Enlightenment - A Herold & Lantern Investments Podcast
Enlightenment - A Herold & Lantern Investments Podcast
What Control Do You Have When Markets Feel Out of Control?
April 21, 2025 Season 7 | Episode 15
The global financial landscape is shifting beneath our feet as the dollar hits a three-year low and gold surges to record highs. This change defies conventional market wisdom - when equities fall, we expect treasuries and the dollar to strengthen as safe havens. Yet we're witnessing the opposite, raising profound questions about America's economic future in a changing world.
What's driving these unusual market reactions? At the heart lies America's persistent trade deficits, which stem from three fundamental causes: our low national savings rate compared to other countries, massive federal budget deficits approaching $2 trillion annually, and unfair international trade practices that disadvantage American producers. While tariffs address the third factor, they don't solve the underlying spending and saving imbalances that define our economy.
Using a simplified example of US-Vietnam trade, I demonstrate how different national spending habits naturally create trade imbalances. The concerning shift is that global investors may be questioning whether the dollar remains the stable store of value it's been for decades. This potential sea change demands we reconsider investment strategies that have served us well in the past.
For investors, these shifts present both challenges and opportunities. Fixed income investments have become surprisingly attractive, with municipal bonds offering 4-5% tax-free yields, preferred stocks paying 6-7% with favorable tax treatment, and traditional treasuries approaching 5% - the highest yields in 15 years. Retirees should be particularly vigilant about portfolio protection, creating adequate cash reserves to avoid withdrawing from depressed equities during market downturns.
Remember James Clear's wisdom: "Success is largely the failures you avoid." In uncertain markets, controlling what you can - your asset allocation, diversification strategy, and emotional responses - matters more than ever. How are you positioning your portfolio for this new economic reality? Does your strategy need adjustment as traditional market relationships evolve? These are the crucial questions every investor should be asking right now.
** For informational and educational purposes only, not intended as investment advice. Views and opinions are subject to change without notice.
For full disclosures, ADVs, and CRS Forms, please visit https://heroldlantern.com/disclosure **
To learn about becoming a Herold & Lantern Investments valued client, please visit https://heroldlantern.com/wealth-advisory-contact-form
Follow and Like Us on Youtube, Facebook, Twitter, and LinkedIn | @HeroldLantern
And now introducing Mr Keith Lanton.
Keith Lanton:Good morning. Today is Monday, April 21st. We're almost a little more than one month into spring. Certainly had some beautiful weather here on the East Coast this weekend A great day for those celebrating Easter Sunday yesterday Hopefully everybody had a beautiful day, Weather on the East Coast here was beautiful and for those celebrating the end of Passover as well.
Keith Lanton:This morning I woke up to the sad news that Pope Francis, the first pontiff from the Americas, died at age 88. And we're all now awaiting his funeral and the election of a new pope. So we wake up today to a lot of continuation of what we were experiencing at the end of last week. Last week we saw financial markets fall across all three major indices in the holiday short and week fall across all three major indices in the holiday short and week Markets closed on Friday. Broughton market closed at around 2 o'clock on Thursday.
Keith Lanton:This morning I'll be talking a little bit about the Broughton market. Last week the S&P finished the short and week down 1.5%. The Dow was down 2.7%, the NASDAQ down 2.6%, Markets whipsawing on concerns and thoughts about trade and then also with respect to commentary from Federal Reserve Chair Powell. And then this morning we've got President Trump once again questioning whether or not he can remove Chairman Powell, and the markets are very anxious with respect to those comments and perhaps precipitating some of the weakness that we're seeing this morning, with futures on the Dow down about 400 points, S&P futures down about 60, NASDAQ futures down about 260, and we are seeing bond yields climb. At the same time we're seeing bond yields climb, we are seeing the dollar continuing to weaken and those are some trends that we're going to talk about.
Keith Lanton:That's something that I think is really significant with all that's going on, that we do see dollar weakness and that we see bond weakness in the face of flight to safety, and we're going to address that and talk about it some more. We've talked about it in the past and we're going to continue on that theme. But first off, I'm going to start with some thoughts from James Clear, author of Atomic Habits, and some of the things that we could perhaps integrate into our mindsets as we think about what we can personally do. What can we control in an environment that feels that has lots of factors going on that are beyond our control, and sometimes we think that there's not a lot we can do, but the reality is there's a great deal we can do and hopefully this will help level set some of the thinking.
Keith Lanton:So he says take all the energy you spend on worrying about the past, worrying about the future, worrying about what others think and worrying if you might fail, and channel that energy into useful action within your control. So what can you can control. Well, you can control the construction of your investment portfolio, and this is obviously as it pertains to finance, and this could be carried forward to all sorts of aspects of your entire life, but we're going to talk about finance, obviously here. Focus on today, the present, and what it is that you can do. Recognize your own mindset, the objective about how you're thinking. Make sure you make decisions when you are thinking clearly. If you're not thinking clearly, it's not a good day to make decisions.
Keith Lanton:He also says success is largely the failures you avoid. So health is the injuries you don't sustain. Wealth is the purchases you don't make. Happiness is the objects you don't desire. Peace of mind is the arguments you don't engage In. Void the bad to protect the good. And this could certainly be applied to our portfolios, because long-term performance is as much about picking the right sectors, picking the right stocks if you're an individual stock picker and seeing those tremendous gains and having those great stories to tell at cocktail parties about how you invested in Microsoft when it was $10 a share, or Palantir when it first came public. But really, the true successes and the real long-term performance of your portfolio will be about avoiding those big losses, something that Warren Buffett if you look at his long-term track record yes, he certainly is human and has made mistakes, but, you see, in an environment like the one that we're in now, he went to cash. At times people were cynical, suggesting that his cash hoard was too high back in even as early as a few months ago January, february of this year but his mindset of keeping losses to a minimal when the risks are too great has served him well, and it's important to bear in mind that if you are experiencing a 50% drop in your portfolio, well, you need 100% gain to get back to just where you were is something to really think about when you are working on mitigating those losses.
Keith Lanton:We're once again going to talk about what's taken place in the financial markets, and what's taking place specifically, because I think it's really important is what's taking place with the dollar, which is down over 8% since the start of the year, and treasury yields, which are this morning, climbing higher. We're looking at a 10-year treasury of around 4.4% right now, up about 40 basis points in the last two weeks, and this is as the stock market has sold off. So treasuries and the dollar not acting like we'd like we typically expect when people are looking for certainty, looking for safety, equity markets are selling off. So when you see something like that, when you see markets acting differently than they've historically acted for the last 30 or 40 years, you need to ask yourself why and you need to understand what those macro causes are, because perhaps something has fundamentally changed, perhaps. So these are things that we need to think about Now.
Keith Lanton:One of the reasons perhaps that we are seeing all of this uncertainty perhaps more than perhaps is because of the policies of the Trump administration with respect to trade, and we need to therefore examine what is taking place with those policies and what fundamental shifts they may be creating, and to evaluate those changes so that we can better position ourselves going forward. Our portfolios how should we be thinking, position ourselves going forward? Our portfolios how should we be thinking about investing? Going forward, we see the dollar declining, we see treasury yields climbing, we see stocks in the US going down and we see gold going up significantly. These are not things that we have seen in quite some time. So we need to think about tariffs and we need to think about the trade deficit, which is what President Trump is certainly laser focused on, and we need to think about what are the causes and what are the symptoms and try and evaluate why we run trade deficits here in the United States, what they may or may not mean and why, despite running trade deficits, we have experienced strong dollar, strong flows into our bond markets and strong equity markets, despite running trade deficits. Not implying in any way that these deficits shouldn't be addressed, not implying that there is not massive room for improvement, shouldn't be addressed, not implying that there is not massive room for improvement, not implying that the president is off course in addressing these concerns, but what I am saying is that we need to understand what they are, why they are, and then we can make a determination of whether or not we should fix it and how we should fix it.
Keith Lanton:So, when we're thinking about trade deficits, I would argue that there are three predominant causes. The biggest cause which is fairly obvious, I think, especially if we think about deficits in our own personal balance sheets is spending is how much do Americans spend? And the reality is that the savings rate in this country is a lot lower than most of the rest of the world. So we need to think about well, why do we run a deficit? Well, it's because we spend a lot of money relative to what we bring in. Two is because we run big trade deficits, and when I say trade not just trade deficits. We run a big federal deficit, which perhaps contributes to a trade deficit. So two is we run a big federal deficit. So if we think about the federal deficit in this country and this is what the government is spending, not what we're personally spending, but the government is part of our economy the government is spending about $2 trillion a year more than it's bringing in in revenue. So not only are we spending more than the rest of the world when we do not save as much as many countries in the rest of the world, but our government is spending more than the rest of the world. When we do not save as much as many countries in the rest of the world, but our government is spending more than the rest of the world. That is certainly true.
Keith Lanton:And then an area where I would say President Trump is certainly focused, and rightly so is one of the other reasons that we have a trade deficit. Number three is because others are cheating or not playing fairly. The theft of intellectual property. The artificial barriers that are put up for trade where there's requirements for certain standards within certain countries. The outright imposition of tariffs by other countries on our goods and services that are greater than the tariffs that we have on our goods and service. So all three of those are contributing factors and arguably tariffs address one of the three legs of those stools. The other issues here remain, so that we are running up budget deficits and we spend a lot more than we save. So arguably tariffs are addressing one-third of the issue. And then the rest of the benefit of tariffs is perhaps treating the symptom of the fact that we are running budget deficits and the symptom that we are big spenders relative to the rest of the world, and not necessarily addressing the root causes, which is that we need to have a lower budget deficit potentially and that we need to save more if we want to solve the issue of these capital deficits that we have here, goods deficits with the rest of the world. And that doesn't necessarily mean that we even necessarily want to do these things, but we need to understand why we have these deficits before we decide what we want to do.
Keith Lanton:So I suggest let's take a look at an example and let's try and really simplify things and let's take a situation that's really boiling things down to a very simplistic state to get a handle on what's taking place when it comes to trade. And let's take a look at a scenario where, let's say, the United States trades with one partner in the world let's call that country, for argument's sake, vietnam. The United States trades with Vietnam. We certainly have a big deficit when we do trade with Vietnam currently, but this is for the sake of an example. The United States, let's say, makes furniture and Vietnam makes clothing, which they certainly do in this scenario that we are going to discuss, that we are going to discuss, and the US savings rate, let's say, is around 4%, meaning that we spend about 96% of what we earn. And in this scenario, the Vietnamese savings rate is about 30%, meaning that they spend only about 70% of what they earn, meaning that they spend only about 70% of what they earn.
Keith Lanton:So if we think about this scenario where we have this country that is spending more than the other country in terms of the amount of money that they are spending when we're just exchanging two goods. So when we're, in a simple example, the US is buying clothing from Vietnam, vietnam is buying furniture from the United States. In this example, the United States is spending significantly more, because we are spending 95% of what we are and Vietnam is spending only 70% of what they are, and so they are going to naturally demand more of our furniture. We are going to naturally demand more of their clothing than they are going to naturally demand more of our furniture. We are going to naturally demand more of their clothing than they are going to demand of our furniture, and therefore we are going to wind up with a trade deficit.
Keith Lanton:Now, in this scenario, normally what would happen when we have a trade deficit is the country that has the trade deficit, the US. They are therefore going to see weakness in their currency because the Vietnamese folks who are getting these dollars for their clothing are going to sell those dollars into the open market, push down the value of the dollar and therefore, at some point, the dollar will be weaker and trade will get more equal because of the falling dollar. But that is, in fact, what is not happening currently. So why is the dollar at least not until recently falling? It's because the Vietnamese, who are receiving those dollars, they are comfortable holding those dollars, in fact, that they may be so comfortable holding those dollars that they actually seek more dollars than they're even getting from this trade imbalance. Now, why is that the case? Well, because they view at least up until recently, they view the United States as a place that is stable, that has rule of law, that has a currency that is a store of value. And the currency is not only a store of value, but it is a reserve currency, meaning that other countries in fact desire to hold those dollars.
Keith Lanton:So what we have in this scenario is a scenario where, even though the United States is running a trade deficit, we are seeing the foreign country desire even more of those dollars and push up the value of those dollars, and we here in the United States can therefore fund the deficit, because not only do we have a trade deficit, we also have a budget deficit. And these folks in Vietnam, who are holding these dollars and actually craving even more dollars, what they're doing is they're buying our assets, so they're buying our stocks, they're buying our bonds, in this example, and they're holding on to our currency as well. So what we are seeing now is a scenario where we should be in a scenario where we are now imposing tariffs, so therefore we're going to potentially be buying less clothing from Vietnam in this example. Therefore, the Vietnamese will have less dollars. So the thought process would be that the dollar would get even stronger, because now the Vietnamese don't even have dollars to sell. They need even more dollars to get to their comfort level. Even stronger because now the Vietnamese don't even have dollars to sell. They need even more dollars to get to their comfort level.
Keith Lanton:The dollar and therefore, when you impose tariffs, intuitively usually would go up in value. So it's something that we really need to ask ourselves. With the, the anticipation that we're going to have tariffs and the anticipation that that would be bullish for the dollar, what do we have in reverse is, we have a scenario where we are seeing less demand for the dollar, as evidenced by the fact that the dollar just hit a three-year low this morning, and we are seeing, therefore, perhaps less demand for US stocks, less demand for US bonds, because folks are seeking less demand for our currency. Perhaps what they're doing, who knows, but we certainly see that one of the knock-on effects is they are seeking more gold. They are also seeking other foreign currencies. We see the euro rising in value. We see the Swiss franc rising in value. We see the Japanese yen rising in value.
Keith Lanton:So these are important considerations when we think about our current portfolios. Do we expect these policies to maintain themselves? Do we expect the fact that these trends will continue? Do we think that the dollar will continue to weaken? Do we think that countries will continue to seek to diversify their holdings outside the United States? Do we think that gold will continue to rise? And therefore, we need to think about all this. And the point of all this is is how should we be constructing our portfolios? Does this change your allocations currently or your allocation going forward? Does this change how you think about your investments? The US investor has been super US-centric, us-focused. It has worked tremendously well. The question is are tariffs a game changer? Does this change the mindset when it comes to how each of us should think about how we should construct our portfolios? Should we be diversifying into foreign stocks, foreign bonds, alternative investments, metals, commodities? These are things to think about. Talk about with your financial advisor, because we are seeing cross-currents, we are seeing actions that we would normally not see based on what's taking place in the financial markets, and it's important to question and ask why and try and find a solution that is appropriate for each individual investor. All right, so let's move on to where we are this morning.
Keith Lanton:Futures off their worst levels in the morning. Dow futures are now down about 300 points. S&p futures down about 53 points. Nasdaq futures down 240. Oil down about $1.60 to $63 a barrel and I mentioned the 10-year Treasury is at about a 4.39%. That's up about six basis points. Gold is up over $80 an ounce this morning. This is also one of the knock-on effects of this morning President Trump further investigating whether or not he can remove Fed Chair Powell. White House economic advisor Kevin Hassett said that President Trump is studying whether he can fire Fed Chairman Jerome Powell. That's according to Reuters and one of the reasons that we're seeing at least some of the action that we're seeing in the treasury market and the currency market and the stock market based on those headlines.
Keith Lanton:Individual news stories this morning Tesla is down about 4%, concerns that Elon Musk is diverting his attention away from running Tesla as he runs Doge, attention away from running Tesla as he runs Doge and also reports that Tesla is looking to delay the launch of a more affordable Model Y car in the US. One stock rising this morning is Netflix, up about 2% or about 18 points. They reported earnings on Thursday. Markets were closed Friday. They beat by $0.94. They reported revenues in line, they guided the next quarter above consensus and they reaffirmed their 2025 guidance. Netflix also a company that has lots of international operations, but a company that is perceived as being somewhat distant or not as directly affected by tariffs, so seen as kind of a safe harbor, as you will.
Keith Lanton:In this environment, boeing this morning caught in the trade spat between the US and China. It's down about 1% this morning. China refusing some jets from Boeing, not taking delivery and causing some concerns there for Boeing. Ford stock this morning down about 1%. They halted shipments of certain models to China, according to the Wall Street Journal. Taking a look at the Asian markets, we're seeing Japan down about 1%, hong Kong closed, China up half a percent. Overseas India was up 1%, australia was up slightly as well and South Korea all to the plus side. European markets closed for Easter Monday. They will reopen tomorrow.
Keith Lanton:Some other headlines this morning Chicago Fed President Austin Goolsbee, who is a voting member, in an interview said preemptive tariff purchasing may be causing an artificial high he calls it level of economic activity, but he's concerned that activity could drop off by the summer. Bloomberg reporting that China is warning nations not to agree to trade deals with the US that could hurt China. Financial Times reporting that China is warning nations not to agree to trade deals with the US that could hurt China. Financial Times reporting that China state funds cut off investments into US private equity firms. Bloomberg reporting that Iran says there was progress in nuclear talks with the US and additional meetings are being scheduled. Bloomberg reporting that the US is offering to ease sanctions on Russia in exchange for a peace deal. That the US is offering to ease sanctions on Russia in exchange for a peace deal. The Nikkei in Japan is reporting that Japan is considering easing auto import safety rules amid tariff negotiations and it's also being reported that Japan is considering increasing soybean imports from the US as part of a broader trade deal. New York Times reporting that Secretary of State Pete Hegseth shared Yemen attack plans with a second group on Signal reports on the Wall Street Journal and New York Times talking about Pete Hegseth being on the hot seat once again based on some of the decisions that he has made and the Wall Street Journal reporting that illegal border crossings reached their lowest levels in at least two decades.
Keith Lanton:So we started out talking about not focusing on what it is that we can't control. Not to focus on, necessarily the gains in our portfolios, but how to control those losses. And Barron's had a story talking about what retirees can do in the midst of the current trade wars to protect their portfolio. So, with the trade war whipsawing the stock market, it's important for investors to control what they can exactly what we talked about.
Keith Lanton:For retirees, that means insulating your portfolio from volatility and downturns. The current administration's on-again, off-again tariffs are making retirees feel particularly anxious. S&p before today was down a little over 10% year-to-date, and those with a shorter investment horizon have a more difficult time recouping losses. And, of course, retirees are especially vulnerable to a phenomenon known as sequence of returns risk. So a stock downturn in early retirement does more damage than a downturn later in life. In about 70% of cases when investment portfolios ran out of money, the culprit was losses in the first five years of a hypothetical retirement. According to a recent study by Morningstar, plenty of uncertainty remains about the impact of tariffs, and the stock market dislikes uncertainty. There's no reason to respond to every headline, but there are steps you can take to make your portfolio more resilient One is to consider more fixed incomes into your portfolio Now.
Keith Lanton:The 60-40 portfolio since 2022 has not been a strong performer. It's up only about 2% since 2022. The past few years have been tough on bonds. 2022 in particular was a particularly bad year for bonds. But bonds have a good record of providing ballast, especially when interest rates aren't at or near zero, like they were in 2022. So short-term interest rates have climbed all the way from zero to currently about 4.5%. So perhaps the worst of times is behind fixed income. So the suggestion here is, instead of abandoning bonds, consider adding bonds to your portfolio. Also, perhaps consider adding some alternatives like gold to your portfolio. Spencer Knickerbocker, who is the chief investment officer at Stonebrook Private, suggests that clients set up a mix of 60% stocks, 30% bonds and 10% alternatives like gold. The other thing that retirees should certainly think about is making sure that they have enough cash in the first few years of retirement. So to set up that cash bucket we've talked about that to have enough funds in treasury bills and cash so that in the first few years of retirement, you can draw from that bucket if the equity markets are down significantly, so that you're not being forced to take withdrawals from stocks that are down significantly in value, which could ultimately harm your ability to withstand market declines and therefore your portfolio wouldn't be able to hold up for the term of your retirement.
Keith Lanton:One other item that's certainly getting attention in Washington DC is the potential for tax cuts and the potential for the Tax Cuts and Jobs Act, commonly called TCGA. Some call it the Trump tax cuts that were passed in 2017. And these are the cuts that the Republicans and President Trump are seeking to extend and perhaps add to with additional tax cuts for the SALT deduction, reduction in taxes on Social Security, reduction in taxes on tips all this being lumped into the TCGA, to the TCGJA. This is something that's very important for President Trump's economic plan. He's looking to increase tariffs, making it more difficult to engage in trade, making it more expensive to bring goods into this country, but Trump administration believes that that could be offset with perhaps lower interest rates, and that's certainly one of his bones of contention with Fed Chair Powell that he is not delivering those interest rate cuts. Fed Chair Powell last week saying that he's not certain about the impact of tariffs and what inflation effects they will have. President Trump getting frustrated with that mindset and that's one of the reasons that they are clashing this morning.
Keith Lanton:But the other piece to President Trump's plan is to pass these tax cuts, because there are certain Republican congressmen and senators who are concerned that these tax cuts will add to the deficit and therefore the Trump administration is somewhat concerned with whether or not they have enough votes to pass this. So one of the things that Congress is seeking to do is to pass this through what's called the reconciliation process, is to pass this through what's called the reconciliation process, and in order to pass this through reconciliation process, these tax cuts have to meet certain criteria in terms of how much they will add to the deficit and whether or not you can go through the reconciliation process using that methodology. And a lot of that has to do with how you view these tax cuts whether or not these tax cuts are viewed as adding to the deficit or a maintenance of what already was Since these tax cuts were set to expire. Already was Since these tax cuts were set to expire. There's a lot of folks out there who say that the reimplementation of these tax cuts would therefore not be a continuation of what was, but would, in fact, be a new policy, and therefore reconciliation would not be a method that you could use in order to pass this legislation. Others in the Trump administration are suggesting that you can use reconciliation, but some are wary of if you go down this route and use reconciliation here and now for this process, perhaps in the future a different administration, perhaps a Democratic administration or administration that's more favorable to, let's say, providing Medicare for all Americans, which would cost $3 trillion they might be able to, for one year, pass legislation before a new that was in place even though it was set to expire. Be extrapolating this logic that is currently being used for the TCGA extension. So developments to watch in Washington is how the votes for TCGA get done, and that could have implications for lots of policy going forward, and that could have implications for lots of policy going forward and therefore could have implications for US portfolios and US investments going forward.
Keith Lanton:Barron's ran a story talking about bonds being a good bet again and where to find yields of 6% or more. Bonds are becoming a beacon for investors again, with depressed prices and juicy yields, so says Barron's. Many fixed income markets have sold off in recent weeks. In fact, we see a sell-off again this morning, partly due to fears the US economy is heading to recession and partly due to the fact that folks are getting concerned about the US and its reserve currency status. As a result, yields on municipal bonds, junk bonds, mortgage securities and preferred stocks are meaningfully higher than they were at the start of 2025. Investors can now find yields of 8% on junk bonds, 7% on preferred stocks, close to 6% on government agency mortgage securities and almost 5% on long-term high-grade municipal bonds. Most US treasuries yield more than 4%, with 30-year treasuries approaching 5%. So it can be argued that bonds are looking attractive because inflation, albeit the concerns it may take up, is still running below 3%. Because inflation, albeit the concerns it may take up, is still running below 3%, and although tariffs may lift import prices and inflation, it's possible that that lift would be temporary and that the longer-term effects of tariffs could potentially be deflationary if they dampen economic growth.
Keith Lanton:Investors anticipate that the Federal Reserve, despite some current misgivings, if there is economic growth that is slowing, may step in and cut interest rates. In fact, if you look at the way markets are projecting, they are expecting that the Fed will cut rates still by three quarters of one percent before the end of this year. Another positive development for inflation is concerns that the economy is slowing being reflected in lower oil prices. Also, there's a supply component there, with the US being a potentially bigger supplier with less regulation, and the Saudi is interestingly behind increasing output at OPEC at the same time that the US potentially seeing less regulation and all this driving down the price of oil, which is a positive, certainly for those concerned about inflation. So we talked about the concerns about the merit of a 60-40 portfolio over the last couple of years, but for bond investors, current yields significantly higher today. In fact, most current yields are higher than they've been for the last 15 years. So perhaps 60-40 is starting to make more sense, as we talked about earlier. So let's talk about municipal bonds.
Keith Lanton:In the beginning of the year, barron's talked about municipals and suggested they were amongst the least appealing of fixed income investments. But a lot has changed in just the past four months. Munis have gotten extremely attractive, according to Dan Jenter in Barron's. He says for taxable investors it's pretty much no decision and you don't even have to be in the highest tax bracket. Currently there's lots of opportunity to get a 4% coupon in tax-free bonds. In high-tax states like New York and California you have to go out about 15 years to get about 4%. If you go out longer you'll get some more. If you go out longer you'll get some more. But for folks in New York and California, getting 4% on highly rated municipal bonds is the equivalent of getting 8% taxable, which just isn't available in the type of quality that you're seeing in municipal bonds. Now there are risks with munis, including heavy new issuance still for the markets to digest. But perhaps the greatest risk is the possibility that the federal government will scale back the current tax exemption that muni bonds enjoy. But Barron's saying some of those risks are already captured in the current pricing and are reflective in the markets.
Keith Lanton:Another area to take a look at is preferred stocks. Keep in mind preferred stocks most of them, almost all of them offer tax-advantaged dividends. So if you purchase a preferred stock, you are being taxed preferentially at a top rate of 20% versus 37% for bonds. Now, preferred stocks are not bonds. So while they are senior to common stock in terms of where they stand in the event of a bankruptcy, they are junior. Two bonds and you can stop the payment of your preferred bonds and not be in default, different than a bond. So certainly have a higher risk profile. Nevertheless, you're looking at yields well north of 6% with that lower tax rate, and many of those preferred stocks are being offered by banks or financial institutions, who last week came out with some earnings that were better than expected on some really good trading activity and perhaps also getting the benefit, going forward, of perhaps less regulation from the Trump administration. So something to consider is preferred stocks and perhaps preferred stocks of banks.
Keith Lanton:Another area to look at is mortgage-backed securities. Investors can now get about 6%, perhaps just a tad under for high-quality government agency securities, something that we haven't seen in about 15 years. And then, of course, treasuries, where we're talking about traditional treasuries, 20-year treasuries yielding just about 5%, and also Barron's recommending treasury inflation protected securities or TIPS. Currently, 10-year to 30-year TIPS are paying about 2% plus inflation, and what that means is that if you're looking at a 10 year tip that's paying you about 2%, you only need inflation to run about 2.4%, because you take that 2 plus 2.4, you get to that 440 on the current treasury yield. So your break even versus buying a 10 year treasury is about 2.4%. So if you think inflation has a good chance of running more than 2.4%, well, a tip may make sense for you to earn that 2% plus the inflation rate If you own an individual tip as opposed to an ETF or a tip bond. You may want to consider owning a retirement account because there are certain tax disadvantages to owning a tip in a taxable account.
Keith Lanton: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.