Enlightenment - A Herold & Lantern Investments Podcast

Is the Bond Market the Real Fed Chair?

• Keith Lanton • Season 7 • Episode 27

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July 14, 2025 | Season 7 | I-Episode 27

The resilience of financial markets amid escalating tariff rhetoric takes center stage in this comprehensive market analysis. Despite President Trump's announcements of potential 30% tariffs on the European Union and Mexico, market indices have remained surprisingly stable, highlighting a fascinating disconnect between policy uncertainty and investor sentiment.

Drawing on insights from Citadel founder Ken Griffin, we explore why beating professional investors is extraordinarily difficult for retail traders. Just as former NBA player Brian Scalabrine effortlessly dominated college-level basketball players despite being considered a lesser NBA talent, professional investors possess advantages in training, resources, and computational power that make consistently outperforming them nearly impossible. The key takeaway? Diversification remains the most crucial strategy for long-term investing success.

Looking back at the 1983 Social Security reforms provides valuable lessons as we approach potential insolvency in 2033. The bipartisan collaboration between President Reagan and Speaker Tip O'Neill demonstrates that even seemingly intractable financial challenges can be resolved when political leaders set aside differences. With only eight years remaining before projected trust fund depletion, this historical blueprint for compromise becomes increasingly relevant.

For retirees, recent tax law changes offer a temporary enhanced deduction of $6,000 for those 65 and older between 2025-2028, though income limitations apply. This provision primarily benefits middle-income seniors, requiring careful planning regarding Roth conversions and retirement account withdrawal strategies.

Market professionals at Barron's roundtable express widespread concern about current "nosebleed" valuations, with the S&P trading at 22-27 times trailing earnings. Despite this cautious outlook, they identify compelling opportunities in utilities, energy stocks, and specific companies like NextEra Energy, AMD, and Mattel that may offer value even in an expensive market.

Want to stay ahead of market trends and economic developments? Subscribe to our podcast for weekly insights that help you navigate increasingly complex financial landscapes with confidence.

** For informational and educational purposes only, not intended as investment advice. Views and opinions are subject to change without notice.

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Alan Eppers:

And now introducing Mr Keith Lanton.

Keith Lanton:

Good morning. Today is Monday, july 14th. We are halfway through the month of July. Third quarter earnings are going to start rolling in this week in a big way, so we're going to take a look at what we have coming this week. We're going to take a look at what we have coming this week. We're going to talk about financial markets, which have remained extraordinarily resilient, even as President Trump has dialed up his rhetoric with regard to tariffs and trade, and we'll talk a little bit about the market outlook. We'll talk about Barron's and they had a roundtable discussion and what the outlook is from the market pros there, as well as a few individual stocks that I selected that they had mentioned. They had mentioned over 50. I weaned it down to a few that I found interesting. The pros, who are cautious, did still find some opportunities in the marketplace that they feel have significant upside, and we'll talk a little bit about those.

Keith Lanton:

But first we're going to start out. We're going to talk about how difficult and how challenging it is not to invest, and not to invest successfully, but to invest and beat the indexes and beat the pros. So when we talk about the pros, one professional investor that certainly has had a lot of success in markets is Citadel founder Ken Griffin. He recently had an interview with Bloomberg and was talking about new investors and what they should think about as they enter the marketplace, and he said that the number one thing that investors should focus on is diversification. All too often we get too excited about a specific stock or a specific sector think AI and we lose sight of the fact that things don't go on forever. Trees don't grow to the sky and even if we do have a super successful investing strategy, if we're not diversified when things do pull back, it's hard for us to stay invested because we get very fearful. That greed turns to fear very quickly. So, he said, it's important to understand that your likelihood of beating the pros as a novel investor is low. It'd be like me asking you to go out there and play football on an NFL team. One of the mistakes that investors will make early in life is that they don't take a step back and think about the fact that there are thousands and thousands of people for whom picking stocks is a full-time job. They've got lots of training, they've got lots of education, they've got tremendous computer power at their fingertips. Now this doesn't mean that retail investors aren't successful, he says. But I think that retail investors need to always keep in mind that, for a significant portion of their portfolio, they should entrust it to a professional investor for whom investing is a full-time job. They should entrust it to a professional investor for whom investing is a full-time job. He did not say this. This is now me speaking. You could also think about this as picking indexes and not trying to outsmart the financial markets. Now we could also apply this thought process to professional sports. Think basketball, professional sports, think basketball.

Keith Lanton:

Some of you may have seen some YouTube videos or heard about Brian Scalabrine. He's a journeyman, or was a journeyman, nba player. He had said that Shaq had, at times, ridden him pretty hard and actually encouraged him to hang up his basketball shoes. But his point is that, despite all of that and despite the fact that he never got a whole lot of playing time, he was a professional basketball player. And what he did is he said let me demonstrate to you why. Here I am, perhaps one of the lower end players in the NBA.

Keith Lanton:

Some could say perhaps you know the weakest player in the NBA, but still in the NBA, and the point here is he is a pro, just like these pros that you are going up against when you are thinking about investing your money, and a lot of times perhaps, when you're watching these pros invest money, you think to yourself, well, I can probably do better than that. Watching these pros invest money, you think to yourself, well, I can probably do better than that. And the same goes for some players who have played lots of basketball in their life on an amateur level perhaps, or even in college may watch Brian Scalabrine and say, hey, I can do better. And that's what some people thought when they saw him play. So Brian issued a challenge, known as the Scallenge, where people could apply to play against him, and four players each with NCAA Division I experience were chosen.

Keith Lanton:

Now Brian is obviously a great basketball player in the NBA, but what might surprise you is how much better he is than even an experienced NCAA basketball player.

Keith Lanton:

Each of these four players barely scored on him and he barely broke a sweat. He explained the experience and he says that one point that resonated with him is how differently he sees the world, because he has spent so much time playing with truly the greatest NBA athletes. At the single moment in time, because he played in the NBA, he said he can quickly read what an opponent is about to do and be able to react beforehand. And think about that when you're thinking about investing in financial markets, who you're up against, what they've seen before, what data they have at their fingertips and you perhaps are just investing because you read a recent article on Yahoo Finance. Think about that before you take a flyer moving forward and do not consult with a professional. So let's take a step back and try and learn a separate lesson, different topic, and we're going to talk about social security, which has certainly been something that's been in the news, as we've seen headlines indicating that the Social Security Trust Fund is potentially going to run out in 2033 if action is not taken. And.

Keith Lanton:

Barron's had an interesting article where they talked about the fact that Social Security clearly needs fixing again and what happened in 1983, and perhaps some of the lessons we can learn from them. And then what happened? Even when Social Security was formed, lots of investors, lots of politicians even may not realize that the formation of Social Security, which is very much credited to FDR, was something he was kind of backed into or pressured into offering to the American public, and something that he was not necessarily in favor of at the time. So let's take a look at what some call the third rail of politics, called the Third Rail of Politics. Touch it and you Die. No one knows exactly who said that, but it was credited to a Democratic aide.

Keith Lanton:

With respect to Social Security, We'll talk about the 1983 deal to restore Social Security solvency, which was done during President Ronald Reagan, and we will talk about how Social Security, which was a much beloved centerpiece of FDR's sweeping agenda, was staunchly opposed by conservatives from the start. They vowed to kill it or at least privatize it. So it's interesting that a staunch conservative like Ronald Reagan was the one who worked out a deal to solve it at a time when insolvency was months away, not years away like it is now. Something had to be done and Washington actually responded. Some call it a miracle, but let's back up. So FDR created social security, but his hand was forced by Huey Long, who at the time was a very popular populist politician from Louisiana, and some say he was the only man that was a threat to FDR and his ability to win the presidential nomination in 1936.

Keith Lanton:

In 1933, Huey Long proposed a share our wealth program that would redistribute wealth downward through a guaranteed minimum income for all families, plus limits on profits and personal wealth, something you hear a little bit about today from the progressives. Millions of depression-stricken voters loved the idea. Wall Street hated it and FDR feared it. There were worries of long contesting the 36th Democratic nomination or splitting the vote as a third-party ticket. To lessen the thunder of the share-the-wealth advocates, FDR adopted pieces of Long's plan, including Social Security, for his second new deal.

Keith Lanton:

Now, Long was assassinated in a political dispute in September of 1935, a month after the passage of the Social Security Act. Perhaps that's why many of us don't attribute the creation of Social Security with Huey Long, or perhaps many. In the stagflation of the 1970s, Revenues fell as the economy sputtered, while payouts jumped as double-digit inflation rates triggered automatic cost-of-living increases, there was a sudden and alarming shortfall. Now this might have been an opportunity come the 1980s for Ronald Reagan, the conservatives, to potentially limit or kill Social Security. But that is not what Ronald Reagan did. And an interesting point is why Ronald Reagan was in fact, in favor of continuing the Social Security program, Because Ronald Reagan had been burned on that third rail in 1976. He lost the Florida presidential primary and ultimately, the nomination.

Keith Lanton:

After the Ford campaign resurrected old calls of Ronald Reagan's to turn Social Security into a voluntary program. Reagan learned the Third Rail lesson and was not willing to dismantle or limit the Social Security program. So what he did is he formed a Commission on Social Security Reform, five members, each named by Reagan, including Senate Majority Leader Jim Baker and Democratic House Speaker Tip O'Neill. And you know who was named as chairman of what was perceived to be a hopeless task. Well, it was a very unsung at the time economist and his name was Alan Greenspan. And A representative from Ohio, representative Willis Gratison, said if Greenspan can succeed he should get a Nobel Prize. Well, alan Greenspan didn't get his Nobel Prize, but because of the success of this commission, many credit that for his ultimate rise to be the chair of the Federal Reserve. Now, the recommendations that the committee came up with were mostly adopted in 1983 legislation. They were a mix of benefit cuts the retirement age was raised from 65 to 67, and revenue increases, with employees and employers paying higher payroll taxes. So, against all odds, an agreement was reached to keep Social Security solvent. To Reagan, the bill's success represented something more important. He said it's clear and dramatic demonstration that our system can still work when men and women of goodwill join together to make it work. And this was a bipartisan success, because Tip O'Neill, the Speaker of the House, was a member of this commission. And now, as we look at the present and we look at 2033 staring us down, we have eight years to find people of such goodwill and the clock moving forward is ticking.

Keith Lanton:

All right, let's change gears. Take a look at the financial markets this morning. See what's happening. We have futures modestly to the downside, off the worst levels of the morning. Dow futures are down about 130 points, nasdaq futures down about 70. And S&P futures down about 17,. All down roughly three-tenths of 1%. Oil this morning is moving higher. It's up about 94 cents to 69.39. And the 10-year Treasury yield is up one basis point to 4.43%.

Keith Lanton:

We have news this morning that President Trump announcing a 30% tariff on the EU, european Union and Mexico effective August 1st if we cannot reach trade agreements with those entity and country prior to that date. The head of the EU's executive commission, ursula von Der Leyen, has stated that the EU will refrain from imposing any retaliatory measures until the August deadlines have been hopes of negotiating a better deal. Also, mexican President Claudia Scheinbaum has expressed confidence that she can strike a more favorable deal ahead of August 1st. Apparently, politicians outside the United States getting the message that taking a more aggressive stance is not something that President Trump looks favorably upon, and that he often will move the goalposts as he negotiates if he feels that the other side isn't being too disrespectful. So we can see a change in tactics from two of our allies here the EU and Mexico.

Keith Lanton:

The stock market has been resilient in the face of tariff announcements over the past two weeks, but has been the subject of some softer pockets when the country in question is a close trading partner. Thursday saw the S&P 500 and the Nasdaq move to new highs, but the market closed lower for the week on the announcement of a 35% tax on Canada. Now keep in mind that that higher tax on Canada does not include goods that have to do with the USMC agreement that we've made with the US agreement with Mexico and Canada Also doesn't include oil, which has its own 10% tariff, so somewhat a tariff that, if it went into effect, would be significant but would affect a limited set of goods and services. Equity indices in the Asia-Pacific region are taking in the news that President Trump sent those letters to Mexico and the EU and we are seeing weakness in Japan down slightly, but China and Hong Kong markets up slightly. China in talks with Australia with respect to their bilateral trade and those talks are somewhat more favorable to Australia than what they've seen in the past. European indices mostly lower after the letter from President Trump about the tariff rates between the US and the EU.

Keith Lanton:

Other geopolitical news this morning White House NEC Director Kevin Hassett says tariffs will go into place if President Trump doesn't get a deal. That is good enough. He also said that President Trump has the authority to fire the Fed chair, jerome Powell, for cause and this has to do with the recent criticism over the cost of overruns at the Federal Reserve Building. Bloomberg reports that Iran is mulling an offer to restart nuclear talks. Wall Street Journal mentioning that economists are expecting stronger job growth and lower inflation as tariffs will be less costly than feared and lower inflation as tariffs will be less costly than feared. Axios is reporting that President Trump is expected to announce a plan to arm Ukraine with offensive weapons. That would be a change attack from President Trump. We'll see if that's something that actually does get announced when he speaks later with his major announcement regarding the Ukraine, bloomberg reporting that the EU plans to talk with other nations impacted by US tariffs. We're starting to see other countries, like China, reach out to try and counter US tariffs and now we're seeing it potentially among our million at the box office.

Keith Lanton:

A couple of individual stocks in the news. Google says that they plan to pay $2.4 billion for the licensing rights and talent acquisition of Windsurf Artificial Intelligence. This is a company that had also been involved with OpenAI. Metastock down slightly this morning. They plan to acquire PlayAI. Amazon pretty flat today. Prime Day ended last week. 2025 delivers record sales and savings an expanded four-day shopping event. Boeing stock up this morning reports that the plane crash in India was due to perhaps a pilot error or some other action by the pilot there to turn off the fuel switch and the FAA says that they believe that Boeing's fuel switch locks are safe and that stocks up about three points this morning. Crowdstrike been a market favorite the data security company down about 10 points this morning to about 468,. It favorite the data security company down about 10 points this morning to about 468,. So about 2% downgraded to equal weight from overweight at Morgan Stanley A story that may be of interest to anyone who banks at JP Morgan, or perhaps this could wind up applying to many big banks.

Keith Lanton:

Jp Morgan, though, specifically saying that they are going to tell fintechs to pay up for customer data, that they're going to start charging fees amounting to hundreds of millions of dollars for access to their customers' bank accounts information. This is a move that threatens to upend the industry's business model. They have sent pricing sheets to data aggregators which connect banks and fintechs, outlining new charges. The fees vary depending on how companies use the information Higher levies tied to payments-focused companies, jp Morgan saying that they've invested significant resources in creating a valuable and secure system that protects consumer data and apparently they want to recoup some of that investment. The fees are expected to take effect later this year, depending on the fate of a Biden-era regulation that currently is being potentially withdrawn at limited banks from charging to access this data. So if these fees do go into effect, this would drastically reshape the business for fintech firms which rely on their access to customer bank accounts. So you may think well, how am I going to potentially be affected? Well, payment platforms like PayPal's Venmo currency wallets such as Coinbase, brokerage firms like Robinhood, all use this data to send customers funds and receive funds this data to send customers funds and receive funds and typically the firms have been able to get this data for free. So on Friday, when this first started circulating, some fintech firms and payment companies like Block and Affirm fell on the news. Paypal was down as much as six and a half percent. This also has the potential for affecting aggregators such as Plaid or Credit Karma. So if you're using a service to aggregate all your financial data into one place perhaps your brokerage accounts, your wealth management accounts, your bank accounts, your credit card accounts perhaps your data at JP Morgan may not be included or there may be an additional fee in order to access that data. We'll see how consumers are ultimately affected and if this legislation is overturned, if and when it goes into effect.

Keith Lanton:

What do we have going on this week? Well, I mentioned earnings. Tomorrow we have going on this week. Well, I mentioned earnings. Tomorrow, we start getting a deluge of earnings BlackRock, citigroup, jp Morgan, wells Fargo all tomorrow. Asml, bank of America, goldman Sachs, johnson Johnson, morgan Stanley on Wednesday, abbott Labs, netflix in Taiwan, semi Thursday, american Express and Charles Schwab on Friday, and these are just some of the bigger companies reporting earnings, so there'll be many more as well. Also tomorrow, lots of attention will be paid to the release of the Consumer Price Index for June we're looking for a 2.6% year-over-year increase, that's about two-tenths of a percent more than in May. Core CPI are expecting that to rise 2.9% versus 2.8% previously. Thursday retail sales for June looking for a 0.1% month-over-month increase. May we saw a nine-tenth of one percent decrease. Friday University of Michigan releasing consumer sentiment index for July Consumer expectations for year-over-year inflation was 5% in June, down from a four-decade high of 6.6 in May. So we'll see if consumers' expectations about inflation has shifted at all since the last report.

Keith Lanton:

Some numbers to think about the number of.

Keith Lanton:

M&A deals announced in the second quarter was the fewest since 2015, excluding the pandemic in 2022. That was not what was expected when President Trump took office. Many were expecting to see a big uptick in deal flow. That hasn't happened. We'll see if that impacts bank earnings, which are coming out starting tomorrow.

Keith Lanton:

Producer price deflation in China in June was 3.6%. That is the biggest drop in two years. And if you're thinking about some of the policies from the Trump administration with respect to energy, we are seeing China continue to see the greatest percentage of global wind and solar projects being built in that country 74% of global wind and solar projects being built in that country. Seventy-four percent of global wind and solar projects are being built in China. All right, let's move on to some other data. We started talking about the inflation report and we will see what that report shows with respect to impacts of tariffs. And then the broader question is is the market ready for this data with respect to inflation? So one thing the markets will be focused on is how persistent price increases are seen to be and if rate cuts will be on the table soon. I mentioned that the Consumer Price index coming out Tuesday expected to show two-tenths to three percent increase both in the core CPI and in the headline CPI. If you think about inflation last month it wasn't busting out all over, but one of the big culprits that we did see and may continue to see is used car prices are rising as the cost perhaps to buy a new car is rising due to tariffs. Interestingly, after the CPI comes out, some key federal open market committee members will speak after the CPI report New York Fed President John Williams on Wednesday and Fed Governor Christopher Waller on Thursday and they should give a sense of how the committee voters view the numbers. As second quarter earnings reporting season starts in earnest this week, we will also get a better idea on how companies are dealing with tariffs. Are they passing on the costs? Are they absorbing the costs? Are they forcing the foreign countries where these products are being made for those entities to absorb the costs? So many companies have withdrawn guidance, so this will be really our first peek at what effect tariffs are having and who is absorbing those price increases.

Keith Lanton:

Now, one of the factors, of course, having to do with this effect from tariffs is what happens to short-term interest rates here in the United States, and anyone who's been following the news knows very well that President Trump keeps pushing Chairman Powell to lower interest rates and Chairman Powell has been resisting, barron suggesting that if Chairman Powell does eventually accede to lowering rates, that President Trump's pressure could potentially backfire. President Trump once called himself the king of debt. He wants interest rates to fall. Now that's hardly a surprise. Pretty much anyone who's occupied the White House has always been in favor of lower interest rates. Trump, however, has a big, beautiful reason to push for lower rates, barron says, and that's the steadily rising interest expense on the national debt, which has surpassed defense expenditures and is set to top $1 trillion. It's one of the major reasons that we will be potentially accumulating as much as $4 trillion in additional debt over the next 10 years, and those interest rate expenditures a big component of that $4 trillion in additional debt over the next 10 years, and those interest rate expenditures are a big component of that $4 trillion of additional deficit here in the United States. But, as I just mentioned, trump's calls for cheap money could backfire, possibly pushing bond yields higher.

Keith Lanton:

Mr Trump's acolytes and his administration have recently upped the accusations against Chairman Powell, now slamming him for alleged mismanagement for renovations to the Fed's Washington headquarters. Now presidents since Harry Truman, have leaned on the Fed to lower interest rates. An accord between the Treasury and the Central Bank in 1951 ended a cap on government bond yields that was set to help the US finance World War II and that freed the Fed to raise rates to curb post-war inflation. So that was the 50s and the 60s. President Lyndon Johnson literally manhandled William McChinsey Martin for hiking rates during the Vietnam War. Perhaps most famously, president Nixon pushed Arthur Burns, his hand-pecked Fed chief perhaps similar to the next Fed chief here in the US to run a looser monetary policy to ensure a hot economy for the 1972 re-election. At the same time, nixon ended the dollar's linkage to gold, suspending the $35 an ounce price, and the result of those policies under President Nixon was stagflation.

Keith Lanton:

President Trump thinks the US deserves to have lower interest rates. Some say the president believes that because he has a background in real estate and therefore still thinks like a real estate developer. Jim Bianco, founder of Bianco Research, said in a webinar this past week that the best private borrowers deserve to get the cheapest rates, and President Trump clearly thinks that the United States is one of the best borrowers in terms of the strength of our country and therefore we deserve the best rates. But he said that's not how sovereign debt works, because sovereign debtors that can issue debt in their own currency will not default. That's something that many strongly believe, because we can always pay our debts with printing additional money. The problem is that additional money may not be worth as much, and that's why the fact that you can pay your debts doesn't mean that what you're paying them with will have lots of value, that what you're paying them with will have lots of value.

Keith Lanton:

So President Trump believes that the Fed should cut its target rate for federal funds. Some have suggested that at times. He has suggested that the Fed has room to cut by about three percentage points, but the Fed chair has a different view. With the economy chugging along, with a 4.1% jobless rate in June, below with the Fed's summary of economic projections sees its long run full employment, while inflation runs above its 2% target. So thus far the Fed has resisted the president's entreaties because it is waiting to see the full impact of tariffs that he has announced but that are constantly in flux. If you go to the minutes of the last meeting, it did reveal a split between those who thought tariff-related price hikes would be a one-and-done deal and those who were more worried that it would lead to a more sustainable trajectory for inflation.

Keith Lanton:

If you're thinking about who's going to run the Fed next, current odds have Kevin Hassett, who was the person I quoted this morning, as suggesting that the president could replace Chairman Powell as the leading contender for the Fed chair. That would put him ahead of the previous frontrunner, who is Kevin Warsh. Now, in this horse race, the real loser may not be Jay Powell's successor, says TS Lombard. Economist Dario Perkins. We don't know who the person is that will become the next Fed chairman, but he says there are already strong doubts about their integrity and what sort of a deal they have made to secure the position. But it seems pretty clear that Powell's replacement will come in with a tacit understanding to cut rates. Now Barron says be careful what you wish for, because if you look back at what happened when the Fed cut this, fed cut interest rates 100 basis points last year. Well, despite the fact that the short-term rates were cut by 100 basis points, the long-term rates went up by 100 basis points. So the bond market saw the risk from rate cuts while inflation was above target in full employment and decided to do what the bond market does and be a vigilante. And the bond market actually, at the end of the day, raised long-term rates as short-term rates were being lowered. So this is the one problem that President Trump has something that is beyond any president's ability, and that is that the bond market cannot be pressured or primaried and will do its voting on its own, despite what the politicians in this case President Trump would prefer to happen to longer term interest rates.

Keith Lanton:

All right, going to move on, got a few more minutes. I'm going to start out here with a report in Barron's talking about the tax law changes. This is something that's already gone into effect and this has to do with the retirees getting a break from the big beautiful bill. The new tax law provides a temporary enhanced deduction of $6,000 for taxpayers 65 and older. This deduction is in effect from this year, so it's in effect now 2025 to 2028, then it disappears. What does this mean? It means that some folks will get less of their Social Security tax Now to qualify for the full amount. If you're single, your income can't exceed $75,000. That's the full amount of the $6,000 additional deduction. And if you're married, your income cannot exceed $150,000, which means a lot of wealthier participants will not benefit from this provision. The law also boosted the standard deduction in 2025 to $15,750 if you're single or $31,500 if you are married.

Keith Lanton:

The law does not change the taxation on Social Security, so up to 85% of the benefits are still subject to tax. What it does do is it provides an enhanced deduction of $6,000 for taxpayers 65 and older, from 2025 to 2028, who meet the income limit requirements. So the tax break is a deduction that taxpayers wouldn't benefit unless their income is high enough to generate a tax liability. So if you do not have significant income, you will not have to pay taxes and therefore this deduction will not apply to you. You will not get the benefit because you do not owe taxes. So this really benefits taxpayers in the middle, those who have enough income in order to pay tax, but those who do not owe taxes. So this really benefits taxpayers in the middle, those who have enough income in order to pay tax, but those who do not have too much income and therefore start losing or get phased out of the deduction. So if your income is within the limits, the $6,000 applies whether you take the standard deduction or itemize.

Keith Lanton:

For seniors who take the standard deduction, it sits on top of the extra $2,000 deduction in 2025 for singles and $3,200 for married. So, thinking about it, if you're single, you get $15,750. You're still entitled to the extra $2,000. You're up to $17,750, and you potentially can get an additional $6,000. But $23,750 is your deduction if you are single. If you meet all of these criteria push you over these caps you may be better off enjoying your retirement a little bit more and not taking in that extra income and basically working to earn additional income but at the same time, on the other end, losing some of your tax break because you lose some of that standard deduction. So the amount of work you do may not translate into all that much income. Also, if you're thinking about doing a Roth conversion, you need to be mindful that that will be income to you and therefore you may be, by doing a Roth conversion, losing some of that $6,000 additional deduction. So you really want to think hard. Talk to your financial advisor before doing a Roth conversion. Also, if you're strategizing about taking money out of your accounts let's say you're 70 or 71 years old, don't have to take RMDs, but need income to live on Well, if you have Roth IRAs, that may be the better place to take income from your distributions from your Roth, do not affect your adjusted gross income and therefore will not affect your phase out for that $6,000 bonus deduction.

Keith Lanton:

Last thing I'm going to talk about is Barron's had a conversation with some market pros, as these pros offered some individual ideas about the market. They also talked about valuations within the market and the prevailing feeling in general. Not every single person felt this way, but of the 11 panelists, a majority felt this way and they were concerned about what some called elevated or nosebleed valuations. Most of the participants expect the stock market to stall or sink in the months ahead. Many said prices are too rich, tariffs will stoke inflation and economic growth may look increasingly tepid, but these concerns don't mean there is a lack of stocks to buy. So, while the roundtable pros were skeptical, nevertheless they do see pockets of opportunity, and I'll talk about a few different comments from a few different participants. Opportunity, and I'll talk about a few different comments from a few different participants.

Keith Lanton:

Rajiv Jain from GQG Partners, which manages about $161 billion, is concerned about the deficit. He is disappointed that so far the Department of Government Efficiency has not been able to cut government spending as expected and he's concerned that the spending bill adds to the deficit. Currently, us GDP, he says, is, when looked at in terms of the deficit deficits, about six and a half percent of GDP for the past five years. He's concerned that this is unsustainable and that corporate earnings have been juiced in part by running these big deficits and also by the COVID spending which took place earlier this decade. So in the past 10 years, he says, s&p earnings have grown about 8% a year, markets trading at around 26 to 27 times trailing earnings, which is high. 10-year treasury yields are about 430, which he says is a tough setup for future stock market gains as valuations are high, given bond yields.

Keith Lanton:

And one sector he does like and this is a theme that's pretty consistent from several of the investment pros is energy. One stock that he mentioned that he likes in the energy space is NextEra Energy symbol N-E-E. Even though the bill eliminates certain green power credits, he said they still like it because they have one of the best management teams in the business. Earnings security is there for about the next three years. Stock trades at around 18 times earnings. They are growing earnings at about 7% a year and the dividend yield is north of 3.5%. So he views that as a positive risk reward.

Keith Lanton:

Todd Alston of Parnassus Investment Group he is the CIO, chief Investment Officer recommended advanced micro devices, amd. He said that they see upside to $200 or beyond in the next three years. The company is expected to earn $385 a share this year and he says they could double that if all goes right in the next three years. John Rogers of Ariel Capital Management speaking positively about Mattel symbol. Mat Capital management speaking positively about Mattel symbol M-A-T. They recently came out with a successful Barbie movie and two new movies are coming out based on the Masters of the Universe and Matchbox, lineups that Mattel owns. The intellectual property to Mattel, he said, is well positioned in licensing. Not only can it monetize its own IP, as we just mentioned, but it can sell toys tied to the IP of great franchises like Disney.

Keith Lanton:

Now he said investors are worried about the impact of tariffs on the toy industry, but Mattel is much better positioned than their competitors. They have been migrating manufacturing out of China. Also, mattel's core brands, he says, are turning around Fisher Price, american Girl, turning the corner. Management has been buying back stocks, strengthening the balance sheet Stocks trading around 11 times next year's earnings, which he says is about a 34% discount to their estimate of fair value. Next up, david Giroux, who is the chief investment officer at T Rowe Price. He was also recently named Morningstar Outstanding Portfolio Manager in 2025 in terms of asset allocation. He's also concerned about valuations, which he says is high. He says sentiment is positive, which is a contrarian indicator, which he said isn't a great backdrop for making money. S&p is trading around 22.5 times the forward earnings, which leaves the market vulnerable to negative developments, whether that's rising rates, disappointing earnings, tariff problems or something else. He says a lot of things could take the market down significantly from these elevated levels, which gives him a more conservative view about the lineup going forward. He said he believes 2025 GDP will be below trend and that the low-income consumer is under pressure, but he says there are opportunities. He says they like utility stocks, just as I mentioned here at the outset. He said over the past 10 years the utilities have been growing earnings at a compound rate of 6% and he feels that they may be able to even improve upon that as power demand in the US is inflecting positively due to data centers and, to a lesser extent, electric vehicles and reshoring. He mentions three utilities that he is in favor of NYSource, centerpoint and Ameren. Finally, he talks again about the company we talked about the last roundtable in January.

Keith Lanton:

This is Aurora Innovation symbol AUR, a developer of autonomous trucking technology. Since he mentioned it a year ago the stock has doubled, but he said the long-term upside is probably greater than I appreciated last year. The technology has been de-risked and the ability to scale to new geographic regions is faster than he previously thought. Customer feedback more positive than a year ago. Moat is stronger, he said.

Keith Lanton:

The cost per mile for Aurora in driverless trucking is about 65 cents versus 90 cents for a human driver. The Aurora driver drives at the speed limit, saving fuel. Fuel cost benefits 10% to 15% lower fuel costs. Insurance costs, he thinks will be materially lower over time due to safer driving. There have been some massive verdicts against trucking companies when their vehicles have been involved in accidents but given the number of cameras Aurora utilizes, it will be much easier to assign blame in the event of an accident. Asset utilization, especially on long trips, can be twice that of a traditional truck.

Keith Lanton:

He said the economics are massively compelling Trucking companies that don't adopt this technology, he thinks, will lose market share and he thinks adoption should come more quickly than in traditional cars. He says Aurora is the clear market leader. Aurora has partnerships with two of the three largest class eight manufacturers. He says Aurora has the best LIDAR, which is sensing technologies which allows their drivers to see further than any other LIDAR on the market market. He says that Aurora, which currently has a market cap of about $8 billion $9 billion, excuse me, he said 10 years out Aurora could get a 10% share of the market and generate $20 billion of high margin revenue. He said it could have a $200 billion market cap. So therefore, he says the stock could be a 22 bagger and that doesn't assume any revenue from outside the US or growth in the total addressable market. 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.