Enlightenment - A Herold & Lantern Investments Podcast
Enlightenment - A Herold & Lantern Investments Podcast
Peace Through Strength: How Markets Respond to Global Conflicts and Policy Shifts
June 23, 2025 | Season 7 | Episode 24
How do markets respond when geopolitical tensions escalate? Despite US airstrikes on Iranian nuclear facilities and ongoing Middle East conflict, investors displayed remarkable calm - demonstrating a pattern we've seen repeatedly where buying during military uncertainties has historically proven profitable.
Markets showed minimal movement across global indices, with even traditional safe-haven assets seeing only modest shifts. This pattern highlights an evolving investor psychology: while humanitarian implications remain severe, contained regional conflicts rarely derail broader economic trends. As one analyst noted, the US strikes may even represent a reinforcement of deterrence capabilities through a "peace through strength" doctrine.
Behind this surface calm lies significant volatility throughout 2024. While S&P returns rank in just the 24th percentile historically through June, volatility has reached the 89th percentile - creating that roller-coaster sensation without meaningful progress, particularly for mid-cap and small-cap investors still underwater for the year.
Beyond immediate tensions, several crucial factors demand investor attention: Federal Reserve policy remains uncertain as Chairman Powell navigates what he calls "a very foggy time"; pandemic-era health insurance subsidies expiring in 2025 could dramatically impact early retirement planning; and traditional energy companies might unexpectedly benefit from AI's massive power requirements.
Perhaps most telling is the historical lesson that market dominance is temporary. From US Steel's breakthrough as the first billion-dollar company in 1901 to Apple reaching trillion-dollar status in 2018, transformational companies eventually give way to new innovators. With AI representing the first self-improving technology in human history alongside demographic shifts toward aging populations, tomorrow's market leaders likely emerge from industries we're only beginning to understand.
Join us as we navigate these complex crosscurrents and explore what history teaches us about investing amid uncertainty. Subscribe for more insights that help you make informed financial decisions in an increasingly unpredictable world.
** 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. Today is Monday, june 23rd. Hope everyone had a warm start to the summer as we begin this morning. Certainly a lot took place over the weekend, with the US joining the activity in the Middle East with attacks on the Iranian nuclear facilities, and we will cover the market impacts as well as the geopolitical risks and opportunities as a result and, most importantly, how to think about all of the servicemen and women who risked their lives to defend the United States and the Middle East. So again, all of us extremely grateful for all who do all they do every day to make us safe.
Keith Lanton:So I'm going to begin today taking a look at the activity in the Middle East and what that may mean for financial markets, what that might mean for oil. Then we're going to pivot and we're going to take a look at the big, beautiful bill and what the Senate and the House versions look like. We'll take a little bit dive into the future and see where things may be going, despite the tension and turmoil that continues to pervade in the Middle East. Of course, we don't know where it's going, but we do know that there has been uncertainty in the Middle East for almost 100 years and certainly in the last 50 years it's been nonstop. So we'll talk about the fact that there is somewhat of a muted reaction this morning and what that may or may not mean. We'll talk about the news of the day. We'll talk about one of the other impacts of the big beautiful bill, and that has to do with the cost of health insurance. If you're thinking of retiring, that's something that some folks may not recognize as a potential effect of the changes that may be winding its way through Congress, and we will dive into some of those changes and see what impacts they may have on you and if you're thinking of retiring, what you may want to think about. And then we'll talk a little bit about oil stocks and where there may be some opportunities, even if oil prices have petered out. Who knows if they have or have not? If Iran closes the Straits of Hormuz, there's lots of talk that oil could head up to $120 or $130. But on the flip side, there are some who are suggesting that oil might be at its peak level today. So either way, we'll take a look at where the opportunities may be, where, with the volatility in energy prices, what that may mean for opportunities and how to hedge yourself to the companies that are best situated, even if oil prices were to decline, where they may see some opportunity. And, of course, if oil prices would arise, hopefully they'd see even more opportunity.
Keith Lanton:The US airstrikes on Iran have worldwide governments on edge, as the Islamic Republic vowed to retaliate and Israel showed no signs of letting up. President Trump has threatened further military action if Tehran doesn't make peace with Israel. Fallout is just beginning. State Department issued a worldwide caution alert for US citizens, some airlines are canceling flights to the Persian Gulf and Japan's biggest banks are considering pulling some of their staff from the region.
Keith Lanton:Despite this activity and this war that is percolating here in the Middle East, the markets at the moment are brushing off US strikes on Israel. The US joining the war seems like a kind of geopolitical event that could send the markets tumbling. Instead, what we're seeing is market participants shrugging off the escalation, many strategists believing that the conflict is going to be contained, and even some see it as bullish for risk assets. Perhaps it's a reflection of the fact that we have seen many conflicts, not only in the Middle East, but certainly Russia, ukraine, and buying on the dips of military conflict and uncertainty has been a strategy that has worked for many decades now. So perhaps markets and markets made up of people, investors are learning that, despite the tragic human consequences, in the grand scheme that it doesn't affect the economics all that much.
Keith Lanton:If you take a look at the markets worldwide, the MSDI World Index, which tracks over 1,000 large and mid-cap companies from 23 developed markets, right now this morning, it's about one-tenth of 1% lower. And you're thinking to yourself well, maybe that's because people are flocking to safe haven assets. Those are getting bid up and riskier assets are getting bid down. That's not quite true either. The bond market we are seeing a little bit of strength now in the bond market. The 10-year Treasury started the weekend at a 437. It had ticked up to a 439. Actually, yields had gone higher. Now we're back at about a 435. Gold was down earlier. Last I looked gold was moving higher. So we're getting a little bit of a shift, but not a tremendous reaction in gold, but not a tremendous reaction in gold. Also, the safe haven assets, like the dollar, are seeing a little bit of a flight to safety, but not dramatic. And in fact, the Swiss franc, which is seen as perhaps the ultimate safe haven currency these days, although it's thinly traded, relatively flat against the dollar. So in general, the market's reactions after the US strikes have been less aggressive, especially relative to just over a week ago when Israel launched airstrikes against Iran.
Keith Lanton:The markets view the attack on Iran as a relief, with the nuclear threat potentially gone or diminished. This is paraphrasing Dan Ives, managing director at Wedbush. He goes on to say that he sees minimal risks of the Iran-Israel conflict spreading to the rest of the region and therefore he sees it as being isolated. In his opinion, there's a systemic risk to global markets at this moment. Traders are keeping a close eye on any potential countermeasures from Iran following US strikes on its nuclear facilities. Iran's foreign minister warned that his country reserved all options to defend its sovereignty.
Keith Lanton:According to Iranian state media, the country's parliament has approved closing the Strait of Hormuz. That's one house of their parliament has approved closing the Strait of Hormuz. That's one house of their parliament. There is another house that has to also approve closing the Straits of Hormuz. If that were to happen, then you could see an increase in oil prices. You could see countermeasures by the United States. That's something that also would make one of Iran's. Certainly I don't know if I'd call them allies, but friends the Chinese, who buy a big bulk of the Iranian oil. Closing the Straits of Hormuz would not endear them to China China obviously a big buyer of oil Now. Iran did warn back in 2018 that it would block the Strait of Hormuz when the US pulled out of the nuclear deal and reinstated sanctions. They also threatened to close the Straits of Hormuz in 2011 and 2012 when senior Iranian officials said the waterway could be closed if Western nations imposed more sanctions on Iran's oil exports due to its nuclear activities. So they, in both those instances, despite saying they were going to close the straits, they did not.
Keith Lanton:And if you are looking at the markets, perhaps you could think of it as the markets reacting positively here in the US that America, president Trump, by taking the actions he did, perhaps reinforcing America's military deterrence capabilities, increasing the mantra of peace through strength, and therefore you can make an argument that American assets look relatively more attractive this morning as a result of these actions, not less attractive Now heading into this week. Last week, when we did see Israel begin activities against Iran, the S&P was down 0.15% for the week. The index S&P is up about 1.5% for the year. Investors have hung through the ups and downs, particularly those who held on around Liberation Day, which was April 2nd, and that week through about April 9th, when markets severely gyrated. Those who held on have been rewarded, but the headaches have been significant as well, from tariffs to war in the Middle East and inflation.
Keith Lanton:The market's anxieties are far from resolved, even if the underlying corporate earnings have been strong. Taking a look at returns for this year, goldman Sachs calculated that S&P returns this year right now are in the 24th percentile in terms of how the S&P has performed year-to-date through June 20th, but volatility is in the 89th percentile. So if you're feeling like you've been on a roller coaster and you haven't really gone very far, well, you're right. The news has been even worse for the S&P mid-cap 400 and the small-cap Russell 2000, who are both negative, and they are negative and they have had significant volatility as well. So not only have you had to ride through some real big bumps, but at the end of the day, you're not back to where you were when the year started.
Keith Lanton:The other big question we have has to do with the Federal Reserve. Let's not forget the Federal Reserve met last week. They decided to keep interest rates unchanged. So the other big factor that the market is contending with was whether or not Fed Chair Jerome Powell and the Federal Reserve would cut interest rates going forward and how many cuts we may or may not see. Chairman Powell didn't offer much guidance at a press conference last week. He did say it's a very foggy time. He is going to be testifying before the House and Senate this week, so perhaps he will have some more to say and some more for markets to digest.
Keith Lanton:Now President Trump has been very clear about his desire to see lower interest rates. On Thursday he asserted and this is on a post on Truth Social that rates should be 2.5 points lower. That means 2.5% lower and therefore the country would save billions on all of what he called Biden's short-term debt. So one of the factors that President Trump is certainly navigating and we're going to talk a little bit about the big beautiful bill and what it looks like in the House and Senate but one of the things he's navigating is it's going to, by all accounts, add significantly to the deficit. So what we need in order to be able to handle that growth in the deficit is for interest rates to be a lot lower, because the interest cost on the deficit is one of the biggest factors to the growing deficit. So President Trump desperately seeking to get those rates lower.
Keith Lanton:Now, if you go back to the previous administration, the Biden administration and the former Treasury Secretary, janet Yellen, what Treasury Secretary Yellen did is she moved some of the borrowing to shorter term when longer term rates picked up. So she started borrowing in bills. Rather than at the time, in 2023, the 10 year, which was close to 5%, she shifted to borrowing in shorter term bills and therefore lowering the interest cost. This was criticized by, among others, the current Treasury Secretary, scott Besant. But what has happened currently, as the US has been financing its deficit and we've talked about this many times is the average cost of the Treasury's overall debt has doubled since 2022 and has gone up almost four times or more than four times actually since 2015. So interest costs in 2015 just north of $200 billion. Now we're up at almost $900 billion in interest costs. So what President Trump has suggested and he said this on Wednesday that perhaps the US will go very short term, wait this guy until he gets out of the way, get rates down and then go long term. So what President Trump is presumably saying is that when Fed Chairman Powell's term ends next May, trump can install his own choice to leave the central bank, and perhaps a strategy to wait him out would be for the Treasury to issue shorter term debt, although shorter term debt is still around 4%, but lower than, let's say, the 440 that you're seeing on the 10-year or 5% on the 30-year.
Keith Lanton:Now, last week, the Federal Open Market Committee did opine to some extent because they gave this summary of economic projections. This is called the dot plot guesses of where Fed governors see interest rates in the future and eight of those Fed officials said that they see no cut in interest rates this year. That was up from five the last time this data came out. This data came out and the general consensus still remains from the rest of the governors that we would get about two cuts this year. So we have a tug of war here no cuts, one cut, two cuts something that markets are paying special attention to, as well as, of course, the immediate attention to the situation in the Middle East. One prominent Fed governor, Chris Waller, said on Friday that a rate cut could be on the table as early as the July 29th July 30th Federal Open Market Committee meeting. In a CNBC interview, waller noted that recent inflation ratings have been well-contained, while the Trump tariffs may be a one-time boost rather than indicative of inflation. Now, waller is a former research director at the St Louis Fed. He was nominated to the Fed by President Trump in 2020 and has been mentioned as a possible successor to Chairman Powell.
Keith Lanton:Before we talk about the news of the morning, I think it's important again to think of context as we think about our portfolios and historical context, the theme that we've talked about many times previously and thought that there was an interesting and thought-provoking interview with Erlake Hoffman-Bercotti, who is one of the overseers of UBS Global Wealth Management. She sees some transformational innovations and Barron spoke with her about her thoughts on the financial markets and where to think about the next transformational events and how to be investing assets, and she points out that and we've talked about this several times that only about 1% of public companies create 80% of the wealth in equity markets. So she says understanding the large cap players is critical and that over the last 30 years, if you were investing in traditional growth not the super growth companies or traditional value well, your overall returns are about 5% a year, again highlighting that most of your returns are coming from a few of the super growers. Of course, identifying those is extremely challenging. Of the benefits of owning the indexes is you're automatically increasing your ownership of companies that are growing rapidly if you don't have the skill set which, I would argue, very few individuals do to compete against the large institutional investors with teams of analysts. And if you're thinking about perhaps just thinking about where some of these transformational changes will come from, what will be the future winners? She talks about history and she says, if you go back in history and take a look at what the winners were and then you take a look at where those winners are today, it'll show you how difficult it is to be a successful stock picker.
Keith Lanton:So if we go back and look at the first company that reached $1 billion in market capitalization I think we talked about this before what this company was it was US Steel, and US Steel reached a $1 billion market capitalization when it was formed back in 1901. So now let's look 10X. We were at $1 billion in 1901. What was the first company to reach a $10 billion market capitalization? Another company that was on top of the world US Steel. On top of the world in 1901. As far as the eye could see, it was easy to see this transformational, revolutionary new technology steel. You're going to build buildings with this, skyscrapers. This is truly transformational, like cloud computing, like the internet, like AI different, but what a revolutionary, transformational technology.
Keith Lanton:Then the next company that has a 10X on US steel is in 1955, a company reaches $10 billion in market capitalization with a product that was taking the world by storm, and that was General Motors. General Motors first company to reach market capitalization of $10 billion in 1955. As far as the eye can see for the future, the world was going to be purchasing automobiles, cars were going to be getting better and the value of automotive stocks was something that was going to increase at a significant rate for the foreseeable future. Then the next company to reach $100 billion in market capitalization Well, that was IBM in 1987, when they came out with the personal computer, again on top of the computing world. Computers were a revolutionary technology. Mainframe computers were starting to be implemented not just here in the United States but in the developed world, and IBM was the leader. And then the first company to reach $1 trillion was Apple in 2018. And right now, we still view Apple as a company that is truly transformational and many of us view Apple as a company that would be very difficult, very challenging to topple.
Keith Lanton:But when we go back in history and we see what's happened in the past to the companies that have eclipsed these milestones, we see that their growth rates and their trajectories did not live up necessarily to the hype for the entire future. So if we're thinking about what will become the first $100 trillion company, well, let's start with. Let's think about what's going to become the first $10 trillion company. Then we can think about $100 trillion company. Well, let's start with. Let's think about what's going to become the first $10 trillion company. Then we can think about $100 trillion. Well, what she says is we think AI, electrification and longevity would be the themes to think about. What will be the next $10 trillion market capitalization company? And when we think about this, think about the fact that AI is the first technology in human history that is self-improving, and that's why she says we're seeing such an unprecedented change and why it's more unpredictable than innovations in the past that have been more linear. And then another theme that we're not as focused on today in general, that she feels is playing out as a slower-moving theme, and that is the aging or the demographic change in the populations of most major economies in the world. We will see more 65-year-olds and older by 2034 than we will see 18-year-olds or older 2034, then we will see 18-year-olds or older. So when you think about this trend and this change, well, you certainly think about the healthcare drug discovery. This is kind of like a melding of AI and pharmaceuticals and providing care for an aging population. These are the transformational events we may want to keep our eyes out for in the future.
Keith Lanton:All right, well, let's move to what's going on here in the United States and the US markets this morning. And we are seeing futures very muted. Dow futures are down 3. S&p futures are up 4. Nasdaq futures up 25. Oil has been on a roller coaster all morning. It's now down 35 cents a barrel to 73.48. And the US 10-year treasury is now down three basis points to a 4.34. So markets, at least at the moment, taking everything in stride, as we talked about earlier. Asian markets ending mixed. Japan was down one-tenth of one percent. China and Shanghai, as well as in Hong Kong, up seven-tenths of a percent. Major European indices down slightly. We are seeing gold relatively flat. It's been all over the map as well.
Keith Lanton:A couple of companies in the news, some upgrades as well. A couple of companies in the news, some upgrades advanced micro devices AMD upgraded to buy from hold at Mellius Research, 175 target there. Estee Lauder, where the chairman passed away last week and the market went up on that news. But Estee Lauder this morning upgraded Deutsche Bank to buy from hold with a $95 target On the downside. Dow Chemical symbol D-O-W, now known as Dow, downgraded to underperform from market performance. Bmo Capital $22 price target.
Keith Lanton:Eli Lilly in the news this morning saying on Saturday that it's experimental pill helped diabetics lose weight and lower their blood sugar help diabetics lose weight and lower their blood sugar and they expect to announce third-quarter trial results for the drug in overweight and obese people without diabetes. Also in the news Bank of New York Mellon and Northern Trust Company in the news reports that Bank of New York has approached Northern Trust to express interest in merging with its small rival. These are reports from the Wall Street Journal, reports that they had at least one conversation. No offer was discussed. There have been some reports that Northern Trust rebuffed the overture from BNY. If so, bny, if they wanted to get more aggressive, would have to make a more hostile takeover bid. Bny has a market cap of about $65 billion. Northern Trust roughly one-third the size at $21 billion.
Keith Lanton:This morning we have the S&P releasing its manufacturing and services purchasing managers' indexes. That's a little later this morning. We're expecting both of those indices to be up one point from their May figures. Tomorrow FedEx reports quarterly results. Micron Technologies is on Wednesday, nike on Thursday.
Keith Lanton:I mentioned that Federal Reserve Chairman Powell is going to deliver his semi-annual monetary policy report before the House on Tuesday and then he will do the same to the Senate on Wednesday. Powell might be pressed by President Trump's GOP allies as to why the Fed hasn't cut interest rates this year, so you may see some spirited conversation. Friday the Bureau of Economic Analysis releases the Personal Consumption Expenditures Price Index, that's the PCE for May. This is a significant inflation gauge. Federal Reserve has indicated this is one of the metrics that they look closely at. Economist forecasts that we will see a two-tenths of a percentage point increase in April for the overall PCE. The core expected to rise more modestly at one-tenth of 1%.
Keith Lanton:All right, I'm going to talk a little bit about some of the potential effects of the big, beautiful bill, and one of those big effects are those who may be thinking of retiring early and why it may get more expensive to retire early. And when we're talking about retiring early, we're talking about retiring before you are eligible for Medicare. So basically, before you are 65 years old. Now, before COVID, if you were to retire before you were 65 years old, you would have to go purchase health insurance and, based on the fact that you were 65 years old, you would have to go purchase health insurance and, based on the fact that you were getting older, that health insurance would be relatively expensive.
Keith Lanton:Now, because of the passage in 2015 of the Obamacare or the ACA, affordable Care Act, insurance companies could no longer discriminate or reject you in that age category because you had a preexisting condition, but nevertheless they could price your health insurance based on income. But basically, anyone who was seeking coverage was being granted not necessarily a zero rate, but a reduced rate and, as a result of the potential changes here in the legislation, it does not extend extra premium subsidies that have been in place since the pandemic, and these subsidies are set to expire at the end of 2025. So older adults could face big premium hikes, since insurers are allowed to charge them more for coverage. So, to give an example, a typical 60-year-old making $2,000 would see their monthly market premiums more than triple, from $581 to $2,111, which is an increase of about $18,400. So if you are thinking of retiring and you are thinking that you're going to need health insurance, well, what happens here is going to significantly affect how you think about whether or not it is an appropriate time for you to retire, because of the changes that went into effect after COVID and this is not something that gets super duper attention from the media, but it is one of the reasons perhaps that we are seeing folks, let's say, between 60 and 64, folks, let's say, between 60 and 64, exit the workplace and therefore have less workers in the workforce, for the economy is because of the fact that they are able to purchase health insurance at a rate that is significantly lower than they could pre-COVID. So, since 2021, there are now 24 million consumers enrolled in the marketplace, up from 12 million in 2021. So if you're thinking about retiring before you're 65 and become eligible for Medicare, make sure you price out policies beforehand to understand how much you'll pay for insurance Now, exact premiums for 2026, which is potentially when these changes would go into effect, where this insurance would become much more expensive, well, that won't be available until later this year.
Keith Lanton:If the cost is prohibitive, it may pay to stay in your. It's basically, if you're a single or a head of household of just one person and you make more than $62,600, or if you're a couple making more than $84,600, well then your cost of insurance may be going up significantly. In order to figure out how much income you have, you may say well, what year do I use as my base year? And the system requires consumers to estimate their income for the year they're enrolled. So premiums for 2026 will be based on your expected income in 2026. One thing to think about is that income from Roth IRAs is not included in your income, so you may want to think about taking money out of Roth IRAs if you have money there, as opposed to other sources. If you are concerned in 2026 that you may go over the thresholds for the lower costs of insurance if, in fact, these changes do go into effect. Another item to think about is that capital gains do affect your income. So if you're thinking of selling your home and you have a big gain in your home after your exemptions because real estate prices have gone up a lot, well, selling that house. If these changes go into effect, may significantly affect your cost of insurance. All right, a few more minutes and then we'll wrap up.
Keith Lanton:Talking about Big Beautiful Bill, let's talk about what's being proposed in the House and the Senate. One of the factors that many Americans may want to think about, something that a lot of us put off thinking about but nevertheless need to, and that's estate planning, and what are the implications of the Big Beautiful Bill in terms of exemptions from federal estate tax. Well, if the Big Beautiful Bill is not passed and we go back to the previous standards for the estate tax, then we would revert back to roughly a $7 million exemption for individuals and $14 million for couples. Currently, the current tax that is in effect is $13.99 million for individuals and $27.98 for couples. That would then drop to $7.14. Would then drop to 7 and 14. In the Big Beautiful Bill, that 13.99 goes up to 15, and that 27.98 goes up to 30. So want to pay lots of attention to this If you may be impacted by these changes to the estate tax, or if the Big Beautiful Bill does not pass. Well, if we revert back, what does that mean for your estate plan? Certainly something that folks should be mindful of Now.
Keith Lanton:What is taking place in the Big Beautiful Bill are certain provisions that have passed the House. The Senate has made changes, so now they have to reconcile those differences and see if they can get something passed. What are the significant changes? Well, one of the big significant changes has to do with the SALT deduction. This is the state and local taxes for individuals. You may remember, the House version increased the SALT deduction from $10,000 to $40,000. The Senate version put it back to $10,000 but said they're open to negotiations. Other changes here is that the House version has a debt limit increase of $4 trillion. The Senate version increases the debt limit by $5 trillion.
Keith Lanton:One of the other big changes has to do with Medicaid work requirements. The Senate version has more aggressive work requirements than the House bill and therefore makes more folks uneligible for Medicaid and saves the government some extra money if less folks are eligible for Medicaid. Also, senior tax relief the House version has a $4,000 additional deduction for seniors, the Senate version $6,000. The child tax credit the House's version is $2,500, but it only goes to $2,028. Then it reverts to $2,000. The Senate says you know what? Let's just make it $2,200 and make it permanent for everyone. When it comes to taxes on tips, they both have similar versions that workers earning under $160,000 would not be taxed on their tips.
Keith Lanton:In terms of the cost of the bills, well, they're fairly similar. There's not a huge difference in cost between the House version and the Senate version, but you may see what look like big differences because the House version uses what's called conventional scoring and adds $4 trillion to the deficit. It's called conventional scoring and adds $4 trillion to the deficit, and that $4 trillion and again, this is a subjective number, but nevertheless these are the numbers that the House, that Congress themselves, have come up with. But the House version increases the deficit by $4 trillion over 10 years and what the House is using as their base case is letting the current tax cuts expire, as they are currently scheduled to do. The Senate version comes up with $1.5 trillion in cuts because they are saying we're going to use as our base case the fact that these tax cuts are currently in place. So we're going to use as our starting point that the tax cuts are currently here. So the additional cost based on the fact that we already have these tax cuts currently going on on top of the current tax cuts, it's $1.5 trillion, but in reality the difference between the $4 trillion and the $1.5 trillion is fairly minimal, because we're just using a different starting point to do our subtraction from, not because the numbers are so dramatically different.
Keith Lanton:All right, finally, I'm going to talk a little bit about some oil and gas stocks, which certainly is a category that's in the news. Barron's saying that Chevron and Exxon, cvx and XOM could be the next AI stocks, as well as beneficiaries of a spike in energy prices as a result of conflict that may lead to higher prices in the Middle East. Now some investors are saying well, chevron and Exxon, those are dinosaurs. They're exploring the last century's energy. They're not preparing for the next century. But, as can be seen by the sudden sexiness of boring utilities like Vistra and Constellation Energy and industrials that service power plants like GE Vrnova, ai needs power, and lots of it. And what are Exxon and Chevron, if not companies designed to help supply power? Barron's goes on to say that two oil majors might just be the best AI bargains going.
Keith Lanton:Ai is a power play, quite literally.
Keith Lanton:The massive data centers driving artificial intelligence require massive amounts of electricity to run, and power production is finally growing after years of stagnation.
Keith Lanton:Investors may be underestimating just how much power is needed.
Keith Lanton:Data centers are just the beginning. We've also got the potential for robots, self-driving cars, smart appliances. All of these will be utilizing artificial intelligence, will be utilizing power just to move themselves, so the increase in the needs for power could be more exponential than linear. The change has already been significant enough to cause a repricing of independent power producers. So Exxon and Chevron, though, are still viewed as stodgy oil companies, not AI beneficiaries. Both companies could benefit from demand for natural gas-fired power, especially if there is an energy shortfall. Chevron, for example, has partnered with GE Vrnova, an engine number one, to expand gas power for data centers. Exxon has touted its ability to supply power to big tech long before nuclear power can be a realistic option. Some other players that are mentioned in Barron's, which they ran another article entitled Six Shockproof Oil Stocks with Reliable Dividends. They mentioned APA, which was formerly known as Apache, and Diamond Energy APA yielding 4.9%, diamond Energy 2.6%. Both companies pay out less than 40% of their 2025 net income in dividends and have return on assets in line with other energy companies.
Keith Lanton:Also mentioned in this article were ExxonMobil and Chevron, so I won't reiterate those. And also talked about were Devon Energy and Permian Resources. Those are two US-focused stocks, so these are companies that are producing energy here in the United States. Devon yields 2.8%, also pays a special dividend if they earn over a certain threshold of income. Permian Resources pays 4.1%. Both these companies also pay out roughly 40% of their earnings as dividends, and Barron's saying that in their opinion, these dividends look secure, even if oil were to slip back and even go as low as $50 per barrel. Hopefully we will have a peaceful solution to the events in the Middle East. Our thoughts and prayers are with all the servicemen and women who are serving in the Middle East, as well as those who carried out the strikes, as well as our other friends in Israel and elsewhere in the Middle East. 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. Thank you.