Dear Valued Clients and Friends –
There is a really heavy focus on the Economic Front today, as there should be.
Off we go …
- Futures opened last night down -100 points or so and by bedtime had dropped to about -140. This morning futures pointed to a down -80 point market open (pre-market).
- The market opened +50 points, got down as much as -200 points, and skipped around a bit (but in a reasonably tight range) throughout the day.
- The Dow closed down -117 points (-0.34%) with the S&P 500 down -0.24% and the Nasdaq down -0.14%.
*FactSet, DJIA, Oct. 11, 2021
- I shared Friday in Dividend Cafe how big of a priority “illiquidity” is for us right now and the various investment and behavioral advantages there are in the present landscape within private markets. I read this morning that private equity deals have already topped $787 billion this year, a record that beats the full year 2019 level, and we still have a whole quarter to go. But more than just the extraordinary volume and opportunities in entering new deals, the exits from deals have now topped $638 billion in this calendar year alone, 50% higher than any prior year.
- The ten-year bond yield closed today at 1.57%, down three basis points on the day
- Top-performing sector for the day: Real Estate (+1.34%)
- Bottom-performing sector for the day: Communications (-1.05%)
- 4.3 million people quit their job in August (2.9% of the workforce). The 11.1 million job openings of July did come down to 10.4 million by the end of August, but even that job openings level represents the second-highest number in history.
- The NFIB Small Business Optimism Index fell one point to what is the weakest reading since March (earlier this year). Plans for capital expenditures and inventory increases fell 2% on the month. “Inability” to meet demand (supply chain constraints and labor shortages) was the highest-ranking concern.
- I have spoken a lot about my strong concern around the labor participation rate, and what it means to society when an increasing number of people become structurally disengaged from the workforce. I am concerned by the overall rate’s decline and “stickiness” near the low levels of 2013-2015 that we had begun to get off of pre-COVID. So the labor participation rate collapsed during the financial crisis and went lower and lower still in the years that followed, before making a bit of a recovery in the years before COVID. It obviously collapsed during COVID, and yet even when all of the labor market improvements since then seems to have stayed anchored to that 2013-2015 level. But here is the big concern: The chart below shows a better result (not good enough) for ages 25-54 (the core productive block of the labor force), yet a new low in the participation rate, getting stickier by the month when you look at the whole picture ages 16 and up. What this means is that there is an “extra” problem of labor participation for those ages 16-24 and those 55 and up. In other words, two vulnerabilities are clearly forming, both with societal risks I truly hate to think about. One is the declining amount of work from young, entry-level workers in the economy. And the second is those at a mid-life position increasingly giving up and exiting the workforce entirely.
- I do believe the jobs figure next month will be far more important as the return-to-school dynamic and normalization gets smoothed in the numbers and the end of federal benefits in early September should be more impactful to October data than it was in September. We shall see.
- Congress is now out on recess. This delay may mean Congress puts their pens down for a couple weeks or it may mean they are using the delay to advance talks in their negotiations. Speaker Pelosi sent a letter to all House Democrats last night indicating that her strategic priority is shifting to trying to do fewer things with the pending bill but ones that will have a longer-lasting impact. The primary debate is one of tactics – doing a lot of things, but smaller in their scope; or doing fewer things, but with a deeper and wider scope and impact.
- Fumio Kishida, the new prime minister of Japan, reiterated last night that he had no intentions of raising taxes on dividends or capital gains. I should remind readers that he is not eligible to run for President in the United States.
- There is talk that Congress might pursue a new debt ceiling policy that would allow the Treasury Secretary to raise it without Congressional permission going forward, yet with Congress having the right to overrule if so desired. I remain of the opinion that the hubbub over the debt ceiling is totally unacceptable in a developed economy. How legislators can vote for the spending that creates the debt but then hold the right to not extend the debt needed to pay for it, is utterly bizarre to me.
- A broad array of data points for your panic, I mean, pleasure:
*COVID-19 Insights, Marsh, Oct. 12, 2021
Oil and Energy
- WTI Crude closed at $80.57, pretty close to flat on the day
- Oil at new highs, yet the dollar at the highest it has been in a year or so now. It doesn’t happen often.
|I gave a much fuller explanation on the national call yesterday, but in a nutshell, we do not believe dividend growth can be “indexed.” Dividend growth is inherently forward-looking, and the active management necessary to properly steward a dividend growth orientation cannot be done passively, or backward-looking. Most indexed attempts at such are inundated with dividend cuts, and in fact, held positions in dividend-cutting companies.
I also would make sure one thoroughly differentiates dividend growth from high yield. “High yield” may very well mean “broken model,” which almost certainly will mean a “dividend cut.”
- Earnings season kicks off at the crack of dawn tomorrow with Q3 results from the largest banking franchise in the United States.
- We will have in all client inboxes bright and early tomorrow their Weekly Portfolio Holdings Report.
- September CPI number comes tomorrow morning
- Brian Szytel will be creating The DC Today tomorrow as my meeting schedule is such that I needed to call in support. But unlike the Yankees, my mound relief is A+ caliber!
Reach out as always and enjoy your evenings!
David L. Bahnsen
Chief Investment Officer, Managing Partner
The Bahnsen Group
The DC Today features research from S&P, Baird, Barclays, Goldman Sachs, and the IRN research platform of FactSet.