Tariffs, and Trade Wars

Tariffs are back in the news..

The number of times the word ’tariffs’ was mentioned during recent investor and company earnings conference calls is below.

Source: US Global Investors/Bloomberg

Tariffs: Are They New?

I remind everyone that tariffs are not a ’new thing.’ Here’s a sample of tariffs throughout the centuries.

Tariffs will always exist as long as nations protect their economic interests.

Lastly, a 'bit' further back in time, around 300 AD, tariffs and other price controls were also imposed. So, no, tariffs are not a new thing.

Oddly, economists don’t classify tariffs as inflationary, yet prices rise during tariff implementation. Economists assume that consumers and producers can buy substitute products. Regardless of the economic profession’s outlook, prices rise, thus inflation.

Addendum: Why Inflation?

You have probably heard me speak about this before, but here it is again: Why inflation?

Part Two: Governments need inflation to pay down debt levels

Lastly, I’ll close with this excerpt from recent Gratke Wealth, LLC musings..

Inflation is not going away. Centuries of history are replete with government-created inflation that is needed to reduce the size of the debt relative to the size of its economy. That’s how this works.

During the 1970s and 1980s, when interest rates were double-digit, the US Government's debt was a ‘comfortable’ 30% to 40% of the national US GDP.

By the late 1990s into the early 2000s, the debt/GDP had grown from 50% to 60%, which was still relatively manageable.
However, after the 2008-2009 Great Financial Crisis (GFC), debt to GDP increased to more than 120% today. The forecast is for higher debt levels.

Governments create inflation by increasing the money supply and stimulating the economy through inflation. Over time, if the government can inflate the economy at a rate faster than it accumulates debts, the ‘debt to GDP’ ratio decreases. The debt never disappears; it is repaid with future devalued, inflated dollars. This strategy dates back to Roman times. This is why athletes bite their medals on the podium- although they probably don’t know why. Romans devalued the silver coin. Biting the coin was a way to determine how much silver was removed, as silver is a soft metal. Therefore, our inflation-hedging strategies are not surprising.

These are incredibly opportunistic times for the well-prepared investor and extremely destructive times for the ill-prepared investor.

After reading this work, one might think we at Gratke Wealth are in the doldrums about the prospects for future investment return. Hardly. We are just the opposite; there is tremendous opportunity away from the traditional investing styles, typically the 60/40 portfolio, as discussed in previous newsletters. The key is that investors need a mindset that allows for investment strategies like our defensive inflation-hedging strategies. Are we kids in the candy store, you ask? Pretty close to it, we are!

Paris Summer Olympics, August 2024

"Following the final, Zhou Yaqin smiled and posed for photographs and videos with the other contestants when an innocent reaction made her appearance viral on social media.""A video showed the two Italian athletes doing the tradition of medal chomp (biting the medal) after gaining victory. The tradition seemed new to the Chinese Olympian as she was seen surprised by the actions. Nonetheless, she followed suit and tried the gesture herself. However, Yaqin seemed hesitant to bite the medal.”

(Conclusion: Roman inflation brought you this ‘tender’, heartfelt moment in sport. Sigh)

Summary:

Gratke Wealth suggests maintaining inflation-hedging strategies as part of a proactive and diversified investment portfolio during these times.

All portfolio construction, including the selection of assets, stocks, bonds, and other investments, is based on the individual client's risk tolerance. Security ownership may vary by client based on personal risk profiles

Just one more thing…

After reading our work on this overvalued, once-in-a-generation stock market bubble (previous postings), we want to ask:

Is your portfolio right for you?

More importantly, how would you know how to answer the question?

CLICK HERE to learn how we can answer that question for you.

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As always, thanks for reading, and I am glad to discuss.