Credit where Credit is Due
The Dividend Cafe
The Dividend Cafe - The Bahnsen Group
4.9 • 572 Ratings
🗓️ 28 July 2023
⏱️ 23 minutes
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Summary
Today's Post - https://bahnsen.co/3QipwRU Everyone loves to talk about the stock market. When it is doing well, people assume everything is great (wrongly). When it is doing poorly, people assume everything is terrible (wrongly). Presidencies can rise or fall based on the Dow or the S&P 500. The stock market is at least familiar to most people, even if they don’t own stocks. It has cultural familiarity on top of investment democratization.The same is not always true of the bond market, which is interesting since the bond market is so much larger and more important than the stock market. Interest rates, liquidity, mortgages, the currency of a country, and the monies that fund wars, governments, tunnels, schools, and bridges are all a by-product of the bond market. However, the overall world of “borrowing” (debt to one party, credit to another) covers more than just bonds. The “credit” markets delve into the borrowings that exist to make possible homebuilding, homebuying, home re-financing, commercial real estate, small business loans, big business loans, and so much else. Securitizing the debt around car loans, credit card loans, and even aircraft and yacht loans is big business. Credit is not just a “boring” bond market – it is what makes the world turn into a highly robust and active economy. Capital is needed to fund capitalism, and that capital is, far more often than not, “credit” – not “equity” … Today in the Dividend Cafe, we look at the current state of credit markets and what they teach us about the current state of affairs. Few things are more clear throughout economic history than this: weakening credit markets reflect economic weakness, then create economic weakness. It is a vicious cycle as old as the wheel. And even the wheel probably had someone developing it on credit … Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com
Transcript
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| 0:00.0 | Welcome to the Dividing Cafe weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. |
| 0:12.8 | Hello and welcome to the Dividend Cafe. I am recording back from the Newport Studio, been in New York all week. |
| 0:20.3 | Flew back late last night, had a very |
| 0:21.9 | adventurous morning, and we are now recording Dividing Cafe. I'm actually recording a tiny bit |
| 0:28.5 | before the market closes, but we're up today. It's been a wonderful earning season. You'll hear |
| 0:33.8 | much more about all that. The update on inflation data, the update on the market |
| 0:38.5 | and so forth in a very robust extended Monday, D.C. today. |
| 0:45.0 | The Dividing Cafe today, I want to talk about credit markets. |
| 0:49.0 | And I always feel that when I talk about bonds, when I talk about debt, when I talk about the credit |
| 0:54.8 | world, that people tune out a little bit relative to when I talk about the fun stuff, |
| 1:01.0 | equity, stocks, dividends. |
| 1:04.2 | I get it because I think stocks are much more fun than bonds. |
| 1:08.5 | I get it because stocks are a higher return asset class than bonds. |
| 1:14.6 | And I get it because there's more upside with something like equities. You know, a stock you |
| 1:19.6 | could buy at 30 and hope it goes to some number that doesn't theoretically have a ceiling, |
| 1:26.2 | where bonds, you generally are buying a number around |
| 1:30.3 | 100 and you're hoping to get back a number at 100 with a coupon, with an interest rate that is |
| 1:36.9 | attached to that along the way. It's what we call par value and that $100 par that is around usually what people pay for a bond and $100 par value, |
| 1:47.5 | what it matures at, similar like a CD at a bank, bonds work in the world of par value, |
| 1:54.9 | getting back a face value of a certain amount of debt. And there's something less exciting about that than there is this |
| 2:02.8 | sort of infinite upside that the ownership of free enterprise involves. So from an investor's |
| 2:09.7 | standpoint, I get it. From a macroeconomic standpoint, I never really have. The bond world is |
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