Tuesday - September 22, 2026

0:00Welcome to the dividend cafe weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Welcome to dividend cafe. This is Brian Saitel with you this Tuesday, September 22nd. On a pretty mixed day in markets, the S&P actually closed exactly flat, meaning 0.00 movement, which I don't see all that often. But the Dow was down 185 points on the day, which these days is about a third of a percent. NASDAQ was the winner on the day. It was up about half of a percent and then he had yields. On the long end of the curve come in a little bit on the short end unchanged. Ten year was flat, where 495. So that yield is actually come down here after the Fed has raised rates at least 25 bits last week. So again, you're seeing financial conditions largely unchanged tilted towards slightly easing rather than tightening, which is a little unusual of what we've seen in Fed paths

1:05historically because the modus operandi this time is that the Fed will be following financial conditions, not necessarily setting them or leading them. And I think it's so far been quite well received and we've written about that enough. But it is interesting to me on a few different fronts and I wanted to talk about this. First, WTI did close below $90. It was down about 3%. That was the move on WTI Brent is still trading at 98. But oil has come down and what you aren't saying with oil coming down is the two year yield coming down normally. If you really thought that the inflation and the CPI numbers and the PCE numbers on the headline front, so not core because energy wouldn't be in that. But on the headline front were the main reason why the Fed was raising rates than you would expect to see two year yields come down a bit if oil came down. That's not what we're seeing and what that says to me is that markets are pricing in more restrictive policy from the Fed regardless of what energy does. And what that means is that inflation is viewed to be a little bit more not necessarily

2:10entrenched, but more broad than just the supply chain shock of energy. So take that for what it is. But that's something notable. The other couple of things that I just wanted to point out that I've noticed. This one is probably the beginning of the first inning. So this is not something that is dramatic yet, but there's some hints of it, which is that we've seen this really negative correlation between semi-conductors and the AI names. Let's call them hyper-scalers. And then of course all the semis with what you're seeing in software names, all of them. So AI and semis are up and that means that all the software is down almost every single day. It's like that. And then it goes vice versa. Software is up and then all the AI names are down. And you're starting to see that come a done just a little bit, not necessarily that there's not negative correlation, but that it is a little bit more subtle now. And also it's a little less indiscriminate, meaning like every single software company even though they're completely different, some are IT consulting businesses, some are corporate the Fortune 500 software names and services companies all selling off the same.

3:11They're starting to be a little bit more discernment. Actually, if it's healthy, it's as these companies work in conjunction with AI versus being supplanted by it. I think that's a normal thing and therein lies the opportunity for what it's worth as well. And that's what we're looking at with some of the positioning that we have at the Monster Group is to try to take advantage of things in dislocations when we see the baby being thrown out with a bath water like that. But nonetheless, since the Fed rate hike, financial conditions have actually eased a little bit, stocks have moved higher. The NASDAQ did make a hal-time high yesterday. But another today, frankly, credit spreads remain very, very tight and the long yields have come down a little bit. So if it is true that the market is leading the Fed, then what that is saying to me is that the market is saying that the Fed is getting the policy right because conditions and markets are behaving nicely, not poorly. But look, there's about an 85% chance of one more rate hike before this year. I still believe it'll be December versus October, but I'm open to being wrong on that. And I suppose I don't necessarily care either way. If it were me, politics aside of what it does to midterms, it shouldn't move midterms

4:13number one anyways. But I'd rather get it over with sooner than later. But I know there's a political angle to it. But that means there's about two or three more additional hikes next year and then things level out. Like I've said many times, the history of the prediction of over six months out on some of those things is very poor. But if the goal is for the Fed futures to paint away for these numbers to get back to a 2% PCE number and land that plane, then markets are behaving as if it's moving in the right direction. But that is to be good. Question in there today was about the carry trade, my dear friend and someone I had lunch with today, John Maulden wrote about this over the weekend, although this question came in actually before that. But it was about the carry trade. What does it mean for global liquidity and global financial markets as that is ends? And I wanted to give a little history both for this reader just to kind of paint the picture a little bit for what he's asking before I could answer it. But basically, you had this very long period of time, 10, 20, 30 year period where the interest

5:15rate in Japan was far lower than the interest rate in the United States. Why? Because you had deflation in Japan and he had a modest amount of inflation and growth in the United States. But the idea was to borrow an yen at half of a percent and buy treasury earning four and a half percent and you get to keep the difference, which is a nice 4% way to have positive arbitrage. And if you hedge the way the currency risk of one of those things, well, against you, it would cost you about half the yield. So nonetheless, if you had a billion dollars and you did that, it's 2% free money. Essentially, 2% free money is a good bet to take because you can really size it up. And of course, that's what happened in 2022. We raised rates 500 basis points in this country. Where did Japan do? B O J? They kept rates at zero. That trade was supercharged. You ended up with about 360 trillion yen going into dollars to buy other assets. And so now that that is now coming on down the bake of Japan, first of all, they move back up. What that did also is a decrease the value of the end, which increased inflation in Japan. And so now they've got themselves out of deflation.

6:16Now they're dealing with we cover which a wish for in other words. Now you're dealing with inflation. And so they're raising rates. And for them to be at zero for a generation to go up to 125 basis points as of last week is a big deal. But JGB 10 year is now 3%. So the gravy in the juice that was in that arbitrage has now been taken away. And I've called it the arbitrage punchball being taken away a little bit. It doesn't mean it's gone. It's still there. It's just not as juicy as it once was. And as that happens, you're going to get a rotation back into Japanese assets, potentially on the sovereign side. And certainly into the currency. Now you haven't seen that in the end because it's still very, very weak. But I guess my point to answer the question. I could see that coming on changing directions. Meaning the yen gets a little bit stronger. The dollar gets a little weaker in that process. Technically the knee K is down about 7% since June. So you are seeing a de-leveraging effect which makes sense. And you are seeing some money come out of risk assets. And that also makes sense. So that's my answer to the question. It's a form of de-leveraging. And so what does that mean?

7:18As money comes out, it means that as prices go down a little bit. But so far it's been very orderly. And so far you've got the US Treasury Secretary working with Japan to keep it that way. There's been history before when it wasn't orderly. And it gets a little ugly in markets. So I know they're trying to do the best they can to keep this in normalized fashion and so far so good. The only thing in the economic calendar today was a Richmond Fed manufacturing survey that missed. I would call that not very notable. So I won't go into it more than that. But there's my around the horn for you today. Thanks for listening as always. And I'll be back with you tomorrow to be on dividend cafe. Thank you again. 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 through high-tower securities LLC. Advisory services are offered through high-tower advisors LLC. This is not an offer to buy a 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.

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