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Economic Warfare

Rene Aninao
Thoughts On Money

The Secret to Financial Serenity

Trevor Cummings
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Alts 101

Steve Tresnan

About

Dividend Cafe provides market perspective rooted in first principles, not the fads of the day. Authored by our Managing Partner, David Bahnsen, it covers a wide array of topics, it doesn’t try to do what it cannot do, and it strives to offer needed perspective not readily available in most financial commentary.

The MONDAY Dividend Cafe covers all going on in the present tense in public policy, housing, energy, markets, the Fed, and more.

The DAILY RECAP is rather self-explanatory.

And ASK TBG gives you a chance for daily interaction with our people on any issue important to you.

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November 1
Bipartisan is Not Always Good for Markets
Bipartisan is Not Always Good for Markets – November 1, 2024

We focus on assorted election issues, the future of the leadership at the Fed, and other items that should leave you elated with anticipation....

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LAST WEEK'S DIVIDEND CAFE

Ask TBG

Question:

I heard you can sell your house in CA and move to another, and if you’re over 55, you can carry over your tax base. Is that accurate, and what are the rules? Thanks.
~ David R.

Answer:

Prop 13 in the late 1970s set a maximum annual percentage cap of assessed value increase at 2% per year. Since then, houses have appreciated far and above this number, and the state enacted a few other acts to help retirees relocate to a home of equal or lesser value and still carry over their tax base. Prop 19 allowed this for specific counties. Prop 60 and 90 were expansions to other areas of the state and included family members who later could inherit properties without resetting the assessed value. The key to your question is to ensure the home you would move into would be equal or lesser value. There are more nuances that would need a call to discuss further from here.
~ Brian T. Szytel, November 14, 2024

Question:

I’m also ruminating on the “Shareholder Yield” concept as a complement to Dividend Growth. It makes sense to me as an interesting option/complement….something. It might be a good “question for Ask TBG” to compare and contrast.
~ Bryan O.

Answer:

Screening for dividend growth along with share buybacks and debt reduction in this' shareholder yield' strategy mentioned is fine. I would just say the former is the surest way to capture what we are after in compounding rising income from growing free cash flow, and the latter two are more subcomponents. Share buybacks alone can raise dividends per share per a lower divisor but wouldn't reflect the entire dividend growth ethos of tethering growing Free cash flow to a dividend CAGR. Liability management is also a component of proper corporate stewardship, but again, that is already captured in the former (and a given).
~ Brian T. Szytel, November 13, 2024

Question:

“Trump's tariff position raised a lot of alarm bells pre-election as many linked these tariffs to an increase in inflation.  Can you help explain why the tariffs from his first term, which were met with similar alarm, did not result in significant inflation?  Also, in your lead-in, you mention the bond market yields going up after the election, but at least the 10-year ended the week lower than it started.   What does that mean the bond market thinks about both Trump's tariff plans and their potential impact on prices?”
~ Tim T.

Answer:

The 10-year went to 4.30% on Monday (intra-day) and closed Friday at 4.30%, after hitting 4.46% on Wednesday.  Most notably, the inflation expectations in TIP spreads did NOT move higher, so higher yields are more indicative of growth than inflation expectations. But the bond market did not start pricing things in on Wednesday; bond yields had been moving up for two months before the election.  Markets are always discounting mechanisms.  How much of what bonds (and stocks) are pricing is related to Trump, let alone one policy (tariffs)?  No one can answer that.  And if tariffs are a part of market discounting, what does it mean that there is not huge upward pressure in bond yields or inflation expectations?  Does it mean that markets believe tariffs are NOT inflationary, or does it mean that markets do not believe the tariffs (as threatened) will come to pass?  Based on the clear confirmation of stock market behavior, it is far safer to conclude that bonds are (also) assuming the tariffs do not come to be.

And that brings me to the answer to your first question: Why were tariffs not inflationary in the first term?  This one is pretty simple – they didn’t end up happening.  Some did, and those things were inflated, but 90% of the tariff threats never happened (or happened for a very short period and then were lifted; or, my favorite, were implemented but with DOZENS of carve-outs for certain companies and sectors that requested exceptions).  Where there were tariffs and where China countered, prices did increase.  But we are talking about a grand total of $75-80 billion in tariffs in his first term, not the $525 billion of ANNUAL new tariffs that have been alluded to now. A good way to say it is that the argument should be ACTUAL tariffs are inflationary, not the mere THREAT of tariffs or imposition of a short-term flex.
~ David L. Bahnsen, November 12, 2024

Question:

“During President Trump’s first term there was talk of Secretary Mnuchin looking into the U.S. issuing super long-term bonds to lock in the low rates and help with our debt interest. I know I am Monday morning quarterbacking here, but even at the time, it seemed like a good idea. Why did this never happen?”
~ Shane S.

Answer:

You are correct; there most certainly was discussion of either 50-year or 100-year Treasury bonds at the point of low rates throughout the first Trump term. Secretary Mnuchin ultimately concluded they didn't have the time, resources, or demand to see it through. In hindsight, obviously, plenty of people wish it had been done (for various reasons). In fairness, it is not like trillions of dollars were ever going to be bought; it is unclear if hundreds of billions even would have. A 20-year treasury issuance they did was only able to find $20 billion of buyers. I believe when the curve was inverted or when we were at a 0% ZIRP (two distinct moments), there was a great reason to do it, and any part of the term structure that takes out that risk is worthwhile to the borrower and any vehicle that creates such an instrument for hedging deflation is worthwhile to the lender. Fingers crossed for another bite at the apple.
~ David L. Bahnsen, November 11, 2024

Looking For Something Specific?

Monday's Dividend Cafe

Daily Recap

Friday - November 15
DJIA
-0.70%
S&P
-1.32%
Nasdaq
-2.24%
2 Year Treasury Yield
4.31% (-5 basis points)
10 Year Treasury Yield
4.44% (UNCH)
Top-performing Sector
Utilities (+1.47%)
Bottom-performing Sector
Information Technology (-2.49%)
WTI Crude Oil
$67.05/barrel (-2.40%)

Podcast

Video

Dividend Cafe History

In September of 2008 the world’s financial markets were brought to their knees by a debt bubble, the likes of which we had never previously seen. The turmoil in financial markets was severe and Wall Street banks were falling by the wayside daily. In this time period, David Bahnsen was working as a Managing Director at Morgan Stanley, responsible for the well-being of his clients. As their anxiety of clients intensified, David began writing a periodic bulletin to them. One bulletin became another, and then another, and all of a sudden, a weekly bulletin was organically born! Well after markets pulled out of the abyss of 2008, the weekly edition continued, evolving into something far more positive than its September of 2008 origins. This commentary distributed by simple email with an ever-growing following morphed into the Dividend Cafe when David and his team launched their own practice in early 2015.

Today, Dividend Cafe is still attempting to do what it was doing in the fall of 2008 – offering truthful perspective that may not be easily found elsewhere. The topics will vary from our dividend growth philosophy, to bedrock investing principles, to the challenges of interventionist monetary policy, to anything else that inspires David in a given week. The underlying objective is the same now as it was when we began – to build trust by telling the truth, not what people want to hear.

History
SUBMIT YOUR QUESTIONS

Get Smart

Guest Author

Economic Warfare

Rene Aninao
Thoughts On Money

The Secret to Financial Serenity

Trevor Cummings
Alt Blend

Alts 101

Steve Tresnan

About

Dividend Cafe provides market perspective rooted in first principles, not the fads of the day. Authored by our Managing Partner, David Bahnsen, it covers a wide array of topics, it doesn’t try to do what it cannot do, and it strives to offer needed perspective not readily available in most financial commentary.

The MONDAY Dividend Cafe covers all going on in the present tense in public policy, housing, energy, markets, the Fed, and more.

The DAILY RECAP is rather self-explanatory.

And ASK TBG gives you a chance for daily interaction with our people on any issue important to you.

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