Get Smart

Guest Author

Economic Warfare

Rene Aninao
Thoughts On Money

The Heart of Financial Advice

Trevor Cummings
Alt Blend

The 2024 Indextravaganza!

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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December 20
Trump 2.0, the Fed, and this Market Selloff
Trump 2.0, the Fed, and this Market Selloff – December 20, 2024

A market sell-off that began two weeks ago accelerated this week, and today's Dividend Cafe is going to be almost entirely devoted to it. ...

More>
LAST WEEK'S DIVIDEND CAFE

Ask TBG

Question:

“I’ve long thought that the effects of QE since the great financial crisis must be having an inflationary effect on asset prices (not what CPI tracks). If that is the case, is there not a bullish case for stock and other asset prices now, despite the historically high valuations we are seeing? The way the Fed reacted to the COVID sell-off makes me suppose they will continue to inject liquidity in times of crisis.”
~ David N.

Answer:

From 2009 to 2014, the Fed was doing quantitative easing (that is, adding to their balance sheet with the purchase of bonds), and markets were up a lot in that period. Of course, the Fed also had rates at 0% that whole period, as well, and of course, corporate profits were flying higher after the 2008-09 trough of earnings that came about in the financial crisis. So, all at once, you had corporate profits reflating, valuations lifting from trough levels, zero interest rates, and, yes, quantitative easing. It is hard to give QE all the credit for the increase in asset prices, but it can have some. But the Fed has been doing quantitative tightening, not easing, for the last two years, and markets are up ginormously (not a word). There are periods of QE in the last ten years where markets are down and periods of QT where markets are up. I certainly agree that if there were a crisis, the Fed would “inject liquidity,” but I do not believe adding to a balance sheet of $6.9 trillion has the same effect of adding to a balance sheet of $1 trillion. The law of diminishing returns is alive and well. The impact of QE was over-estimated in its first iterations post-GFC, which is not to say there was no impact, and the impact of non-QE has been over-estimated in the three times QE has been reversed since.
~ David L. Bahnsen, December 23, 2024

Question:

“The idea that the Fed is being motivated by a factor (or factors) that are never discussed publicly (as far as I know) is actually a little unsettling. These Fed officials speak in public quite a bit, too much, in my opinion. If the real underlying driver of their monetary policy is something that they never mention in their speeches, then all their other jabbering really amounts to obfuscation. I understand that some things might be too arcane of a concept for mass public understanding, but some of us would like to know more. My question is this: What level of Fed Funds is low enough that lenders and borrowers can get resetting loans rolled over without causing a lot of disruptive stress to financial markets?
~ Chris T.

Answer:

I believe it has been true for decades that the Fed is influenced by things that are not at the top of their talking points. After 2008 as we embarked upon the first few years of ZIRP and what became QE1-3, did you hear this a lot, because I did:

“We continue to believe an aggressive posture of easy monetary policy is needed to give the economy support in the aftermath of this recession. Getting to our desired place of
employment and economic growth means an accommodative stance that may be more prolonged than normal as we monitor price data and labor data in the context of this recovery.”

Fair enough. Safe. Politically correct. Not even untrue, though certainly incomplete.

Did you ever hear this, though, because I sure didn’t:

“We believe some form of reflation is needed in the corporate economy as the household sector de-levers, and monetary policy must facilitate a strong support to asset prices to soften
household deleveraging and allow time for the governmental portion of the economy to lever up. This will surely drive productivity in private equity and private credit, which is
something we have to facilitate in order to move the holes in the economy off of household balance sheets and on to the public’s balance sheet.”

I do not believe there is an answer to your question, not an answer I could give, and not an answer the Fed can give. What level does the Fed Funds rate need to get to, and at what point does it go too far? These are the unanswerable questions in an era of NON-rules-based monetary policy that is entirely discretionary and experimental.
~ David L. Bahnsen, December 19, 2024

Question:

Concerning services for the search/purchase/sale of a home: It wasn't clear to me the services available.
~ Glenn D.

Answer:

TBG has a broad network of commercial and residential real estate professionals around the country.  With how specialized and local the real estate market can be, the buy/sell or realtor side itself may be niche, but we can chat about the specific areas you are referring to.  As far as lending, a robust array of 1031 resources, and detailed cost/benefits analysis and planning in real estate, TBG has advanced in-house expertise that can aid at a national level. 
~ Brian T. Szytel, December 18, 2024

Question:

Can it make sense to roll over an IRA balance back into an employer sponsored 401k plan so that back door Roth IRA contributions could be made each year?
-Jeff S.

Answer:

You're right; since a back-door Roth IRA contribution involves making a nondeductible IRA contribution and then converting it to the Roth IRA based on a pro-rata percentage of the after-tax IRA balance, it doesn’t realistically work if you hold a sizable existing IRA balance.  Some questions would need to be addressed to effectively consider the cost-benefit analysis.  Assuming the 401k plan would accept the rollover, and there are many years left of either one spouse or both continuing to work with earned income, the idea of a reverse rollover of sorts by moving your IRA back to a 401k plan in order to continue doing these back door Roth IRA contributions can make sense. However, keep in mind that employer-sponsored 401k plans have a limited mutual-based investment menu to choose from, which often resembles a combination of index-oriented choices.  Those types of choices are less ideal normally, but today in particular, as they are concentrated in higher valuation positions. For any sizeable IRA balance, having the freedom and flexibility of owning a more tailored and customized retirement plan portfolio, including other asset classes like alternative investments, is preferred.  That flexibility may outweigh the potential future benefit of back-door Roth IRA contributions, but it’s always a case-by-case consideration.  Putting the tax cart before the investment horse is typically something to be avoided where it is reasonable to do so. 
~ Brian T. Szytel, December 17, 2024

Looking For Something Specific?

Monday's Dividend Cafe

Daily Recap

Tuesday - December 24
DJIA
+390 (+0.91%)
S&P
+1.10%
Nasdaq
+1.35%
2 Year Treasury Yield
4.35% (+1 basis point)
10 Year Treasury Yield
4.59% (-0.4 basis point)
Top-performing Sector
Consumer Discretionary (2.62%)
Bottom-performing Sector
Health Care (+0.41%)
WTI Crude Oil
$70.17/barrel (-1.34%)

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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 Heart of Financial Advice

Trevor Cummings
Alt Blend

The 2024 Indextravaganza!

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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