Mastering Life and Markets: James Clear's Insights, Financial Shifts, and Global Events

Feb 20, 2024

Unveil the secrets to reshaping your life with precision as James Clear, the mastermind behind "Atomic Habits," joins us to impart his strategies for enhanced productivity and a reputable life. This episode isn't just about personal transformation; we're also dissecting the heartbeat of the financial world. Get the scoop on Nvidia's leap over Amazon, Bitcoin's bullish break, and the economic shudders as the UK and Japan grapple with recession. Discover what's shaking up the airline industry with Carl Icahn's JetBlue play, Lyft's earnings stumble, and the wider implications of gig economy strikes. We also spotlight the executive decisions behind Paramount Global's staff reductions, Berkshire Hathaway's Apple sell-off, and Cisco's strategic slimming, all before diving into the implications of Diamondback Energy's merger with Endeavour Energy and Walmart's fiscal health report.

Transitioning to the global stage, the episode analyzes the Ukrainian conflict's latest twists and the Middle East's intensifying drama, setting the scene for our worldly market insights. Keep your finger on the pulse of the economy as we explore Truist's insurance brokerage sale and Medtronic's earnings, illustrating a post-pandemic sectoral shift, while Intel eyes a hefty subsidies jackpot. We question the stock market's defiance of gloomy forecasts and delve into the Federal Reserve's rate strategy and the robust U.S. economy's potential to sustain corporate growth amidst inflation and rate hike tensions. Lastly, we turn our gaze to the defense industry's L3 Harris Technologies and tease the enigmatic bond market's future impact, contrasting municipal bonds with treasuries to give you a comprehensive understanding of how these components weave together to affect financial stability.

** 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

Today is Tuesday, February 20th, a little past halfway point in the month of February. We have a lot of information to discuss this morning. We're going to start out with some perspective from Jeans Clear, from Atomic Habits, on some of the things that we may want to structure in our lives and think about, to put things into perspective and hopefully use that to think more clearly about our own portfolios and our own investments and, of course, more broadly about how we live our lives. Then we'll talk about the financial markets what took place last week, given the higher than expected inflation data, and markets having its first down week in 15 weeks, albeit arguably a pretty muted sell off, given the fact that we've done up so much and that the data was disappointing. We've got a few deals this morning. We'll talk about those. We'll talk about Barons, which talks about equity markets being richly valued, and what they expect and see over the next three to six months with respect to both equity and fixed income markets. And then we'll talk a little bit about the labor force and older workers and why they're exiting the labor force and what that may mean for unemployment rate, job growth, productivity, and then finally talk about L3 Harris, which Barons spoke positively about a military stock, and then we'll turn it over to Brad to give us his take on financial markets and try and explain to us what's taking place in both the Treasury market and the municipal market. Those two markets have not been moving in tandem and perhaps he'll shed some light on that with the yields moving significantly higher and Treasuries' munis have been slower to pick up and yield and we'll see if there's a catch-up in store or if munis will continue to outperform.

Keith Lanton: 2:11

James Clear comic habits some things to think about as we get started on this Tuesday. Yesterday, financial markets closed and observance of President's Day. If you want a simple formula for having a good day, then get a workout done and do your most important task before lunch. Now knock out those two things by noon and you'll feel like you're already head for the day On keeping your life simple. Many of us think that by accumulating more and more things that we're perhaps making our lives easier more gadgets, more things to help us get things done but the more things we have, the more things we have to manage, the more things may require more management or break and we can get frustrated. So, james Clear saying the more things you have, the more things you have to manage. Simplicity isn't merely cheaper, it's easier On business as well as on personal relationships.

Keith Lanton: 3:08

I think this quote could be applicable to both. It is not worth it to be greedy over a single transaction, even if you're not going to work with a person again, even if you think word won't get out, even if you think this is your one shot to make it. Reputation follows you everywhere, and that's something that Warren Buffett has said over and over again. And finally, in this day and age of computers and mobile devices and everybody following everybody else's life, he says stop paying so much attention to what everyone else is doing and run your own race. How much time is spent reading other people's posts on social media, watching other people's exploits in the news, listening to other people's ideas on podcasts? All those hours spent looking at someone else's life on a screen could be used to take action in your own life.

Keith Lanton: 4:04

Okay, markets, let's take a look at where we were last week, because last week was an important week, in my opinion, because of so many different moving pieces and the fact that the financial markets held up relatively well, I think is at least important. So last week began with AI-favorite Nvidia and VDA passing Amazon in market capitalization and armholding. Arm rose 67% last week before retreating. That's quite an astronomical move. Bitcoin last week broke 50,000. The UK and Japan flipped into recession. January consumer prices came in at 3.1%, missing expectations of 2.9%. Core CPI was unchanged at 3.9%. Stocks plunged, then, upon reflection, rallied, then sank on hot January producer prices. But for the week the Dow fell 0.11%. The S&P was off 0.42%. The NASDAQ was off 1.34%. We'll talk about those moves and some other information with respect to that a little later. Last week Carl Eichon took a 10%, since they can jet blue airways. This morning, jet blue airways and a number of other airlines were upgraded by Deutsche Bank and Carl Eichon may seek board representation at jet blue. This morning reports that he will receive two boards.

Keith Lanton: 5:30

In Lyft's earnings report exaggerated 2020. For margins, stock initially popped 30% 40%. Stock wound up 20%. I had heard reports that the junior analyst who had made that error is no longer working at Lyft after missing a decimal point. Uber, lyft and DoorDash drivers went on strike on Valentine's Day last week to protest pay.

Keith Lanton: 5:58

Paramount Global, the streaming company, also owner of assets like CBS, laid off 800 of its workers after a record-setting Super Bowl, berkshire Hathaway disclosed last week. It sold shares of Paramount and it sold shares of its largest holding, apple, and previous Darling. You may remember this company had the highest market capitalization in 2000,. So it's a good reminder to us that success is not easily sustained and you can get knocked off your perch and be humbled fairly quickly. Something to think about with respect to today's high flyers. Cisco systems said it would cut 5% of its workforce of 4,000 jobs, against Cisco systems in 2000 at one point with the highest market cap in the country or and also the world. In deals last week, diamondback Energy agreed to buy Endeavour Energy for $26 billion in cash and stock.

Keith Lanton: 6:56

Both of those companies were only gas players in the Permian Basin and this morning, speaking of deals and transactions, walmart released their earnings. They beat by 16 cents. They guided first quarter earnings to share below consensus and revenues above consensus. They raised their dividend 9%. And speaking of mergers and acquisitions, they entered into an agreement to purchase Vizio symbol VZIO this kind of leak last week because the stock was already up. They are purchasing Vizio for $11.50 to share, $2.3 billion. So Walmart making that announcement. So in the deal space this morning, capital One is going to buy Discover Financial in a $35.3 billion all-stock deal. Keep in mind that Warren Buffett Bank, us Consumer Bank, capital One is going to buy the payments giant and now this will give them an alternative to the Visa and MasterCard network, discover having its own network to process transactions, so it will be interesting to see what impact, if any, that will potentially have on Visa or MasterCard. This week. Also this morning, we had our earnings from Home Depot. They beat on earnings.

Keith Lanton: 8:20

They reported revenues in line. They increased their dividend 7.7% but because of weaker guidance going forward, shares are slipping about 2.5%. The company forecast fully a revenue growth of 1%. Analysts had expected 1.6%.

Keith Lanton: 8:35

Then income and sales also fell throughout the quarter. That was also expected, perhaps importantly for inflation. Home Depot said that they expect the prices to remain flat or stable as far as they can see for the immediate future. Going forward, tomorrow the Federal Open Market Committee releases minutes from its late January monetary policy meeting. At that meeting, the Federal Open Market Committee left the federal funds rate unchanged in a multi-decade high of 5.25% to 5.5%. Central Bank penciled in 3.25 basis point interest rate cuts this year in the summary of economic projections released at the meeting. Traders had priced in 6.25 basis point rate cuts before the meeting and that has been now pared down to fewer than 4.

Keith Lanton: 9:20

Then tomorrow, perhaps the biggest event of the week, nvidia reports fourth quarter fiscal 2024 earnings. Baron saying this is perhaps the most consequential earnings released for the stock market so far this year, as much of the gains in the S&P 500 over the past year have been powered by artificial intelligence hype and hope. Shares of NVIDIA, the poster child of the AI boom, have rallied 47% this year. Keep in mind we're only about six weeks in. This is after jumping 239% in 2023. Consents assessments are for NVIDIA to earn $4.59 a share on $20.4 billion in revenue for the quarter Taking a look at the futures.

Keith Lanton: 10:04

This morning we'll get to the latest update here. We are seeing futures here down about 130 points on the Dow, 17 on the S&P and about 80 points on the NASDAQ, approaching the lowest levels of the morning. This is despite the fact that China cut the five year loan prime rate by 25 basis points to 3.95%. That is more than expected as authorities ramp up efforts to stimulate credit and revive the property markets in China. We're up 4.10% on that. The Hang Seng was up 6.10% of 1%. Also, the first human implanted with a brain chip from Neuralink that's Elon Musk's company appears to have fully recovered and is able to control a computer mouse using their thoughts. Also another Elon Musk company, spacex. That's being boosted by the fact that a Chinese rocket failed in a flight in Indonesia.

Keith Lanton: 11:16

Chipmaker NVIDIA we just talked about their earnings. On Wednesday, wall Street Journal reporting that NVIDIA is replacing Tesla as Wall Street's most traded stock, adding to its prominence. They have to be coming, as we mentioned earlier, the third largest company by valuation in the US, after passing Amazon, and showing more evidence on how central AI bets have become to investors. Other news this morning Goldman Sachs saying they believe the S&P 500 will reach 5,200 by the end of the year, citing optimistic earnings expectations the reason for increasing the forecast. They just raised their forecast of 4,700 a few months ago. Keep in mind that the S&P 500 is currently at around 5,000, so a move to 5,200 by year end would imply only a 4% further move from here. So despite a raise, it's not necessarily a super bullish for the rest of the year.

Keith Lanton: 12:14

The Ukrainian city of Advyka has fallen, which is ruggish's biggest gain in nine months, and New York Times is reporting that Israeli Prime Minister Benjamin Netanyahu has suggested ceasefire discussions already dead end and he is moving forward with a Rafa offensive. This is despite the fact that the Biden administration is pressing the Israeli government for greater restraint. Other news this morning Truist is going to sell its insurance brokerage business to an investor group of $15.5 billion, and Medtronic's MLMDT beat the estimates for third quarter profit dated by strong demand for its heart and diabetes devices, further indicating that folks are getting back to elective procedures after COVID and Intel stock up this morning as the Biden administration talks to award more than 10 billion in subsidies to the chip maker. According to Bloomberg News, another beneficiary of some subsidies and some grants is global boundaries. They are also expected simple GFS to receive money from the US government in both stock and loans. So moving on to Barons, barons in the trader column said the stock market is melting up. Prepare for a short-term correction. They're, baron, saying it should have been a bad week for an overextended market. Talking about the news we saw last week with CPI and PPI, we have a market that's risen 14 to 15 previous weeks.

Keith Lanton: 13:47

A pair of strong and unexpected January inflation prince forced investors to wake up to the realization that the Federal Reserve won't be cutting interest rates as often or as soon as they'd expected. While a pair of shaky retail sales reports suggested the economy isn't as strong as thought, none of that amounted to much. As we mentioned, the S&P dipped just 4-tenths of 1% and even hit a record high on Thursday before pulling back on Friday. The January inflation data vindicated the Fed's wait-and-see approach. Services inflation remained sticky and the Fed would like to see more progress there to have confidence that inflation is returning to its 2% target on a persistent basis, wrote Bank of America economists on Friday. A June start, meaning the cutting rates in June, might also prove optimistic, even if January's inflation jump was just a blip, something that investors will find out over the next four months.

Keith Lanton: 14:41

Despite last month's disappointing retail reading, gross domestic product is on track for a 3% annual growth rate in the first quarter, the labor market continues to add jobs and the unemployment rate remains below 4%. In fact, deutsche Bank's chief economist says that investors might even want to consider the possibility that there will be no rate cuts in 2024. This is from Matthew Luzetti. He goes on to say that that, to happen, he believes that the Fed's estimate of the so-called neutral rate needs to be adjusted higher, to about 3.5%. Second, unemployment needs to remain below 4% and, finally, inflation must remain sticky, with core personal consumption expenditures the Fed's favorite measure for measuring inflation finishing the year at 2.7%. The second and third of those conditions merely require January's trends to continue. The first, which is the neutral rate. That's the one item that's a matter of debate. The neutral rate is the rate at which the economy is able to continue to grow, but not the fuel meaningful inflation.

Keith Lanton: 15:46

The market, though, might be able to withstand a handful of fewer rate cuts for no other reason than a strong economy and robust labor market tend to be good for corporate revenue and earnings. The fact that the S&P 500 made back its cost CPI losses and that the volatility index, or the VIX, which is also known as a fear gauge, ended the week roughly where it started, at a relatively calm level of 14. Also suggests that this is not a rate cuts or bust market. Nevertheless, barron, suggesting that perhaps investors are getting too complacent. Some contrarian indicators Last week's investors intelligence sentiment survey showed the highest percentage of self-described bulls since the summer of 2021. Market strategies have been raising year-end price targets for the S&P 500. Another contrarian indicator excuse me another indicator to be mindful of put call ratio, which is some analysts favorite measure of contrarianism. Put call ratio right now is about as low as it gets historically, meaning more bets on rising prices and falling.

Keith Lanton: 16:54

Fund flows have been strong, even with the S&P trading and the demanding 20.5 times 12 months forward earnings With more bank of America securities. February global fund manager survey included the greatest global growth expectations in two years. Falling cash levels, the highest allocation to US stocks since late 2021. A consensus call right now is for the US economy to be experiencing a soft landing. That is the first time in two years. Or majority of respondents see no global recession in the next 12 months, but according to respondents in the survey, higher inflation is the most significant tail risk.

Keith Lanton: 17:31

Barons goes on to say the meltup in stock prices and possibly overextended bullish sentiment suggested a shallow correction at the client of 10% or more from recent highs may be in store in the coming weeks. How earnings are received this coming week, particularly in videos, results on Wednesday will have a big impact on sentiment and could easily be the catalyst for a correction. But Barons goes on to say they think it will be just a correction. The lack of impending interest rate cuts may not justify the S&P 500's valuation but above average earnings growth prospects. Might S&P earnings per share forecast arrives more than 9% this year than 13% the following year? Per analysts, consensus figures, risk appetite and valuations rise. When an improving, solid economic outlook enhances investors confidence, the corporations will be able to deliver consistent profit growth, wrote Evan Brown, head of multi-asset strategy, ubs wealth management, and he says that he thinks this is an environment that we are currently in. There's another column. Barons talked about that thesis that no interest rates cuts in 2024. Why? That's more likely than you'd think, even getting back to the thesis that growth could surprise to the upside and finally looking backwards when we were looking for rates to rise following the financial crisis in 2008 and 2009.

Keith Lanton: 18:56

The market was constantly expecting the Federal Reserve to lift off from near zero interest rates. You may remember that period of time every year. The expectation was that 2010, 2011, 2012 this was going to be the year that interest rates start to climb from zero and, as it turned out, the initial rate hike didn't come until December of 2015. So it wouldn't be unprecedented for the market to be premature about its expectations for a pivot Fed policy. Talking about the overall levels of the equity market the prices that could be described as Toppy the S&P 500 index 500 index is already up 5.4% Year to date. If you would annualize that, you'd get a very high annualized figure. S&p 500 up 21.2% over the past year. The S&P 500 Trailing we talked about the floor. The trailing PE ratio is 22.37. That's up from 19.97 a year ago. S&p 500 dividend yield has fallen from 1.63 to 1.44 and it's priced. The book ratio right now is 4.61, not a record that was 5.06 in March of 2000 but well above the average of 3.01.

Keith Lanton: 20:17

Despite it all, barron does say that the US market Continues to be in may. May continue to be the world's best bet going forward. The S&P's returned, we just said, over the past year, north of 20% versus the pan European stock Europe index, which is up 8%, canada up 6%, the UK down 1%, china down 10%. Only market better than the US in the last year is Tokyo, which is up about 28%, but that's not factoring in the fact that the yen has depreciated against the dollar. So if you were US investor, your returns would have been as strong. And if you're thinking about, you know, taking a look at Japan, despite the fact that that market has been very strong, it still remains 2% below its all-time high set 34 years ago, while US stocks have hit record after record over the last 34 years. Us outperformance, as many experts arguing that the end of American Exceptionalism is near.

Keith Lanton: 21:22

The S&P 500, after all, currently trades, as we just mentioned, for about 21 times forward earnings. Compare that to the Nikkei, which is the next closest in terms of PE ratios, that's at 20. European markets are at 13, the British market is at 11. But on a closer look, international stocks aren't as cheap as they look. The gap in valuation and returns is a lot to do with the kind of companies, the trade on each exchange and the composition of the indexes. The S&P 500 is growth stock heavy, with 37% of its market cap and tech and a handful of richly valued megatech Companies at the top of the index. The Nikkei, which was the second best before, has 28% of its investments in Tech. And then when you take a look at the European indexes, you'll see that the European indexes are Not the tech heavy. In fact, the biggest holdings in the stock 600 are financials, at 19%, followed by health care at 14%. Industrials at 13%. Ftse is similar. Therefore, there's a lot more value in European markets, with then the US market, which is a lot more growth. So Barron says it's a setup that argues to be continued US supremacy over developed market peers, and that is as long as the mindset remains that growth is favored over value. As long as that mindset holds which it may or may not then you will continue to see continued out performance here in the United States.

Keith Lanton: 22:58

I mentioned the labor market and the trend that has been causing, perhaps, the unemployment rate to stay low, and that is that this strong stock market is perhaps helping many retire early. How much does this historically low unemployment rate owe to the record high stock market? Strong gains and absent prices have lifted the wealth of many older workers sufficiently to allow them to attain their goal of retirement. Also, keep in mind, if you look at statistics, the older people are, the more financial assets they have, the more appreciation that they enjoy relative to other workers who are just starting to invest in financial markets. So for these older folks, with the value of their securities portfolios and homes having been levitated by the effects of a strongly stimulated monetary and fiscal policy to fight the effects of COVID-19 pandemic, the labor force participation rate of those over 65 has fallen and does not look likely to go up again.

Keith Lanton: 23:57

Meanwhile, the labor force participation among those in the so-called prime working years has recovered and exceeded pre-pandemic rates.

Keith Lanton: 24:06

There were 3.27 million excess retirees as of December of 2022, which accounts for much of the 3.73 million missing workers over age 16 relative to the pre-pandemic peak of February of 2000.

Keith Lanton: 24:21

Over that time period, the S&P 500 index returned over 35% from December 19 to December 2021 in real terms, that's adjusted for inflation, while housing's real return was close to 20%. If you're looking at labor force participation, you say well, what about those folks who are, let's say, closer to retirement, between 55 to 64,? They are, in fact, working at greater rates before the pandemic, suggesting they've had a delay retiring because of not benefiting from having as many assets that have appreciated. Jeffries goes on to say looking at the January 2024 employment report and this is from economist Thomas Simmons over there he observes that there are 828,000 fewer workers over 65 than in February of 2020. He says we doubt that any significant portion of these folks are going to return from the sidelines, so their absence represents a permanent loss of experience and skill that has also possibly contributed to the very weak productivity growth that the economy has experienced since 2021, losing these very experienced workers.

Keith Lanton: 25:27

Finally one last article to discuss embarrassments. Turn things over to Brad. I mentioned we were going to discuss the military stock. That stock is L3 Harris, symbol is LHX and you may think well, the thesis here is we've got wars, regional, over the world. Military stocks make a lot of sense, but if you've been following most of these defense stocks, the scarier world has not made winners out of military stocks lately. But shares of L3 Harris look as if they can book that trend with a mix of sales growth, margin expansion and nudge from an outside investor. So it says Barron.

Keith Lanton: 26:05

L3 Harris isn't quite the household name like Lockheed Martin or Northrop Grumman. It is big though has a market cap of 40 billion. It is the sixth largest US military contractor. L3 Harris sells a lot of advanced tech serving land, sea and air operations. Its integrated mission systems unit makes radar warning systems for jet fighters and avionics for commercial aircraft, among other products. Avionics are electronics on planes that govern functions like navigation. Its space and airborne divisions group helps build satellites. Its communication business helps build products such as radios for the Army and in July of 2023 they bought Aerojet Rocketdyne, giving L3 Harris a fourth business, which is making rocket engines.

Keith Lanton: 26:51

The stock has fallen on hard times of late. New CEO took over in 2021 and since then, the shares have returned just 1%, including reinvested dividends, and this stands in contrast to the performance of the shares under the previous CEO, when the shares grew almost fivefold. Sales, though, have continued to grow, but inflation and fixed price contracts have squeezed margins for the entire sector. That's one reason activists investor DE Short took a position in L3 Harris's stock recently. They point out that L3 Harris's trades currently at about 16 times 2024 earnings, not only below the S&P 500s 20 plus times multiple but below competitors like Northrop and Lockheed Barron, suggesting that L3 Harris could be worth much more.

Keith Lanton: 27:40

One day after announcing its agreement with the East Shaw, the company hosted an analyst day when it laid out its financial goals for coming years Management of six sales to hit 23 billion in 2026, up from 19.4 billion in 2023. While generating an operating profit of 16% up from 15%. They are also going to be working on taking 1 billion in costs out over the next three years. Company is seeing some signs of improvement of late. They just reported, on January 25th, their earnings and they were better than expected. Management gave financial guidance for 2024. That was basically in line with Wall Street's improving expectations. Again, the symbol there is LHX. With that discretion on L3 Harris, I'll turn it over to another Harris now to Brad Harris, to give us some more insights this morning. Good morning, brad.

Brad Harris: 28:33

Keith. Thank you. Good morning everyone. I hope everyone had a great long weekend, because I thought about this over the weekend.

Brad Harris: 28:40

I hope my comments hold this morning, as we are participants in the world's newest largest casino not penny stocks, not Bitcoin, not FanDuel, but, yes, the bond market. The sleepy bond market market has been out of control the past year and needs to be checked for steroid use. I know that it does not matter to most of you, but everything in your financial world hinges on the bond market, and this steroidal behemoth is demanding attention, so please watch it. In my opinion, it is more important to know where the tenure is now than the Dow, and as we move forward in 2024, this bond market will create tears of joy or tears of sorrow, one way or another.

Brad Harris: 29:21

I will go more into detail in further weeks on that comment, because there are a lot of tangents off that I really don't have time to go into right now, but I will leave you with that thought today, by the way, the tenure is currently at 4.27%. At the moment, it's unchanged. So, with all due respect to my rant, it is unchanged. This morning, municipals have swung modestly with treasuries, but certainly not with the same vengeance. Municipals is a much sleepier market, but if the volatility catches up to treasuries, buy and hold your breath for better or worse. On that note, I hope everyone has a great week. I'll turn it back to Keith. Thank you.

Alan Eppers: 30:00

(Keith) Thank You Brad. That's everything I've got. (Alan) 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. heraldlantern. com.

Sophie Cohen: 30:21

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. Trading and securities does involve risk and the potential of losing money. The material does not constitute research, investment advice or trade recommendations.