Dear Valued Clients and Friends –
Please note: today’s travel schedule did not permit the recording of a podcast or video.
A long weekend it was, and hopefully everyone enjoyed their Independence Day and the weekend that followed. We have a true trip around the horn for you all today so buckle up.
Dividend Cafe looked at the state of markets, the economy, and our very own full-year themes and perspectives at this mid-way point of the year, and laid out four key things for the remainder of the year. The written version is here (my favorite), the video is here, and the podcast is here.
I was on Hugh Hewitt’s show this morning and Fox News on the Fourth of July.
Off we go …
Market Action
- The market opened up this morning, with the Down going up nearly +300 points before giving it back an hour later.
- The Dow closed down -31 points (-0.08%) with the S&P 500 up +0.10% and the Nasdaq up +0.28%.
*CNBC, DJIA, July 8, 2024
- The cap-weighted S&P is 13.1% better than the even-weighted. The average delta of cap-weighted over even-weighted for 35 years is 1.1% …
- I address what happened yesterday in the French elections below in Top News, but as a market story, French budget deficits are blowing out, and a hung parliament very likely means no policy changes coming. The various parliamentary procedures and technocratic gamesmanship expected in the increasingly dysfunctional situation seem to be a bearish indicator for French equities and particularly bonds. All of you who were heavily considering a large tactical allocation to that hotbed of market growth and opportunity that is France may be hitting pause for a little while on such an allocation …
- The ten-year bond yield closed today at 4.27%, flat on the day
- Top-performing sector for the day: Technology (+0.72%)
- Bottom-performing sector for the day: Communication Services (-1.01%)
- Bitcoin hit $54,000 on Friday, the lowest price since February (down -25% from highs), as the market absorbed the impact of a high-profile exchange’s bankruptcy and liquidation (and impact on supply). Who could have guessed this could happen in such a beacon of stability and reliability?
- It should be pointed out, this latest drawdown in Bitcoin hardly lacks precedent:
- 2024: -27%
- 2022: -77%
- 2021: -55%
- 2020: -71%
- 2018: -83%
Some have a different definition of stable than I do.
Top News Stories
- As expected, the Labour Party trounced Prime Minister Sunak’s Conservative Party in the UK elections last week. Sunak resigned, and Keir Starmer will become the new Prime Minister of the United Kingdom.
- And then, in France yesterday, the Macron coalition succeeded in propping up the far-left Nouveau Front, substantially undercutting the Le Pen populist right group. Macron’s coalition was the big loser (down 100 seats), but the results kept Le Pen’s group from a plurality and left the parliament as three blocs with no clear direction or budgetary strategy. This fall is going to be very, very interesting as it pertains to France’s relationship with the European Union.
- After months and months of soap opera-level activity, Paramount has agreed to sell to Skydance (the board approved last night). The media giant (CBS, Viacom, Paramount, etc.) has been on the market for some time and a deal was hard to find due to the complicated ownership structure of Paramount.
Public Policy
- Some lawmakers and many mainstream media outlets are calling on President Biden to step down in his Presidential re-election bid, and he continues to assert he plans to stay in it to win it. I have sources I trust adamant he will pull out and I have sources I trust adamant he is going nowhere,
- A federal judge has blocked the recent FTC ban on non-compete contracts, the latest judicial setback for the Biden Administration’s Federal Trade Commission. The case is on appeal, and we will see what happens in early September, but this essentially puts on hold what was a rather substantial ruling a couple of months back.
Economic Front
- The jobs report on Friday reflected 206,000 jobs created in July, but the unemployment rate was up to 4.1%, and a substantial revision of 111,000 jobs lower the last two months.
- ISM Services declined to 48.8 in June, well below the consensus expectation of 52.7. The drops were so pronounced in some categories that it will force us to see next month before we can better analyze it, and some of the data just seems too anomalous to take at face value. Business Activity declined the most. This ISM services data has now contracted two of the last three months.
- We are currently at record, all-time highs in history for U.S. passengers traveling via commercial air flights.
- The trade deficit was $75.1 billion in May, about $1.5 billion less than expected. Exports are up +4.3% over the last year and Imports are up +6.2%. Mexico continues to be a larger trading partner than China.
Housing & Mortgage
- Austin, TX allowed most new building permits per capita of any city in the country from 2020 to 2023, and rent prices dropped over 10% in 2023 and are down 8% in 2024. More supply = lower prices. Swearsies.
Federal Reserve
- The combination of a benign PCE report and then a mixed ISM and mixed jobs report in the last ten days has suddenly boosted the odds of a September rate cut to 78%, explosively higher than the 30% it has been in recent weeks, and providing a stark rebuttal to my forecast that they would wait until November to cut. We are now at 87% odds for a cut by November and 97% by December.
- Chairman Powell is testifying before Congress tomorrow
Oil and Energy
- WTI Crude closed at $82.27, down -1% on the day
- Natural gas prices dropped -10.8% last week, yet crude oil was up +2%. The upstream energy sector was down on the week, and midstream was again up about half a percent.
- The U.S. is producing more energy than it consumes, and we have it in us to become a major export powerhouse of world energy needs.
Against Doomsdayism
I have been going through Maarten Boudry’s Seven Laws of Pessimism the last seven weeks, and today brings us to the seventh and final:
7. The Law of Disinfecting Sunlight: The freer a society, the more ugly things will surface.
We find more bad things because we believe (correctly) more things are bad. They don’t complain about human rights violations in countries that have vast and systemic violations of human rights because, well. they don’t have the human rights to complain about human rights. Freer societies complain about bad things more because freer societies are allowed to. There is both the moral capacity to identify that which is bad, and the freedom to say something about it. Dissent can be a positive – the very fact that one has the ability to complain about something (as worthy as it may be for complaint), is a good thing. So many things we discuss as negatives have been there already, but are now more visible, and our discussion of their visibility is a good step towards solution.
So to recap all seven laws of pessimism per Maarten Boudry:
- The Law of the Invisibility of Good News: Progress happens gradually and imperceptibly, while regress happens all at once and immediately grabs our attention.
- The Law of The Velocity of Bad News: Nothing travels faster than the speed of light, except bad news.
- The Law of Rubbernecking: The more gruesome the news, the more we lap it up.
- The Law of Conservation of Outrage: No matter how much progress the world is achieving, the total amount of outrage remains constant.
- The Law of Awful Attraction: If you don’t find bad news, bad news will find you.
- The Law of Self-Effacing Solutions: Once a solution has been achieved, people forget about the original problem (and only see further problems).
- The Law of Disinfecting Sunlight: The freer a society, the more ugly things will surface.
Ask TBG
| “Do you ever condone put options or short-sales of bubble stocks like as an investment strategy for clients/investors who are willing to tolerate a high rate of risk with a limited amount of capital? Or is trying to time someone else’s bad bet just the other side of that same coin?” ~ Matt M. |
| We do not execute such ourselves as it falls outside our risk profile (i.e., put options risk 100% of capital invested, the entire premium paid and short sales require a high borrowing cost, timing risk, and infinite downside if the stock goes the other way). In our allocation to Alternative strategies there are many hedge fund managers who do implore short sales either speculatively or in the context of hedging. But no, we do not affect such ourselves, believing them to be unscalable, an unattractive risk-reward trade-off, and outside our mandate for growth, income, and protection. There is an easy way to capitalize on what prove to be bubble stocks: Don’t own them. |
On Deck
- This Wednesday, clients will receive the special Weekly Portfolio Holdings Report that contains the quarterly summary, as well as a video breakdown from yours truly of all the specifics within different portfolio strategies we are managing.
- June CPI numbers come Thursday!
In the aftermath of America’s Independence Day celebrated last Thursday, I would just love to point out that the Magna Carta was one page, the Declaration of Independence was one page, and that the Dodd-Frank bill (financial regulation act passed after the financial crisis) was 848 pages.
To all a good night!
With regards,
David L. Bahnsen
Chief Investment Officer, Managing Partner
dbahnsen@thebahnsengroup.com
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.
