Trump Tariffs
Donald Trump has initiated his tariff war with Canada (and others) as promised. Is it because of all that fentanyl and illegal immigrants that Canada is flagrantly dumping into the U.S.? How does anyone take this person seriously? Let’s not kid ourselves, this is a 100% unprovoked act of economic aggression against our country by another country that can outrun, outgun and outlast Canada in any kind of battle.
It is hard not to let emotions affect your thinking over an issue that so many Canadians seem to be taking very personally, yours truly included. But, we will let the politicians do the politicking and leave the media to broadcast hundreds or thousands of opinions or predictions, all of which have very little value.
Our Job as Asset Managers
Our job is to stay focused on the long-term well being of your assets invested with us. There is very little doubt that there will be some short-term disruptions with likely implications for Justwealth clients: the Canadian dollar will weaken, the Canadian economy will weaken, inflation may go up temporarily until an eventual recession hits. All of this is contingent on the tariffs continuing as initially announced for a prolonged period of time. There is no guarantee that it will, or that it won’t. Trying to speculate on what a madman will do is an exercise in futility.
It is hard to find a bright side for Canada, economically, which may translate through to our stock market. Extending the expectations that Europe and Asia will be Trump’s next tariff targets, it may only be a matter of time before expectations weaken for those countries and their stock markets as well. And remember, tariffs will likely, at least temporarily, increase inflation, which if anyone remembers 2022 will conclude: that would be really bad for bonds.
Focus on the Long Term
A reminder to everyone: markets are cyclical! They go up and they go down at times, and nobody is able to predict the magnitude or duration of either direction. If the tariffs don’t cause a market correction, then something else will do it in the future. We are confident that in the long run markets will go up – we are not confident about anything in the short run.
Trump may be seriously underestimating the negative implications of his “experiment” on his own country’s economy and the well-being of U.S. citizens. According to Wikipedia, Donald has run six of his own businesses into bankruptcy. That’s not to say we are expecting the United States to default on its obligations any time soon, but there may be many miscalculations when you are picking economic fights with “everyone” starting this time with your only two neighbours and arguably your greatest ally. That may not be too smart and backlash from voters may necessitate a reversal very quickly.
Our Portfolios
With so much seemingly impending doom and gloom, how do we react in our portfolios? That is a trick question – the answer is that we NEVER react to any short-term events in our portfolios. Evidence would undeniably dictate that is a poor investment strategy. And yes, we consider this a short-term event, even though there will be immediate impacts and perhaps enduring political policy. It is our expectation that countries and companies will adapt, and in the end, capitalism will still work.
For those who may be feeling patriotic and questioning if they would feel better by owning less U.S. companies in their investment portfolio, we would strongly discourage this way of thinking. Stop buying U.S. products or avoid travel to the U.S. if that makes you feel better but resist the urge to change your investment strategy due to charged emotions. Limiting choice in investing is another poor investment strategy that may not be in your best interest.
The trick here, is trying to figure out if there will be long-term implications in the investment world. While we don’t get distracted by trying to predict short-term movements (or effectively gambling), we do value long-run strategic positioning. The good news is that Donald Trump will not be there in the long run. In fact, unless he changes the law (which some believe he will attempt to do), he won’t be there in four short years! Nevertheless, we will endeavour to assess our long-term view in light of this weekend’s news and will act accordingly in a responsible and prudent manner.
Comments are closed.