News of an escalating trade war between the United States and China dominated headlines late last week as both countries formally imposed substantial tariffs on one another. In response to the Trump administration’s 25 percent tariff on $34 billion worth of Chinese goods (largely industrial and technology products), the Chinese government levied tariffs of equal size on certain U.S. goods (largely agricultural products). The U.S. government is expected to launch a second round of tariffs on China, worth another $16 billion, in the next few weeks. Then on July 11, the White House announced it is preparing yet another wave of tariffs targeting China, this time a 10 percent levy on consumer and other goods worth $200 billion, to go into effect sometime after August 30.
This most recent trade conflict follows tariffs of up to 25 percent that the Trump administration imposed in June on steel and aluminum imports from Canada, Mexico and the European Union, who then countered with levies on U.S. exports ranging from maple syrup to Harley-Davidson motorcycles.
The Trump administration’s apparent goal in introducing its various tariff programs is to 1) secure what it sees as a better trade balance, and/or 2) procure more advantageous trade terms by using U.S. tariffs as a tactic for compelling other countries to eventually lower their own tariffs on incoming U.S. products. The administration’s end game, however, is not yet clear, and economists are still trying to sort out the impact the latest round of tariffs ultimately will have.
It is important to point out that, trade terms aside, a negative trade balance isn’t necessarily the same thing as being on the losing side of a trade relationship. Consider the following analogy: You buy (import) produce from, but don’t sell (export) produce to, your local grocer. This opens a negative trade balance with the store. Nevertheless, you probably don’t see yourself as somehow coming out short in a deal where the store gets your cash and you get dinner.
As events unfold, it’s also not clear what impact the Trump administration’s tariff policy will have on the economy. For instance, we don’t know whether even higher tariffs on even more goods imported from even more countries will be levied (or not), or how long reciprocating tariffs could be in effect. In addition, tariffs that in theory should represent only a minor drag on the economy may have an outsized influence, depending on how consumers perceive and respond to them. What we do know is that tariffs raise prices, effectively amounting to a tax on consumers. That is why, in the end, no one “wins” trade wars, making them a detrimental prospect for all involved. We are well aware that such events, however unpredictable, can and will happen. That’s why we build long-term, evidence-based financial plans to anticipate and incorporate market risks.
Before considering any drastic action with your portfolio, it may be helpful to recall that the stock market is forward-looking, so it already has incorporated its best guesses for how the current tariff situation will (and a lengthy trade war would) play out. This information already is reflected in prices. Furthermore, we simply do not know how the game will end. If the Trump administration’s strategy to confront U.S. trade partners works, and all tariffs come down, it would be a huge win for the world, not just domestically. If the strategy precipitates an all-out trade war, it likely would lead to lower economic growth around the world, with the consolation being that the U.S. would likely be affected the least.
In a trade war, relatively speaking, the U.S. tends to weather the storm better because trade is a much smaller percentage of the U.S. gross national product than it is for most countries. This likely explains much of U.S. stocks’ outperformance year-to-date. In the event of a trade war, small-cap stocks tend to do better than large-cap stocks because, in general, they are exposed to less global trade. Again, this likely helps to explain small-cap stocks’ outperformance year-to-date. Moreover, the dollar tends to strengthen as investors flee to safety and liquidity.
Conversely, international stocks tend to do worse in a trade war, and emerging market stocks tend to do the worst of all because their economies often are more reliant on global trade and their currencies take a hit from investors’ flight to safety. This can be a double whammy for foreign economies, as much of their debt tends to be in dollars (which are appreciating relative to other currencies, making debt financing more expensive). That is exactly what has happened as the risk of a trade war has increased.
If the market anticipates that the odds of a full-blown trade war are rising, investors likely will see more of this type of action. When the odds of a bad outcome seem to decrease, likely the reverse will occur. Indeed, an increasing risk of trade conflict likely explains equities’ relative performance (that is, why U.S. stocks, particularly U.S. small-cap stocks, are outperforming).
Finally, a trade war could forestall the Federal Reserve from further interest rate hikes this year should it become concerned about economic growth. On the other hand, it could lead to spikes in inflation, as not only would the cost of many imports rise, but also the competition for domestic producers would lessen, allowing them to raise prices. We will continue to keep an eye on potential consequences the Trump administration’s tariff policy may have.
In virtually all cases, economic or geopolitical news is not value-relevant information, unless you have a copy of tomorrow’s newspaper. The prudent course of action remains to adhere to your comprehensive financial plan, ignoring speculation in the financial media. The only time you should alter your plan is when your assumptions about your ability, willingness or need to take risk have changed.
Dimensional vs. Indexing
Re-posted from Forbes.com
Tim Maurer , CONTRIBUTORPersonal finance is more personal than it is finance. Opinions expressed by Forbes Contributors are their own.
As technological innovation marches forward in so many aspects of life, there is a movement gaining momentum to return to the past in search of something important that progress may have left behind.
No, you can’t beat the convenience of streaming and digitized music, but the listening experience still falls short of dropping the needle on a vinyl record. Similarly, while the ubiquity of tech-driven tools may make the process of managing our time easier than ever, we may actually end up increasing our productivity by decreasing efficiency through an analog, manual, pen-and-paper system.
Personally, I’d been successfully employing a time-management system for years—a simplified, customized amalgamation of David Allen and Steven Covey’s wisdom—designed using the online tool Trello. As someone who believes our most valuable investment is time, however, I was still curious when a friend I respect told me about a new system that he’d been using effectively. But when I invited him to show me, he didn’t pull out his phone or tablet, but a simple journal—a Bullet Journal.
The Bullet Journal is a product, but it’s also more than that. It’s really a modifiable productivity method that has grown into a community. The system, interestingly, was created by a digitalproduct designer, Ryder Carroll, as a way to bring the discipline of task management under the practice of mindfulness. After testing out the system for a few months—and becoming an adherent in the process—I discussed the inspiration for the Bullet Journal with Mr. Carroll.
While how, exactly, I’ve adapted the Bullet system in my work as a financial advisor, writer and speaker—including the specific journal and writing tools I use—does make for an interesting story, today I’d like to address the bigger question:
Why take more time? Why sacrifice the ability to sync between devices? Why go back in time? Why go analog?
1) An analog process that takes you away from your computer is less distracting. Carroll isn’t anti-digital. He designs apps for a living, for goodness’ sake! “The thing that’s wonderful about digital applications and our technology is that they allow us to connect with the world in a way that’s never been possible before,” Carroll says, “but it comes at the expense of attention.”
The next email, reminder or alert moves us away from the primary objective of planning our days, weeks and months. So digital indeed giveth, but it also taketh away. And who wouldn’t rather spend less time in front of a screen, anyway?
2) It requires more effort. But this is a drawback, right? At least that’s what I thought originally. Obviously, on my computer, I can just copy/paste or move an unfinished task from today to tomorrow in less time than it takes a Tesla Model S to go from 0-to-60 miles per hour. There’s no alternative in the Bullet system but to physically…write…it…again.
But then it hit me—it’s a good thing I’m being forced to deliberate more meaningfully on the tasks that I set for myself. The system purposefully applies “specific types of friction onto the user.” But in Carroll’s words, “If you don’t have the time to rewrite something by hand, chances are it really doesn’t matter.”
3) It’s customizable. Autonomy is a powerful source of motivation, so having the ability to craft a personal task management system in our own image is important—and a feature lacking in most of the prescribed systems you’ll find.
“The Bullet Journal is more of a framework than a very specific system,” Carroll says, “and I give people the tools that they need in order to learn more about themselves and their own habits.” This kind of framework “allows you to pour your own life into it” regardless of how that looks.
4) It’s more enjoyable. It’s really “a mindfulness practice that’s disguised as a productivity system,” Carroll told me of the Bullet Journal concept. “Whereas the digital space allows you to connect outwardly very powerfully, I feel the analog space gives you the opportunity to collect inwardly, allows you to connect with yourself in a way that you can’t in a digital way, and it allows you, more importantly and specifically, to connect with your thoughts in a way that you can’t online.”
Even before Carroll put words to it, I realized this had been precisely my experience. In practice, my Bullet routine has become more an extension of my daily spiritual reflection than the beginning of my workday. It’s the bridge between meditation and vocation.
5) Most importantly, it works! “I put this out there because this worked for me. That’s the simple impetus,” Carroll says. As a kid growing up with Attention Deficit Disorder—“before it was popular,” he says—Carroll didn’t respond well to many methods of doing things that others taught him. So, it was through 25 years of “incredibly painful iteration” that he distilled his system into the Bullet Journal framework. It’s clear through its proliferation that the practice has worked for many others as well, myself included.
While Carroll told me that the next chapter of the Bullet Journal story will be to further validate its effectiveness with scientific research, I believe the signs are already there. We know that we could all use less screen time, that multi-tasking is actually a mythand that, when it comes to “learning and remembering course material, the pen is mightier than the keyboard,” according to Indiana University’s School of Medicine.
But screen or not, the best productivity system to use is the one that works for you. As I mentioned, the first system that ever stuck for me was a customizable online solution—and something like that may still be the best option for you. But I’m a Bullet Journal convert, and you can learn specifically how I’ve applied this framework to my own productivity practice.