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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Today's Post - https://bahnsen.co/3muBoUs Today was a highly anticipated day, as we were set to get the latest look at inflation data. This data came in lower than expected, which appeased markets at first glance but lost its luster throughout the trading day. Some pointed to the FOMC minutes and the glooming use of the word recession that took the wind out of the market’s sails, yet this was not “new” news (more in the post). Perhaps now, everyone will shift their focus and attention to Friday as we start to gather another season of earnings reports. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3moAxo7 Days like today tend to be pretty boring because stock and bond markets are limited in what they are likely to do a day ahead of a news announcement like tomorrow’s CPI reading. The fed funds futures have a 70% chance right now for a quarter-point rate hike next month, and we will see how markets respond to the CPI tomorrow. In the meantime, I tried to make some stuff up today to keep you interested. =) I’ll put it here instead of down below, but the NFIB Small Business Optimism Index has stayed at a low level in March, February, and January. Now, it hasn’t gone much lower from each of those months, but it has stayed level at a spot that is pretty near where it was ten years ago. Their access to capital (particularly from banks) has dropped substantially, and the confidence one would deduce from hiring plans and capex plans is just not there. It isn’t collapsing, but it isn’t good. The number one issue cited: uncertainty over the economy. It will be interesting to see if the Fed wants to resolve their uncertainty the hard way. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3GAu2FF I hope everyone had a wonderful Easter weekend and are feeling excited for the week ahead. Markets should be pretty weird this week, but now I just say that every week because I have such a high chance of being right when I use the word “weird.” Today didn’t do anything to embarrass me in this prediction (more below). Dividend Cafe last week was my earnest effort to unpack the current state of oil markets and all their economic, geopolitical, and monetary implications Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3Ui1J4z Last weekend’s news was not a Lehman bankruptcy, a Silicon Valley depositor backstop, or a Credit Suisse acquisition.  It was not even driven by U.S. forces, let alone the usual cast of characters in the Fed, Treasury, or FDIC.  Rather, it was OPEC+ making an announcement of production cuts in oil.  It didn’t crash markets – in fact, it caused a big rally in the energy sector.  But it is a big deal, and it warrants its own special Dividend Cafe. I would never dare spend a Dividend Cafe pontificating on where the price of oil is going.  I do not know, and neither does anyone who trades or tracks oil for a living.  Commodity prices are inherently unknowable, and oil is at the top of that list.  Getting premises right is no surefire way to the right conclusion, and that applies to oil prices in spades. But what I will spend this Dividend Cafe doing is pleading with you to see the non-oil ramifications of this oil move.  And by “this oil move,” I really mean a lot more than “this” oil move – I mean an entire set of events and conditions that, taken together, represent a significant change in global geopolitics and, with that, investment implications. So let’s jump into the Dividend Cafe and digest all that is happening. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/40EOqh5 First of all, congratulations to the Huskies of the great state of Connecticut (where some of TBG’s favorite clients reside) on their NCAA championship. I assure you it was the news story today that deserved the most press coverage. It was a pretty boring day in the market, and all the news wanted to talk about was the Trump court appearance and such. Bonds rallied quite a bit. Stocks had their first down day in a week. The Q&A’s below dig into a key issue of understanding the stress in the banking system right now and a key issue about the Fed. Scroll down if interested. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3ZFg4ZY So congratulations to the San Diego State Aztecs and the UConn Huskies, who will go head to head tonight for the NCAA college basketball championship. It has been a tournament to remember – thrilling upsets and last-second shots – and enough investment lessons to generate a whole Dividend Cafe! The written is here, the video is here, and the podcast here. Yes, a March Madness Dividend Cafe, indeed. I got coaxed into talking about the Trump indictment on Varney Friday, along with some refreshing reminders about investing in the energy sector. You will find a little market review and a little of everything else in this very special Monday edition DC Today, with a whole whole whole lot of ENERGY and OIL in the aftermath of this weekend’s shocking news. Off we go … Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/40OgHkJ Any time I use some sort of sports analogy in the Dividend Cafe I get a lot of emails from people who connect to it and say they love it, and then I get emails saying, “come on, I don’t care about sports – please just stick to the market!” I am never offended or bothered – Abraham Lincoln had a line about pleasing people once – but I am also not swayed. If I think there is a real investment or economic lesson that can be told with a sports analogy, I am going to mix that chocolate and peanut butter. And I promise you, today’s broad takeaway for investors is worth it even for your tortured souls who hate sports. So jump on in to the Dividend Cafe … Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3G3Vdsa So the market went up again today, went negative in the middle of the day, then rallied back in the second half of the day (see chart below). The FDIC is looking to move the cost of the recent bank failures to the banks that didn’t fail (read: to their customers), Sen. Joe Manchin has decided he regrets his support of the “Inflation Reduction Act” atrocity, I wrote of extraordinary bond market volatility two days ago, and then we went two days in a row with bonds frozen in time, and Dr. Anthony Fauci has himself a speaking gig (not sure if it will be virtual or not?). I remain convinced that the key issue adding to profitability in the energy sector going forward is constrained supply, much of which is a decision and some of which is circumstantially forced. Sen. Manchin’s op-ed mentioned above may reflect a sitting U.S. Senator shocked – shocked! – to discover that many do not want to facilitate U.S. energy independence, but it is not a shock at all. And what it does is make the sector even more attractive as it pertains to legacy and incumbent assets, pipelines, and producers. The sector is capital constrained, which boosts expected rates of return for the capital that comes in. It is supply constrained, which boosts prices and margins for the supply that comes online. And it is sentiment constrained, which boosts risk premium around as a contrarian reality. It will ebb and flow, no doubt, but what the opponents of our U.S. energy sector never understand is that all the bad things are actually good things for investors. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com