Enlightenment - A Herold & Lantern Investments Podcast
Enlightenment - A Herold & Lantern Investments Podcast
Are We Witnessing a Paradigm Shift in Global Markets?
March 3, 2025 | Season 5, Episode 8
As the financial landscape undergoes dramatic changes, staying informed is more important than ever. With the recent shifts in U.S. policies and market dynamics, many investors find themselves questioning their established strategies. Join us as we explore the implications of tariffs, the surprising performances of international markets, and the benefits of diversifying investments into commodities like gold.
We delve into the increasing appeal of value investing, providing insights on how examining global trends can enhance your portfolio. Additionally, we discuss the historical significance of gold as a safe haven amid economic uncertainty and provide actionable investment strategies to consider for a volatile market.
This episode equips you with the knowledge to navigate the financial world’s complexities, encouraging a proactive approach towards investment decisions. Don't miss out on these critical insights! We’d love to hear your thoughts on these trends—join the conversation by subscribing and sharing your perspective!
** 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, hope everyone had a nice end to the month of February. Here we are, march 3rd, first trading day in the month of March in 2025. 1 6th of 2025 has already passed us by and it has certainly been a start to the year with lots of changes and lots of information for the financial markets to digest. So we're going to get started today. I'm going to talk a lot about what's going on. There's a lot to take in and a lot to evaluate and a lot to think about as we structure our investment portfolios and our theses going forward, critically important.
Keith Lanton:If you've built portfolios based on your goals, your expectations, your risk tolerance, now is the time to just take another peek, given what's taken place in the world, both in terms of politics and in terms of changes. This is truly a time when perhaps perhaps there are some paradigm shifts taking place. Some of the things that we've built into, our assumptions in the post-World War II era about how investments are going to work, based on how the world is going to work, some of that might be changing. We do not know, but we need to be mindful of that, because we do not know if some of the policies that the United States is pursuing and that President Trump is initiating, whether they are truly paradigm shifts or whether or not they are strategies to wring concessions from different partners and adversaries, and these are negotiating tactics of whether or not these are true shifts in policy. Of course, the future will determine that, but each of us needs to take a look, work with their financial advisor and determine whether or not the structure of their investment portfolio is still in line with the way that they see the world. If not, you may want to make some adjustments, and we'll talk about some adjustments that you might want to think about this morning.
Keith Lanton:So what we've been seeing over the past several weeks is we've been seeing US markets gyrate, be very uncertain about which direction to take. We've seen a little bit of a pullback, certainly had a significant run-up in 2023 and 2024. So a pullback in US markets, even after a start that was very strong in 2025, is not surprising. But the question becomes what is the reason for that pullback and whether or not that's the beginning of a broader trend. And one of the things that we are seeing is investors would typically pay a premium for stability, an understanding of the rules of the road, are starting to question whether or not the stability here in the United States is something that they can count on and whether or not the rules of the road are shifting. This doesn't necessarily mean it's good or bad. It means that you may need to think about how to reposition so that you are comfortable going forward, and how to reposition in order to take advantage of what the road may look like in the future.
Keith Lanton:So over the past six weeks, some of the actions taken by the Trump administration have shaken investor confidence. That's not my personal opinion. That is based on the data that we've seen from consumer sentiment and consumer confidence, and we've seen that those numbers have declined. It doesn't mean that they're going to stay low. It doesn't mean they're not going to get lower. It just means the facts are that consumers are becoming less certain, and I would attribute that to uncertainty about what's taken forward. So whether or not these actions are more posture or more paradigm shift, that remains to be determined. What's interesting is that the actions taken by the United States may be the catalyst to change investor perceptions about some other markets in the world. Interestingly, the Chinese market has gone up over 20% year to date, which is something that many would not have predicted, given President Trump getting elected and at the same time, we are starting to see significant outperformance European markets up almost 10 percent and perhaps one of the most interesting factors of some of the actions taken here in the United States is that the actions by this administration may be the catalyst to potentially wake up European markets.
Keith Lanton:Europeans now have a common reason to work together and to act more as a union. This comes not only as for tariff threats that the United States is currently talking about imposing tariffs on Mexico and Canada, which potentially would be 25%. Those tariffs would potentially begin tomorrow, on March 4th. There is some talk that those tariffs I think there was some commentary this morning suggesting that those tariffs could be delayed or postponed or not enacted if those countries were to impose more tariffs on China, or impose tariffs to begin with on China to be more in line with the United States. And that's something that perhaps makes some sense from a US standpoint, because one of the ways that the Chinese have been evading some of the tariffs that we have been placing on them is to move goods into the US via Mexico and Canada. Us is also talking about raising the tariffs on China by another 10 percent, and, again, some of that uncertainty that's out there has to do with the imposition of these tariffs and also what the response will be from our trading partners for those tariffs.
Keith Lanton:And the Europeans, of course, not only have the threat of tariffs to bind them together, but perhaps they have the risk that could perhaps be viewed as a greater risk, or an existential risk, given the geography, and that is that they have Russia moving closer to their doorstep, given the events that took place last week between President Trump and the Ukrainian President, vladimir Zelensky, and the uncertainty there after the fallout at the White House has led the Europeans perhaps to see that they need to take matters into their own hands and that they have the motivation to do that. They do not have the wherewithal, though, to do things on their own without some US assistance, but they are starting to take some action as a unit, and this is causing European markets to react favorably. This morning, we see significant movement in European defense stocks, and this is because the Europeans perhaps recognizing that they need to invest more in their defenses, which is something that President Trump has been advocating for. So it's an interesting coalescing of different factors leading to, perhaps, outcomes that may not have been anticipated just a few weeks ago. So what we might see going forward is we may see the Europeans negotiating more as a bloc, with respect not only to tariffs and trade, with the United States, which is something that would be a more formidable competitor, as opposed to the hodgepodge of different views that the Europeans have expressed and the fact that they can't come to any sort of unity. And the Europeans may do this not only when negotiating with the United States, but they may seek agreements, potentially with our competitors like China, that may not be as in line with what we were advocating for as in the past. So we may see the Europeans go their own way and not be so closely tied to the United States orbit.
Keith Lanton:So what do we do in this new world order? Well, global investors seem to be answering that question. We're going to talk about some of these areas that are working and that may continue to work. So what do you do in this environment? Well, you take a look and you say well, we're starting to see international markets or not. This will continue. Many US investors are significantly underweight international because they have performed so poorly and US has performed so well. So if you haven't rebalanced your international exposure in the last two, three, five years because it hasn't been a good investment. Whenever you did reinvest, you noticed that into international markets. You notice you continue to underperform. So perhaps you stop doing that Something to look at, depending on your thesis. Well, take a look at international.
Keith Lanton:Another area that's been getting a lot of attention is commodities, especially gold. We have started to see the US dollar under pressure Again. We don't know if that's going to continue, but if you look historically at periods when you see dollar weakness, you see strength in commodities and we're going to talk about some trends, especially with gold and markets, and whether or not gold, which is at or near record highs up again this morning, and whether or not gold will continue to outperform as it has over the past year, significantly even outperforming equities, which had a strong year last year. And then the other thing that we see going on and we've talked about this before is a transition to value Value stocks, again another area where we're seeing perhaps less risk because we have lower valuations. Also, value stocks tend to pay more in dividend income, perhaps offsetting some of the risk there as well, offsetting some of the risk there as well. So these are the three factors we see in this rotation or this sell-off.
Keith Lanton:So so far, 2025 has been about switching from winners to losers, from the Magnificent Seven to select members of the other 493 stocks in the S&P 500. We mentioned from growth to value, to international to commodities. So so far in 2025, the S&P has given back its gains for the year, the NASDAQ slightly in the red, while the Dow Jones has basically stayed afloat with a 1.8% gain, perhaps because the Dow Jones Industrial Average has more value stocks than growth stocks. And to give an idea of what's happened between value and growth so far this year, growth stocks as measured by the Russell 1000 growth index, are down about 3.5% and value stocks, as measured by the Russell 1000 value index, has gained 3.4%.
Keith Lanton:The post-election euphoria in the US stock market has faded since inauguration day. Adding insult to injury is that US stocks we just talked about lagging behind Asian and European markets. As markets here in the US, we're still hoping for less deregulation and lower taxes, but some of those who are super optimistic about that turbocharging the markets higher coming into 2025 on the heels of extremely strong previous years Well, those optimists are seeing some of that excitement fade and it has been replaced by worries about tariffs, layoffs and other factors. So so far what we've seen is an international comeback. It's only been a few months, but the question is whether or not that comeback continues.
Keith Lanton:The case against continued US dominance found more evidence last week that some of the unwind in some of the Magnificent Seven stocks is continuing. This is after NVIDIA released earnings last week. The stock dropped about 8.5% on Thursday, even though they had very solid earnings, some suggesting that the markets had gotten too excited about its prospects and the rest of the Magnificent Seven. Others are suggesting that perhaps some of the drop in Nvidia may be due to some of the geopolitical concerns. Nvidia makes a lot of their chips in Taiwan Talked this morning, actually, that NVIDIA and Broadcom speaking to Intel and testing their chips with Intel about making some of those chips in the US.
Keith Lanton:But in the interim, given all the uncertainty in the international arena and interesting also to think about how the Chinese are viewing what's taken place they're certainly very interesting watchers of what's taken place between the US and its allies in Europe and the US approach to Russia and the international chess match that's taken place here between three superpowers United States, china and Russia US perhaps trying to warm up to Russia China, who's got an interesting relationship with the Russians and what the Chinese may think about the events in Ukraine and what that may mean for the Chinese and Taiwan. Are the Chinese potentially emboldened to take more action with respect to Taiwan? Perhaps that's some of the reason that we've seen some uncertainty with respect to some of the chip stocks that are highly dependent on Taiwan Semiconductor In fact, taiwan Semiconductor Jim Cramer talking about this morning or over the weekend. Taiwan Semiconductor down from about $224 a share to $180 a share, down from about $224 a share to $180 a share. Perhaps some of that significant downtrend due to some of those concerns and investors taking some of their chips off the table, so to speak, with respect to those individual stocks that have that exposure?
Keith Lanton:Perhaps some of the reasons that the international stocks are outperforming are more simplistic. We've talked about this a couple of weeks ago. It's that the international stocks are just very inexpensive relative to US stocks, which are arguably, historically at least, more expensive Stocks. European 600 index trading for less than 15 times this year's earnings estimates, compared with a multiple of 22 for the S&P 500. Now, none of this is to suggest to dump US assets. Wholesale Earnings growth for the S&P 493, that's outside the Magnificent Seven have picked up steam, and recent drops in yields have led to a boost in total returns for Treasury bonds. But investors who thought the only game in town was the United States of America have gotten a wake-up call. So let's move on here this morning and talk about some of these investment theses, and then we'll talk a little bit about in cryptocurrencies, which is one of the things that had taken place based on some commentary from President Trump announcing a strategic reserve of cryptocurrency. We'll talk a little bit about that when we talk about the morning's news.
Keith Lanton:So let's talk about another asset that investors traditionally have flocked to in the past when things were uncertain, and that is gold, and the recent surge in gold prices reflect what may be the inevitable consequences of decades of ultra-loose monetary policies, not just here in the United States, but throughout the world. Decades of ultra-loose monetary policies, not just here in the United States, but throughout the world, worldwide debt accumulation and, arguably, worldwide fiscal mismanagement. Those who have dismissed gold's role as a safe haven are now witnessing a reminder of its historical significance. One factor to keep in mind is, if you were to look at US gold reserves, which currently stand at about 2% of total outstanding US government debt. That is one of the lowest levels in history and this takes into account a mark-to-market valuation of the gold that the US says it has. So we're marking it to market, not valuing it at levels that they have on their books the book value of that gold. This is a mark-to-market value. Us gold reserves just 2% of our national debt. If you go back into the post-World War II period and this is after gold as a percentage of debt had fallen significantly after World War II World War II, when we had built up a lot of debt, was historically somewhere between 5% to 10% of the value of all of our outstanding debt. So here we are now at about 2%. So if we were to see gold just climb back up as a percent of debt to levels that were more in line with historic levels, we might see gold not at $3,000 an ounce but somewhere between $6,000 and $10,000 an ounce, and that is obviously significantly higher than it currently is.
Keith Lanton:What are some of the reasons that gold has been moving higher? Well, international central banks have been acting in their own self-interest by building up their gold reserves, and this is because of some of the concerns regarding the US and the dollar, as well as just holding dollars. After the United States had confiscated Russian assets held here in the United States, certain countries became more concerned about holding dollars and holding investments in the US, like treasury bonds, specifically, certainly the Chinese, perhaps even India, which has been building up big gold reserves, and Russia, for obvious reasons. It's worth noting that in the 1950s, the United States held more gold than the rest of the world combined. Since then, we've seen a significant reversal of this trend, significant reversal of this trend. Today, us gold holdings account for just 20% of the world's gold reserves and that's the lowest proportion in nearly a century.
Keith Lanton:We're also at the point when the dollar, which has been extremely strong for a very long time, is starting to experience some structural weakness, and that's a period when commodities and hard assets tend to perform better as asset classes. Also, if you take a look at the ratio of commodities to assets, equities ratio so commodities to equities versus the US dollar and you look at what that ratio looks like, well, it is at a bottom, similar to the bottom we saw in commodities in 1999, the bottom we saw in commodities in the mid-80s and after both of those periods, commodities had very strong performance going forward. So, when you look at the value of equities, you look at the value of the US dollar, you look at the price of commodities and you will see that if there is any sort of revision to the mean that we may see a bounce up in commodity prices. Also, if you take a look specifically with respect to gold, you look at gold prices, which are approaching $3,000 an ounce, and you look at the cost to mine an ounce of gold, it's about $1,500. That is historically one of the widest margins about $1,500 an ounce. It's actually record margins.
Keith Lanton:Area to consider investing in is to invest in gold mining stocks, which have significantly underperformed the performance of gold. Also, if you look at the gold miners and you look at their cash flow per share meaning how much are they generating in profitability and not just profitability but actual cash you will see that we are at 13-year highs and the stocks of the gold miners are not at 13-year highs. So perhaps some opportunity there. Well, how to invest in gold? There are two big ETFs, gld and IAU, two largest gold ETFs here in the United States. Gld has an expense ratio of 40 basis points IAU, an expense ratio of 25 basis points and, of course, the individual gold mining stocks, like Newmont Mining, nem, american Barrick GOLD. And also mentioned in Barron's this week was Goldfields GFI. In fact, barron's ran an article as well on gold, sort of piling on saying the gold rally can't be stopped. Gold's stellar run is too shiny to ignore and its rally could continue through 2025. All right, shifting gears.
Keith Lanton:Taking a look at what's going on this morning, we are seeing S&P futures NASDAQ futures all up this morning. S&p futures up about 25 points above fair value. Nasdaq futures up about 70 over fair value. Dow futures up about 90 points over fair value. Equity gains are being led by large cap stocks, and this is after Friday's late session push higher. Market participants are waiting to see how tariff concerns materialize. Previously announced 25% tariffs on Canada and Mexico go into effect tomorrow. Treasury Secretary Scott Besant said in an interview that Canada and Mexico should match US tariffs on imports from China, adding that this could be a path for Canada and Mexico to avoid US tariffs.
Keith Lanton:As we mentioned, ten-year yield up two basis points to $4.25. Two-year yield is up two basis points to $4.03. President Trump over the weekend announcing a US strategic crypto reserve and teased new details about the highly anticipated move by his crypto industry backers. Bitcoin was last trading above $92,000, which is 18% above its Friday low. Ether was up 13% to about $2,300. Coinbase up 9%. Robinhood up 7%. Microstrategy looking like it's going to open about 12% higher.
Keith Lanton:Other stocks in the news NVIDIA we talked about NVIDIA and we talked about the risks to their chip making. Also in the news this morning that China is ordering new NVIDIA chips despite restrictions. So NVIDIA chips making their way to China kind of hard to see how the US could really put a full clamp down on that when the Chinese are willing to pay over market prices for something that's readily available in most other countries in the world. Well, you could see how a black market would develop. And they're saying that wait times in China for new NVIDIA chips Wall Street Journal saying are about six weeks. So some challenge in preventing NVIDIA chips from getting there. And NVIDIA stocked down about 50 cents this morning on that report. Amazon up $2 a share. New Alexa products, they're saying could expose artificial intelligence issues at Apple, according to Bloomberg. Jp Morgan up about a point this morning article talking about the company experiencing issues over their pay and layoffs and their return to work policy, as has been advocated by CEO Jamie Dimon.
Keith Lanton:Equity indices in the Asia-Pacific region began the week on a mostly higher note Japan up 1.7 percent. Hong Kong up three-tenths of a percent. China Shanghai composite roughly unchanged. China's manufacturing PMI came in a little stronger than expected, returning to expansionary territory at 50.2 from 49.1. Most European markets in the green European average is up about eight-tenths of a percent on average, but the German DAX is up 2.6 percent, leading the gains in Europe.
Keith Lanton:Other news to talk about this morning Wall Street Journal reporting that Europe is planning on developing a peace plan for Ukraine and presenting it to President Trump. Washington Post reporting that President Trump is considering ending all ongoing shipments of military aid to Ukraine as peace deal negotiations remain in doubt. Reports that House Speaker Mike Johnson saying that the Republicans want to pass a clean continuing resolution to fund the government through September 30th. Wall Street Journal reporting that Defense Secretary Pete Hegeseth has warned Mexico the US military is prepared to take unilateral action if Mexico does not deal with their drug cartels. No-transcript that's initially been headlined President Trump mentioned this before will host the cryptocurrency summit on Friday. Bloomberg reporting that Chinese President Xi is preparing a stimulus plan, global Times reporting that China could target agricultural products in the US's retaliatory action for US tariffs. Chicago Fed President Austin Goolsbee, who is a voting member, said in an interview he believes that inflation is on the path to 2 percent. That's according to CNBC. Bridgewater founder Ray Dalio has issued a warning saying that if the US does not commit right now to reducing the deficit, that the US does not commit right now to reducing the deficit, that the US risks a major debt crisis within three years. In the Middle East, us Israel has halted a humanitarian aid into Gaza as Hamas balked at a US proposal to end the ceasefire which ended yesterday.
Keith Lanton:What's going on this week? Well, today the Institute for Supply Management releases both its manufacturing index today. Servicing Purchases Index is coming out later in the week as well. Consensus estimates for the manufacturing PMI are 50.5, and the services PMI, which is going to be released on Wednesday, is expected to come in at 53. Put that in perspective 50.5 for manufacturing Last reading was 50.9, so that's down 0.4. And services if it were to come in at 53, that would be a little better than the last reading at 52.8.
Keith Lanton:More than 95% of companies in the S&P 500 reported fourth-quarter results, three-quarters beating earnings per share estimates 60%, surpassing sales projections On tap this week earnings from CrowdStrike Holdings and Target, which announced results on Tuesday. Two mega cap companies, broadcom and Aliexpress, avgo and Costco CUST release earnings on Thursday. And then Friday we get the report that many investors are really focused on, which is that the Bureau of Labor Statistics is releasing the jobs report for February. Economists expect a $155,000 increase in nonfarm payrolls after January's $143,000. Unemployment rate expected to remain unchanged at 4%. Initial jobless claims have risen recently, adding to investors' fears of a growth scare, and that's one of the reasons that we've seen some weakness in US markets over the past few weeks.
Keith Lanton:One of the other trends we've been seeing Barron's talking about the DOGI, the Department of Government Efficiency, announcing their layoffs and certainly coming in with a heavy hand. And Barron's is saying that perhaps these Doge rate layoffs are rattling consumers and this is one of the factors that could be affecting the economy, even though a relatively few number of folks of course, if you're one of them, it's being felt very acutely are at the moment being affected by layoffs as a result of the Department of Government Efficiency. And that's when I say few. It's all relative to the size of the US economy. We're talking somewhere right now in the neighborhood of, you know, 50 to 100,000 individuals in an economy that has 160 million workers.
Keith Lanton:But nevertheless, the rhetoric that's out there with respect to the government jobs and the uncertainty that others project upon themselves when they hear about what's taking place in the government workers is something that perhaps affects sentiment. We see consumer confidence dropping, even though individuals aren't necessarily directly affected. But the rhetoric does take a toll on the psyche of other workers and it also takes a toll on the psyche of employers who say to themselves wow, perhaps it may get a little bit easier to hire workers. Governments laying off workers I've been keeping workers on my payroll, some employers may be saying because I'm afraid I won't be able to replace them. Perhaps I don't need to be as concerned, perhaps I could let some of my workers go and if I actually need more workers, I'll be able to hire them without getting whacked in terms of having to pay up and spend a lot of money because I can't attract workers. All of these little pieces of the puzzle could potentially affect employment.
Keith Lanton:We'll see how that's playing out on Friday, but nevertheless, this change in mentality and change in employment we've been in a period where folks feel very secure, job seekers feel very confident. That is something that is changing and rattling job seekers. We're seeing job seekers changing their tune with respect to job seekers who see jobs as plentiful versus hard to get. That percentage of folks who see jobs as plentiful has fallen to 17.1% in recent surveys. So some speculation that at least some of the leverage that employees had over employers has been fading. Perhaps that's one of the reasons that the bond market has been moving up because employees aren't getting as well paid. Well, that is positive for inflation, or at least wage inflation. We've seen the 10-year Treasury go from about a month ago to 4.5% down to 4.25% and we have seen the expectations for interest rate cuts pick up significantly. We were at an expectation that the Fed was going to cut rates once just a few weeks ago and now we are up to expectations being priced into Fed funds futures of three rate cuts by the end of this year, which exceeds even what the Fed had said at their last meeting, which was that, based on their dot plot, they were looking at two rate cuts.
Keith Lanton:Brad is not going to be with us this morning on the call, so just going to cover one last thought and then open it up to questions and thoughts. Barron's also ran an article on how analysts can make you a better stock picker, and this is something you know. I think that's worthwhile to think about. As the article will articulate, most analysts don't have a fantastic track record when it comes to predicting stock price moves for individual stocks, but nevertheless, you can still learn a lot from following analysts and their comments, and we'll talk about what to look for.
Keith Lanton:If you take a look at the performance I just mentioned, many analysts don't have the greatest track record I just mentioned. Many analysts don't have the greatest track record. Trivariate Research notes that stocks most loved by Wall Street analysts have underperformed those they hate by 30 percentage points since 2001. There are some periods of vast underperformance followed by outperformance, but nevertheless over a long period of time there we see significant underperformance from analysts. But nevertheless, a lot to learn from analyst reports. They can help you keep up with what is happening in individual stocks. They can help you spot new concerns or potential new catalysts, and it's also worth paying attention. When you see an analyst break away from the herd and say something very different than what other analysts are saying. That could potentially be a wake-up call, at the very least, a good learning experience. It's also helpful to think about what analysts have gotten wrong. Barron says.
Keith Lanton:Take Microsoft, a stock Wall Street simply loves Its shares have fallen 2% over the past 12 months, making it the worst performer in the Magnificent Seven. That's likely not what analysts had in mind when 94% of the 57 analysts who cover the stock in March 2024 rated the shares a buy, with an average price target of $472 per share. So you may say to yourself well, microsoft's hovering around 400. These analysts probably aren't as optimistic as they were, but that is not the case.
Keith Lanton:Analysts certainly remain enthusiastic for Microsoft. As of Wednesday's close, 93% that's down from 94% a year ago Of the 58 analysts who cover the stock still ready to buy. They now have an average price target of not $472, but $510, which would be up about 28% from current levels. Analysts continue to expect Microsoft to tie up with open AI to give it a leg up in artificial intelligence, while the rush into AI would increase demand for its cloud business. So, ultimately, what analysts have to say and what analysts have to teach us is not so much in what their conclusions are, but what is their thinking, and if we can take that thinking and take what we see as changes in some of the thought processes of some of the analysts and incorporate it into our own thinking, that's truly where we can benefit from what analysts have to say. So ultimately, it isn't necessarily about the research, but it is about what you do with. It is what Barron says, and I would wholeheartedly agree. 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.