Enlightenment - A Herold & Lantern Investments Podcast
Enlightenment - A Herold & Lantern Investments Podcast
Will AI Revolutionize the Oil Industry and Reshape Energy Markets?
December 2, 2024
Season 6 | Episode 42
Explore the strategies that could make 2025 your best financial year yet. How do you prepare your portfolio for a new year following a phenomenal performance by U.S. equity markets in 2024? We promise you'll walk away with a solid understanding of how to navigate these dynamic times, featuring insights into portfolio rebalancing and the lesser-known tax implications that can make or break your year-end financial planning.
We'll guide you through the latest twists and turns of the global market. Discover how geopolitical tensions, such as President-elect Trump's tariff threats and French political instability, are influencing U.S. stock futures and international markets. Get the lowdown on major corporate shake-ups and successes, from Intel's executive changes to Disney's cinematic triumphs, and the intriguing political landscape stirred by President Biden's controversial decisions. Plus, don't miss our preview of key economic reports that could impact your investment decisions.
As we look toward 2025, we'll unravel the complexities of the bond and fixed income markets. Learn why the $6.74 trillion Treasury issuance could reshape fiscal policies and interest rates, and uncover the opportunities hiding in Treasury yields and corporate debt. Emphasizing the importance of understanding your investment goals and risk tolerance, we offer practical resources for informed decision-making. Whether you're a seasoned investor or just getting started, this episode equips you with the knowledge to navigate the ever-evolving financial landscape.
** For informational and educational purposes only, not intended as investment advice. Views and opinions are subject to change without notice.
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And now introducing Mr Keith LLenton.
Keith Lanton:Good morning. Today is Monday, december 2nd. Hope everyone enjoyed their Thanksgiving and hopefully some time with family and hopefully, some rest and relaxation. Today is the first business day of December. As we enter the last month of the year November Best month of the year for US equity markets We'll talk a little bit about that Very strong reaction to the election of President-elect Trump and November leading the way, and that sets us up for what do we do here as we head into final month of the year, december, and look forward to 2025, and what might we have coming in terms of policy changes and how should we be positioning our portfolios given that we're going to be potentially seeing these changes, and what can we do here at the end of 2024 to set ourselves up for future success in 2025 for all of our individual portfolios?
Keith Lanton:These are some of the topics we're going to talk about. We're also going to talk a little bit about what's going on this morning and we will talk about AI and AI in an industry that we don't typically think about, and that's the oil field and oil service industry, perhaps one of the biggest beneficiaries of AI and not getting a lot of attention. Barron's wrote a very interesting article on that and how we may see lots of benefits and already seen lots of benefits for artificial intelligence in terms of making energy more accessible and cheaper. Accessible and cheaper. We'll talk a little bit about the bond market what's going on with the deficit, which we've talked about before, and what the new administration and their potential tax cuts mean for the deficit and for your bond portfolio. All right, so here we are December 2024, first trading day. Barron's talked about this being a very opportune time for a portfolio reality check, so, as fun as it's been to watch stocks soar, it's time for us to reassess our current portfolios, whether you're doing it yourself, or perhaps your financial advisor and professional is doing it for you so they're doing the job but the reality is that your portfolio may now be out of whack, and that's because of lots of good things that have taken place in the stock market. But the concern is that you now may have an over-weighting to equities in terms of what it is relative to your intentions, and if the party that we're currently experiencing suddenly gets a lull or even potentially turns ugly, then maybe you'll be happy. You made some moves and perhaps mitigated your exposure to this party.
Keith Lanton:Rarely do stocks and bonds diverge as much as they have here in 2024. Stocks have been the bell of the ball. Bonds have kind of been moping in the corner, although they haven't been kicked out of the room. The S&P 500 is up 25% this year, while US investment-grade bonds are down 1% on a total return basis, including interest income. So if you think about that, if you started the year with $100,000 in a 60-40 mix, your stocks would now be worth $75,000 and your bonds would be worth $39,600, giving your portfolio a roughly 65-35 mix.
Keith Lanton:So, however welcome the gains, this drift could require some rebalancing, and that means that you sell your winners, which is difficult to do, and you buy the losers, or perhaps relative losers, to return your portfolio to the allocation that is appropriate for your risk tolerance and life stage. The traditional method would mean trimming stocks and buying bonds to get yourself back to that 60-40 mix almost exclusively, let's say, through a target date fund in your 401k plan. Well, this isn't necessary, because these funds are professionally managed to do the rebalancing for you. Also, if you are going to undergo this rebalancing, you need to think about taxes, because if you're doing this in a taxable account, well then you may make yourself subject to capital gains Even if you don't do some selling in your taxable portfolio. If you own mutual funds in your taxable account, well, you may get those gains passed on to you, regardless of the fact that you sold them or kept them, because mutual funds pass those gains on to investors. If they sell stocks during the year and they have a capital gain, it all gets passed on. So to offset those gains, or potential gains, you can sell or trim a position that you've lost money on and use those losses to reduce your tax bill.
Keith Lanton:We've talked about this before. You could also select, if we do tax loss swaps. If you have bond portfolios where you sell a bond at a loss and buy back a similar bond, you're basically in the same place in terms of your portfolio, in terms of the upside and downside of your bonds, but you have recognized a loss. You could also sell an individual stock with the intention of buying it back. If you buy it back, well, you got to wait 30 days. That's the wash sale rule. If you don't wait 30 days, you are not entitled to that loss. All right, so that's our individual portfolios.
Keith Lanton:Now let's think more broadly about our overall financial picture and some of the things that we can think about, given that we between President-elect Trump and candidate and current Vice President Kamala Harris and one of the factors that was certainly at play in the election was what was going to happen with the tax cuts that the Trump administration had put into effect that are expiring at the end of 2025. Of 2025. One of the provisions of that entire bill was that the estate tax and lifetime gift tax exemption, which is currently at $13.6 million and does currently still extend until the end of 2025, well, that may be re-extended and folks who have significant estates may have dodged a bullet in the sense that if they haven't done some planning, they may have bought themselves some more time, perhaps four or eight more years. So you need to still think about long-term tax planning strategies and think about them now, even though you may have fit yourself a little bit more time, because we don't know exactly what's going to happen. But we do know that Republican proposals will wind their way through Congress. But there are still lots of tap steps that you can take, given what's coming down the pike and what may be coming forward, from tax loss harvesting, which we just talked about, to possibly considering Roth IRA conversions.
Keith Lanton:Wealth management professionals say there are plenty of ways taxpayers can strategize to keep more of what they earn. One strategy you may want to think about if you're currently taking required minimum distributions and are charitably inclined, well, it makes a lot more sense, if you think about it, to take that charity and give them money directly from your retirement account and use that money from your RMD. So you make your RMD directly to the charity. Think about it. You're going to make a donation of let's keep round numbers here, to keep it simple $100,000 to a charity and you're going to take that as a piece of your required minimum distribution. So if you're taking it as an RMD, normally you would take that RMD of $100,000. Let's say you're in a high tax bracket. You're going to pay federal and state taxes of, let's say, 40% and you'd net $60,000, you take that $60,000 and then you take another $40,000 out of your portfolio. That's not in your retirement account. You'd give that $100,000 to charity. Here what you can do is you could take all $100,000, which is your required minimum distribution and donate it to charity and you don't need to take that $40,000 out of your pocket because you do not need to pay that tax on that required minimum distribution because you're giving it directly to charity. So you can see the math here makes a lot more sense to make gifts directly to charity if you are giving gifts and you are taking required minimum distributions Also to do harvesting capital losses.
Keith Lanton:We talked about this over and over again before the end of the year. If you have self-employment income, there's a provision in the tax code that is helpful. If you are short on your estimated tax payments Assuming you have the income you can do all of your withholding in the fourth quarter. So, for example, a person might not have made estimated tax payments in the first, second or third quarters. Person might not have made estimated tax payments in the first, second or third quarters. Normally if you do not take your estimated withholdings you will be subject to a significant penalty. But here we are in December you can here in the fourth quarter and in your fourth quarter installment withhold enough to cover all four installments, make up for the fact that you have not withheld so far this year and avoid penalties. A lot of people don't know that rule.
Keith Lanton:From a planning giving point of view, if you're thinking about making those charitable gifts, we talked about one strategy which is to take the money directly from your retirement account if you're making RMDs. But if you're not taking RMDs, another strategy is to bunch up your deductions into one year. The itemized deductions now have a threshold of $29,000 before it starts making sense to itemize your deductions, because the standard deduction if you're married is now $29,000. But if you're going to give a big gift to charity, well that is something that would go over that $29,000 and entitle you to take a go over that $29,000 and entitle you to take a bigger deduction than $29,000. So if you're thinking of making a charitable gift this year of $30,000 and a charitable gift next year of $30,000, well you might be better off doing all $60,000 this year and being able to get a much bigger deduction on your taxes because you bunch them into one amount.
Keith Lanton:You could also use what's called a donor advised fund, where you put the money into a donor advised fund and then you can allocate the gifts out of the donor advised fund over time. So, for example, if you have appreciated stock in a taxable account, instead of paying the tax and selling that stock and making a gift to to a donor advised fund, let's call it $500,000 of stock, let's say your basis is close to zero. If you were to sell it, you'd pay capital gains tax, state tax let's call that 30%. You're donating $500,000 of stock. You would, at the end of the day, have $350,000 to give to charity. What you could do is you could donate all $500,000, get a $500,000 write-off into a donor advised fund. You do not have to make $500,000 of charitable gifts this year. You put it into the donor advised fund, you get the write-off this year of $500,000. And then, over time, you can make recommendations to the donor advised fund of whom you would like to make charitable gifts to, and you can dole out that $500,000 over time to various charities of your choosing. So strategies that you may want to embrace.
Keith Lanton:Also, ed Slott, who is well-known and respected for his tax advice and acumen. He suggests that folks think about contributing more to Roth accounts, specifically Roth 401ks, especially if you're younger. So what you can do is, instead of putting your money into a traditional 401k, many plans have Roth options. So you can put your money into a Roth 401k. Now you don't get the write-off up front, so you're going to have to pay the tax on the. Put your money into a Roth 401k Now you don't get the write-off up front. So you're going to have to pay the tax on the money you put into that Roth 401k. But the money that you put into that Roth 401k will grow tax free, because what's going to happen is it's going to grow over the years in that tax exempt status and then when you take the money out of a Roth, you do not need to pay taxes different than a standard 401k.
Keith Lanton:When you take the money out, you're going to be having to pay those taxes. The younger you are, the bigger the benefits to the Roth 401k. The other factor to think about is if you're thinking about potentially passing on your retirement account to the next generation after you die retirement account to the next generation after you die. Well, keep in mind that a lot of the benefits of being able to stretch out your IRA to your children has been significantly diminished because new tax rules now require the inheritance of IRAs or 401ks to children to be taken out within 10 years. You can no longer stretch it out over their lifetimes. So that makes the Roth a lot more attractive because the kids do not have to pay those taxes very quickly or at all, whereas now, if you have a very big gift of an IRA to a child let's call it a $2 million IRA they've got to clear that account out that $2 million that they inherit within 10 years, they're going to have some very big tax bills. If that money was a Roth, they would avoid those tax bills. So things to think about as 2024 comes to a close. And now we're going to think about what's going on in the world this morning. Well, to start out this morning we have S&P futures are down about two points this morning and trading about one-tenth of one percent below fair value. Nasdaq futures are up about 10 points, trading slightly above fair value. Dow futures pretty flat as well this morning. This is, as market participants here, lacking some conviction after we saw the S&P and the Dow record record highs just last week. Dollar index is up about half a percent, and this is after President-elect Trump said he would enact 100 percent tariffs on countries moving away from the US dollar. It's also in the wake of some political tumult in France which is affecting the dollar versus the euro, as the parties there are fighting over the budget and there may be a vote of no confidence in France, and that is also impacting the dollar. Ten-year Treasury note is two basis points higher at 4.20. Two-year yield is up three basis points at a 4.19. Today's economic releases include the November ISM Manufacturing Index and the October Construction Spending Report at 10 am.
Keith Lanton:Taking a look at markets in the Asia-Pacific region, well, they began the day on a mostly higher note. We are seeing China up about 1% on the Shanghai Hang Seng up about 7 tenths of 1%, some stronger than expected purchasing managers. Numbers coming out of China Manufacturing PMI 50.3. It was expected 50.2. Non-manufacturing came in at 50. That was a little weaker than expected. But the November kayaks and manufacturing PMI came in at 51.5. It was expected at 50.6. Also, chinese, seeing continued demand for their debt, the 10-year yield in China got below 2% down to about 197.5 for a 10-year. Chinese treasury backtracked to about 2%. But again looking at it relative to US, where we're looking at the 10-year at around 420, china is closer to 2%. Give us some perspective. Major European indices are trading higher as well, even France slightly in the green. Europe's non-manufacturing PMI was 45.2, which was as expected. The unemployment rate in Europe is at about 6.3% and at 10 o'clock we're going to get those numbers, the ISM numbers here in the United States.
Keith Lanton:Individual companies in the news this morning are just hitting the wires. Intel CEO Pat Gesslinger is out. Market participants reacting, at least at the moment, favorably. Intel stock up about 5% on that announcement just coming out. He's going to be retiring from the company and a stepped down effective as of yesterday. Disney stock up about half of 1%. Moana 2 came out this weekend earned $221 million. This has been a surprise hit. Moana in the last decade has been the number one animated streaming download out of all animation movies on streaming services.
Keith Lanton:Unilever, the big European company, is up about seven tenths of one percent saying they are mulling their sale of food brands. Altria in the news this morning. Supreme Court will hear a case on vaping products today. Supreme Court will hear a case on vaping products today. Tesla this morning moving higher analyst upgrade and talks that China will be increasing incentives on electric vehicles. Speaking of cars, stellantis, which makes the Jeep brand here in the United States symbol STLA, is down almost 10%. The CEO has resigned but some disappointing performance of Stellantis here in the United States and their vehicle sales have been declining worse than expected. Trump administration some of the tariffs that he expects that the analyst at Goldman expects some of the US steel stocks to outperform.
Keith Lanton:Financial markets. Geopolitical news Over the weekend President Biden, after saying that he wouldn't interfere, has pardoned his son, hunter Biden has pardoned his son, hunter Biden. Ukrainian President Zelensky saying that he is open to a ceasefire if NATO protects unoccupied territories. Reuters reporting the US will begin curbs on Chinese semiconductor exports today. Reuters also saying that Canadian Prime Minister, justin Trudeau promised President-elect Trump tougher border controls following a meeting with President-elect Trump. Tougher border controls following a meeting with President-elect Trump and tariff threats from President-elect Trump. Mexico's President, claudia Sheinbaum, says she is confident she can reach a deal with President-elect Trump to avoid tariffs.
Keith Lanton:President-elect Trump has announced that he is appointing Kashyap Patel to serve as the next director of the FBI. He's famously known for saying that his opinion at the FBI. If he was running it, he said he would on day one, close the J Edgar Hoover building and reassign the folks working there to get out onto the streets. So we'll see what the reaction is from the Senate in terms of confirmation and some key Republicans what they think about that appointment. Mastercard reporting this morning that they are seeing US Black Friday retail sales up 3.4 percent over last year. All right.
Keith Lanton:Moving on to what's going on this week, I mentioned that at 10 o'clock we get the Institute for Supply Management releasing both its manufacturing and services purchases managing indexes. For November Estimate for manufacturing PMI is 48, which would be up 1.5 points from October. Services PMI, which comes out Wednesday, is for a 55.4 reading, which is slightly lower than October. Anything over 50 is expansionary. Anything less than 50 is contractionary. Tomorrow the Bureau of Labor Statistics releases the JOLTS or Jobs Openings and Labor turnover survey for October. There were 7.44 million openings on the last business day of September. That's the lowest level since January of 2021, as the labor market comes into better balance.
Keith Lanton:And then on Friday, economic report that will certainly get markets attention is the Bureau of Labor Statistics is releasing the jobs report for November. Economists forecast an increase of $190,000 in the non-farm payrolls. Remember, in October we saw a gain of just 12,000, but that was after some of the storms that we experienced, as well as the strike at Boeing. So there was a lot of noise in October and we'll see if the alleviation of that noise affects November to the upside, if in fact October was skewed to the downside. Unemployment rate expected to take up to 4.2 from 4.1. That is still very low by historical standards, but the unemployment rate has been above 4% for five consecutive months, the first time that's happened since 2021.
Keith Lanton:So we talked about stocks ending November on a strong note. It was a shorter week for the market last week as Americans celebrated the Thanksgiving holiday, but that didn't stop the S&P 500 from reaching its 53rd record close of the year, dow Jones Industrial Average managed its 47th record close. Overall, november was a spectacular month in what has been a great year. S&p 500 in November was up 5.7%, putting its year-to-date gain at 26.5%. Remarkably, that was the least impressive of the major indices NASDAQ in November, up 6.2%, dow up 7.5% and the Russell 2000 in November, up 10.8 percent.
Keith Lanton:The post-election euphoria has given way to a more pragmatic analysis of how changes in Washington may shake out. But Inauguration Day is still far enough away not to cause too much worry, barron saying. For now there seems to be little to stop a year-end Santa Claus rally. For one, the parade of good data has continued to march on. Last week we saw initial jobless claims fall more than expected to a seven-month low. Federal Reserve's favorite gauge of inflation, the core personal consumption expenditures, was in line. Bureau of Economic Analysis second quarter estimate for real GDP growth in the third quarter came in at 2.8 percent and that matched expectations. So markets are likely to remain in celebratory mood in December, barron's saying, clearing the way for what may be a Santa rally. Taking a look historically, when years start as strong as 2024 did in the first quarter and the first half with the strength that we had Well, the year typically not always, but typically ends with a bang. So we'll see if most of the data that has historically occurred, if we get a repeat performance and we do experience a Santa Claus rally.
Keith Lanton:Now I mentioned AI artificial intelligence which, of course, has gotten a lot of attention. Nvidia, the maker of artificial intelligence chips, has certainly been the bell of the stock market ball, but Barron's talking about artificial intelligence and the way it is changing oil country and the way it has been pumping out profits, albeit many of the energy companies not necessarily want to give away their secrets and data. You can see lots of uses of artificial intelligence and it is making a big difference in terms of US competitiveness. Over the past 15 years, oil drillers have turned the stretch of desert in Texas and New Mexico, called the Permian Basin, into the most important oil basin in the world by reengineering pipes and applying pressure and chemistry. And now they're tapping a new technology to keep the crude flowing for decades more, and that is artificial intelligence. One expert thinks it can help companies extract so much more oil that it's equivalent to adding the output of an entire Middle Eastern nation. Rakesh Jaggi, who leads the digital business at SLB, formerly known as Schlumberger, the world's largest oil services company, said that the use of artificial intelligence and the extra oil that it is bringing online is like getting a country like Kuwait online from being offline.
Keith Lanton:Oil companies are on a relentless quest to produce more oil at lower costs. Ai is boosting that effort. Their success already has been remarkable. Effort. Their success already has been remarkable. Over the past decade, the US has pumped out 60% more oil a day with 40% fewer workers. That's incredible. The industry's annual productivity gains in that stretch have outpaced gains even in online retailers and are roughly seven times as large as those for average US businesses. By extracting more oil, while reducing capital expenses and manpower, they're lowering the costs at which they can drill profitably.
Keith Lanton:In the Permian, the break-even price for oil producers has fallen to $40 a barrel from $90 a barrel in 2012, and AI can bring those numbers even lower, boosting oil company margins and cash flow. So who are the top producers in the Permian? Exxonmobil, chevron, diamondback Energy, eog and Occidental Petroleum. All of the extra cash they're generating through efficiency gains could potentially keep their dividends secure and growing Even if oil were to slump in price. Some of these stocks already have dividend yields north of 4%.
Keith Lanton:But oil drilling is now a digital enterprise still mechanical, but getting more and more digital. Every day. Oil fields are seeded with sensors gathering reams of information about pressure, heat, radiation and rock lithology. The action happening at the wells, tanks and compressors is displayed on screens hundreds of miles away, and it's often being controlled from hundreds of miles away. Chevron has a remote operations center in Midland Texas where a couple of dozen workers control thousands of pieces of equipment spread throughout the Permian. They sit at workstations with 15 or more computer screens covered in blinking lines of data, interspersed with images of the fields captured by drones or still cameras. The technicians remotely adjust the equipment themselves or direct people in the field to do it. Some of the equipment is even controlled autonomously think like automatic or self-driving vehicles using software that detects pressures and adjusts valves in real time. Slb, who is arguably one of the leaders in the deployment of artificial intelligence, has begun to deploy automated drilling operations as well, making one of the most complex and stress-inducing portions of the process akin to riding in a robo-taxi. In the past, workers had to race to sites to turn off equipment. Today, software does a lot of the job. A program designed by Chevron automatically detects methane leaks and shuts them down without human intervention. Also, thinking about knowing exactly where to frack is a huge advantage. The AI tools that Chevron has developed can predict which sections of the subsurface will yield the most oil and which rock types will prove the most tricky to drill.
Keith Lanton:Today, growth in the oil field is happening very differently than in the past. It's more like the semiconductor industry, whose efficiency gains allow chips to process exponentially more information than they did a decade ago. Oil production in the Permian has tripled in the past decade. It's 6 million barrels a day are being produced, and that is with 46% fewer rigs. So these innovations aren't merely boosting the bottom lines of producers. They are the biggest reason that US oil production has grown from 5 million barrels in 2007 to 13 million barrelsa day.
Keith Lanton:Lloyd Brin, an analyst at Jeffrey, says it's frankly changed who we are as a country. It's changed the value of the dollar. In 2007, the US imported so much oil it accounted for a third of the trade deficit causing dollars to leave the US depreciate the US currency. Oil and oil products are now far and away America's top export currency. Oil and oil products are now far and away America's top export, and the country no longer has a petroleum trade deficit. The US produces more oil than any other country. By far. We pump out 50% more oil than Saudi Arabia.
Keith Lanton:It isn't easy to pinpoint how much of the advancements that oil companies have made is from AI, but oil companies and gas companies are on track to spend $3.1 billion on AI this year less than 5% of their capital expenditures, but AI spending is expected to rise 80% in the next five years. Slb is seeing a surge in interest of its tech tools and it expects to surpass $3 billion in revenue from its digital division this year, up from $1.5 million three years ago. Its digital services, they say, are including helping producers not only drill more successfully but to find oil and gas more successfully. Some of the most impressive gains are happening in offshore oil drilling. To find oil underwater, producers are using seismic images, which involves shooting compressed air into the water, and using sensors placed on the seafloor or tugged behind boats to evaluate the acoustic waves that are sent back. Evaluating those images is time-consuming and inexact science, but think about this once again. This is kind of akin to what's taken place in the radiology field. Ai is evaluating those images and identifying where to drill and how quickly this is transforming. When you find oil or gas on the bottom of the ocean floor, it used to take 18 months to know whether or not it was the right place to drill and to start drilling into the ocean bed floor. Today they are doing it not in 18 months, but as quickly as 18 days. So seismic imaging is having a profound effect here, as they basically are taking ultrasound of the rock beneath the waves and transforming that information into drilling, and that drilling is happening super fast and that is one of the primary reasons that the costs have come down, the production has gone up and we are seeing a true transformation in this industry, and we are seeing some companies like SLB, which is the largest oil services company, spreading that knowledge to their clients.
Keith Lanton:All right about the bond market, fixed income markets. One of the things to think about as we approach 2025 is the amount of new issuance of treasuries that we may be experiencing, and next year we are going to have to issue $6.74 trillion in treasuries in order to cover the treasuries that are coming due. So this is manifesting itself in some concern that almost $7 trillion in new treasuries will be coming to market to replace just what's there now. This has nothing to do with the deficit next year, and this is because a lot of the issuance of treasuries has been moved to the shorter end of the curve, to treasuries that have a maturity of one year or less, and this was a strategic decision by the Treasury, by Treasury Secretary Yellen, because the expectation was that inflation was going to come down, short-term interest rates were going to come down and therefore the Treasury would be able to issue debt with less cost. Therefore, the Treasury would be able to issue debt with less cost.
Keith Lanton:Now that inflation has proved stickier and the Trump administration is coming into power and there's some concerns on whether or not President Trump will be as determined to not ramp up more spending, this has caused longer-term interest rates since the election to pick up from about 3.65% to about 4.2%. So, with all this Treasury debt coming due for new issuance, this is added to some of the concerns that the amount of interest that the Treasury will have to pay, and therefore the size of our deficit, potentially could be affected, not only by worries about what future inflation will be, but by worries about how much of this debt can be absorbed and at what interest rate, given that we are going to be issuing so much debt next year. So, with that thought in the back of our minds, we take a look at a Barron's article talking about with the upcoming new administration and what that may mean for your bond portfolio and where to look for opportunities and fixed income. Some are suggesting that this does create an opportunity for investors, albeit at the expense of the Treasury paying out higher interest, that if you have Treasury yields between 4.5% and 5%, which some are predicting we're not quite there now. I just mentioned the 10-year is closer. If it just picks up a little bit higher, that could be an attractive place to put your funds, especially when you have some strategists like Goldman Sachs out there suggesting that the next 10 years could be fairly lean years in the stock market. We could see returns in the low single digits and therefore 4% or 5% on treasuries would look pretty attractive. Percent on treasuries would look pretty attractive.
Keith Lanton:Another area to think about is an area where investors have certainly been aggressively stashing their money and that is in money markets. And it may still make sense to keep some of your money in money markets. Right now there's a record $6.7 trillion in money markets paying anywhere between 4% to 4.5% for the higher-yielding money markets markets paying anywhere between 4% to 4.5% for the higher yielding money markets, so that may continue to make sense. Also, high-quality corporate debt, which currently yields about 4.5%, but the thesis here is that the corporate balance sheets are strong and absolute yields are pretty attractive. Also, many investors have been exploring private credit, which is generally available only to accredited investors but it is making its way down to investors with lesser earnings and net worth. But certainly there are some risks with private credit. But Barron's saying that private credit investments do offer attractive yields and can help investors insulate some of their money from swings of the public markets. They are floating rate and they do provide a pickup in yield over other variable rate investments like bank loans, but certainly carry enhanced risk, and that's something that you need to understand before making investments in private credit, that you need to understand before making investments in private credit.
Keith Lanton:And finally, municipal bonds. And municipal bonds dipped when Trump won because of expectations he will lower taxes, making munis tax-exempt status less valuable. But Barron's saying munis are still attractive with a roughly 3% yield. That translates into a 6% yield on a tax-equivalent basis for investors in a high tax bracket. So we've had concerns about tax reform, policy changes, and that creates anxiety in the municipal market. But anxiety, barron says, creates opportunity. Municipal finances are strong, state and local governments generally can't run deficits and with munis, investors can get 6% or more on a tax-adjusted basis, can get 6% or more on a tax-adjusted basis, and that's awfully attractive in today's world, is what the article goes on to conclude.
Keith Lanton:That's everything I've got.
Alan Eppers:Thank you for listening to Mr Keith Lanter. This podcast is available on most platforms, including Apple Podcasts, spotify and Pandora. For more information, please visit our website at wwwheraldlanterncom.
Sophie Cohen: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.