On March 11 from West Palm Beach, Brian Szytel reports a mostly negative but relatively benign market day amid volatility tied to Iran, the Strait of Hormuz, and surging energy prices (Brent ~$92.77, WTI ~$88.29). February CPI came in as expected: headline +0.3% and core +0.2%, with year-over-year headline 2.4% and core 2.5%; he notes current oil moves could have lifted year-over-year inflation to ~2.8–2.9%, though de-escalation or large IEA releases could offset. He highlights shelter’s lagging but cooling impact (rent measures up just 0.1–0.2%), important given shelter’s 35% CPI weight versus energy’s 7%. He discusses a new Fed chair in May aiming to cut short rates while shrinking the balance sheet, arguing productivity gains from AI and weaker labor data support easing. He also answers that TBG charges no extra external fees for alternative funds beyond internal fund expenses.
Welcome to the dividend cafe weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life.
Welcome back in to dividend cafe this Wednesday March the 11th Brian Cytel. I'm your host here from our West Palm Beach Florida office on mostly negative in the stock market today overall we had the Dow closed down about 289 points.
S&P was pretty flat down just five in the NASDAQ was just slightly positive. So continued volatility around what's going on with Iran and what's going on with energy prices and what's going on with the straight of hormones.
And with that like I said markets have actually been quite benign in this thing they're only down a couple percentage points one to two since this thing began so directionally that's not what's happening volatility is what's happening.
And also huge volatility in the energy paradigm so Brent today closed I'm looking at it now 92 77 and WTI was 88 29.
So both of those moved significantly higher and it's meaningful to for today's report and I'm going to go through that because today we got the CPI number so this is a fresh read on inflation.
It's through February which technically this thing began just after this report so the numbers are good they came out right in line we got a 0.3% for headline and then 0.2% for core when you stripped out food and energy.
So that puts you over a year on headline at 2.4 and on core two and a half so not quite at the feds 2% target but I'm going to call it horses and hand grenade type of close there it's getting pretty darn close there.
That said if you were to put in where Brent and WTI is gone now so WTI is up something like 19 it's actually after I wrote that it's up a little more 20% and then Brent is up 15%.
If you were to put that into today's number and kept all the other numbers the same it would have added about 0.3 to 0.4% on year over year numbers which would be right around 2.8 or 2.9%.
So meaningful yes but a lot of things here one I mean the war can end tomorrow so there's de escalation that might be wishful thinking but it may happen before the next CPI print to the IEA said that they're going to release 400 million barrels that's double what they released during Russia Ukraine so that's why Brent dropped after it was up 6% closed flat on the day so there's things like that can happen.
Strategic petroleum reserves can get released all of those things so I there's a lot of moving parts to this thing too but the other component to it is things won't remain the same in the rest of CPI anyways so there's going to be give and take the one comment I wanted to make that's important that we've spoken about for a well over a year is the shelter components is because shelter is a lagging number it is a trailing number and so if you look at real Zillow rent index numbers they aren't there.
Not only not raising anymore there in some cases falling that number inside of CPI has been trending down towards reality and including today if you look at it it was only 0.2%.
If you actually look at the rent of primary residences they were only 0.1% that's the lowest since January of 2021 after the world was essentially ending during the pandemic.
That's an offset in the reason is that energy only makes up 7% of CPI and shelter makes up 35% these things are going to offset one another in a real meaningful way it's one of the reasons the numbers on February's print and CPI were pretty good.
And it's going to be also a benefit as we get in the higher energy prices priced in those things as well so keep all of that in mind and I'm saying all these things because it's important as we have a new fed chair coming into the seat.
In May because his goal as has been telegraphed I assume all of it is changeable on market conditions but was to lower short term interest rates and at the same time reduce the balance sheet.
So it's on one hand stimulative or easing monetary policy easing financial conditions and then on the other hand doing the opposite which is selling assets off the balance sheet to bring it down to a smaller size.
It should be yield curve steepening because you're lowering short term rates and selling stuff that's out on the curve. Yes, but I don't know that this paradigm of Iran and this war is going to change that with these offsets if you remember the labor number was not good at all we lost 90 plus 1000 just a week ago the combination of the words like this it'll be transitory will be a word that they're going to use on inflation because of energy then they're going to talk about the gain and productivity that's going to change.
We've seen in productivity that we've seen from AI and that's just getting started that's actually deflationary so that gives us power to lower rates and then they're going to say that the labor number has started to move down and that's one of their mandates and so they have the ability to still lower interest rates.
It's actually good for markets and generally speaking I believe Worsh is the right person for that job so I think that's those are all basically positive things.
Question in there today was about costs on alternative funds alternatives have been in the news interestingly more than I can ever remember and whether it's private equity in the
earth of exits that need to happen or it's the private credit markets or what not.
But the question is around cost fees and so it's not market related but are there extra cost to own an alternative fund.
The answer is not externally TBG assesses its advisory fee as always this is for advice for fiduciary planning for fiduciary advice and for our
managing the money there isn't an extra cost to buy an alternative fund from our side inside of any fund structure doesn't matter what it is mutual fund closed and
fund ETF alternative fund yeah there's an internal expense ratio but the return is net of that anyways so that's what would be shown in an account.
I'm not saying we shouldn't care about what they are I'm just saying that we already managed to that everything we own is institutional share class and
everything is going to be the benefit of economies of scale of our nine billion dollar business and high towers 300 billion dollar business so fees are fine.
The other thing is you can't own an alternative investment outside of a fund anyways realistically especially with a private credit fund.
The only way to own those loans would be to underwrite them yourself and use your own capital to do it I would never recommend that.
But we want exposure to some of these asset classes yes there's internal cost to get them but then again there's the benefit of the return and then also the diversification of another asset class.
So that's my answer on that question I hope that's helpful to you today.
Lastly was basically most of what was around the horn on the day and I went through things a bit fast but I hope it was engaging because there's a lot of
things going on in the world right now and whatever I've said that sparks a question reach out with it and I will get back to you with an answer.
Otherwise I will not be back with you tomorrow because I'm traveling for business on the podcast but the written will be in your inbox so with that have a good evening I wish you well.
The Bonson Group is a group of investment professionals registered with high tower securities LLC member Finra and SIPC with high tower advisors LLC a registered investment advisor with the SEC.
Securities are offered to high tower securities LLC advisory services are offered to high tower advisors LLC.
This is not an offer to buy or sell securities no investment process is free risk there's no guarantee that the investment process or investment opportunities reference theory and will be profitable.
Past performance is not indicative of current or future performance and is not a guarantee the investment opportunities reference theory and may not be suitable for all investors.
All data and information reference theory are from sources believed to be reliable any opinions news research analysis prices or other information contained in this research is provided as general market commentary and does not constitute investment advice.
The Bonson Group and high tower should not in any way be reliable for claims and make no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information or for statements or errors contained in or emissions from the obtained data and information reference theory.
The data and information are provided as to the date reference such data and information are subject to change without notice.
This document was created for informational purposes only the opinions expressed are solely those of the Bonson Group and do not represent those of high tower advisors LLC or any of its affiliates.
High tower advisors do not provide tax or legal advice this material was not intended or written to be used or presented to any entities tax advice or tax information.
Tax laws vary based on the client's individual circumstances and could change at any time without notice.
Clients are urged to consult their tax or legal advisor for any related questions.
