The DC Today - Wednesday, August 9, 2023
The Dividend Cafe
The Dividend Cafe - The Bahnsen Group
4.9 • 572 Ratings
🗓️ 9 August 2023
⏱️ 11 minutes
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Summary
Today's Post - https://bahnsen.co/3YukmEv
I think the biggest news of the day was China’s -0.3% consumer price index for the month of July, and it’s -4.4% producer price index. This was the tenth month in a row of wholesale price deflation, but it was the first month in over two years of consumer price deflation. I am dedicating next week’s Dividend Cafe to the subject of Chinafication.
In keeping with the message of the last two Dividend Cafes, our “credit watch” has a couple interesting things to note. Earnings were covering interest expense on investment grade loans 9.2x over right before the Fed began hiking rates. They are now covering them 8.2x. This is called the Interest Coverage Ratio and a high one is good (more coverage of the interest expense by the earnings of the company). Now, that number will get all the way down to 6x in recessions (2020, 2008, 2002), so this move down is not dramatic, but it is a deterioration that is worth watching. With High Yield it has moved from about 5x to just over 4x. Across the levered loan world total leverage is up a tad (debt divided by earnings), and coverage of the interest expense by either earnings or free cash flow is down a bit. None of these metrics yet indicate anything broken, yet all of them are modestly worse off than they were 12-18 months ago.
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. |
| 0:14.2 | Well, hello, and welcome to the Wednesday edition of D.C. today brought to you live from beautiful New York City. |
| 0:22.0 | Very silly day in the market today. |
| 0:25.5 | Let me get that out of the way first. |
| 0:27.7 | Just in terms of the market being up and then down 200 points and then up 50 and then |
| 0:33.8 | going down 200 again in the last 20, 30 minutes of trading. |
| 0:38.7 | Tomorrow is the day that the consumer price index, the CPI data for the month of July |
| 0:44.5 | will be released. |
| 0:45.4 | And I pretty much have no doubt that just sort of last minute trade positioning going |
| 0:51.0 | into CPI day, which of course comes out before the market opens. |
| 0:55.8 | And so that's generally my experience as to what moves the market suddenly in the final minutes |
| 1:01.8 | of trading. |
| 1:03.0 | I don't say that as a good thing or a complementary thing to the people doing it. |
| 1:07.5 | But you're about two years now, maybe 18 months of almost every day in which it's the day |
| 1:14.5 | before CPI or the day before the FOMC, the Federal Open Market Committee, making a Fed announcement. |
| 1:19.7 | And then the day of CPI and the day of FMC where you get a lot of this kind of funky action. |
| 1:26.1 | It doesn't matter. It doesn't mean anything. |
| 1:28.4 | It's just sort of amateur hour for certain people that, you know, |
| 1:32.4 | are getting certain positioning set up and then things kind of normalized thereafter. |
| 1:36.7 | I actually do expect that the inflation number will move higher tomorrow just simply |
| 1:42.1 | because of the headline number, which includes |
| 1:45.7 | oil and food and, you know, food and energy. Natural gas has not really moved a lot, actually, |
... |
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