Unconventional Success Habits and Key Financial Market Updates

September 18, 2023 Season 5 | Episode 30

Looking to add a sprinkle of success to your daily routine? Discover unconventional methods of the high-fliers that could potentially transform your personal and professional life. From the invigorating rush of cold showers and the discipline of intermittent fasting to the simplicity of wearing the same outfit, we're bringing you tried and tested secrets of the successful. Complementing this, we delve into the art of expressing gratitude - there's power in a thank you note that could set your day off on the right foot.

But we're not just about personal development. We're your eyes and ears on the ground of the financial world. Be prepared for the impact of the Federal Reserve meeting on the economy and the markets. Explore the implications of the recent auto industry strike, and what it means for both the workers and the manufacturers. We'll also give you a lowdown on the latest in tech - updates you can't afford to miss. And, as the cherry on top, we scrutinize the rise of private equity and private credit investments in traditional public markets. Don't just listen, get empowered and inspired!

** For informational and educational purposes only, not intended as investment advice. Views and opinions are subject to change without notice.

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Transcript

Alan Eppers: 0:00

And now introducing Mr Keith Lanton.

Keith Lanton: 0:05

Hi, good morning. Everyone had a pleasant weekend. Today is Monday, September 18th. I want to wish all of us celebrated the Jewish New Year a happy new year, as this weekend was the beginning of the Jewish New Year and September is the beginning of the fall, beginning of children or young adults getting back to college or to school, and in many of the investment professionals of the world, it's the end of their summer trips out to their vacation destination, whether it's here in New York, the Hamptons or some other location. So it's often thought of as a time where we get back to business. So here we are, mid-September, this morning going to speak about some habits that successful people use, that perhaps we can think about using here whether it's the start of a new year resolution for you or just the start of the fall, some thoughts on some changes you could contemplate incorporating. Then we're going to talk about the world, the markets, the geopolitics, what's going on Russia, ukraine, oil prices, what's taking place with interest rates this week, federal Reserve with their important meeting mid-week this week. We've got strike going on in the auto industry and we'll talk about the long-term implications of what's taking place in the auto industry and why this contract negotiation perhaps is one of the most important contract negotiations of both the UAW and for the auto manufacturers here domestically in the US. In some time, if not ever, I think that deserves some extra attention. Then we'll take a look at what else is going on in the financial markets. What's going on this week? Talk about what took place last week with the tech world. Then we'll talk a little bit about interest rates, the bond market, so beginning of fall just a couple of days away.

Keith Lanton: 2:21

Some unusual daily habits of highly successful people. Of course, success is not one size fits all, a very broad definition of what determines success. We each have our own thoughts and opinions on that, but what we can say is that people who have at least demonstrated financial success we can try and think about and if we are interested, we can try to think about incorporating some of their habits into our daily lives. Unconventional thoughts on on some of these habits while not prescriptive, these habits can serve as food with thought, helping us to step outside our comfort zones and explore different paths to personal and professional growth. So one thing you may want to think of doing we may think that this is something absolutely won't do Is to take cold showers. They are not only guaranteed to wake you up, but they also have arguably numerous health benefits. They can improve circulation, a boost mood, increase, alertness and even, some say, help build up by your immune system. When you conquer the discomfort of a cold shower first thing in the morning, you may say that everything else you did can seem a bit more manageable.

Keith Lanton: 3:37

Another thing you might want to try is intermittent fasting, which is not about starvation, but rather about timing your meals. Intermittent fasting involves cycling between periods of eating and fasting. There is a growing body of scientific evidence showing potential benefits, such as weight loss, better brain health and even increase the longevity. Twitter's former CEO, jack Dorsey, follows this practice, and he is reported that for him, he's experienced improved focus and energy. Of course, before you dive in, remember that dietary changes should be tailored to your individual health needs. It's always a good idea to first consult a health care professional.

Keith Lanton: 4:17

One that may want to think about might make your life a little bit easier is to wear the same outfit every day. That might seem horrifying to some and might seem like a big relief to others. If you've ever been overwhelmed by having to choose an outfit in the morning, this habit might be the solution that you're looking for. It might sound monotonous, but some of the world's most successful people, like the late Steve Jobs, chose to wear the same outfit every day. Why? Well, it helps to eliminate decision fatigue, saves mental energy for more important decisions throughout the day. It also makes it easier when you go and shopping. Just by 10 of those black shirts, 10 pairs of black pants, similar shoes, similar socks, and you're good to go. And it also makes a sort in that laundry a lot easier. Successful people this one might be a little bit more intuitive. What do they do? Well, they read an awful lot. This might seem like a no brainer, but it's certainly worth mentioning, because of its sheer impact, that reading extensively not just novels or newspapers, but a wide variety of genres and format. Elon Musk is known to read everything from philosophy to rocket science. Extensive reading exposes you do a broad array of ideas and perspectives, fostering a deeper understanding of the world.

Keith Lanton: 5:34

One that I think just about everyone might benefit from, personal opinion, is a digital detox. We are certainly a wash in digital exposure, and it may be the case that too much of a good thing can be harmful. Successful individuals many regularly disconnect from their devices. Doing so helps create a space free from digital distractions, providing room for reflection, creativity and deep work that he showed in incorporating a digital detox into your routine could potentially enhance your mental health, increase productivity and improve your personal relationships. Even a short period of disconnection each day could yield significant benefit, unless the thought I will leave with you is to consider writing a thank you note every morning, each morning. Right, thank you know. To express gratitude to someone in your life, this habit not only brings joy to the recipient, but it also cultivates a positive mindset in the person writing the note. The ripple effect of this small act of kindness can be significant.

Keith Lanton: 6:44

So, as we think about perhaps changing one or more habits that we have each day going forward here, as the fall is getting set to begin, we will take a look at the financial markets this morning as we approach this week where the seasons are changing, federal Reserve is speaking and financial market are, you know, as usual, quite uncertain, uncertain. So this morning, taken a look at where the futures are. We are seeing futures now trying to recover, still slightly to the downside. S&p futures right now are about seven points below fair value. Nasdaq 100 futures are about 35, actually 44 points below fair value. And now futures right now about 20 points below fair value. Participants are waiting to see how the market responds to Friday sell off and our hesitant in front of Wednesday's Federal Open Market Committee policy decision. The market is not expecting a rate hike will be more focused on the updated summary of economic projections and the tone that Fed chair Powell takes at his press conference.

Keith Lanton: 7:55

Separately, the United Auto workers strike persist. Bloomberg is reporting that the Stalantus symbol, stla owner of Chrysler here in the United States. They made an offer to the UAW for a pay increase of about 21% over four years with a 10% immediate increase, and reports that that has been turned down by the UAW. House Republicans, according to Reuters, have presented a short term bill that would avoid a government shutdown till October 31st. I may remember we talked last week that there is a potential shutdown looming September 30th, so this would give some more time to speak in McCarthy to see if he can get an agreement in place among those House Republicans until October 31st.

Keith Lanton: 8:48

Treasury yields and oil prices moving higher. This morning, to your note, yield is up one basis point to 505, 10 years up one basis point to 434. West Texas intermediate crude futures are up about half a percent to $91 and 26 cents a barrel. Taking a look overseas, equity markets in Asia Pacific region began the week on a mostly note lower note, while markets in Japan were closed for a holiday. Major European indices are also trading in the red anywhere, with a decline of about three tenths of a percent for the FTSE in the UK to about 1% decline in the KAC 40 in France.

Keith Lanton: 9:33

Some notable news this morning marketing firm Clav IO has lifted its IPO price target range and his company is expected to come public this week at a valuation of about $9 billion. This company, you may be pleased to know, is one of those companies that helps send you all those targeted emails that you love to receive. There are talks that Clav IO has a oversubscription based on the current estimated price range of about 20 times oversubscribed. On the heels of last week's successful IPO of arm holdings, which popped after its IPO and then followed up with a couple of days of gains, this morning Arm is pulling back about 4% after Bernstein initiated coverage with an underperform rating. Nevertheless, we are seeing some life in the IPO market, some life in some of the underwriting stocks, like Goldman Sachs, that benefit when the IPO market gets stronger. We are seeing that this morning.

Keith Lanton: 10:49

Also this morning in the tech space, micron Technology, similar MU was upgraded to buy from Holdit Deutsche Bank. It's up about 2%. Doordash is up about 2% after being upgraded by Mizuho to buy from Neutral. On Sunday, paypal down about 1% after Moffitt Nathus and Downgraded the stock to market perform from outperform and cut its price target 10 days before PayPal's next CEO, alex Chris, is expected to take over the helm over at PayPal. Disney symbol DIS. This morning up slightly after Raymond Jean's initiated coverage with an outperform rating. Also reporting from the Wall Street Journal that the Chief Information Officer at Disney is going to be leaving the company. Clorox symbol CLX down about 2% or 3 points after they identified unauthorized activity on some of its information technology systems. They believe the impact will be material on the first quarter results for Chrysler Clorox.

Keith Lanton: 12:03

This morning, amazon lining up getting ready for their prime big deal days. Next prime day is expected to begin October 10th at 3am Eastern time and it's expected to run until the next day and through October 11th. Wall Street Journal reporting that Amazon is looking for new areas of focus. Other news this morning Abbey Bristol, myers, johnson and Johnson, merck and Pfizer are urging a federal judge to block President Biden's administration from implementing a new program that would let Medicare negotiate prices with pharmaceutical companies for selected costly drugs. We'll talk a little bit about more of that and the potential implications for seniors with an article that was in Barron's over the weekend. Challenger Gray and Chris misses reporting that US retailers will hire the lowest number of seasonal workers for this holiday season since 2008 due to increased labor costs and shaky consumer confidence.

Keith Lanton: 13:11

All right, so what's going on this week? Big event this week is a federal open market committee meeting on this week and their decision is expected on Wednesday. Wall Street is nearly unanimous in expecting the federal open market committee to hold the Fed funds rate study at the five and a quarter to five and a half percent by year end. There is roughly a 40% chance of a quarter of a percentage point increase bringing the Fed funds rate to five and a half to five and three quarter percent. Thursday, many of the other central banks around the world are going to be giving us their thoughts on interest rates Bank of England, sweden's Reichsbank and the Swiss National Bank all announcing their monetary policy decisions on Thursday, with European inflation proving more stubborn than most developed economies. Those central banks are expected to raise their key rates by a quarter of a point. In contrast, the Bank of Japan, which announces this decision on Friday, is seen keeping its target rate unchanged at negative 0.1%. Friday, s&p Global releases its manufacturing and services purchasing managers index for September. Consensus estimates are for a reading of 47.8 for the manufacturing PMI and 50.3 for services PMI. Both figures are roughly even with August, reinforcing the fact that the services sector continues to hold up better than the manufacturing sector.

Keith Lanton: 14:38

Moving on to Barron's and market action, last week Barron's pointing out that the trading has been choppy and range bound for several weeks, perhaps leaving some of you with a C-sick feeling, but you may not be in for smoother seas anytime in the near future. Despite no shortage of headlines and hand-ringing, the stock market hasn't been doing much of anything. S&p 500 has been flat over the past two months. This week's inflation and retail sales data, tech company drama and a parade of industry conferences did little to change that. Last week, the S&P was down 0.16 percent. The Dow was up 0.1 percent. The NASDAQ was down 0.4 percent. Even this week's coming meeting of the Federal Open Market Committee, barron says it's unlikely to help the market pick a direction.

Keith Lanton: 15:31

A data-dependent Federal Reserve will meet on Tuesday and Wednesday to contemplate its next monetary policy move and offer projections of interest rates, economic growth and inflation. And, as we previously mentioned, futures market is expecting no change in rates at this meeting. The data flows since the July meeting largely supports a wait-and-see approach, according to Bank of America's Chief US Economist. He goes on to say that recent data should leave the Fed encouraged by ongoing disinflation, but concerned about reacceleration in inflation because of the strength in activity. What the Fed makes of the longer-term trajectory is still up in the air, and that will put the focus on the summary of economic projections. What others call the dot plot is what is widely expected to be what the markets will have a laser focus on.

Keith Lanton: 16:18

For now, futures pricing calls for a percentage point worth of rate cuts by the end of next year. So expectations that you could be seeing rates lower by the end of next year, a forecast that could move depending on what the Fed officials give us in terms of reading those dot plots next week. So, going forward, the real question becomes not how high rates will go. Markets are moving on from whether or not the Fed raises rates one more time, two more times. But what the markets are now focused on is not the increase in rates, but how long the Fed, once they go on hold, will stay on hold and what the cut in interest rates which follows that holding period, however long it is, will look like. So all eyes will be on expectations for 2024 and beyond. If you are taking a look at Fed funds futures for December of 24, so by roughly election time next year, what are the expectations look like? On interest rates? Well, if you go by that futures pricing, futures markets are expecting 4.58%. So somewhere in the neighborhood of about 1%, or a little bit less than 1% lower than where we are today is the expectation as of this very moment. But keep in mind the Fed has not given us an update on their thoughts since June 14th, which is almost a season ago, and we've had lots of data since then. So we may get some new information from the Fed at this meeting that will perhaps strongly influence expectations for 2024.

Keith Lanton: 18:11

One popular notion is that the inflation receives in line with the FOMC's projections. Then a failure to cut rates at that point would in fact, be like an unintentional tightening and therefore, that could crimp the economy. On the flip side, there are those who suggest that the Fed should wait longer and potentially do that unintentional tightening by not lowering rates even as the economy slows. Because the concern is that if you go back historically and look at the 1970s, the Fed did cut rates. In the 1970s, inflation accelerated, risk assets picked up, stock markets picked up and that then led to a resurgence in inflation and then the Fed had to raise rates again, making that recovery take a lot longer and making inflation a lot more painful. So some are suggesting perhaps that the Fed should err on the side of more pain, more caution, more tightening in terms of monetary policy. Others are also suggesting that perhaps the target rate if we're talking interest rates, of how much rates should be above inflation or what the real rate should be that is something that's subject to a lot of debate. Real rate of inflation, some have suggested has recently, before the Fed went negative in terms of real rates, was the target rate. Some have speculated it's about one half of 1%, but now, with the deficits roaring and the Fed and the government having to take into account the tremendous amount of treasury issuance, some are suggesting that in order to satiate demand for all those treasuries, that the real rate of return that investors will need to receive in order to clear the market might be closer to 2%. This is something that could be a headwind that the Fed faces that rates have to be artificially higher than they would like in order to get treasuries sold because there's so many of these treasuries coming to market. And these are all different factors that all have to weigh as we analyze how the economy is doing, what interest rates are and what the implications are for the equity market.

Keith Lanton: 20:29

Articles and Barons this weekend Big story. This morning we talked about the UAW United Order Workers rejecting the offer from Stalantis. They had previously rejected the offers from Ford and General Motors. And Barons headline story talked about the US auto industry and why the United Auto Workers strike isn't the biggest problem for Ford and General Motors. While a strike is the most immediate issue facing the big two US automakers, the existential threat posed by electrical vehicles is an even bigger problem. Electric vehicles are taking off in the US, but EV related losses are growing for Ford and GM and now the companies have to make some hard decisions about how they will spend billions of dollars. Decisions sort of have serious consequences for their stocks. The numbers are huge. Ford is planning to spend roughly $7 billion over the next few years to build new battery plants and electric vehicle manufacturing facilities in Kentucky and Tennessee, while General Motors is committed to spending $35 billion between 2000 and 2020 and 2025,.

Keith Lanton: 21:37

Us automakers desperately need to and when I say US, I would say traditional US automakers, for in General Motors, because of course, tesla is a US automaker these companies need to significantly increase their electrical vehicle market share here in the North American market if, in fact, electric vehicles are going to be the future of the auto industry. Gm has just 6 percent market share. Ford has five. Electric vehicles make up 7 percent of the overall US market, but if you look at a state like California, which is often a harbinger of things to come, electrical vehicle sales in California now represent 22 percent of the market.

Keith Lanton: 22:16

Ford and General Motors are going to have to significantly pick up their EV game in order to remain relevant. At the same time, they've got to take on their challenges with respect to labor costs if they are going to put themselves in a challenging position by negotiating higher wages for UAW workers relative to their competitors like Tesla and Rivian, who currently have workforces that are non-unitized. This could potentially be a significant headwind for Ford and General Motors. Also, if these companies were to present to the UAW terms that the market feels are generous, this could presentially present a problem going forward, as they potentially lock themselves into a workforce that is well compensated and that has terms that make it challenging to be flexible with their workforce at a time when the nature of the assembly of vehicles is changing. Electric vehicles have fewer parts, fewer moving components and therefore potentially require less workers in order to assemble them. So it is a really significant challenge for Ford and General Motors in terms of how they meet the challenge of the short-term need to get their factories and production back up and going, at the same time that they need to be flexible enough to build the vehicles of the future and to be building these vehicles of the future and being competitive with the competition. So truly a daunting challenge ahead for the US automakers and for the UAW as they try and together strike the right balance for American auto workers and for the existential perpetuation of Ford and General Motors' relevant components to the automotive industry and to the US economy.

Keith Lanton: 24:23

I mentioned that we were going to talk about some of the changes taking place in the pharmaceutical industry, and those are the changes having to do with the government saying that they are going to negotiate prices on drugs. They have chosen 10 drugs that will be the first that they negotiate prices on. As we discussed, the pharmaceutical companies have sought to have that negotiating power diminished or eliminated, as they say. It's not something that the government has the right to do and, as this plays out in the courts, it's going to have a significant impact, both on the pharmaceutical prices that seniors and Others potentially pay, as well as the profitability of US pharmaceutical companies that are impact. These companies chose 10 drugs and these and these prices are set to take effect in 2000 and 26. But these 10 drugs is just the first round of drugs that the government is going to target. Going forward, they are going to target additional 15 drugs in 2027 and another 20 drugs in 2000 and 28, assuming that the courts find this permissible.

Keith Lanton: 25:33

What does this mean to those of you who are on Medicare or will be on Medicare? Well, if this change does take place, medicare recipients stand to benefit from reduced prices on these drugs. That's because part the premiums today reflect the cost born by the plans and to the extent that negotiations lower those cost. Savings will trickle down to enrollees in the form of lower premiums, price negotiations and one of several provisions in the inflation reduction act designed to lower prescription drug costs and Medicare patients. Monthly out of pocket costs for insulin were capped at $35 this year. Starting next year, those with high drug spending will catch a break when their responsibility in the catastrophic coverage phase of part D, which beneficiaries reach after spending roughly $3000 out of pocket, will drop from 5% co insurance to zero. Then, in 2025, out of spending, out of pocket spending on medications will be capped at $2000 annually, indexed for inflation going forward. So seniors could potentially be the beneficiaries of the financial challenges that some of the pharmaceutical companies may be facing.

Keith Lanton: 26:49

Finally, I'll mention one last article in Barron's. Barron's talked about private equity and private credit, as these investment choices have garnered a lot more market share In the last few years, not just for the wealthy, but it's making its way, private equity and private credit credit making their way down to the mass affluent, and that's partly a reflection of the fact that the SEC has not changed the definition of an accredited investor. An accredited investor since the early 1980s has been someone that's an individual that makes 200,000 or a couple that earns 300,000 or, alternatively, has a net worth of $1 million or more, excluding their private, excluding their primary residents. Some have argued that the SEC has intentionally been not raising the limits on accredited investors because they want to democratize the marketplace and enable more and more investors to participate in investments that were previously only available to those who had significantly more net worth. So Barron said let's take a look and see how private equity has done and how it stocks up against the stock market.

Keith Lanton: 28:06

Just last week there were two books out being critical of private equity and suggesting that private equity has benefited the most the folks who offer private equity. And the two books that came out last week one called these Are the Plunderers how Private Equity Runs and Wrex America. The other is plunder, so definitely a theme here. With plunder, private equities plan to pillage America. Now the plunderers took a big lead on irony last week when KKR, which is one of the private equity firms out there, agreed to buy its publisher, meaning that private equity now gets a small taste of the proceeds from taking down private equity.

Keith Lanton: 28:52

But Barron's goes on to review private equity and private credit and see how they stack up against financial markets, and what they basically conclude is that, despite the fact that the private equity fees are perhaps noxiously appalling say anywhere between one and a half to 2% of assets plus 20% of the profits basically they conclude well, the jury is still out. Public markets have been around for about 400 years. Private equity and private credit are only about four decades or 40 years old. So making a judgment, they say, is perhaps premature. But what they do say is that some of the benefits of private equity and private credit were due to the fact that the valuations were fairly attractive, or very attractive, if you go back a decade or two and there are a lot less participants in the market. Back then, the Carlisle co-founder, david Rubinstein, told the author of this article in Barron's that the deal prices back in the day, so to speak, were seven, eight or nine times cash flow. Now you're seeing deals being done at 13, 14 or 15 times cash flow. Of course, when the starting prices are a lot higher, well, the potential future returns could be meaningfully lower.

Keith Lanton: 30:11

One of the other factors that some folks prefer in private equity or private credit is that when individual investors look at their statements that the volatility of private equity or private credit tends to look a lot lower, meaning that when the markets public markets are down significantly, the valuation of private credit looks like it is not declining as much.

Keith Lanton: 30:38

Some are suggesting that is really the result of what some call volatility laundering, which means that estimated values are not being marked down as strongly as they are in the public market and therefore during downturns perhaps that is not accurately reflecting the true value.

Keith Lanton: 31:00

If you truly had to sell those assets, but because those assets are a liquid, the argument perhaps could be made that we don't need to go exactly to market because we're not selling currently and we're looking at a long-term average and a realistic assessment, not this moment's panic mode that we're seeing in general broader markets and therefore this volatility is not being reflected in prices, and it could be a whole philosophical discussion on whether or not that pricing that some who are investing in private equity and private credit are seeing is truly the right valuation.

Keith Lanton: 31:36

At the end of the day, barron comes the conclusion that if you look at the last 30 or 40 years that the private equity, private credit, which is growing now, has held up fairly well in the returns, including fees, look somewhat like public markets. Private equity and private credit investors arguably have gotten returns fairly similar to public markets, perhaps with less volatility. The real conclusion at the end of the day is we've only got 40 years of data. This market is growing, it's becoming more common, it's becoming more accessible and the jury is still out on how this asset class ultimately gets judged and the story that we'll continue to follow and continue to monitor. That's everything I've got.

Alan Eppers: 32:25

Thank you for listening to Mr. Keith Lanton. This podcast is available on most platforms, including Apple Podcasts, Spotify and Pandora. For more information, please visit our website at www. heroldlantern. com.

Sofi Cohen: 32:43

Opinions expressed herein are subject to change and not necessarily the opinion of the firm. Past performance is no guarantee of future results. The information presented herein is for informational purposes only and is not intended to provide personal investment advice. It is important that you consider your tolerance for risk and investment goals when making investment decisions. Investing in securities does involve risk and the potential of losing money. The material does not constitute research, investment advice or trade recommendations.