szytel will take on the Wednesday and Thursday DC Today task. 2024 started off with more of a 2022 vibe than a 2023 one as the Nasdaq dropped -1.63% and the Dow rose a tad. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/41vu6Qo It is the end of 2023 and we are entering the Christmas weekend. I am off to a land far away with my family and am looking forward to spending the holidays in the snow. The calendar year for markets still has a week to go (with the exception of Christmas Day on Monday), and by this time next week we will have brought 2023 to a close. I will avoid saying anything else due to the never-ending superstition that us money managers live with regarding our ability to make things worse by daring to say something prematurely. Let’s put it this way … I went to the Duke game at Madison Square Garden with my son on Wednesday night and Duke (my college basketball love since 1990) was up by 11 points with eight seconds to go. My 13-year old son was celebrating the win and I scolded him – “it’s not over, son!” You know – that famous 11-point play – what can I say. Better safe than sorry. Anyways, I thought it appropriate as we approach the end of the year to reaffirm some of the truly evergreen realities of dividend growth investing. Not only am I committed to dedicating one Dividend Cafe per quarter to this subject (minimally) but I also believe this final 2023 edition ought to address some really important realities in the present state of markets and our investing philosophy brought to life. It is incomprehensibly fun for me to write on this subject. This subject is embedded in my being. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/41AnBfi Markets rallied today after their sell-off yesterday, moving up +322 points on the Dow. Some of yesterday’s heightened downside does appear to be related to zero-day option expirations, something so silly, stupid, and complex that I will spare you all the details. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/47gk0nS A quiet day of trading as markets head towards the Christmas holiday on Monday and things slow down. The US is one of many countries where inflation readings and projections are being reduced. The UK had a much lower-than-expected November inflation reading yesterday at 3.9% y/y versus a 4.3% expected and down from 4.6% the month prior. Not surprisingly, Gilt yields moved dramatically lower, and futures were priced in 150 bps of BOE rate cuts next year. PPI data in Germany today was also below expectations. While the ECB noted it would maintain rates where they were last week, I expect that narrative to change next year if we continue to see numbers like this, especially once the US starts cutting. Global central bank policy, as does trade and currencies, tends to be tethered—this and more in today's video podcast. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/47VBffb Today saw risk assets rally yet again with the Dow closing at another all-time high. It is interesting to see health care as the sector holding the defensives and lower beta names down. Consumer Staples and Real Estate have broken out a bit and Utilities have at least awakened, but Health Care has been the laggard. The Bank of Japan extended its policy of negative interest rates (it has been seven years now, for those counting), though most believe they will hike the policy rate up to 0% in 2024. The Yen remains quite weak against the dollar. Oil is down $20 from where it was in September (note, that was before the Hamas attack on Israel on October 7). The VIX is at $12.50, pretty close to the lowest it has been in five years, Credit spreads have tightened by 60 basis points just in the investment grade side, with high yield spreads tightening a full percentage point (and that is basically since Halloween). It would be hard to make up a series of data points that reflect a more favorable sentiment for risk assets than this. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3NuO33W When one buys stock in the secondary market they are buying from Mr. Jones and Mrs. Smith, and the money is not getting to the company – that is correct. But there is a very important thing being missed when one concludes that therefore no money is being productively deployed. Namely, the existence of a secondary market is why a public market can raise money to begin with for primary productive purposes. When investors buy equity in a company that does go to the company for growth capital, productive use, etc., they do so with the knowledge, intent, and awareness that the money is going into a liquid, secondary market. That reality impacts the attraction of capital and it impacts the valuation of capital. Take away the ability for Mr. Smith to sell to Mrs. Jones, and you take away the marketplace for BIG INVESTOR to invest directly in BIG COMPANY. Supplementally, many times companies are doing secondary offerings in the public market where money is coming straight to the company. And finally, dividends are paid to investors who often do directly productive things with them. Where do these dividends come from? The productive profit-making activities of the underling company. Rinse and repeat. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3TrUXux I did a Dividend Cafe exactly six months ago about housing, focusing then on the duel economic and cultural reality of what was going on in the housing market. I think another six months gone by is a pretty good amount of time to now re-address this vital subject in American life. Housing is, for some, a crucial part of their economic story. Even for those smart enough not to think of their house as a “retirement asset” it is still a crucial economic consideration. Almost everyone I have ever met needs a place to live, and the ones I met who did not had very odd theories on the JFK assassination. Very few people own an asset with as much leverage attached to it as their home (assuming one puts 20% down they are 4-to-1 levered on the purchase; imagine buying $1 million of stock and only paying $200,000 for it). Housing costs (monthly) from rent or mortgage to property taxes and maintenance and insurance are the highest percentage of the monthly outflow of nearly every single family in America (even many who do not have a mortgage). Beyond the economic reality of housing, from the silly (it is an “investment”) to the practical (it cost money to live somewhere), there is a deeply personal reality to housing, including for yours truly. People make memories in houses, they associate periods of their life with where they live, and they form families and social connectivity around houses. And even with all the suburban model has done in a postmodern culture to undermine community, many people’s “houses” are also part of their “neighborhoods” – a Tocquevillian concept we’d be wise to re-affirm. This subject matters. So today in the Dividend Cafe I want to “check in” on the subject. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/4aigyM6 Well, and there you have it – coming out of a global pandemic where the world shut down and reopened and supply chain disruption and pent-up demand caused 9% inflation, the Fed raised rates 525bps in one year, inflation fell back down without rising unemployment, the economy still grew, and as of yesterday, the Dow closed at an all-time high. I really don’t think, in all humility, there was anyone out there (including yours truly) that would have predicted all that. Now, there is still more time to go before I think you can officially fly the soft landing flags, but we are getting close after yesterday’s Fed meeting and statements. Adding to that narrative, we had some encouraging retail sales and jobless claims data today that had markets higher again. Also, the good ole three handle 10yr is back! We closed below 4% today down another 11 bps at 3.91% on 10’s for the day. Does all this sound too good to be true? I assure you there are still plenty of things in the world to worry about, but my sense at this point, with a dearth of large economic data coming out before the year-end, is that we will head into the holidays feeling a little more merrier than we did last year. =) Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post -https://bahnsen.co/46RNNmw This may have been the least anticipated Fed Day in nearly two years, with the futures market serving up a 100% chance of no rate change ever since the last Fed meeting. That said, the Fed chair talking after a rate announcement always has the possibility of moving markets. Today, he moved markets. That he didn’t even remotely push back against market expectations for rate cuts next year was a surprise, but the dot plot actually showing three rate cuts in 2024 was a huge surprise. Now, I have been saying it for months, and fed futures have been forecasting it, so maybe this market response seems overdone – but for Jay Powell to just say it? Today was like reading a future history book. I think it is important to note that the Fed Funds Futures are currently pricing in a 100% chance of a 100 basis point reduction (1%) in the Fed Funds Rate by this time next year. There is a 24% chance of it being down 1.25%, a 37% chance of it being down 1.50%, and a 26% chance of it being down 1.75% – all by next year. The most “hawkish” expectation is a 100 basis point cut. All stock market indexes were up the SAME. And I am pretty much sure this was the biggest bond rally of my career in a single day, as the 2-year yield dropped THIRTY BASIS POINTS and the 10-year dropped EIGHTEEN BASIS POINTS. Ay yi yi. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3Nr4A93 A consistently positive trading day on this inflation-day-Tuesday. Both core and headline CPI came out largely in line with expectations and markets were constructive with stocks modestly higher and built on gains into the close and rates down just a few basis points. These numbers are coming out right in time for the December FOMC meeting to end tomorrow with a rate decision (which is at a 100% chance for a continued pause), Fed statement update and Powell presser following. Continued broadening out in markets with more non mega cap technology names participating. Yesterday by the way, was the first time in over 10 years we had markets up broadly (including a positive Nasdaq) with all seven of the largest technology names (aka Magnificent Seven) all closing lower. Today we had more participation those names, but worth noting the subtle shift in leadership, particularly with Industrials. A positive dynamic we have spoken about for years but particularly post the Russia/Ukraine conflict continues to play out in energy markets. For the month of November, 68% of all US LNG exports were sent to Europe which has now over taken Asia as the number one destination for US LNG exports. Just as tensions between US/China has begun to permanently shift supply chain manufacturing destinations globally, the EU shifting its reliance on Russia for its energy and heating needs isn’t likely to be temporary and is quite positive for the US energy dynamic. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/41lZfWf Greetings from 29 degree Grand Rapids, Michigan where I have had a day of meetings and recordings and give two different speeches in two different Michigan cities tomorrow. I will be back in the much warmer climate of New York City on Wednesday. In the meantime, the special Monday DC Today awaits you … Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3t62eFN I really do like the SOP for Dividend Cafe (that’s “standard operating procedure” for those of you who have time to say full words instead of acronyms that always require explanation anyways, hence adding triple the time to what could have just been said in long form to begin with). What I mean here is that I have for several years now selected a singular topic for each week’s Dividend Cafe and written a 2,000-3,000 word piece on that topic. There have been a few exceptions where we did a wide array of “Q&A” as our focus, and we will continue doing that once a quarter or so when we get an excessive build-up of “Ask Davids” that the DC Today cannot bear. But for the most part, the Dividend Cafe is, I think, better as a deeper dive week by week into a given topic on my mind and heart. I keep it investment and economy focused, of course, because if I went anywhere my mind and heart went, I would end up doing some Dividend Cafes about my favorite steakhouses in New York City, what is wrong with today’s Republican Party, or what in the world my daughter’s vernacular in our family group text chat means. But Dividend Cafe will stay in its lane, I promise. Focus, David, focus. Anyways, today I am doing the buffet thing, but I didn’t write it throughout the week – I wrote it all at once. I simply had three “mini” topics I wanted to address instead of one “mega” topic. I hope it is cohesive and interesting, but if you hate it, at least you know next week, we will go back to the single-topic norm of the Dividend Cafe – our SOP. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/4abzegh The market opened up a handful of points this morning and slowly built on gains for most of the day. After a big move lower across the curve in yields this week we took a bit of a breather today with a flat 10YR up two basis points at 4.14%. Stay tuned for a three handle on 10’s. We are starting to see this market rally broaden out with the equal weight version of the SP500 breaking away from the market cap weighted index. This is showing the average stock starting to participate more in this rally outside of technology names, which I find constructive. Both large cap and regional banks by the way are back to where they were pre SVB failure earlier in the year. Part as a normalization of stress in the financials and part for a 2024 line up that could favor the banks if we get better net interest margins as the yield curve potentially normalizes with the short end moving down. This is something we have seen before; late cycle rally in financials as the Fed pauses and ultimately cuts the following year (95’/96′ comes to mind). Monthly financial obligations for consumers like auto payments and home payments, as a percentage of household cash, are on the rise and now at 16%. Interesting however that even with such a rise in rates these are still actually below pre-pandemic levels which was closer to 18%. Higher rates just haven’t bit as hard as years past with such a prolonged low rate refinancing period the years preceding it. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/486oKwS If you’re surprised by how much expectations have turned down for U.S. interest rates and Fed policy in 2024, you should see what those crazy cats in Europe have going. Markets are now fully pricing in SIX rate cuts next year – 1.5% reduction in their lending rate. Bank CEOs testified before the Senate finance committee today, making the case that the planned increase in capital requirements would be detrimental. They specifically pointed to where the cost of such increased capital would come from – customers. A not-unexpected talk. Former House Speaker Kevin McCarthy (Bakersfield, CA) announced his resignation from Congress today. I hereby predict he will make more money in 2024 than he did in 2023. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/4a8TMWG As we get ready for a busy week of jobs data a few things stick out: (1) The weekly jobless claims remain very low which seems to indicate a continued healthy employment market (2) The “quits” rate (people voluntarily leaving their job) has been very high, and even as it has come down from early 2022 highs, it remains very elevated historically (3) The number of job openings remains very high (though it fell to 8.7 million this month, still 1.5-2 million higher than pre-COVID average, but well off 2021 highs) (4) The average work week has steadily declined on the margin (from 35 hours, which was above the 15-year average, to 34.25 hours, which is below the average). (5) Several data points have softened in recent months, but not softened to what can be called “weak” conditions – just “less strong” than had been the case previously A few other market tidbits and things that caught my eye today … It is interesting to me that small cap value has outperformed growth since the turn in the middle of the year, but large cap growth has modestly outperformed large cap value. The two are normally correlated. Some of the “big seven” names that have driven a lot of the market this year have not moved at all in six months (well, they have moved up and down, but I mean they currently sit flat from where they were this summer). The broader market has begun playing a little catch-up. 2024 earnings expectations are now up to $246/share in the S&P 500. We are likely going to end at $221 for 2023 so this would mean earnings growth of +11.3% in 2024, rather amazing if it happened. Of course, at that earnings level, the S&P is still trading at an 18.6x multiple (forward projected), and is trading currently at 20.7x. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3uFMLMZ Ask David “If you are an investor in a passive index fund, exactly what happens to your equity when that fund/index removes a poor performer, and replaces it with a stock that has recently performed much better? While I suspect that your equity may stay the same upon replacement, it seems intuitively like an example of buying high while selling low. Is there any documented study of index fund performance over time due to the survival bias? Do you have any thoughts on the topic?” ~ Dom I think I understand what you are saying but actually in this case the survival bias of the index methodology helps its performance over time, not hurts. What you are suggesting makes sense prima facie – that they are adding companies at high prices and removing others at low prices – but the fact of the matter is that the companies removed from the index is very rare, and almost always only happens after the company is broken. A significant amount of companies that have been removed from market indices over the years no longer exist at all, meaning that path from “a low price” to “zero” was never experienced by the index investor. Of course, there are cases when a company is removed from an index and subsequently rallies from a low valuation, but that is much less frequent than the opposite. And all of it is very rare and inconsequential … Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3GnL8pE Rarely have I hyped up a Dividend Cafe so much and set you all up for such disappointment. The topic I write about today is one that has been on my mind and in my research orbit for a long time, and on a couple occasions I actually teased up that it was coming, only to pull the plug and defer publication to a later date. Well, that later date is today. We know the huge hype around Artificial Intelligence in 2023 – not merely in stock prices, but throughout society. On a daily basis we hear of some reference to how AI may change education or business or politics or, my favorite, farming. And as is always the case, this “hype” has a foundation to it – there is a profoundly interesting evolution in technology playing out that will change the way a lot of things are done. It will involve policy adaptations, cultural pushback, misallocations, great advancements, and, yes, certain negatives. All of these things are par for the course in a world that grows – that is, a world that was created to see human beings innovate around the raw materials they were given. Someone should write a book! But fundamentally, artificial intelligence is a big deal, even if the early years of its introduction will be filled with misunderstanding and wrongly directed reactions. But people do not read Dividend Cafe for my assessment on the technological or even cultural context of new innovations. Rather, our job here is to assess a whole host of subjects for their economic and market impact – particularly for investors (and to be more particular than that, for our investors, that is, clients of our firm – or those of you who will be clients of our firm). The Artificial Intelligence story is an investor story, too, and that requires a sober reflection on a lot of things. Today’s Dividend Cafe is that sober reflection. Let’s jump into the Dividend Cafe … Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/4115jTU A BIG divergence today between the more value oriented DOW which jumped 520 points today, and the more technology heavy Nasdaq down .23% as interest rates broke the trend and rose today. Coincidently, I wrote yesterday about the sensitivity in the part to the market that has had the most multiple expansion tethered to falling rates as having potential for disappointment. Both PCE inflation data coming out in-line with expectations and a stronger growth print in the Chicago PMI’s moved rates up today as much as yesterdays decline in continued bond market volatility. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3N5Ec4C A mixed but ultimately flat day of trading in stocks following another decent move up in bonds as the 10 Yr came down another 8bps to 4.26%. Hard to believe we were north of 5% just last month. I was actually expecting yields on 10’s to pick back up after a better than expected upward revision to Q3 GDP mid morning, but this bond market is dead set on lower rates in 2024. All eyes will be on the inflation read tomorrow with PCE to see if that changes the narrative. If the seven largest US technology companies were its own sector it would make up 18.2% of the market cap of the MSCI World Index and account for only 10% of the earnings. In comparison, the entire Financials sector in the MSCI World index equates to three precent less at 15.1% by market cap, but makes up over twice the earnings at 21.9%. Valuations may be a poor timing tool short term, but they do matter longer term and the multiple expansion in tech we have just seen can be easily disappointed if lower rates don’t keep pace next year. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3Gl2T9d The market is up over 10% in just twenty trading days, a 99th percentile move if there ever was one. The rally has brought along lower-quality equities and higher-quality ones, and financials, in particular, are surprisingly strong. Defensives are not as strong (consumer staples, utilities) as more cyclical or high beta sectors, but they are hanging in there. The dollar has dropped, and the Yen has rallied in the last few weeks, causing many currency traders to say, “Wait, it wasn’t supposed to do that?” Markets were pretty boring again today (though to the upside), and bond yields continued their decline. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3sYDwqz Futures opened last night down -40 points or so, worsened a bit throughout the evening, and this morning pointed again to a down -40 point open pre-market. The market opened pretty flat this morning and just stayed in a tight range to the downside throughout the day. The Dow closed down -57 points (-0.16%) with the S&P 500 down -0.20% and the Nasdaq down -0.07%. *CNBC, DJIA, Nov. 27, 2023 As a contrarian, I do not like seeing the put/call ratio and bull/bear sentiment be so tilted towards complacency. Even the VIX at $12.69 is pretty surreal. The ten-year bond yield closed today at 4.39%, down almost -10 basis points on the day as the November bond rally continues Top-performing sector for the day: Real Estate (+0.38%) Bottom-performing sector for the day: Health Care (-0.64%) Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3SR97oG On this special Wednesday Dividend Cafe, just one day before Thanksgiving and sixty years to the day after John F. Kennedy was assassinated and C.S. Lewis passed into glory, it is my sincere pleasure to bring you the annual Thanksgiving Day edition of the Dividend Cafe! Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/47JhGpJ Futures markets in the fed funds rate now show a 0% chance of any future rate hikes in 2023 or 2024, but then show mixed results around when rate cuts may begin (a 35% chance in March, a 65% chance by early May, an 88% chance by June). Those numbers will all change, but it is where the debate lies entering 2024. The Fed balance sheet sits at $7.8 trillion right now, down $1.2 trillion from its high, but still 88% above pre-COVID levels. Will the Fed’s inevitable cutting of rates be a good thing for markets? I wonder what you think? Let me put it this way … is it even possible to answer that question without any further information? Hint: It is not. Two things have to be known to better answer that question. (1) Was the cut a surprise or well-telegraphed, and (b) What. Was. The. Reason. For. The. Cut. Beware of anyone assuming rate cuts are good without a discussion of that second question. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3sAWzr1 For the second time in the last couple of months, I am going to call an audible and not publish a Dividend Cafe on the artificial intelligence moment and its relevance for investors, despite having announced I was doing so the prior week. I have actually been assembling and digesting research on this topic for many months and am quite excited for the final product to appear in Dividend Cafe. But it is too important of a topic and an issue I have worked on now too much to publish prematurely. I was in New York City the first two days of this week, Dallas the next two days, and am in California now. Between a massive amount of meetings, events, portfolio activity, flights, and all the things, I was engulfed in a different topic this week instead of finishing my other piece. This week’s topic is pretty darn important, though. In fact, I believe it serves as the macro story of our moment. It brings in some very important history and how to think about the past in the context of the future (not exactly an old or stale topic for those who remember last Friday), but it also allows us to understand what is going on right now in a broader and more extended sense. I think where interest rates go over the next ten years matters (also a fresh topic on our minds). Still, one could argue that everything going on right now has to do with the cycle we are in, had previously been in, and the question around where we ultimately go. So let’s hang tight on artificial intelligence and investing a little longer because this week, we have to cover a tale of two decades. It will take you ten minutes to really appreciate ten years. Let’s jump into the Dividend Cafe … Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/40JB5EW It was a pretty quiet day today, although we were down almost 170 points mid-day following some slower economic numbers to then rally back to just about flat on the day in stocks. Honestly, with the significant move up this week, just seeing markets just hang in and constructively consolidate and stay at these levels (both in stocks and bonds) is a good thing and bodes well. This week, we had lower-than-expected inflation numbers in both CPI and PPI, some weak retail sales, the largest US retailer citing disinflationary pressure, and today, we got a jobless claims number that was higher than expected. Mix all of this in a bowl, bake, and no matter how you slice it, you’ll get an unquestionably cooling economic pie. See what I did there as we head into Thanksgiving week. =) Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/46gNK3n With over 90% of companies now having reported Q3 earnings, we stand at a 6.3% growth rate and well above Octobers estimate of just 1.6%. Just as I mentioned on CNBC World Monday night, profit growth is exceeding revenue growth as companies with pricing power that raised prices the past year due to inflation are showing margin expansion as some of those input prices ease. Also, for all you wondering, it really was just CPI and not my global television debut that fueled the market rally the following day. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/47wGQI7 Markets rallied huge today as bonds rallied in the aftermath of the CPI report. Interest rates went into total free fall (the 10-year is down a stunning -18 basis points, and the entire 2/10 curve is down 18-21bps in what may be the biggest bond rally of the year and possibly several years) as the CPI number came in at, wait for it, +0% month-over-month (headline inflation). The core number (excluding food and energy) was +0.2% on the month versus +0.3% consensus expectations. Year-over-year, the core CPI was +3.2% versus +3.3% ex-expected. But there’s more. Rent growth is being measured as +6.8% on the year and rent of primary residence +7.2%. Both are down +1% from recent highs but a minimum of 4% too high versus real-life “current market” metrics. That means assuming 3% shelter inflation (I am being very generous) at a 34% weighting, the 1.35% attribution coming off CPI brings headline inflation to 1.85% and core inflation to 2.65%. So, yeah, the Fed is about to take the credit. And the right teed it up for them. Ay yi yi. Money supply (as measured by ODL – Other Deposit Liabilities– the best measure of available money in the system for a lot of reasons) has declined now for three straight years. We know it flew higher post-COVID. We know about lags and monetary aggregates and all that jazz. All excess liquidity created out of COVID has been evaporated from the system. And yet, over $1 trillion of debt next year will mature and be re-borrowed at 3-4% higher in cost (as things stand now). And for those who choose not to roll over debt (many companies, some individuals, zero governments), cash reserves will be used (that, my friends, is what you will call lower velocity). Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/47aKXKm There are some financial writers who I believe are professional doomsdayers. There are some who are more nuanced. And, yes, there are others who I think are hard to pin down. I suppose it is most fair to treat all people individually, with unique circumstances and particulars around their approach and worldview. For example, I think some are SINCERE but almost always WRONG (and have a business model that depends on scaring people, even if they really believe it). Some professional doomsdayers are, in my opinion, rank charlatans and grifters – though I’d rather not give names here. Hopefully you get the idea … As for how to prepare for various “bad things,” well, that’s pretty much what I write about every week in the Dividend Cafe. In the first such issue this month I wrote the following, and it would apply to the wide array of possible scenarios we face: “Our Operation Magnify is forever committed to active, proactive, intelligible allocation of capital across Dividend Growth companies, in the Boring Bond space needed to preserve capital, in Credit assets where there is opportunity and compensation for risk taken, in areas of both Growth and Income Enhancement, and of course in Alternatives where we can seek to lower the volatility profile of a portfolio and diversify sources of risk and reward. Doing that in an era of high rate volatility, of high ambiguity about monetary policy, and a period where far too many eyes are only on the Fed requires a contrarian bend, a deep commitment to real enterprise (bottom-up company realities that transcend monthly price volatility), and a faithful commitment to the principles that made Magnify what it is. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3u3NcAi Sir John Templeton could have never known what staying power his famous edict would have when he wrote in 1933, “The investor who says, ‘This time is different,’ when in fact it’s virtually a repeat of an earlier situation, has uttered among the four most costly words in the annals of investing.” He wasn’t wrong, and the vast majority of the time that famous quote is used (mostly via paraphrase), it captures a vital truism – that people assuming certain things about the past are no longer true and investing accordingly generally get their faces ripped off. Today, we unpack what issues are the same, what may be different, and what that all means for an investor in 2023. Lots of things stay the same in this world because the creator of the world is the same yesterday, today, and forever. The law of gravity is still working. Men and women are still different. And UCLA is still a mediocre football program (hey, now!). But some things do change because that same creator made the world to be dynamic and gave the human race agency in its stewardship. And we know human beings can be temperamental. So jump on into the Dividend Cafe, and let’s discuss the permanence in change of being an investor (extra credit to any who remember the second greatest band of my youth, The Alarm). Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com