TRANSCRIÇÃO 🔗
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And now introducing Mr. Keith Lanton
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Good morning.
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Today is Monday, September 28th.
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Two more days remaining in the third quarter of 2026.
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A few more days left in the third quarter of 2026.
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A lot to discuss.
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Last week we had Chinese Premier Zhi here in the United States meeting with President Trump.
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We're going to talk about that meeting, talk about the historical precedent of that meeting, what it may mean for the geopolitical environment going forward, and of course what the ramifications are for the financial markets.
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We'll also talk about what's going on this morning, where we have oil up this morning that's driving futures down, driving bond prices down.
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We're gonna talk a lot about bond prices this morning and what the significance is of the increase in interest rates and how that may affect the portfolios, and take the long-term view and take a look at these rising interest rates, the deficits here in the United States, and evaluate whether or not we are in unprecedented times or when we take a deep dive back and look historically, take and look and seeing if any countries or empires have previously been able to sustain debt loads similar to the United States and go on to continue and thrive.
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So we will talk a little bit about that historical context.
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We'll look at what's going on for the rest of this week in terms of earnings and news, and then we'll move forward and talk about a few different individual ideas, value situations in the in the equity market.
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We will talk about a stock that Warren Buffett has been investing in, and then we will talk about an alternative asset stock that was not too long ago one of the equities that was on the darling list that has fallen out of favor and now contends to be a value play that Barron spoke very favorably of.
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So let's roll back a little bit here and let's talk about the scene this past week where we had the optics of arguably two of the most powerful countries on the face of planet Earth meeting, President Trump rolling out the red carpet on the tarmac for Chinese leader Xi Jinping for his first visit to Washington in a decade.
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There was a grand state dinner, declarations that the two leaders have never gotten along better, optimistic talk about a very productive meeting.
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So to the casual observer, it may have looked like some major diplomatic breakthroughs were occurring, but if you take a look a little deeper and through the pageantry, you will see that perhaps a different picture emerges.
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So we didn't experience any grand bargains.
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The biggest takeaway from the summit, at least at this point from what we know, wasn't a landmark treaty.
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It was a short-term extension of the trade truce between the US and China, which brought just two more months.
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So when you have a situation where you have a lot of pageantry but not a lot of substance, this does draw a historical parallel, and this parallel goes back to the 1930s in the lead up to World War II, when European leaders repeatedly staged high-profile summits, defined by dazzling pageantry and lots of reassurances that we know didn't come to fruition because we know in the 30s led to the 1940s and World War II.
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So going back to the 1930s, just to put some information into context, there was the Stresser Conference where Britain, France, and Italy gathered with Great Fanfare to form a united front against German expansionism, which was on the forefront of folks' minds as the Germans were emerging from World War I and demonstrating that that they were being going to build up their military and were going to challenge the world order.
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And that alliance collapsed almost immediately after that conference, and some would say that was because there was no will among the participants to address the hard realities.
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And the hard realities really came to the forefront at what perhaps is the most well-known conference today.
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That's the Munich conference in 1938, where British Prime Minister Neville Chamberlain triumphantly waived a piece of paper signed by Adolf Hitler promising peace for our time.
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So in these instances, we had leaders using elaborate summits to project stability and appease an anxious public, and in these cases perhaps similar to today, we don't know all the details of what took place, but potentially avoiding the deep structural conflicts between the two countries, and these are the conflicts that are challenging the world order.
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So hopefully we will find out that there is more beneath the veneer that took place in this summit.
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But if that's not the case, we have to be mindful of what happened in the 1930s when the difficult issues were swept aside and they were not addressed, that led to further conflict later on, and that's something that we as market participants, as historians need to be mindful of and need to keep our radar attuned to as we focus on how we're going to invest with our portfolios and how we're going to strategically position for the future.
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So let's take a look at the backdrop this morning.
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We are seeing Dow futures down about 245 points, SP futures dropping 27, NASDAQ futures down about 180 points, all of this relative to the massive run-up that we have seen in interest rates.
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Let's use the 10-year treasury as a as a yardstick, and we saw the 10-year Treasury shoot through the 5% bogey, and here we are this morning.
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We're up about three basis points on the 10-year to 521.
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This is something of concern.
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Rising interest rates do create a headwind for companies that are investing in their future, especially here in our future, where we're seeing investments in AI infrastructure data center build-outs, and the cost of building those is increasing with the treasury yields rising.
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Of course, the impact is not just restricted to the technology sector, but to virtually every American company.
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And we also know that when interest rates rise, future earnings aren't worth as much, so earnings have been increasing, , but we are experiencing this headwind of higher interest rates, so this could also impact the equity market.
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And of course, as we've talked about before, higher interest rates create a substitution effect.
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Investors may say to themselves, , you know, , I'm not as comfortable investing in equities when I can invest in a two-year treasury and get almost 5%.
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So we'll see how all those dynamics interact and how this all plays out going forward in the future.
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We'll talk about Dan Fusts.
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Some consider him the the guru of the fixed income market.
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He's 93 years old.
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We'll talk a little bit about his views and insights on the market, and then we will talk about the U.S.
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debt to GDP ratio, which as we know is reaching near all-time highs, including during World War II.
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And we'll talk about how that compares to a historical parallel to the British Empire in the 1800s and how that worked out for the British and perhaps give us some historical context.
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So the weakness that we're seeing this morning is as the U.S.
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and Iran have failed to come to any sort of agreement.
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President Trump rejected Iran's ceasefire proposal.
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U.S.
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officials say that the two talks are continuing, the two sides are continuing to talk but remain far apart.
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Mentioned oil is up almost $3 a barrel this morning.
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We're seeing oil West Texas
Intermediate up over $95 per barrel, and that arguably is one of the reasons we're seeing those treasury yields higher.
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Last week's action, as I mentioned, featured a big backup in treasury yields, although the major U.S.
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.
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Strength across mega cap tech stocks helped offset broader weakness with the Nasdaq climbing over 2%.
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That NASDAQ rise was fueled in part by Meta and the launch of their Muse AI agent, causing Metestock to propel higher.
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We are seeing a little bit of a pullback in Meta this morning.
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Also saw it on Friday.
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Barons over the weekend out cautious about Metestock, although certainly optimistic about Meta's long-term future, just suggesting that after the significant appreciation, that a lot of the easy gains have been realized, at least in the near term for Meta.
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Perhaps that sentiment being carried forward here into markets this morning.
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Wall Street Journal reporting that open AI agents accessed the government websites, so another example of AI being able to penetrate and perhaps not follow the instructions of the people or the humans that are directing them.
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We also had news over the weekend from Boeing that they discovered a 737 max software issue that stocked down five points.
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Boeing had been weak because there was no major announcement about any sort of jet purchase from the Chinese going into the summit.
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There were some hopes that there would be some sort of announcement with the Chinese purchasing some Boeing aircraft.
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One stock bucking the trend this morning is NVIDIA.
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It's up about $2.40, a little over 1%.
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They authorized an additional $150 billion to its share buyback, and they also announced a software program aimed at keeping AI agents from misbehaving.
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Overseas, Asian markets finished mostly lower as technology shares weakened following limited progress at the Trump Z summit, while Hong Kong fucked the broader regional pressure, and the Heng Sing was up about one half of 1%.
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European markets are trading modestly higher despite renewed Middle East tension and broader pressure on technology shares, this largely being driven by oil prices and oil-related stocks.
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Chevron in the news this morning reports in the Wall Street Journal that the Pentagon is backing an oil company that looks to challenge Chevron's position in Venezuela.
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Reports that President Trump plans to reverse Biden-era fuel economy standards.
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Wall Street Journal talking about the negotiations between the U.S.
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and Iran and negotiators insisting here in the U.S.
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that Iran makes nuclear concessions.
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With respect to energy prices, there's been reports that the U.S.
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is considering a considering a diesel export ban or some sort of restrictions on diesel export.
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Bloomberg reporting that President Trump is looking very seriously at doing that.
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And today at 2 p.m., President Trump is expected to make an announcement from the Oval Office.
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It's on his White House schedule.
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Some other companies in the news this morning, Newmont Mining, the gold miner falling more than 4%, as prices of the precious metal of gold have declined about 3% overnight as interest rates have continued to climb.
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Energy stocks are moving higher with the increase in energy in oil prices.
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On the flip side, higher oil prices are sending major airlines lower as investors digest the implications for jet fuel costs.
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Other company in the news this morning, something to look out for is SpaceX.
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They are planning to launch their massive Starship rocket into into orbit this morning.
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According to SpaceX's website, the 75-minute window launch begins at 8 15 a.m.
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Eastern time or 7 15 local time, so that's going on right now, and that's taking place from the Starbase Texas location.
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This is going to be the 14th test flight of this Starship, and it is attempting to be the first ever orbital test flight of Starship, which is significant.
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This will be the first time that it it goes into orbit, and they are doing this with a payload of 26 next generation Starlink V3 operational satellites, so this is not just a mission that is testing the boundaries, but is inclusive of these satellites.
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So SpaceX truly putting their money on the line along with this launch with those satellites on board.
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We're expecting the starship to have six full orbits around the earth, and this will be the first big test of the heat shield on the starship.
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It's going to be entering the earth at over 17,500 miles per hour.
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We could get temperatures up to 2,500 degrees.
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So this is a significant milestone launch here, and we wish Starship much success, and this would be a big positive here for the U.S.
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space program
and certainly for SpaceX if and we hope all goes well during this launch.
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Today, talk about here what's going on.
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Today, relatively quiet.
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tomorrow the Federal Reserve Bank of Australia comes out with their interest rate decision, and we'll have eyes on the U.S.
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Consumer Confidence Index coming out here in the United States.
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On Wednesday, the Fed's preferred inflation gauge, the PCE price index, , has markets on high alert because this is a potential catalyst to move bonds and stocks and expectations about future interest rate moves.
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So lots of attention Wednesday on the PCE.
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And the other big economic event is on Friday, where we get the U.S.
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September Employment Report.
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This jobs report will heavily shape whether the Federal Reserve holds steady or pulls the trigger on future policy shifts in interest rates.
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All right, let's change gears.
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Let's move on over to the bond market.
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As we have talked over and over again, bond market, stock market inextricably linked together.
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We've seen a significant rise in the bond yields, but to date has not had a significant impact on equities like we've seen in the past, and we will obviously continue keeping a vigilant watch out and see if this this disconnect continues or if there is more of historical parallel that takes place.
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Barron's had a discussion with what they call the Buffett of bonds with Dan Fuss, Vice Chairman of Loomis Sales, who still is an active participant in decisions at Loomis Sales.
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Barron saying he seemed as sharp as ever when they caught up with him last week, just before his 93rd birthday.
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And with respect to recent activity in the bond market, Dan Fuss saying that crash is no exaggeration in describing the jump in yields and responding plunge in prices that have taken place recently in the bond market.
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he said while most news accounts emphasize the rise in the 10-year benchmark yield past the 5% mark and the 30-year long bond hitting 19-year highs, he says it's important to note that the carnage has extended across the yield curve to the usually less volatile short to intermediate maturities.
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So how should a bond investor proceed in these turbulent times?
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And what Mr.
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Fuss says is avoid long-term bonds.
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He says the risk of rising yields is too great given the massive fiscal deficit at home and the geopolitical uncertainty globally.
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At this point, he said only institutions that have to fund ultra-long-term liabilities, such as pension funds, he said, should continue to buy long-term bonds.
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He went on to say powerfully, it would take a team of oxen to make me buy a 20-year bond.
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What Mr.
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Fuss says investors should do is follow a middle course quite literally.
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So he is not negative on bonds, he's negative on long-term bonds.
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He is positive on intermediate treasuries doing five to seven years, which he says provide nearly as much return as longer-term bonds with much less risk, either from rising risks, rising yields, or credit risk.
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He notes that the five-year treasury hit five percent this week for the first time since 2007.
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So he said the five-year provides 97% of the yield of the 10-year with only 55% of the duration.
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Now, what is duration?
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Duration is the measure of a bond's price sensitivity to yield change.
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So think of it as bonds potential volatility.
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So you're getting 97% of the return with only 55% of the volatility.
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So he feels that that is the section of the yield curve that investors should focus on.
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Now, clearly he's concerned about the rising deficit.
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He's concerned about how much debt the United States has relative to our gross domestic product, he's concerned about the amount of supply of bonds that are coming into the marketplace.
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But I want to also point out here a historical parallel to the United States and the run-up of our amount of debt to gross domestic product and take us back to England or the United Kingdom in 1815.
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And if you go back to 1815 and you're sitting in the UK, well the smoke is finally cleared from the blood-soaked fields of Waterloo, Napoleon has been defeated, the British Empire is victorious, but back home in London, the mood isn't necessarily celebratory, people are literally shell shocked because Britain has financed the generation of war by borrowing an astronomical sum of money.
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So the national debt in Great Britain at that time, this may sound like a low number, but if you go back to 1815, it was almost incomprehensible, 850 million pounds, and that pushed the debt to GDP ratio in the UK to over 240%.
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Here in the United States, we are currently concerned that we are over 100%.
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So if you take a look at this and you feel crushed by the weight of it, well, it may sound familiar because today we are looking
at massive national debts and deficits dominating headlines.
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Many wonder if our country can survive these obligations.
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But if you look at post-Napoleonic Britain, you discover a profound truth.
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A sovereign superpower doesn't necessarily need to pay off its mountain of debt to survive.
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It just needs to honor its word and outgrow it.
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So optimism here for us here in the United States.
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So if you think a debt to GDP ratio of 240% would trigger a complete collapse of confidence, keep in mind that's almost double what we're experiencing here in the United States.
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There was certainly a tremendous amount of debate and political panic in the UK back in the 18 15 time period.
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But there was never a institutional fear that the British would default.
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And why?
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It came down to two things unmatched credibility and an absolute obsession with taxation to pay off the debt.
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So unlike the monarchies of France and Spain, which routinely stiffed their lenders, Britain had spent over a century building a pristine credit track record since 1688.
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And the backbone of the British financing system was a bond called the Console, which was a perpetual bond that paid three percent interest.
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Investors knew Parliament would remove heaven and earth to keep those payments coming.
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So even during peacetime, the government maintained a system of taxation.
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They were taxing at the time salt, soap, leather, and beer, and they kept the wartime income tax alive, so they kept an additional tax going to make sure the bondholders got paid.
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Now, a lot of this incentive came because the British British elite and middle class were also big bondholders, so defaulting on that debt would have meant fit financial suicide for the country's ruling class.
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Now, avoiding bankruptcy didn't mean avoiding pain.
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Servicing the massive interest bill consumed nearly half of the government's budget.
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Here in the United States, we're less than 20% and very concerned, so it's been done before.
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To make matters worse, the 19th century post-war era entered a period of long-term deflation.
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So Britain returned to the gold standard, and the central bank squeezed the money supply to restore credibility, and prices actually fell.
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And ironically, this period of deflation, and I again keep in mind this is a period of deflation occurring when people are fearful of the amount of debt that the government has, and yet we are seeing falling prices and falling interest rates.
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But that did make those consoles paying 3% a prized asset as interest rates declined in Great Britain.
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So how did Great Britain eventually dig itself out of that 240% debt to GDP hole?
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Obviously, we just talked about keeping the taxation going, but that wasn't in of itself enough.
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What the British had at their backs, it turned out, they didn't know it at the time, and perhaps we have similar wind at our backs in this in this time period, but the British had the Industrial Revolution.
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Taking off.
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Steam power, factories, railways transformed the local economy.
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So while the debt stayed flat, so they weren't adding to it, something we lesson we may need to focus on, the economy grew so massively that the debt to GDP ratio fell from over 240% to about a century later at the eve of World War I down to 30%.
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Now you may say to yourself, well, how did the equity market perform during this time period?
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Well, as the state stopped issuing war debt, capital spilled out of government bonds because there was not a lot of new supply coming, and it moved into private enterprise, fueling what some call the London Stock Exchange Golden Age, where they were building out their railways and global trade was exploding, and we had a period of prosperity, not just in the UK, but in a lot of the rest of the world, as the UK was the reserve currency at the time.
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So there is a historical, arguably parallel, things rhyme, they aren't identical, of a situation where a company incurred significant debt, a lot more debt than we have here in the United States, and was not only able to survive, but to thrive.
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All right, let's move on and let's talk about two individual equity ideas that the Barons discussed over the weekend.
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Both of these, some might suggest fall in the more discounted or valuation asset class.
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The first of which is a company called Brookfield Corporation.
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The symbol is BAM.
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Imagine finding a world-class luxury asset, something managing over a trillion dollars with a track record that some would say is comparable to Berkshire Hathaway in terms of beating the SP 500, and you discover it's trading at a 45% discount.
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That's the situation that Baron says is unfolding right now with Brookfield Corporation.
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It is based in Toronto, it manages everything from renewable energy and infrastructure to prime Manhattan real estate and
a massive insurance platform.
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Brookfield flies under the radar compared to U.S.
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giants in the asset management and the alternative space like Blackstone or KKR.
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Yet its market value tops $90 billion and its shares have recently dropped about 20% to around $37 per share.
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So why the disconnect?
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Well, Wall Street's alternative asset sector has hit a rough patch amid high interest rates and cautious sentiment.
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Brookfield's own management puts its net asset value at about $67 a share.
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That's about double where it trades today.
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Even conservative Wall Street analysts peg it more comfortably in the mid-50s.
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Where does the book value come from?
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Well, it's the sum of the parts.
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The parts are stakes in publicly traded affiliates like Brookfield Asset Management, a booming wholly owned insurance company, and prime commercial real estate in London in New York.
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On top of it, Brookfield has scored some big wins lately, like a nuclear services stake in Westinghouse.
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They own almost 50% of Westinghouse, the nuclear company building nuclear power plants.
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And they have invested about $325 million in SpaceX, that's worth north of $1.25 billion, which has given them a fourfold return on their SpaceX investment.
00:25:33.759 --> 00:25:36.000
And management isn't sitting still.
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They're planning to re-domicile to Bermuda, shift to Gap Accounting next year.
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This move could clear the path for Brookfield to enter the S P 500 index by 2028, which would pull it into the radar of millions of U.S.
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equity index funds.
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While CEO Bruce Flatt faces questions for favoring internal investments over heavy stock buybacks, the long-term track record speaks for itself, compounding earnings for decades.
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So for investors hunting for deep value, Brookfield might just be one of the more compelling bargains that is hidden in plain sight.
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But keep in mind this is educational.
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Do your own research.
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Whether or not this investment is appropriate for you and your portfolio is something for you and your financial advisor to consider.
00:26:24.640 --> 00:26:33.519
Next up, let's talk about what the oracle of Wall Street, what his firm is doing.
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Warren Buffett recently stepping down from the chairman role, now chairman emeritus at Berkshire Hathaway, so we don't know how active a role he's been playing in their recent investment decisions.
00:26:44.319 --> 00:26:47.359
Berkshire Hathaway nevertheless has not been quiet.
00:26:47.359 --> 00:26:54.400
When the rest of Wall Street runs away from a beaten-down sector, well, Berkshire Hathaway sometimes quietly moves in.
00:26:54.400 --> 00:27:07.680
And that classic playbook is back in action with Berkshire piling more than $200 million into stock known as Lenar, symbol is L-E-N, Lucky Eddie November.
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They are the country's second largest home builder.
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So Lenar has faced some heavy metaphorical weather, tumbling significantly from past peaks amid high interest rates and affordability concerns surrounding the housing market.
00:27:22.160 --> 00:27:29.359
But while other investors have panicked, Berkshire has boosted its stake by 81% over the last quarter.
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They have pushed their total ownership of Lenar up to the 10% threshold.
00:27:34.799 --> 00:27:39.039
So why is Berkshire buying when everyone else is avoiding the stock?
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Well, you could argue it's textbook value investing.
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Lenar was trading below its book value, even though it boasts a fortress balance sheet minimal debt.
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To Berkshare's value-oriented managers, temporary sector pain equals long-term opportunity.
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It mirrors how they scooped up home builder Taylor Morrison earlier in the year.
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Berkshire is not looking at next quarter's headlines, they're looking out multiple decades and seeking out quality assets that they feel are attractively priced.
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Whether Berkshare eventually tries to buy the whole enterprise or just sits tight on its massive stake, the message to individual investors is clear.
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When quality stocks are thrown out with the bar bathwater, the smart money goes shopping.
00:28:25.920 --> 00:28:29.119
Well, that's all I have for this morning.
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I appreciate everybody listening.
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We will resume the call next week where we enter the fourth and final quarter of the year.
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Next week, October 5th, will be just about one month out from the midterm elections, which will have significant implications not only for the political scene here in the United States and for all of those of you who watch all the political pundits, but will have significant implications for the financial markets as well.
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And we'll be talking that over the next few weeks.
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And of course, after the elections, we will dissect the results and try to provide insights on what that may or may not mean for your portfolios.
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That's everything I've got.
00:29:11.680 --> 00:29:13.279
Thank you for listening to Mr.
00:29:13.279 --> 00:29:14.319
Keith Lanton.
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This podcast is available on most platforms, including Apple Podcasts, Spotify.
00:29:21.039 --> 00:29:29.200
For more information, please visit our website at www.heroldlantern.com.
00:29:29.599 --> 00:29:34.240
Opinions expressed herein are subject to change and not necessarily the opinion of the firm.
00:29:34.240 --> 00:29:37.440
Past performance is no guarantee of future results.
00:29:37.440 --> 00:29:44.640
The information presented herein is for informational purposes only and is not intended to provide personal investment advice.
00:29:44.640 --> 00:29:50.240
It is important that you consider your tolerance for risk and investment goals when making investment decisions.
00:29:50.240 --> 00:29:59.039
The material does not cost investment advice or trade recommendations.