Dear Valued Clients and Friends –
It is a full Monday-edition Dividend Cafe today, so get ready to go truly around the horn.
Dividend Cafe looked at the merits of free enterprise in driving strong investment markets, and where the U.S. premium to international competitors has come for some time now. The written version is here (my favorite), the video is here, and the podcast is here.
Off we go …
| Subscribe on |
Market Action
- The market opened down a pinch today, then bounced up, then down, then up before closing up on the day.
- The Dow closed up +114 points (+0.25%) with the S&P 500 up +0.21% and the Nasdaq up +0.45% on the day.
*CNBC, DJIA, Sept. 8, 2025
- Bonds continued their big rally from Friday, with yields down across the curve today.
- The ten-year bond yield closed today at 4.04%, down another five basis points on the day. The bond market hysteria of a few months ago is one of my favorite narratives of the year – as the entire message from bonds has been, and continues to be, not inflation concerns, but slowing growth. A classic bond market pricing of declining nominal GDP growth, period.
- Top-performing sector for the day: Technology (+0.67%)
- Bottom-performing sector for the day: Utilities (-1.07%), with all defensives down on the day.
- A surprise for risk assets as of late is how well small-cap has done, and how well the homebuilder stocks have done (despite weakness in the homebuilding sector in which they function). Never forget, markets are always and forever … discounting mechanisms.
Top News Stories
- Japanese Prime Minister Shigeru Ishiba resigned over the weekend
Public Policy
- I know there is a lot of chatter about a second reconciliation bill, but I remain skeptical that the politics of it will allow it to happen. There are just too many things that would keep certain Senators from voting for whatever it is that excites other yes-votes, and there is no fundamental political emergency (like the expiring tax cuts) to force a political coalition to get it done.
Economic Front
- The ADP private sector payroll data on Thursday (for the month of August) was atrocious, reflecting just 54,000 jobs created (half of what the also-low number was in July). The three-month average is now 46,000, versus the 12-month average of over 120,000.
- But then the BLS data came, fresh off the Trump administration’s firing of the director, and it was even worse. Payrolls grew by just 22,000 in August, the worst month in a long, long time. The unemployment rate rose to 4.3%. My ongoing theme is that, so far, firings have not picked up … But hirings appear to be frozen.
- The trade deficit for July came in at $78.3 billion, with imports up an astonishing $20 billion as American importers made a mad dash to front-run tariffs.
- Manufacturing jobs declined for the fourth straight month. What we see is negative job growth in all of the sectors that are most tariff-sensitive (manufacturing, mining, logging, construction, wholesale trade, transportation, and warehousing).
Housing & Mortgage
- I am being asked more and more what the Trump administration can do about housing. I have long believed it is far more of a state and local issue than a federal one. I do believe that the federal government can do a lot to make it worse (i.e. subsidies for down payments that drive demand higher without a change in supply, for example). But federal policies that help housing affordability are limited. I suspect what you will see are:
- The administration changing its enforcement of immigration in the construction industry, much like they did in agriculture when reality on the ground was presented
- Tariff relief on construction materials that are currently devastating housing builds (okay, I don’t know that I will see this; I just know that we should)
- And of course, there is hope that lower interest rates will help. This is paradoxical in that generally we have rightly understood lower rates to boost home prices as a lower cost of capital affords someone more home. But, in this case, it may actually “unfreeze” the seller’s strike we are seeing and allow activity to resume to level supply and demand
- I do not believe the administration can or will try to override the zoning, permitting, and regulatory roadblocks that exist at a local level, which are constraining new supply
- An interesting data point that I see very few people discussing: Between 2012 and 2019, there were between 200,000 and 300,000 home purchases made by foreign buyers every year. That number has been below 100,000 each of the last four years. The housing market’s boost from international demand has almost entirely dissipated.
Federal Reserve
- The odds are now at 88% for a quarter-point rate cut from the Fed this month, but they are up to 12% for a half-point cut (so zero percent chance of no rate cut in September in the futures market). We are actually at 80% odds for a Fed Funds rate cut that is 75 basis points lower by the end of the year, and for the first time, there is even a 9% chance of a 1% reduction by the end of the year. The odds were only 24% for a third rate cut going into the jobs number so obviously that data substantially moved the needle.
- President Trump said Friday his top three finalists for the next Fed chair right now are Kevin Hassett (current NEC chair), Kevin Warsh (my preferred selection), and Christopher Waller (a current Fed governor)
Oil and Energy
- WTI Crude closed at $62.41, up 1% on the day, but down by over -3.3% last week as OPEC+ production pick-up concerns re-ignited excess supply worries in the price
- The whole energy sector was down last week, with midstream itself down -2% on the week
Against Doomsdayism
- I know we don’t do this section every week anymore, but every now and then, certain statistics or illustrations come my way that just infuriate me about the doomsday class. To be a doomsdayer requires a willful denial of reality, or a pathological disdain for data. Cases in point:
- Death rates from leukemia in small children have plummeted by 93% since 1950
- Total cancer deaths have dropped by 34% since 1991
- People can say whatever they want about public health and the current state of science, from heart valves to cancer detection to cancer treatment to so many other significant aspects of public health, the progress we have made and are currently living in is a major blessing to behold
Ask TBG
| “Are you concerned at all about record levels of margin debt creating and reflecting bubble behavior in the stock market?” ~ Steve B. |
| Total MARGIN debt is, indeed, over $1 trillion right now. And while that dollar amount is the highest dollar amount ever, relative to underlying assets (the ratio of debt-to-assets) it is not even close (about 23% less leverage now than at the peak of the tech bubble). The latter really is more important than the former (just like commercial real estate debt or residential mortgage debt has to be understood in the context of property values, not just nominal debt). BUT, the margin debt level does NOT include Securities-Based Lending, so the total borrowing is actually much higher than the $1.02 trillion figure of margin debt. Morgan Stanley alone has over $103 billion of SBL balances. Schwab has another $20bn; Raymond James nearly $20bn; etc. I would imagine total balances (where these companies are using their balance sheets to lend, but apply margin rules to the borrowing) are roughly $200bn in total. Now, none of this is used to BUY securities – meaning all of these balances are collateralized by stock portfolios, but are used for “non-purpose” lending (real estate, tax bills, anything other than buying stocks). But it still speaks to higher leverage in the system. This leads me to one issue where it may be less concerning than 25 years ago … Many credit lines counted in the margin balances are technically margin (they do count in the $1.023 trillion dollar figure), but they are ONLY used for “non-purpose lending” (i.e. real estate and tax bills and so forth). They can buy stocks (legally), but do not (either because their own advisor does not allow it, like at The Bahnsen Group, or because they just choose not to). Many use “margin lines” that way now, whereas it was very rare to use them that way in 1999. I believe there is a fair amount of the $1.023 trillion of margin debt NOT attached to the leveraged buying of stocks at high valuations, and I have a pretty good view of this. Either way, it is concerning (as directionally it has worsened), even in some historical context, the numbers are less severe than they were in 1999. I hope this helps. |
And allow me to close out today’s Dividend Cafe with a particular anniversary shout-out to my wife of 24 years (today), Joleen. You all have to read me a couple of times per week. Imagine what kind of saint one has to be to actually be married to me for 24 years?
With regards,
David L. Bahnsen
Chief Investment Officer, Managing Partner
The Bahnsen Group
www.thebahnsengroup.com
The Dividend Cafe features research from S&P, Baird, Barclays, Goldman Sachs, and the IRN research platform of FactSet.
