Markets Under Fire

April 13, 2026 | Season 8 | Episode 11

Oil jumps above $100, peace talks falter, and markets try to price a world where geopolitical risk refuses to stay contained. We walk through what’s moving stocks, bonds, and commodities right now and why “waiting for the all clear sign” can be a costly investing habit. We also drop a timely reminder on tax season deadlines and last-chance retirement contributions, because real-life money decisions don’t pause when headlines get loud.

Then we zoom out and ask a bigger question: have we seen this movie before? The 1956 Suez Crisis delivers an uncanny rhyme with today’s oil chokepoints and alliance friction, and it highlights something investors often overlook: staying invested matters, but where you invest matters too when power and productivity shift. We break down how US leverage helped reshape the postwar order, and what that kind of hinge-point can mean for long-term portfolio strategy and global diversification.

From there we come back to the market tape: inflation heat, higher Treasury yields, early earnings results, and the hope that tech and AI-driven growth can offset a negative news cycle. We also hit a few standout themes from Barron’s, including Elon Musk’s “convergence” idea around SpaceX, Starlink, Tesla, and AI infrastructure, before pivoting to an unglamorous but durable corner of the market with railroads like Canadian Pacific Kansas City. We close with the elephant in the room, the US deficit, rising debt projections, and policy scenarios investors quietly debate, from debt swaps to financial repression.

If you found this useful, follow the show, share it with a friend who watches markets closely, and leave a review so more listeners can find us.

** 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

Transcript

Intro Tax And Retirement Deadlines

Alan Eppers 0:00

And now introducing Mr. Keith Lanton.

Middle East Tension Moves Markets

Oil Over $100 And Earnings Hope

When 1956 Looks Like Today

Inflation Bonds And Early Earnings

Barron’s On Musk SpaceX Convergence

Canadian Pacific And Rail Moats

US Deficit And Debt Endgame

Closing And Where To Learn More

Keith Lanton 0:03

Good morning. Hope uh all had a uh enjoyable break uh from all of the uh different things that have taken place in the world over the weekend. Perhaps you get your own personal respite. Uh today is Monday, April 13th. We have uh two more days to go till you need to either file your taxes or seek an extension. Keep in mind if you do owe funds to the IRS, you have to pay on uh April 15th what you think you owe, otherwise you may be subject to fines and penalties. Also, uh, if you are able to, make sure that you make contributions to your retirement accounts, whether they be solo 401ks, whether they be Roth IRAs, regular traditional IRAs, April 15th uh often the deadline for uh for those contributions, so make sure that you uh be able to max out to your benefit those uh retirement contributions just a couple of days uh from today. So as we uh approach the uh middle of April, we certainly have a tremendous amount going on in financial markets, a lot going on in the uh in the geopolitical world. Certainly uh events uh continue to unfold this weekend with uh the situation in the Middle East uh continuing to be uncertain, oil prices moving significantly higher this morning, equity futures here in the United States uh down, most of the rest of the world trading lower after the uh peace talks did not come to bring a deal about. We will talk about that. We will also go back into history, talk about another time when we had events that uh perhaps rhymed with what we're seeing today. We'll take a look at what's going on in the financial markets, be able to use that information, hopefully, that uh that history shares with us and see what the uh outcomes were and uh what the future may bring in terms of us thinking about our investing. The long-term result is that investing and staying invested has historically always been good and has been very successful, and sitting out and trying to time the markets has been a fool's errand. But where you invest is critically important. So the lessons uh that we learned from the past uh say stay invested, but they don't always say stay invested in the UK, don't always stay invested in uh France. The United States is if you go back in history as the emerging power, and investing in the United States has uh proven to be extremely lucrative. And the question is, is uh the United States the place to continue to invest? Certainly lots of promising industries here, or should you also consider adding to uh other places in the rest of the world? And uh that's something to uh think about. So let's uh take a look at what we had going on last week, and then we're gonna talk a little bit about uh some other things that uh took place in the past, way beyond last week. But last week markets were suggesting that while the war may not be over, investors uh were betting the worst was over. This morning we've got some additional news, of course, with the breakdown of peace talks and people reassessing some of the thoughts that they had last week, although we're certainly still dramatically off of the lows, which is somewhat suggestive that uh optimism uh may continue to be more pervasive than pessimism at this uh point in time. Certainly last week markets were optimistic, lifting stocks to their best weekly performance of the year, and uh we will see uh despite the setbacks today whether or not that can continue. Right or wrong markets, last week we're sensing that uh we were moving past the peak of uncertainty, and if you're waiting for the all clear sign before you uh get out your your funds from under your mattress, well, that also has historically not been a good strategy. So uh many participants last week thinking that they saw the green shoots take a turn from Alan Greenspan and uh not waiting until you know they had the official all clear, feeling that they would be too late and markets moved higher because markets don't wait until everything's fully worked out. So at least at the moment, we still have more optimism being priced into markets this morning than we did a week and a half ago. So that ceasefire that was announced uh last week gave the markets uh their biggest one-day gain in about a year. The NASDAQ closed up four point seven percent last week, uh exceeding its pre-war levels. S P 500 was up 3.6%, the Dow was up three percent and approaching its all-time high. Now, of course, uh all is not settled in the Middle East. The Straits of Hormuz remain effectively uh blocked uh before the Iranians were letting very few ships in. This morning, President Trump uh saying at 10 a.m. Eastern time that the U.S. will be enforcing a blockade so that the Iranians don't dictate what ships move in or out of the Straits of Hormuz. The U.S. uh will be seeking to take that role. There remain hundreds of tankers waiting to enter and exit the straits, and as a result, of course, the oil market is in a severe shortage, and we're seeing oil prices this morning over 100, about $104 a barrel, up about 7%. And this is also fueling concerns about inflation. So negotiations which uh took place last week, we'll see if they uh this weekend, we'll see if they uh resume and whether or not this ceasefire lasts will dictate uh certainly uh what happens in the near term with uh the direction of oil prices, and we will see whether or not this uh means that equity markets uh can take last week's sign as a sign that things are truly improving. The SP did gain more than 60% back from its lows. Historically, when you see a move of that magnitude off the lows, that means that someone somewhere who's putting money where their mouth is uh believes that the worst has passed us by, so hopefully the smart money is correct. We are also uh beginning earnings season, and there is some optimism here that the technology names will continue to shine bright here in the United States. We did get earnings this morning, we'll talk about a little later from Goldman Sachs, the first of the major S P 500 companies to report earnings. And tech names are on track to post 45% earnings growth, 27% revenues growth. Some suggesting that uh the technology and the AI revolution is going to continue to produce an avalanche of earnings power, and that could be something that uh helps break some of the negativity that the markets are currently experiencing. All right, so that's where we stand today, and it's important to look back and uh look where uh things stood in the past again so we can become better investors. So if I told you the facts I'm about to share with you and I were to say to you, what year do you think we are talking about, I'd be interested to share these and for you in your mind to think, hey, what when when is this when are these facts taking place? We have a scenario where great powers are butting heads in the Middle East. We have a uh covert operation where a great superpower align themselves with the state of Israel to go to conflict with a another power in the uh Middle East, and we also have a scenario where this great superpower, in this case the United States, did not share their intentions with their allies like France and Great Britain. We also have a point in history where many are being critical of this action because it is distracting from something that the Soviet Union is doing and that the rest of the world, at least uh what uh folks like ourselves feel is something that they shouldn't be doing. We also have an oil embargo taking place with uh with clearly what's uh going on here with with respect to with respect to energy and and oil. And we also have uh a country perhaps sabotaging laying mines, in this case, uh in their own body of water. And then at the same time we have a uh superpower using economic leverage, not necessarily with respect to the Middle East at this time, but using economic leverage to can to pursue an objective, and that country is clearly the United States, and we are seeking to use tariffs as uh as leverage to achieve our financial goals. So if I were to say to you, what year is that? You could easily say, well, that's the present, that's 2026. But I will tell you that this scenario took place in 1956, 60 years ago. And sixty years ago, we had the French and the British allying themselves with uh Israel, and what they did was uh at the time they were seeking to attack and control the Suez Canal, because at that time the leader of Egypt, Nasser, was taking control of the Suez Canal, something that uh the British and uh the French had previously controlled, and uh this was the waterway, much like the Persian Gulf is today, the Suez Canal was a critical pathway for oil. In fact, uh Great Britain and France, which were certainly uh still superpowers, uh although uh with the benefit of hindsight, declining superpowers, these countries were getting the majority of their oil, 70 percent uh through this uh waterway, so they viewed this as a significant threat. And what they did is they staged a premeditated staged conflict. And what uh happened was there was a meet secret agreement between Great Britain, France, and Israel called the Protocol of Sevres, and between October 22nd and 24th of 1956, the leaders from these three nations met secretly in a villa in Sevres, France. And the agreement was that Israel would launch a major military strike against Egyptian forces in the Sinai Peninsula, and Britain and France would then issue an emergency ultimatum to both Egypt and Israel, demanding they stop fighting and withdraw ten miles from the Suez Canal to protect the waterway and ensure free passage. Britain and France knowing that uh Egypt would never agree to withdraw from its own territory and leave the canal to the Europeans, so therefore Britain and France were planning on launching what uh was known back then as Operation Musketeer to separate the combatants and reoccupy the canal zone. And this plan failed because it didn't account for the reaction of the United States. The United States here was outraged that they weren't consulted. Some of our allies uh in uh Great Britain and France would say they are outraged because they weren't consulted in the most recent uh events in the Middle East. He was also outraged because it was taking place at a time when President Eisenhower was seeking re-election and had just begun to come into the final days of his campaign. And he was very furious because this provided a smoke screen for the Soviet Union, which was in the beginning stages of crushing a rebellion in Hungary. And how ironic here we are today, where we have elections in Hungary, and we have uh Viktor Orban being voted out of office and a new leader of Hungary being elected. So Hungary, ironically, also, once again at the center of this conflict in the Middle East taking s taking place sixty years apart from one another. And what happened is Eisenhower not only outraged, decided to take not just be outraged, but take actions here as the United States was a rising power. And what he threatened to do was he threatened to crash the British pound, take economic action, and cut off oil supplies, like blocking the Strait of Hormuz. And effectively at the end of the day, the U.S. forced a humiliating withdrawal, and in this is often m viewed as the turning point, at which point the United States was the clear leader of the Western world, and British and France Brit the Brits and the French were no longer world powers, many call this a hinge point in the 20th century. And this was also a crucial test for the NATO alliance, because NATO had just been formed. Here we are, key NATO allies, perhaps the three most key NATO allies, the British, the French, and the U.S., the British and the French saying, Hey, America, step up. You're our Article V. You've got to protect us. We're going to war in the Middle East. And here it was in 1956 saying, oh no, that's not Article V. Article V is if you get attacked, if you're threatened, that's the U.S.'s position in 1956. In 2026, that's the position of Great Britain and France. So we can see here that there's lots of similarities. It's just that we have uh the participants taking uh different different viewpoints, different roles as they uh as they seek to achieve their individual objectives both domestically and politically. Going back to what Eisenhower did is in 1956, the Security Council, back when the UN was uh in its earlier days and arguably had uh more influence than it did today, well, the Security Council took up uh resolution on uh condemning the actions of the British and the French. The British and the French had uh seats on the Security Council, so they vetoed that, but the U.S. used a rarely used mechanism to move the issue to the General Assembly of the United Nations, and on November 2nd of 1956, the United Nations General Assembly adopted a U.S. sponsored resolution calling for an immediate ceasefire and withdrawal of all forces. That vote was sixty-four in favor, five against the five against were Britain, France, Israel, Australia, and New Zealand. The irony is this put the United States and the Soviet Union on the same side of a major global event at a time when they did not see eye to eye on almost anything. And what Nasser did, the ruler of Egypt, during this crisis, in order to prevent the French and the British from occupying the Suez Canal was he sunk ships into the Suez Canal, like putting mines in the Straits of Hormuz. And the French and the British appealed to the U.S. for emergency oil shipments because now oil couldn't get through the Suez Canal, and the U.S. refused, stating the U.S. would not help them to get additional oil based on their position on this conflict. And at the same time, the U.S., I mentioned this uh earlier, used their financial leverage because the British pound after World War II was under a lot of pressure because of the tremendous debt that the British had incurred. And what Eisenhower threatened to do was to sell its significant holdings of British government bonds, which would have likely crashed the pound. This is something that uh as the U.S. deficit increases, some have speculated uh foreigners might have that sort of leverage over the United States. So NASA sunk 47 ships filled with concrete and scrap, completely blocking the waterway, cut off the primary route to 70% of Western Europe's oil supply, and in a show of solidarity with Egypt's Syrian engineers, blew up the pumping stations of the Iraq petroleum pipeline. Again, we've got Iraq coming into this here, 1956, not dissimilar from Middle East of today. And this was the only major route for Iraqi oil to reach the Mediterranean. Between the canal blockage and the pipeline sabotage, Europe was suddenly deprived of almost all of its usual oil sources. This was the most devastating blow to the British and the French, and they turned to the United States to purchase Western hemisphere oil because at the time, like today, U.S. was a very big supplier of international oil. Eisenhower, furious that he even kept in the dark about the invasion, personally blocked the oil lift to Europe. And Eisenhower famously remarked to his aides, and this is something that some of our allies may be saying today, they've made a mess of it, and they've got to get out. We're not going to help them out of the hole they've dug for themselves. And this 1956 Suez War, many say was the turning point when the United States put their foot down, did not join with the British and the French as they had in World War I, World War II, took their own stance, uh did not uh participate as a uh NATO member, in fact they took the opposite side, the French and the British backed down, and uh the United States uh subsequently emerged as the leading superpower of the world. So sixty years ago, and we had a unique situation in the Middle East, uh not as unique as we thought, because we have another situation in the Middle East, that is looking like it rhymes with what we see sixty years ago. So we'll take that lesson and hopefully think about it and be able to analyze it and use it to think clearly about uh what the uh future may hold for the geopolitical world as well as for financial world. Again, most of us not aware of all these facts that took place 60 years ago, which once again indicates that most of the time, almost all the time, things pass and financial markets move on, and they continue to grind higher because companies continue to innovate and they continue to survive like humans, with a great instinct and urge for survival, and we have uh adaptability and flexibility, and that is why, at least historically, markets uh over the long term have historically moved higher. So this morning we are seeing, as I mentioned, oil specifically moving higher. Oil's up about $7.54 a barrel to $104. Dow futures near their worst level of the morning, they're down a little over 1%, about 490 points. SP futures and Nasdaq futures faring better, down closer to half of 1%. SP futures are down 39, Nasdaq futures down $130. Hungarian stocks, uh I alluded to earlier. Uh Victor Orban lost Sunday's election, had led uh Hungary for 16 years, uh viewed as a uh a candidate of the right, someone who had held up some of the uh European Union's uh policies by vetoing them. In fact, I think in the last 16 years, uh Hungary, a country of about 10 million people about the size of New Jersey, uh, has uh vetoed about half of all of the vetoes that have taken place within NATO in that 16-year period were were initiated by Hungary. So new leadership in Hungary, and we will see uh what, if any, uh impact uh that has on the European Union, on the conflict uh between Russia and Ukraine, and on relations uh between the EU and uh the United States. One consequence of the war in the Middle East is we're starting to see uh supply chain getting disrupted. Japanese toilet maker Toto suspended new orders for some of its uh prefabricated bathrooms due to a material shortage as uh global supply chains get squeezed. In Europe, Lufthansa, the airline in Germany, is down about four and a half percent. Pilots there calling for a two-day strike over pensions, threatening fresh travel disruption in Europe as a result of uh those actions. So this morning we I mentioned Goldman Sachs out with earnings. We'll talk about those earnings. Investors uh right now are uh kind of swimming upstream, uh relying on uh earnings growth and revenue growth uh to uh to swim against the tide of the geopolitical news and to fight back uh against this uh negative news flow. Also, on the uh negative news flow front last week, on Friday, we had a report showing that U.S. inflation climbed in March by the most in nearly four years, and costs look to be headed still higher. This morning we see aluminum and natural gas prices moving up, consumer sentiment falling to its lowest level in several years. We are also fighting the disruption that AI is uh causing and the angst that AI is causing uh for uh for the job market, and at the same time, we're also uh concerned about private credit and whether or not private credit uh issues will uh leak into the uh broader economy. A lot of this uh will uh be somewhat addressed when we get uh bank earnings. We got Goldman Sachs's earnings, not as exposed to private credit, but uh those earnings looking good. But uh markets will be very focused on what banks have to say with respect to their exposure to private credit. Today in Europe, luxury bellwether, Louis Vuitton reports quarterly sales after the close in Paris. And because of these concerns about inflation, equity markets at the moment not getting help from the bond market, where yields keep pushing higher because of the inflation from commodities in particular. So we're looking at a 10-year this morning up at around uh 4.33% uh off its worst levels of the morning. As the equity market gets weaker, the bond market is getting a little bit stronger. And the earnings season is uh getting started, and we are looking for 12% growth in earnings for companies in the SP 500, so we will see if these companies uh deliver. Speaking of companies delivering, Goldman Sachs's earnings, they beat by $1.08 on earnings. Uh Street was expecting $16.47 a share in earnings, and Goldman had $17.55 in earnings. Revenues also ahead of expectations about $17.25 billion versus $17 billion in revenues. Revenues were up 14% over last year. If you're looking to get a breakdown on where that uh outperformance came, a lot of it came from trading in equities. Uh Goldman perhaps uh on the uh right side of uh volatility that took place in the first quarter, and that was that was stronger than expected. Uh they did have a little bit of weakness in uh so their fixed income revenues, but the equity the equity uh trading was enough to overcome some of the weakness in the fixed income. Trading. Some companies in the news this morning, Goldman with that earnings beat, nevertheless, perhaps some are expecting an even better beat. Stock is down about 3.5% or 32 points to around 875. Certainly that will change as the morning opening approaches. Another company did report earnings this morning. Fasinal. FAST is the symbol. They make fasteners for manufacturing. They report earnings per share in revenues in line with expectations, but that stock also down 3.5 to 4%, similar to Goldman Sachs. Another stock down about 4% is Best Buy, BBY, the big box retailer for electronics, Goldman Sachs. The company downgraded the stock to sell from buy. So that's a big downgrade when you go all the way and skip the hold in the middle. And they have a $59 price target. Equity indices in the Asia Pacific region had a mostly lower showing to begin the week amid the renewed concerns about the US-Iran conflict brought into a prolonged war. Japan down close to 1%, the same for the Hang Sting, and India's Sensex and South Korea's COSPI markets. We did see the China-Shanghai market buck the negative trend and close up one-tenth of one percent. European markets down about 1% across the board, with the exception of the Spanish market, which is down about 2%. Gold trading lower by over 1%, down $55 an ounce this morning, and silver down close to 2%, trading down over $2 an ounce this morning as well. Some comments from President Trump telling reporters he doesn't care if Iran comes back to the negotiating table. He said Iran broke its promise to open the Strait of Hormuz. That's according to NBC News. Wall Street Journal reporting that President Trump is considering resuming limited Iranian strikes. CNBC reporting that UK Prime Minister Keir Starmer says the UK will not help with the blockade of the Strait of Hormuz. Bloomberg reporting that Saudi Arabia's east-west pipeline has been restored to full capacity. Reuters saying that President Trump said that gas prices would or could remain high through November. And many news sources reporting on the uh overwhelming landslide uh election victory uh where uh Victor Orban voted out of office in Hungary. All right, let's take a look at uh Barron's uh what they had to say over the weekend. Their cover story was on Elon Musk and his uh perhaps uh consolidation of different industries into a uh super mega conglomerate, uh, perhaps is his vision, is uh what Barons was uh alluding to. You could kind of uh draw parallels between Elon Musk and the con the aggregation of his of his companies uh as uh SpaceX uh is approaching an initial public offering. Uh this Barron's article speculating that uh Elon Musk's uh coup de gras or his uh ultimate goal may be to merge SpaceX into Tesla and uh create a mega conglomerate, perhaps uh something like the railroads or steel industry, uh, those uh major companies of the early 19th century, whether or not he could put together the modern equivalent of those uh big uh big organizations back then. SpaceX has reportedly filed confidentially for an IPO that could be the largest in history, potentially raising $75 billion. But the real story isn't just the IPO, it's what Elon Musk calls convergence. When you take a look at the valuation of SpaceX, perhaps you have to uh take into account his grand vision. You have to look past the rockets. SpaceX is becoming a cash machine with Starlink subscriber base doubling annually, and SpaceX is becoming the dominant lead in reusable rocket technology. SpaceX is shooting for a $2 trillion valuation. Uh to put that in perspective, they are launching satellites for a fraction of the cost of legacy players like Boeing or Lockheed Martin. SpaceX president Gwyn Shotwell famously clip quipped when asked how they undercut the competition. Well, he quotes his competition as saying, I don't even know how they build a rocket for $400 million. So the CEO of SpaceX saying he couldn't even spend $400 million building a rocket if he tried. So this IPO, Baron's uh suggesting, could be the first step towards a massive merger between Tesla and SpaceX, which would create a $3.5 trillion AI-infused industrial behemoth. By combining SpaceX's orbital infrastructure with Tesla's real-world AI and robotics, Elon Musk would be essentially building a vertically integrated empire that spans from the Earth's surface to the low Earth orbit. The most controversial part of this plan would be space-based data centers. Musk's XAI, which was recently merged into SpaceX, is looking to bypass the massive power costs and environmental hurdles of land-based data centers by putting them in orbit. If successful, if successful, this could turn SpaceX into a $10 trillion utility for the AI age, according to Barron's. For investors, of course, the valuation is complicated. Tesla shares have struggled recently, and a merger could face resistance from shareholders wary of dilution. But Barron's saying the broader lesson here is the reindustrialization of America. Whether you're a fan of Musk or not, the move represents a shift away from the financialization or the banking culture here of the economy back towards physical manufacturing, whether it be semiconductors or energy infrastructure. So in a world where we've spent decades optimizing software, the next decade of value might be cre m value creation might just belong to the companies that can build the most epic hardware, both on the ground and in the stars. Let's talk about one individual company that is perhaps the opposite of computing power and the opposite of what Elon Musk is looking to do with uh SpaceX, and this is a company here and now with products uh very terrestrial and on the ground here in the United States, and that's railroads. And ironically, we were just talking about Elon Musk looking to be the perhaps a personality similar to the uh railroad uh railroad uh uh railroad heirs or barons of uh of the early 1900s like uh Vanderbilt. And a century ago, railroads were the AI stocks of their day. They got overbuilt, the stocks got volatile, the industry uh became uh transformed, but now railroads have transformed once again and they have uh evolved into what Goldman Sachs calls a Halo business, heavy asset, low obsolescence business. And Barron says that the company that they suggest looking at today is Canadian Pacific Railway. Symbol is uh CP Charlie Paul. Following its 2023 merger with uh Kansas City Southern, which is a U.S.-based railroad, it is the only carrier besides Canadian National with a single line connecting Canada, the U.S. Midwest, and Mexico. So there's been about a three-year freight recession that's kept the stocks sidetracked. If you believe in the reindustrialization of North America, well, then the math is uh changing to the plus side for a company like uh Canadian Pacific, Kansas City. With trade shifting from China to our neighbors in the north and south, CP, Canadian Pacific, sitting on an irreplaceable physical network. Uh just think of uh how impossible it would be to uh build uh railways uh interconnecting all the cities that uh these companies uh currently uh have within their network. Analysts are eyeing 20% gains as major synergies kick in. Earnings are projected to climb 14% next year. So if you're thinking about tech disruption, software disruption, you're worried about stocks like Intuit or companies like Salesforce. Well, it's very difficult to have a technology disruption of a rail yard in Chicago or Toronto. So for investors looking to hedge against AI volatility, Canadian Pacific, Kansas City offers a rare combination of margin expansion and a moat that simply cannot be rebuilt. The one uh caveat in the next, let's say, six to twelve months is this network is somewhat reliant upon the US, Mexico, and Canada remaining a uh zone where uh the trade is uh generally uh free and the renegotiation of the US Mexico-Canada Trade Pact uh is critically important to have a successful renegotiation for some of the valuation here to continue to be unlocked. Finally, we'll talk about the one subject that uh certainly is often the elephant in the room, and we will address the elephant in room in the room, and uh that is the deficit, which by all accounts uh is increasing significantly. Some would say Baron's uh in an article said it is exploding, and uh what steps do we have to rein it in? So some things to think about. So one of the big losers in the Iran conflict is likely to be the U.S. deficit. President Trump has requested a supplemental $200 billion in additional defense spending to replenish munitions and provide more funding for the Iran war in the current fiscal year. Recently, U.S. administration has asked for a stunning increase in deficit expenditures to $1.5 trillion from $1.1 trillion. And as a result of military spending increasing as well as uh interest expense increasing, well, this is causing the deficit to continue to rise as well. So the annual deficit here in the U.S. is expected to increase to 7% of GDP by 2028, and then it's expected to ease to about 6.4% in 2022 and remain there through 2036. The total public debt would rise to 100%, 7% of GDP by fiscal 2028, which would top the previous peak of 106% just after World War II, and then it would continue to climb to 124% of GDP by 2036. This is as a result of projections by the Congressional Budget Office. Current uh Trump administration is their projections uh show uh the deficit not 124% in 2036, but uh a still high ninety-four percent in 2036. As famous economists said, some things can't go on forever, and therefore at some point it will stop. In case of the nation's uh debt, at some point it will also have to stop climbing. So who may cause it to stop climbing? Well, one suggestion is perhaps bond investors who at some point may take umbrage with with the yields that they're receiving in return for the risk that they are taking. So what is the U.S. to do about this debt? Well, Barents has uh a few suggestions. One is is that we may, as was laid out by Stephen Moran, who is now a member of the Federal Reserve, and this was a suggestion that what is now known as the Mar-a-Lago Accord. And this solution would entail having foreign holders of treasuries exchange them for new super long obligations with low or no interest. Some are suggesting this could also be construed as a default, but uh the U.S. position might be that this is a payment for the security that the U.S. is imparting on the rest of the world uh by having our military uh support our allies, and therefore they would engage in this debt swap. In return, they'd be getting the security of the U.S. military. This is considered, at least at the moment, something to be uh relatively unlikely. But nevertheless, uh double line CEO Jeffrey Gunlock, a noted bond investor, says he wouldn't dismiss this possibility down to 100%. And he said in a recent podcast he instructed his government bond managers to swap their current holdings for the lowest coupon rate equivalents, even though he views the chance of a bond swap as remote. So he's suggesting if the U.S. were to suggest that uh we're gonna take high coupon bonds, bonds that are paying five, six, seven percent, and we're gonna replace them with bonds paying one, two, or three percent, he feels uh you'd be better off owning bonds that only pay one, two, or three percent because their effective yields to maturity are the same as the higher coupon bonds, and getting hurt in a swap like this wouldn't occur if you had those lower coupon bonds. So an interesting perspective. Again, that's viewed as an unlikely scenario. Another uh possibility is that uh the Social Security program, which is uh expected to be depleted by 2032 proposal that came out last week, would cap social security benefits at $100,000 per couple based on their normal retirement age. This would affect only a small percentage, but nevertheless, folks who had been paying into Social Security like everyone else, if you had both a husband and wife who had uh significant uh earnings throughout their lifetimes, they would see a cap on their benefits of $100,000, and this would subsidize some folks who who otherwise might have their benefits cut because of the shortfall who are receiving lower benefits. A stealthier and less obvious plan would be what's called financial repression. This is when the Treasury and the Fed work together to hold down interest rates below the growth rate of the economy, which is the uh real growth plus the inflation rate of the economy. So it's basically uh creating an environment where interest rates are held low, like we saw after the 2008 financial crisis, and which was uh widely adopted for decades after World War II, where interest rates were held artificially below the natural rate in order to uh finance the deficit in order for us to get our fiscal house in order. Uh many suggesting this is the most likely scenario where U.S. debt would uh would pay much lower rates, and the uh Treasury and the uh Fed would work uh together to uh press down on those rates by taking actions like we saw in 2008-2009, where the Federal Reserve would intervene in markets and artificially uh hold rates uh below their market natural rates, and that's something else to uh consider and think about when evaluating uh how to invest uh going forward. That's everything I've got.

Alan Eppers 36:59

Thank you for listening to Mr. Keith Lanton. This podcast is available on most platforms, including Apple Podcasts and Spotify. For more information, please visit our website at www.heraldlantern.com.

Sophie Cohen 37:13

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.