The DC Today - Wednesday April 19, 2023
The Dividend Cafe
The Dividend Cafe - The Bahnsen Group
4.9 • 572 Ratings
🗓️ 19 April 2023
⏱️ 9 minutes
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Summary
Today's Post -
Day-to-day bond volatility continues to be quite elevated, and very few are really talking about it. I believe as QT inevitably moves to QE (or at least non-QT), you will see bond volatility come down. Equity volatility already has. 80% of days in January were up or down > 1%, 74% in February, 65% in March, and just 36% so far in April. Hmmmm …
I have spoken a lot lately about the American consumer slowing down only when they lose access to credit. Until then, spend spend spend (in fact, the predominant economic philosophy of American policy for the last 75 years has actually sought to intellectually codify this behavior as our patriotic duty). Revolving credit right now is 6.2% of disposable income, not even up to the 6.6% average it was for the last ten years, let alone near the 9% level it averaged in the decade up to the financial crisis. All that to say – debt levels for consumers seem high; debt levels as a percentage of income are not. So my expectation is … spend, spend, spend.
Beware of people who tell you, “The consumer is about to crash and burn,” when they have been saying that over and over and over and over again for years. There is an incorrigibility to perma-bears that can only be called dishonest if we don’t see it all for what it is.
Also, who cares if people spend a little less and save a little more? Do you really, actually, seriously think that would be a bad thing? Come on.
Anyways, another pretty boring day in markets and all the recap is below, along with a great question on commercial real estate and the banking sector.
Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com
Transcript
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| 0:00.0 | Welcome to the DC Today, your daily market synopsis of the Dividing Cafe, brought to you every Monday through Thursday to bring you up-to-date information and perspective on financial markets. |
| 0:15.5 | Well, hello and welcome to the Wednesday edition of D.C. today. It was another boring day in the markets. |
| 0:23.4 | And by boring, I mean the SMP was flat on the day. The NASDAQ was flat on the day. |
| 0:27.9 | The Dow was down 79 points. And the two, excuse me, the 10 year bond yield was up two basis points. |
| 0:43.9 | Oil was down a couple percent, despite actually a larger drawdown in inventories than expected. |
| 0:47.2 | So, you know, there was a few things that were moving out there. |
| 0:55.0 | But any day that utilities is the best performing sector in the market, it's not likely to have been a real exciting upside day. |
| 1:01.3 | And then communication services was the worst performing sector. The thing I kind of want to talk to you about real quick, first is update on that volatility. The, you know, equity volatility has |
| 1:09.3 | been quite high. We talked a lot about how intraday volatility was significantly high in 2022 relative to historical averages. |
| 1:18.4 | I want you to consider this as far as just the trend right now. |
| 1:21.9 | And it's only one metric of volatility. |
| 1:24.2 | I mean, the VIX is very low. |
| 1:25.7 | So that's a pretty darn good one as far as what |
| 1:27.9 | people are paying for protection, what we call the fear index. But it really has a heavy |
| 1:35.0 | implied volatility component to it. There were 80% of market days in January that had an up or down 1% movement intraday. |
| 1:47.5 | And then that went down to about 74% of days in February, but then down to like 60% or so in |
| 1:53.7 | March, and it's been 36% of the days in April. |
| 1:57.2 | So each month, the amount of days having that higher degree of up or down movement has come down quite steadily. |
| 2:06.0 | So you see equity volatility right now a little lower and then bond volatility still quite elevated. |
| 2:13.7 | And it hasn't really soothed out a little. |
| 2:16.0 | We're still having these days where you're going down 10 basis points in yield or up 10 base points in yield. |
| 2:22.5 | And that increased volatility in bond market, I think will soothe itself out at some point. |
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