Trade Wars, Invasions, and Involuntary Resignations

The election of Donald Trump last November virtually ensured that the next four years of all of our lives, regardless of who we voted for, would not be boring.  The first three weeks of his administration have certainly not disappointed.  While many Americans have expressed concerns at recent events, many others view them as a departure from "Business As Usual" and are excited for the next four years.  And while some readers may be interested to hear my thoughts, I don't believe it is my job to provide social or political commentary, it's to provide financial planning and investment management services.  To those ends, I plan on commenting on what's going on in Washington D.C. only insofar as to how it may affect financial planning and investing decisions.  With that in mind, below I will discuss some of the major news headlines of the last few weeks and how, I believe, they may or may not impact our investment portfolios.  

First, and most importantly, tariffs are back.  The widely expected trade war with Mexico, Canada, and China has begun.  However, as of this writing, the tariffs on goods from Mexico and Canada have been delayed, though that could change again at any moment.  Tariffs on China were imposed, though there is some expectation they could be rolled back at any time.  While some feel President Trump's unpredictability may help in trade negotiations, it does make investing decisions more difficult. If substantial tariffs are implemented, financial markets worldwide will almost certainly suffer.  The imposing of tariffs is going to be bad, their removal, good.  Consider the diagram below, replacing "China" with "Mexico/Canada", which we've already "spun" through once.

I fully expect the cycle to "spin" again, probably numerous times, over the coming years.  Each cycle may spin just a few hours, or it could spin for days, weeks, months, or even years.  We just don't know.  

Illegal immigration crackdowns are ongoing.  President Trump has promised to prioritize the deportation of criminals, though others may go too. The removal of criminals from inside our borders figures to have little to no effect on financial markets.  If too many gainfully employed immigrants are removed, the supply of goods and/or labor will likely be reduced and upward pressure on wages will ultimately be seen, leading to additional inflation - a net negative.  

Changes in government policy in regards to gender, race, diversity, equity, etc. have also been making news.  While one or more of these issues may impact you or someone you love greatly, I don't believe any of the changes I have seen so far will greatly impact financial markets.  

Next, foreign policy has already seen threats to invade numerous countries, a withdrawal from the World Health Organization, and a seeming suspicion of long standing strategic alliances and agreements. While some see a long-needed flexing of U.S. military and economic power, others see imperialism, costly wars, and an abdicating of U.S. leadership in the world. So far, at least, from an investing perspective, I view this as noise.  

Finally, with the assistance of Elon Musk and the Department of Government Efficiency (DOGE), President Trump is trying to trim the federal workforce and reduce government waste.  For those currently employed by the federal government, its contractors, researchers paid through federal grants, etc., the last few weeks have been draining.  For them, this issue is of the utmost importance.  Questions have swirled about the legality of Musk's actions, the veracity of his claims, the credentials of his team, the sensitivity of the data they have accessed, and the wisdom of their actions.  However, all things considered, at least in the short-term, the financial market impacts are minimal.  

You'll note for most of the issues discussed I landed on a "no" or "minimal impact" conclusion as they related to financial markets.  Again, "as they related to financial markets."  These conclusions were not landed upon lightly and are, of course, subject to change with new, incoming data.  Managing finances and making investment decisions, as I have said again and again and again, should note be done with emotion.  As much as I believed this to be true before, I believe it to be true even more so now.  I understand some clients wish to push the "Panic" button - I will not.  Risk, opportunities, etc. must all continue to be evaluated and decisions made without regard to how we are feeling at the moment.  It will continue to be my goal to help you in this endeavor.  

One final item not touched upon - consumer confidence.  As I mentioned in the opening paragraph, while many Americans have been distressed by recent events, it must be understood that many others are excited by them.  Thus, while some consumers are likely pulling back on purchases, increasing savings, etc. others are spending with plans to spend more.  If the balance between the two shifts, and more Americans become concerned by recent events, the economy and financial markets will likely falter.  And, just as true, if those Americans now concerned have those fears allayed as the U.S. emerges a "lean, mean, economic machine," expect financial markets to surge.  

I understand you may find this newsletter cold, apathetic, or perhaps unsympathetic.  And while displaying empathy is certainly a requirement of my job, being objective is, as well.  I believe walking this delicate line is required of me and it's how I can serve you best, so I will do it.  If you'd like to talk more 1-on-1, please don't hesitate to reach out via e-mail or phone.