Enlightenment - A Herold & Lantern Investments Podcast
Enlightenment - A Herold & Lantern Investments Podcast
Navigating Market Shocks: Tariffs, AI Advances, and Economic Strategies
February 3, 2025 | Season 7, Episode 5
What if President Trump's unexpected tariff announcements could reshape global markets and alter investor strategies? Join us for an in-depth exploration of the immediate shocks and strategic implications behind these tariffs targeting Canada, Mexico, and China. Understand how these moves have disrupted traditional market drivers, causing significant ripples through U.S. equity futures and treasury yields. We'll dissect the motivations behind varied tariff rates and speculate on the lasting impact of such unpredictable negotiation tactics on international trade relations.
Shifting focus to the global stage, we'll analyze how U.S. tariffs on Canadian oil and gas could trigger wider economic repercussions, potentially escalating oil prices and slowing global growth. Learn about the domino effect on auto stocks across the U.S., Europe, and Japan, as supply chains become strained. We'll also touch on the looming challenges for tech giants like Apple, facing increased costs due to Chinese tariffs, and explore the unusual scenario where consumer spending is buoying the U.S. economy amid moderate GDP growth—a precarious balance that could tip with market fluctuations.
The episode doesn't stop at trade and tariffs. We spotlight the revolutionary strides in AI development by DeepSeek, examining how their energy-efficient technologies are influencing energy market trends, particularly the pivot towards natural gas for powering data centers. Lastly, we delve into the complexities of inherited IRA rules and heed Ray Dalio’s insights on the global debt crisis, offering practical strategies for personal finance management while underscoring the need for macroeconomic stability. Packed with insights, this episode equips you to navigate today’s volatile economic landscape with confidence.
** 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 Lanton.
Keith Lanton:Good morning, it's Keith, welcome to February first month in the books and February certainly starting out to be a day, that a month that we'll have a lot of different changes, at least here at the outset, to make morning February 3rd, we're going to start by talking about where US equity futures are. We'll talk also about the bond market. I'm going to talk about the bond market both short-term and long-term, given all the different news flow that's hit this morning with respect to tariffs from President Trump and his administration over the weekend, and we'll talk about how that has completely changed the investing thesis, at least for the moment, because we know that President Trump has said the tariffs are going to be put in place against Mexico, canada, 25%, china, 10%, and market participants in the world is trying to decipher how much of this is long term and how much is short term. We'll talk a little bit about this and we'll talk about how quickly everything has changed in just a few short days.
Keith Lanton:Last week, market participants, investors, were super focused on what was going to determine the path of the markets over the next few months. We had talked about it. If you would watch CNBC, if you would watch Fox Business News, you were hearing all different market experts talk about two things the Fed and what they were going to do about interest rates and earnings, especially the earnings from the MAG-7. And then, all of a sudden, last week we had the other big news, which today is not the front page news anymore, and that was artificial intelligence. Specifically, what was going on with DeepSeek, the Chinese AI company, which was potentially disrupting US tech. That was the hyper focus of financial markets just a week ago and this morning we wake up to a whole new paradigm. Perhaps the folks who are the most excited about all this new shift are the news networks, which will certainly continue to get lots of eyeballs. As we as humans dislike or are hyper-focused on uncertainty. When we're not comfortable with what the future looks like, we like to get a greater understanding and we tune in.
Keith Lanton:So the markets, as Barron said, weathered the deep seek sell-off. They also weathered the NVIDIA plunge. We saw lots of recovery at the last week, but at least at the moment. We're seeing futures on the Dow down about 600 points, s&p futures down just under 100 points, nasdaq futures down about 375, seeing US markets down about 1.5% to 1.75%. We're seeing US 10-year treasury yields moving lower, meaning prices are moving higher. We're seeing the 10-year treasury come from a 457 all the way down to a 451. And we see oil this morning higher, and that having to do with the effects of raising the tariffs on Canada, albeit energy tariffs about 10% tariffs on Canada, albeit energy tariffs about 10%.
Keith Lanton:So markets right now are struggling, digesting the full effects of these tariffs, and the markets are searching for explanations as to why the Trump administration chose to impose, let's say, 25% tariffs on our friend to the north Canada, arguably a loyal ally and partner over the years. Yet at the same time the Trump administration imposing tariffs of only 10 percent and I say only in quotations on our perceived trade competitor, china. And this situation with Canada is being ascribed to A allowing folks across the border and B fentanyl coming into the country from Canada. The Canadian's a little bit confused, arguing that about 1% of the fentanyl that comes into this country comes from Canada. So markets, at least to some extent, are scratching their heads, perhaps searching for reasons as to why President Trump went lighter on China.
Keith Lanton:Some are speculating. Perhaps he went lighter on China because he is asking the Chinese for assistance in winding down the Ukraine-Russia war and the Chinese needed to help there. Perhaps he feels that he could, perhaps with a softer touch with the Chinese. Perhaps he thinks he might be able to extract more concessions. He knows that he took a tough tone the first round, negotiated some trade agreements with the Chinese and to a large extent he may not talk about it as much. They really didn't hold up their end of the bargain, so perhaps he is viewing this as a opportunity perhaps to pull out a different playbook.
Keith Lanton:So President Trump and his team have had four years to plan what they're going to do with respect to a lot of different policies. But we're talking specifically right now about tariffs and at the same time, our trading partners have also had four years to think about it and we'll see how much thought they've actually given it and what measures they are going to dust off in terms of countermeasures, of course, us is in a strong bargaining position. President Trump knows that we are about seven times larger than the Canadian and Mexican economies combined. So arguably, the punch that the US can throw is a lot stronger than the Canadian and Mexican economies combined. So arguably, the punch that the US can throw is a lot stronger than the punch that the Canadians and the Mexicans can throw. So they have to perhaps think about how they are going to respond, and we may not get their full response on day one, and their response could affect not only how the US acts in response but also how the financial markets respond. So another reason that folks are much more attuned to what's going on with the news flow. So, all of a sudden, earnings and interest rates matter a lot less, at least for now.
Keith Lanton:There are some who are speculating. Goldman Sachs this morning out saying that you can't rule out the fact that the tariffs may be temporary and the markets have to take that into account. We know President Trump likes to be transactional, likes to negotiate, likes to come in strong, so markets always have to be ready for a quick pivot and they have to price that into the equation. But why do earnings suddenly matter less? Why do interest rates suddenly matter less? Well, the whole discussion, the whole talk, everything we were focused on last week has changed, because interest rate trajectories and earnings trajectories are all based on taking the current set of circumstances and projecting them forward when your probabilities shift, when what you have going forward is not going to look like what you had in the rear view mirror the current set of circumstances and projecting them forward. When your probability shift, when what you have going forward is not going to look like what you had in the rear view mirror, well, suddenly those projections don't mean as much. So when you see companies reporting earnings over the next week or two weeks or three weeks, or you see folks talk about the Fed data from a couple of weeks ago, you're going to see that that information does not have nearly the punch, the juice, the effect that it had just a week ago.
Keith Lanton:Suddenly, what we're focused on is what things are going to look like going forward. We're focused on what's going to take place with the administration and their policies with respect to our neighbors, both to the North and South, as well as the Chinese, and, of course, there's all sorts of rumblings going on about the Europeans, interesting that President Trump has not chosen, at least at the moment, to put tariffs on the EU. One thing to think about is that the EU, of all places, has probably thought the hardest over the last four years about what sort of playbook they would have and what they would pull out if the US were to impose tariffs on the EU, because this isa focal point that President Trump is focused on in his first administration how he felt that the Europeans were not playing fair and that this is the group that he was going after the hardest. So they probably took him the most serious and probably have the most effective playbook to move forward. So we will see how that game of negotiation moves from this point forward.
Keith Lanton:Now investors obviously feeling uneasy, don't like uncertainty, don't like shifting probabilities. That's the reason what they're doing right now is they are putting a discount on the market for this uncertainty, one of the reasons we are seeing the futures lower this morning. Interestingly, the bond market is also looking at probabilities going forward and we see bond yields moving lower. Now what's interesting is, if you look at the end of the day, friday, one of the factors driving yields higher was the fact that there were concerns that tariffs would be inflationary because they make goods and services more expensive. Logically, that would breed inflation. So why are we seeing the bond market up this morning? Now, this doesn't mean that this trend holds, but bond markets are moving up because we have competing forces.
Keith Lanton:Tariffs are inflationary. That causes rates to rise, but tariffs also cause the dollar to appreciate. We are certainly seeing that this morning. Strength in the US currency is very strong against most currencies, especially our trading partners. Rising currencies make importing goods less expensive. They blunt some of the effects of tariffs.
Keith Lanton:Tariffs also arguably slow economic growth. Goldman Sachs out this morning saying that if these tariffs were to remain in effect, they wouldn't be surprised to see the US economy shrink. They would not be surprised to see the US stock market decline by 5 percent and therefore, slower economic growth could potentially cause bond yields to move lower because we would potentially see a slower economy. Slower economy means that real interest rates potentially could drop. And finally, tariffs, as we're seeing this morning, can cause stocks to drop.
Keith Lanton:What happens when stocks are dropping? What do you do with your funds when you're selling? Because if stocks are dropping, someone's selling and that means that we may see more cash. What do you do with that cash? Well, perhaps you would put that cash into some bonds, so you may have some substitution effects stocks going down, moving into bonds. These are the different levers going on tariffs, inflationary, other forces, meaning bond market strength. At the moment the strength arguments winning out over the arguments on the inflation affecting bonds for the moment. So, regardless of your opinion on tariffs or the incoming administration, the one thing that we all can agree on that.
Keith Lanton:Volatility has certainly gone up in the first two weeks of President Trump's term and that very likely what we will see going forward is more negotiation, more transactional economy, more uncertainty, and the stock market will weigh that versus some of the other policies that President Trump has espoused, like lower taxes, less regulation, and make a decision on what the factors are that will drive their perception of what the appropriate measure is to measure the future of the US economy, which is what the stock market does. Arguably, president Trump is very attuned to what the stock market is doing and that could also affect his policies going forward. So let's move on. Take a look at a few individual stories. This morning, in terms of individual stocks I did mention the bond market is moving higher and oil also higher this morning up $1.85 a barrel and that's because we get about 40% of our oil imports from Canada.
Keith Lanton:Arguably, when it comes to Canada, we have the greatest leverage with Canada. Majority of their exports to the US are oil and gas and those come through pipelines. The Canadians have a small port in Vancouver to export oil. They may start building that up over time, but that will take time. So the US truly has a lot of leverage with the Canadians and the Canadian economy with the effective tariffs will almost certainly contract going forward. So the reason we're seeing that higher oil prices because of those tariffs on the Canadian oil and gas. But if it does lead to a slowdown in the world economy, these tariffs, then arguably we may see this as a knee-jerk reaction. We may see oil prices decline. 10-year Treasury yields down about five basis points to a 452. The two-year is unchanged to 424.
Keith Lanton:Taking a look overseas, we are seeing markets in the Asia-Pacific region down on the threat of tariffs in the US. Japan leading the markets lower down 2.7%. China was closed for the Lunar New Year. Hang Seng was also basically unchanged. In India, the markets they were down four tenths of a percent. Korea down two and a half. Australia down one point. Eight European markets down across the board. Interestingly, the UK is down pretty much in line with the rest of Europe, a little over one percent, despite President Trump saying that the UK may be spared from his tariff proposals going forward. We are seeing gold higher slightly this morning.
Keith Lanton:Some reaction to the tariffs from some former administration officials in previous administrations Larry Summers, former US Treasury Secretary under President. Bill Clinton, us Treasury Secretary under President Bill Clinton, who correctly predicted the global financial crisis and meltdown in 2008, said that President Trump's move amounted to a self-inflicted supply shock. Kentucky Republican Senator Rand Paul, who is a Republican, said taxing trade will mean less trade and higher prices. He also has a little extra concern, being from Kentucky, and one of the areas that the Canadians have some leverage to strike back at is US alcohol, especially US Kentucky bourbon, and therefore his state perhaps be one of the strongest recipients of the Canadian retaliation. Other countries have moved to retaliate and President Trump has acknowledged yesterday that there could be some pain, he said, for US consumers.
Keith Lanton:Energy, autos and agriculture here in the US face the biggest hits. Gasoline prices could increase quickly. Canada supplied 60% of crude oil imports to the US in 2023, about 4 million barrels a day. That crude largely froze from Alberta by pipeline to American refineries that turn it into gasoline and other products. You may say to yourself well, the US has so much oil, what do we need Canadian oil for? You may say to yourself well, the US has so much oil, what do we need Canadian oil for? Well, one of the reasons is that the refiners. When you get into the chemistry behind the refining. The way that these refiners are set up is they take the light, sweeter domestic crude production made here in the US and they combine it with the heavy crude from Canada in order to come out with the formula for our current gasoline.
Keith Lanton:We could also see car prices moving up, since parts and vehicles have to cross the border multiple times, which could subject them to tariffs. Last year, mexico supplied the US with nearly 43% of imported motor vehicle body parts. Through November, canada sent 25%. In fact, some of the biggest sell-offs that we are seeing this morning are in the auto stocks, seeing weakness not just in US auto stocks but auto stocks in Europe and Japan as well, because these companies have integrated into the US system of importing from Canada and Mexico when they produce their cars here in the US, like they have many plants here.
Keith Lanton:General Motors down about 8%, ford down about 5% this morning. Also this morning. Apple's down about 2%. Tariffs are concerning to Apple. They make those iPhones, those things that some of us like to buy in China. So a 10% tariff, which Apple was exempt from last time, no word on if there's any exemptions this time, but the concerns that our iPhones may get more expensive. Of course, they're also making iPhones in other countries, like India, but China still remaining the major manufacturing spot for Apple. Meta down about 15 points this morning, 2%, saying they will invest $100 billion in virtual and augmented reality coming out this morning. So one of the things to think about.
Keith Lanton:With the stock market declining, at least at the outset, things could turn around. With the stock market declining, at least at the outset, things could turn around. Like we said, president Trump is in the midst of negotiations. We don't know how these will ultimately work out, but at the moment, this uncertainty is certainly driving the stock market lower, and Barron's talking about the stock market, saying that the stock market is actually driving the economy, as opposed to the other way around, which is what usually happens.
Keith Lanton:So we had fresh data out last week, on Thursday show that US gross domestic product grew at an inflation adjusted rate of 2.3 percent, but the headline number underscored much greater strength in consumer spending. Consumer spending accounts for two thirds of the economy and this spending by consumers is what's really lifting US GDP. So the concern and the question is could a correction put a damper on consumption? In other words, if we started to see a sell-off in the stock market. Could that actually mean that the economy would get weaker? Traditionally, we think of it the other way around the economy gets stronger, the market gets stronger, the economy gets weaker, the market gets weaker.
Keith Lanton:But given we've had so much strength in the equity markets, barron's is arguing that one of the driving, or maybe the main driving force of the economy actually right now is the stock market. And as the stock market goes up, people feel richer and therefore they're willing to spend more. In fact, if you look at the American spending in the final three months of 2024, even though the US GDP grew at 2.3%, consumer spending grew 4.2%, strongest pace in almost two years and acceleration from the third quarter. So spending has been growing faster than incomes owning to consumers, surging wealth. In other words, we're spending more than we're making and we're feeling comfortable doing it because our wealth in general, on the aggregate, are increasing. So, to make the point again, the economy is reflecting the stock market and not the other way around, as conventional wisdom holds. Deutsche Bank economists last week estimated that were it not for the equity markets gains, real consumer spending would have expanded only 2% instead of 3%. So a correction of the bull market potentially could lead to a meaningful downside to consumer spending, thereby causing the economy obviously to get weaker.
Keith Lanton:Let's move to what was the biggest story of the year. Just a few is perhaps a narrative that could last for the next 10 or 15 years. Tariffs perhaps could be more short-lived We'll see. But concerns about artificial intelligence and the US dominance of artificial intelligence last week got a real shakeup here in the US, stock sold off sharply at the beginning of last week. We saw $1 trillion in market value disappear relatively quickly, and this was because of various accounts that DeepSeek, for price tag of just about $6 million, that they had built a model that was nearly comparable not quite as good, but close to as good as the models that the US had built for billions of dollars.
Keith Lanton:But after some deeper dives, the reality was and is far more complicated. Deepseek arguably didn't replicate OpenAI's ability by spending only a few million dollars. What they did is they were able to sort of jump on the shoulders of OpenAI Some would say that they use AI systems in an unauthorized manner and they were able to leverage a lot of OpenAI's previous model discovery and piggyback on that, and that's one reason they were able to achieve the results they did. But an even bigger piece is that they had spent perhaps hundreds of millions of dollars before that iteration to get to the point that they were at at that moment in time. What's also come out, and Barron has suggested, is that the Chinese and their OpenAI efforts, especially the DeepSeek efforts, will require a lot more investment. In fact, deepseek founder Liang Wenfang told Chinese premier Li Guang last week that US restrictions on AI GPUs remain the bottleneck, and China announced $137 billion in additional financial support for AI over the next few years, indicating that the Chinese do not see any inexpensive quick leapfrogs to be made in artificial intelligence, that the future for artificial intelligence here in the United States, as well as the future for NVIDIA and their super-fast chips, remains intact, although modified intact.
Keith Lanton:Deepseq made, by using software more intelligently, by being able to not only apply the brawn of NVIDIA but also the brains of how you interpret data that you use to build your AI models, that other folks will incorporate more of that brain and perhaps therefore be able to create more intelligent AI going forward by using perhaps less chips, less brawn, more intelligence and also perhaps less power, which we'll talk about Now. That doesn't necessarily mean that we'll see a decline in demand for NVIDIA's chips because as the technology gets better, as the cost gets lower, as the results get better. Well, what that means is that perhaps more users will use artificial intelligence. Former Intel CEO is saying computing obeys the gas law. Making it dramatically cheaper will expand the markets. The markets are getting it wrong. He said this will make AI more broadly deployed. Said this will make AI more broadly deployed. This goes along with the speaking of Microsoft CEO Satya Nadella, who referenced Jevon's paradox in 1865 observation that efficiency improvements increase consumption as additional use cases become economical and are discovered. Ultimately, wall Street might have missed the biggest deep-seek takeaway. Driving down the cost of AI computing is good for the economy, good for big tech companies, including NVIDIA. It will accelerate AI adoption and enable new AI applications.
Keith Lanton:Arguably, perhaps the biggest short-term pain point that may result from deep-seek's revelations may be the energy stocks that have gotten very pricey as a result of some optimism about ever-seeking demand at almost any cost for energy. So Barron saying that the emergence of Chinese artificial intelligence company DeepSeek raises a simple question that has clobbered energy stocks tied to the AI boom what if AI can run sophisticated models without using so much energy, while DeepSeek hasn't fully answered that question. There's much about the company's model that are unknown, but simply raising that question has poked a hole in an investment thesis that has previously been viewed as a sure thing. Wall Street's consensus view is that AI will consume ever-growing amounts of electricity because computer chips are becoming increasingly powerful. But what we saw last week is the implications of DeepSeek, and the hardest-hit group at the end of the week were independent power producers like Constellation Energy, vistra and Talon Energy. All three of those stocks dropped more than 20% on Monday. By Thursday they had regained about half of that.
Keith Lanton:Some had thought at first blush that the sell-off looked like a buying opportunity, given that tech companies were out in mass saying that they aren't looking to reduce their spending on AI data centers quite yet. But Barron says that even after the drops in stock prices and the bounce that these stocks are not bargains On a longer term basis, these stocks are still up year. To date, they've doubled over the past year and if you look at them from a valuation metric constellation at 20 times earnings before interest, taxes and depreciation and competitors like Vistra trading at around 13 times forward EBITDA this is a significant premium to the market be to take a look at the natural gas space, where there is a lot of investment going on. Given that companies like Constellation and Vistra and Talon are charging huge premiums for their nuclear power, that perhaps investors should take a deeper look at gas and natural gas. We are starting to see some deals in the natural gas space. Just last week, chevron, ge, vinova announced that they're planning to roll out custom-built power plants around the country starting in 2027 to plug directly into data centers. They're planning to build four gigawatts worth of natural gas plants To put that perspective. In size it's more capacity than is used to power the entire city of Philadelphia. Regulated utilities around the country are signing special deals with tech companies as well. Meta has a Manhattan-sized data center that will be powered by Louisiana Utility Energy, for instance. So Barron suggests, instead of looking at Constellation Energy, talon and Vistra, perhaps take a look at some of the US natural gas producers like EQT, pipeline companies like Williams and Kinder Morgan, suggesting that these companies will see more demand going forward and that this might be the area that is a better risk-reward than perhaps some of those aforementioned energy companies.
Keith Lanton:All right, before I talk about the bond market going to switch gears now and we're going to move to your IRA and your IRA distribution which, thanks to Congress, has become one of the most confusing subjects in all of investing. Which, thanks to Congress, has become one of the most confusing subjects in all of investing, and we're going to try and hopefully make that a little bit clearer as we once again go through the new rules that took effect really starting in 2020. But those implementation of those rules got delayed. In fact, the IRS themselves didn't even know exactly what the rules were, and now we've gotten some clarification. So going to go through this once again.
Keith Lanton:Barron's talked about these new rules that take effect for inherited IRAs and they agree it's still a mess. So, starting this year, many people must make withdrawals from individual retirement accounts they inherited in 2020 or after. The big change this year 2025, is that the IRS is ending a grace period for annual withdrawals from inherited IRAs. From 2020 to 2024, the IRS waived RMDs required minimum distributions from inherited IRAs from most non-spouse beneficiaries, but the agency kept the clock ticking on the 10-year period for heirs to drain their inherited accounts. Today, certain IRA heirs must empty their accounts by the end of the 10th year after the year when the original owner died. So for those who inherited an IRA account in 2020, they must empty that account and pay the income taxes on that account no later than December 31st of the 10th year, so no later than December 31st of 2030. Rmds must be taken every year by December 31st and it's a good idea to plan ahead about the broader tax consequences. It may be tempting to take the minimum every year, for instance, to keep your tax bill low, but that will delay the pain.
Keith Lanton:You really need to focus on what your income looks like each year over the next 10 years and really plan, perhaps work with your financial advisor, your accountant, to strategically decide, if you inherited an IRA from a parent, how to take those distributions. If the account balance is healthy and you don't pace your withdrawals, you will face a big one-time hit in the 10th year. The consequences of a large income boost in the 10th year may seem to you trivial. You may say, well, I'll take a lot of money out that year, I'll pay a lot of taxes and it'll be game over. But that tax bill could affect your eligibility for lots of other things like college financial aid or perhaps higher Medicare premiums, if you do not strategically plan.
Keith Lanton:Keep in mind. If you inherited an IRA before 2020, the rules don't apply. You are still able to use the so-called stretch IRA that applied before, which allows you to make withdrawals based on your life expectancy stretched over your lifetime. So if you inherited an IRA before 2020 from your parents stretch IRA, that works. If you inherit an IRA from your spouse, none of the changes apply to spouses. You can still take those IRA distributions over your lifetime. Also, let's say you inherited that IRA perhaps from a sibling who is not more than 10 years older than you. If they are more than 10 years older, then you got to go by the first set of rules take it out over 10 years. If they are within 10 years of your age, you can take those distributions over your lifetime like you could before. What about inherited IRAs? Inherited IRAs are not subject to RMD rules year one through nine, but in year 10, that inherited Roth IRA is over. You now have to take it out and you will no longer enjoy tax deferred growth. Lots of new rules, lots to think about moving forward with respect to planning for inherited IRAs.
Keith Lanton:Let's change gears, finally, and let's talk about arguably one of the most successful hedge fund managers Bridgewater and Barron's had an interview with their former CEO, ray Dalio. He says it's time for heavily indebted countries to avert a debt crisis, and he's speaking not only of other countries, but speaking about the US as well. He's saying it's time for heavily indebted countries to really start planning if they and we here in the US want to avoid a real meltdown sometime in the future. So the warnings from Dalio, who retired in 2022 from the firm he started, comes as global debt hit an estimated $102 trillion last year. Who are the biggest contributors? Us and China? Who else? That level has raised red flags for economists worried about the global impact on economic growth and financial stability.
Keith Lanton:Dalio, who spent decades navigating bond markets and studied 35 debt crises over the last 100 years, says he is in the deeply concerned camp. He says most investors are familiar with short-term debt cycles where interest rates move up and down. He said there is a lot less understanding of the big debt cycle. So in his new book, he outlines red flags, such as governments selling more debt than it can buy back after investor appetite for its bonds wane. He says another sign to be on the lookout for is central banks being forced to print more money because the government is not bringing in enough money to service its liabilities. What does that do? That will push a country into a deleveraging that can include restructuring debt that's another word for default devaluing its currency, putting extraordinary taxes in place or putting capital controls in place.
Keith Lanton:Using a metaphor, ray Dalio said that the bond market and credit acts like blood flow that carries nutrients throughout the body. And if you think about it, if there is a selling of existing debt in addition to the selling of new debt to finance deficits, it creates a terrible imbalance that causes the economic equivalent of a heart attack or a stroke. At that point, you have no choice but to default on your debt. Print more money. Print more money, which is similar, he says, to a shot of blood into the bloodstream which devalues the value of that money and the currency. And he said all of this bad stuff can be prevented if it's dealt with now, but if it's not, we've got a long-term problem that eventually will come up and bite us on the behind. He says he can't say when this will happen. He can only say he thinks very likely that it will happen and he thinks the risks are building, but that they can be avoided. In other words, this crisis can be averted.
Keith Lanton:And what does he say we need to do in order to do this?
Keith Lanton:He says number one, two and three we need to stabilize the debt.
Keith Lanton:The government needs to reduce the deficit to 3% of GDP. The president and Congress need to pledge that they will get the deficit down to 3% of GDP. That the easiest and surest way to get the deficit down to 3% of GDP is that if you were to lock the president and all of Congress in a room and told them you can't come out until you get the deficit down to 3% of GDP. Or alternatively, perhaps a better solution, he said, was if you don't get the deficit down to 3% of GDP, if you pass a rule that says, if this Congress and this president can't get that down to 3% of GDP by the time they serve their term, they are not eligible for reelection. He said, lo and behold, the way will be found to get the deficit down to 3% of GDP. So this is what we need to keep a look on is not just whether or not we are taking measures to raise taxes, reduce spending. What we need to look at here in the United States is in aggregate.
Keith Lanton:Are we bringing down the deficit to 3% of GDP? If we are, we're on the right track. If we are not, we are still where we were before, just with the chairs rearranged in a different manner. All right, I am going to summarize with where we are. Since we started, futures have gotten a little weaker Dow futures down 620. S&p futures down 98. Nasdaq futures down 388,. All a little weaker. Oil a little stronger up almost $2 a barrel now at $1.98. And the 10-year Treasury also a little stronger. It's at 451, down about 5.5 basis points from where we were at the. I don't think we're about a basis point higher. So you'll down a little bit, prices up a little bit. That's everything I've got.
Alan Eppers: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: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.