Chairman’s Letter – March 2025

In my last Chairman’s letter, I said, “Looking ahead, three major economic issues stand out: the  success of China’s recent stimulus measures, the U.S. national debt, and evolving tax policies.  For years, I was unconcerned about national debt, but with U.S. debt now at 123% of GDP— projected to reach 200% by 2050—my outlook has changed. Economist Jeffrey Saut once said,  “The markets will tell us when there is too much debt,” and I agree. The DOGE (Department of  Government Efficiency) commission is hard at work and close to the end of this year we should  have an idea on what type of impact they will have on our debt and deficits.

I mentioned I would  write a white paper if necessary to explain current events and their potential financial impact. While no single issue has justified a white paper, there are multiple issues and a host of  executive orders, from changing international relationships, the DOGE commission, tariffs, and  a major tax bill with an upcoming vote, that may justify one or more white papers this year. I  will use this letter to cover a few key issues in no particular order. 

Unless you have been living in an igloo in Antarctica, you are undoubtedly aware of the dramatic  start to 2025. At the beginning of the year, we felt relatively confident that the economy would  continue to expand and that markets would grow, albeit at a slower pace than in previous years.  Earnings were expected to remain strong—perhaps not as robust as last year, but still solid. However, as we analyzed forecasts, listened to economists, and spoke with money managers, it  became evident that market uncertainties were escalating. The implementation and withdrawal  of tariffs, geopolitical tensions in the Middle East, and the ongoing war in Ukraine all  contributed to this uncertainty.

As a result, our cautiously optimistic outlook has been  challenged, with tariffs emerging as a primary concern. My early studies in economics  emphasized free markets, and tariffs run counter to that principle. At this point, we do not yet  know the full extent of the tariffs or their impact, making it difficult to assess their long-term  consequences. 

While the actual tariffs are significant, the uncertainty surrounding their implementation has  been particularly disruptive. As history shows, markets react poorly to uncertainty, leading to a  full-fledged 10% correction. 

Market corrections were not entirely unexpected. Many large-cap growth stocks were, in our  view, overvalued. We had anticipated a correction, hoping it would lead to broader market  participation.  

Dr. Dennis W. Jansen, economist at Texas A&M University and chairman of the Private  Enterprise Research Center Board, recently provided historical context on tariffs: 

Tariffs have a long history. In the past, imported goods were often taxed in cities such as Athens  or Rome. In early U.S. history, tariffs were a primary revenue source before the establishment of  income taxes. However, tariffs have also been used as trade policy instruments. The Tariff of  1828, known as the ‘Tariff of Abominations’, aimed to protect Northern manufacturing but hurt the agrarian South. Similarly, during the Great Depression, the Smoot-Hawley Tariff Act of 1930  raised tariffs significantly, leading to retaliatory tariffs from other countries and global trade decline of 66%. This event underscored the dangers of excessive reliance on tariffs, particularly  in a global economy. 

For those interested, Dr. Jansen’s full article can be found in the Winter 2025 PERSPECTIVES ON  POLICY from Texas A&M’s Private Enterprise Research Center. 

Another respected economist, Dr. M. Ray Perryman, recently commented on the economic  consequences of tariffs: 

“The recent barrage of tariffs carries a very high economic cost. If sustained, they could result in  the loss of millions of U.S. jobs. In Texas alone, a 25% tariff on Mexican goods could cost the  state nearly $36.4 billion in annual gross product and 287,500 jobs. Additional tariffs on  Canadian and Chinese goods would add to the economic strain, with total losses reaching $51.7  billion in gross product and 410,000 jobs. Retaliatory tariffs would further impact exports, and as  the largest exporting state, Texas would bear the greatest burden.” 

This data contradicts the positive economic impact touted by the administration. While the  situation should become clearer by the end of the second quarter, at this stage, we do not  foresee a market crash. Economists remain divided—some predict continued declines due to  stretched valuations, while others believe the market is nearing the end of its pullback. Overall,  most experts still anticipate a positive outcome for the year. 

Given the current environment, it is too early to make definitive predictions. The extent of the  tariffs, the affected countries, and the impacted goods and services remain uncertain. As always,  our recommendation is to stay the course. History has shown that making abrupt financial  decisions in times of uncertainty can be costly. Maintaining a well-diversified portfolio and  exercising patience is often the best strategy. This is the approach I am personally taking and the  one we are advising our clients to follow. 

For younger investors with a higher risk tolerance, market pullbacks can present opportunities.  Since we expect long-term market growth, strategically increasing investments during  downturns may be beneficial. However, rather than attempting the timing of the market, we  suggest spreading investments throughout the year. 

In my previous letter, I expressed a preference for a divided Congress, as gridlock can prevent  excessive policy swings. However, that did not materialize—Republicans now control the House,  Senate, and presidency. That said, internal divisions within the party remain, particularly  between fiscal hawks and moderates. While the House has passed a budget, it remains to be  seen whether the Senate will reach a compromise. A key test of the administration’s leadership  will be its ability to pass spending bills. 

Recently, I had the opportunity to meet with Jason Smith, Chairman of the House Ways and  Means Committee, to discuss tax policy. I was impressed by his intelligence, work ethic, and  ability to navigate complex legislative challenges. His task is formidable—balancing deficit  reduction while managing spending constraints will not be easy.

While efforts are underway to reduce government spending, meaningful reform will require  addressing Social Security, Medicare, and Medicaid—programs that comprise the bulk of federal expenditures. Without reform, the debt will continue to rise. We will be watching the DOGE  commission closely and seeing what parts of it can or will be implemented. Since the work of  DOGE is perceived to be highly emotional for the remainder of this year, I would suggest you  review the DOGE website. It appears to be relatively transparent and should provide knowledge  of what is being recommended. At times, it is difficult to see an objective viewpoint, either left  or right, regarding DOGE. 

From a company standpoint, after our president, Becky Bell, passed away almost a year ago, I  personally experienced operational challenges. The last 18 months have been among the most  challenging of my 52-year career. After several years of delegating responsibilities, I had to re engage in daily operations, and we were able to successfully meet those challenges without any  impact to our client service. I sincerely appreciate the patience and support of our clients during  this time. 

2025 will bring valuable educational opportunities for our clients. In addition to our Carter  Advantage Education Series webinars, we will host two in-person events and our annual Carter  Investment Conference. Topics will include Social Security and Medicare planning for retirees, as  well as discussions on mental health issues such as dementia, Alzheimer’s, and Parkinson’s. Given the prevalence of these conditions among our clients and their families, we believe this  session will be highly relevant. 

On a lighter note, our Client Appreciation Event will be held on May 15 at Riders Field in Frisco,  TX, for an evening with the RoughRiders. It promises to be a great event! 

As we navigate 2025, I anticipate another year of intensive reading, conferences, and market  analysis—like past economic challenges such as the tech bubble, the late-1980s recession, and  the 2008 financial crisis. While I do not expect this year to be as severe as those crises, vigilance  remains essential. We will continue to provide updates through webinars, seminars, and white  papers as needed. 

Although I remain cautiously optimistic about the economy and markets once current  uncertainties settle, we expect a volatile year ahead. As always, we are available to address any  questions or concerns. I look forward to seeing you at our upcoming Carter Financial events. 

Sincerely, 

Bill E Carter 

The information contained in this letter does not purport to be a complete description of the securities, markets, or  developments referred to in this material. The information has been obtained from sources considered to be reliable,  but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Bill E Carter  and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change  without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be  correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including  diversification and asset allocation. Past performance does not guarantee future results. Future investment  performance cannot be guaranteed, investment yields will fluctuate with market conditions.