No Playbook

There is no playbook for what the Central Banks are about to do:  Unwind the Qualitative Easing or the bond purchasing that all of the major Central Banks have done over the past 10 years.  Since the Central Banks don’t have a playbook, we don’t know what the ramifications for this unwind will be.  That is one reason why volatility has increased considerably since February 1, 2018.  Investors lack certainty as to how this is all going to work out.  Volatility is the progeny of uncertainty.

Not Just the Fed

The US Fed added over $4 Trillion to its balance sheet through its QE bond-buying program.  The Fed is not the only Central Bank to have done so.  The European Central Bank (ECB) and the Bank of Japan (BOJ) have also been on a spending spree.  Currently, the Fed is leading the reversal of course by saying it will stop the bond buying and then let some bonds fall off when they mature.  The amount of fall off (about $80 million) is not significant relative to the $4 Trillion, but the change in direction is significant.  Neither ECB nor BOJ has yet put a plan in place to reverse course, so they are still effectively feeding the markets with money.  The real new territory will be charted when the ECB and/or the BOJ reverse course.  If their relative economies continue to strengthen, this will occur within the next year or so.

Feeding the Stock Runup

By buying bonds, the Fed (and the other Central Banks) inject money into the financial system which is in turn used to buy additional financial and other assets.  Banks whose bonds the Fed buy may use that money to buy additional bonds, thereby keeping interest rates low.  They may lend it to companies who in turn use it to buy stocks.  They may increase their employees’ wages, who may use their new money to increase their holdings in their retirement accounts.  Directly or indirectly, the money that the Fed has injected through its QE program has found its way into the stock market and has thereby propped up stock prices.  Some analysts say the Fed (and the other Central Banks) are the single most important reason why we have been in an almost uninterrupted bull market for the last 10 years.  Now this Central Bank cash injection is about to end.  This is a big change in direction that hasn’t played itself out before.  That’s why I say there is no playbook for what is about to happen in the markets, and that’s why there is more market volatility.

S&P 500

In November 2007, prior to the financial crisis, the S&P 500 Index was at about 1,500.  It dropped almost 50% to about the 760 range before heading back upward.  It regained the 1,500 level in about February 2013 and kept going from there.  Its highest was 2,853 in late January 2018 and now (as I write this) sits at 2,643.  If the Fed and the other Centrals change course, how far could the S&P 500 Index fall?


If the entirety of the gain from 760 to 2,643 is due to Central Bank intervention, could we fall all the way back to 760 if the intervention is reversed?  No, because the Central Banks will re-intervene if stocks fall too much.  No, also because the economy has become much healthier since 2007.  Profits are up and balance sheet debt is down.  Could we fall back to 1,500?  That is possible more than 760, but still unlikely in my opinion because 1,500 would represent a 47% correction from the all-time high, which is the same magnitude as the 2008 correction which caused the Central Bank intervention in the first place.  What I am saying is that the reversal of QE may work if it is done slowly.  Even investors need to be slowly weaned off of government assistance.  The issue is that investors may freak out as the process plays out, and market movements may be disconnected from the fundamentals of the economy and the companies whose stocks investors may be selling.  In this environment, it is probably best not to be all in on stocks and instead to have a diversified portfolio that will still profit if things pan out ok but will be relatively safe if things go sour.


Plan Your Exit

You should have a plan in place for your exit as soon as you enter into any endeavor or any investment. That doesn’t mean you can’t amend your plan as time goes on and as conditions change.  It does mean that you should be thinking about your positioning and your objectives at all times.  Having an exit strategy is an important component of taking control of your own life.  It makes you think strategically about why you are where you are and what you are trying to accomplish there.

Exit Strategy

When I Googled “Exit Strategy” for this post, two contexts popped up.  The first context related to exiting a building in case of a fire.  This is good advice:  When you go into a building, make sure you know how to get out of it in a hurry.  Hotels and office buildings put their escape plans up on the wall usually near the elevators.  Look for the red Exit signs.  The second context was for war:  Understand what an army’s objective is before the war starts and then get out when the objective is achieved.  This is an area the US has not done well in during some recent wars.

Investing Exit

In Investing, you can think about your Exit a number of different ways:

  • You can Exit (sell) when you have achieved a pre-set return.  Maybe you want to make 20% on a particular investment, and you do in fact make 20%.  If you do, sell!
  • Analysts typically put a price target on the stocks they cover.  You can put your own target on it.  Maybe this Biotech stock is trading at $15 and an Analyst says it has a price target of $32.  If you believe the analyst and the stock hits $32, then sell it.  Never mind that the analyst has now raised their price target to $40.
  • Believe it or not, investments can go bad.  This is a difficult Exit strategy because it involves booking losses, but you must sell investments that don’t work out the way you intended.  I use a threshold of about 7% below the price I paid for it.  If I buy a stock at $100 and it then goes down to $93, I sell it.  Stocks that are going down may easily go down a lot more.  One bad stock can tank your portfolio.  “If you liked it at $100, you’ll love it at $93!” doesn’t work as an investment strategy.
  • Another exit strategy relates to the passing of time.  For instance, in your retirement portfolio, you may say you will stay 70% in stocks until your 55th birthday, whereupon you will reallocate more to safer fixed income as you near retirement.

Tip for Keeping Track

One tip for helping to establish your Exit Strategy (as well as to rationalize why you bought the stock in the first place) is to print out a one-page chart of the stock on the day you buy it.  On the back of the chart, write down why you bought it when you did and also what your plan is to sell it.  Put the chart with your thoughts in a binder or folder and refer to it from time to time.  There is something about writing your thoughts down that makes it more real, even in this digital age.


Some people do, but most people do not have an exit strategy for the most significant aspect of their economic lives, which is their job.  I believe that by just going to work every day without a plan for why you are working there and when you are planning to leave will leave you in a rut, aimlessly in a struggle for the legal tender.  As you really should have a plan to leave your job (either through upward promotion or to another company), likewise you should have a plan as to when you should exit your investments.  The best time to do so was when you bought the stocks.  If you didn’t have your exit plan set when you bought the stock, the next best time to set up the exit plan is Now.  Please contact me if you need help setting up your own Exit Strategy.


CNBC and the other financial television networks often feature portfolio managers or analysts who discuss the merits of investing in individual stocks.  Usually, at the end of the guest’s segment, there will be a graphic that shows whether or not the guest or the guest’s employer owns long or short positions in the stocks they discussed.  This is called Conflict Disclosure.  If, for instance, the guest makes bullish comments about a company but then it is disclosed that they already own stock in that company, then the guest’s comments should be taken with a grain of salt.  However, if they don’t own the stock, then perhaps the positive comments are not self-serving.

Financial Planning

In Financial Planning, the conflict may come when the planner might get a commission directly from selling a particular product.  Often this will come in the field of insurance.  Insurance brokers are almost always paid by commission, so a conflict is very hard to avoid if you purchase an insurance product.  Commission is not a bad word as long as you understand what the commission is and to what extent your advisor benefits from the commission.


Another potential financial planning conflict happens when your advisor is paid an Assets Under Management (AUM) fee.  Let’s say your advisor is paid 1% annually of your AUM, which is a typical fee amount.  In that case, your advisor is incentivized to keep money in the account rather than move it elsewhere.  What if the best thing for you may be to gift a large portion of your assets to a child or to a family trust which may not fall under the management of your advisor?  Your advisor has a conflict.  An advisor that collects an AUM fee can still call themselves Fee-Only, so it is not as easy as just going with a Fee-Only advisor.  As with a commission, an AUM fee is not bad as long as you understand it and know that your advisor will want to keep the AUM rather than suggest it get moved out from under their management.


Conflicts are not a bad thing as long as they are disclosed.  You just need to understand what you are getting yourself into and what the ramifications of the conflicts are to you.  If you are a suspicious sort and want to avoid all conflicts, go with a Fee-Only financial planner and negotiate the fee that you are paying them up front.  Like in any other endeavor, you tend to get what you pay for, so opting for the least expensive route may not be the best option for you even though it may mean no conflicts.  As for my firm, I don’t have an insurance license and I don’t get paid a commission for products that I recommend, so I am about as unconflicted as you can get, although maybe not the least expensive.  I will collect an AUM fee if you opt to enter into an actively-managed account situation with me but the fee would only be on the money in that account.

Along For The Ride

I am in favor of the idea put forward in this article which recently ran in the Wall Street Journal.  The article’s premise is that index funds should not be allowed to vote in corporate proxy elections.

Funds and Voting

Currently, if you invest in any type of fund – mutual fund, ETF, UIT, whatever – the manager of your fund gets to vote the shares that the fund owns.  The individual investors in the fund don’t get a vote.

Active vs. Passive

If you invest in an actively-managed fund, that means that the fund manager picks and chooses which individual stocks to invest in.  Presumably, these fund managers, therefore, want to have a say as to how the companies are managed.  That makes complete sense.  Active managers, by all means, should be able to vote their proxies.

However, passive fund management is completely different.  All a passive manager is trying to do is to mimic some index of companies.  A passive manager doesn’t have an interest in how each company that makes up the index is managed – only that their allocation to each company is in line with the index that the fund follows.

If a manager of an index fund doesn’t care how an individual company is managed, why then should that manager be allowed to vote their proxy?  Just because we have one person one vote standards in other areas of society doesn’t mean we should have that same standard in corporate governance.


As index funds have grown, they have become major shareholders.  In the recently-concluded proxy battle over Procter & Gamble, ETF’s through Vanguard were the largest single shareholder, with 7.2% of the company, and ETF’s through BlackRock were another large shareholder, with 4.5% of the company, according to an article on the CNN website.  Both parties in the proxy battle, which pitted P&G against activist investor Nelson Peltz, heavily lobbied Vanguard, BlackRock, and all of the other ETF owners of P&G stock.  This gave the Vanguard and BlackRock fund managers an outsized amount of corporate power that they didn’t want. Vanguard and BlackRock, as index ETF managers, shouldn’t have had a dog in this fight.  They were not seeking to improve the management of P&G, only to own P&G stock as part of an index.  Vanguard, BlackRock and any other ETF fund owner/managers should not have been able to vote in the P&G vs. Peltz battle.

Free Riders

One of the major problems with the growth of the Index ETF phenomenon is that, the more people own stocks through Index ETF’s, the less they have an interest in keeping watch over the individual companies that comprise the Index.  Only direct shareholders have the true best interest of the company as their own.  In finance academia, this is called a Free Rider problem.  The proposal in the Wall Street Journal article that I am promoting here would greatly help to solve this Free Rider problem because the proxy vote, and therefore corporate governance, would be left only to those who have an actual interest in improving each company.  If 20% of a company is owned by Index ETF’s, for instance, management of the company should rest with the 80% of shareholders who actually care how the company is run, and not with the 20% that doesn’t care.


When you invest in an individual stock, you are acting as an allocator of capital:  You are deciding to invest in that company’s stock and not in other companies.  When you are an allocator of capital, you rightfully should have a vote as to how your investment is managed.  When you invest in an index fund, you are not allocating capital:  You are investing in a basket of companies and hoping that the tide rises for all of them.  You are not interested in the management of any single company.  As such, I believe Index investors should not have a say as to how those companies are managed.  That task should be left to individual stock investors.




What keeps you up at night?  Money problems?  North Korea?  Your most needy child?  I have chronic insomnia, so a lot of things keep me up at night.  No worries, just stuff I process.  When I took my Information Systems class in Business School (30 years ago!), we learned about the difference between Batch and Real-Time processing.  My brain Batch Processes at night, thinking about all sorts of things, most of which are positive, but it still causes me to have chronic insomnia.  At some point during the wee hours I figure everything out and I fall asleep.  My insomnia doesn’t happen every day, but it frequently does.  Despite my insomnia, I am very healthy.  I eat a lot of vegetables.

Call to Action

If money problems are keeping you up at night, then your sleeplessness may be your body’s way of telling you that you need to do something about your issue.  When I say “keeping you up at night”, I mean that you have a worry in the most general sense.  When I say “problems”, I mean issues that you haven’t yet resolved with someone else or even with yourself.  If you have something troubling you about your finances, don’t just stand there, do something!  Contact an investment advisor or financial planner (such as me or another qualified person that you are comfortable with) and they can help you.  If you are able to articulate why you are troubled, your advisor/planner can probably recommend a new course of action that will help to alleviate your anxiety.  For instance:

  • Worried that you will lose a good chunk of your savings if the stock market corrects?  Maybe you have too much of your portfolio allocated to stocks and you should reallocate into safer assets such as bonds, CD’s, or even cash.
  • Worried about caring for aging parents?  Perhaps your planner can work together with you and your parents to come up with a plan.  It is difficult to talk about these issues one-on-one with your parents, so a qualified planner involved in the process can be very helpful and can help maintain a good parent/child relationship.
  • Sick of your job, its politics, and your commute?  But you are holding on to your job because of the healthcare benefits?  Maybe you already have enough money to retire with some minor adjustments to your lifestyle.  Your financial planner can help you figure that out.


Some people are compulsive worriers.  I’m sure you know people who are if you aren’t yourself a worrier.  When it comes to personal financial issues, help is readily available.  Can’t afford a financial planner?  I bet you can – there are a lot of planners out there with all kinds of different compensation models.  Planners are not as expensive as you may think that they are.  Don’t be a victim, and don’t continue to suffer insomnia caused by financial issues.  Easier said than done, I know, but, as someone has already probably told you about a health issue, you really should get that taken care of.



Tempting as it is from time to time, it is very difficult to make money consistently by selling short.  William Ackman, famous hedge fund manager and head of Pershing Square, his firm, is the latest example of how difficult it is.  Ackman recently covered his short position that he has had for 5 years in Herbalife.  A recent Wall Street Journal article revealed that Ackman originally shorted Herbalife in 2012 at about $47/share.  Herbalife traded at $92 when the article was published.  When you sell something at $47 and then buy it back at $92, that’s not good.  The Article didn’t conjecture as to how much money Ackman lost, but “$1 Billion Bet” is mentioned, so the loss was huge.

Ackman is not the only short seller to have fallen on hard times.  David Einhorn of Greenlight Capital, who wrote a book on a great short deal he did, has also had a tough go, as his fund has fallen by several Billion dollars in recent years.  Same with John Paulson, who famously made the bulk of his fortune by shorting the mortgage market during the mid-2000’s.


It takes a certain personality type to be a good short-seller.  Pessimistic, negative, curmudgeonly, and cranky are adjectives that come to mind.  Maybe skeptical is another.  Short-sellers don’t like any new innovation that looks to be over-hyped or overvalued.  Do you know anyone like that?  Maybe you are like that?  Are you or they like that all of the time?  That’s how you need to be in order to be a good short-seller.  You know, the type that 20 years ago said that the Internet would never amount to anything.  Or the type that has said Amazon stock is always overvalued because it doesn’t generate positive earnings, as it has risen to $1,500/share.  Currently, you have another famous shortie, Jim Chanos, saying that Bitcoin is worth $0.

Have you ever encountered a company or a business and thought, “This company is terrible.  It’s a short!”  The next time you do that, if you don’t actually short the stock, write it down and note the stock price at that time.  Then, one year later, check to see if you were right.  Most likely, though maybe the company didn’t knock it out of the park, it probably didn’t go down.  For instance, for the past several years I have thought Restoration Hardware (RH) has been missing the mark.  We get their giant catalogs, beautifully photographed, in the mail a couple times per year.  Who sends out catalogs in the mail, especially has huge as theirs are, in this Internet age?  RH has other problematic issues as well, in my opinion.  Well, I have been wrong.  RH peaked at over $100/share in January 2018 before falling back a bit.  Perhaps it hasn’t matched the performance of Amazon, but RH has at least gone up.  Glad I never actually shorted the stock.

Market Indexes

It is also difficult to make money shorting market indexes, such as the S&P 500 Index.  Put simply, there is a lot more investor money out there betting that the market will go up than there is betting that the market will go down.  For instance, everyone’s IRA’s or 401K’s are invested in Long funds, meaning they buy stocks thinking they will go up.  You may be skeptical about the market’s future potential because you read that the market’s overall P/E ratio is higher now than at any time since the early or mid-2000’s, but there is still a lot of upward pressure on the market.


If you don’t like a company, or even an entire market situation, rather than to sell it short, it is better to avoid it and to invest your money in other asset classes.  For instance, instead of shorting the market, keep your money in cash, or put it into bonds or even in the bank.  At least you won’t lose money that way if you are wrong.  If you short something and you are wrong, you can lose a lot.  Keep your assets in a safe place and you won’t get burned.

Destination or Journey?

It doesn’t appear that there was ever a rock band called Destination, but Journey was great a couple of decades back.  Steve Perry and the guys from San Jose, CA.  However, this blog post isn’t about music.  Instead, it is about asking a basic question of life:  Is life about the Destination or is it instead about the Journey to reach the Destination?  Are you a Journey person or a Destination person?  Do you enjoy the process and the time it takes to achieve a goal, and do you learn from what happens along the way?  Or do you just want to achieve your goal, and you don’t relish anything that gets in your way of achieving your goal?  Your answers to these questions may help you determine how you invest your money and how you plan your financial life.


If you are a Destination person, you just want to get there.  You won’t enjoy the plane ride to Hawaii – you just picture yourself on the beach in Maui sipping a Mai Tai, and you will put up with what it takes to get there because the Destination is overwhelmingly beautiful and worth it to you. A Destination person is goal-focused.  You will do whatever it takes to achieve your goal.  As an investor, a Destination person will set a goal of, let’s say, earning a 10% return, and they will do whatever they need to achieve their 10% return.  Destination investors also tend to be better Value investors.  Warren Buffett can be seen as a Destination investor:  He sees the untapped value in an investment, buys it for what he considers to be a fair price, and doesn’t waver in his conviction over time as “Mr. Market” says the value isn’t what Buffett believes it is.  The Journey can be a challenge to Destination investors because daily trading is constantly telling the Destination investor that they are wrong.  That’s one reason why Buffett is considered to be one of the greatest investors ever: because he doesn’t let Mr. Market influence his conviction.


Ralph Waldo Emerson coined the phrase, “Life is a journey, not a destination.”  A Destination is a point in time, whereas a Journey is a continuum of points in time.  What does that mean for investing?  The Journey is every day the stock market is open for trading.  We can be up 300 points on the Dow one day, and, as we have just experienced, down 1,000 points the next.  As an investor, even if you are a goals-focused Destination investor, you need to learn to tolerate, and even love, the daily journey.  The key work in the phrase “Journey Investor” is the second word – Investor.  It implies that you are in it for the long term.  A Journey investor may not be as end-result oriented but will learn from their mistakes along the way.  A Journey investor will still most likely have a goal that they are trying to achieve, but they may be more amenable to shifting that goal as the market plays itself out and as their own values and tastes change as they grow older.


So which is better as an investor, Destination or Journey?  I’m not going to fudge here.  Purely as an investor or investment manager, it is better to be a Destination person.  Eyes on the prize at all times is the best way to make money in the market.  Don’t worry what the market tells you from day to day because at the end of the day you know your analysis of your investment will be proven correct.  However, for life balance?  It is definitely better to be a Journey person.  Many of the very best investors are admittedly not the most balanced people.  They are often workaholics with an Ahab-like obsession to make money.  Not that I would compare Warren Buffett to Captain Ahab because Buffett comes across as a pretty balanced guy, with his charity work and his bridge playing.  But there is only one Warren Buffett.


I have one child currently in college, and I personally know many children who are currently Seniors in High School.  Those who are Seniors currently have either already heard from the colleges to which they applied, or they are about to hear in the next couple of weeks.  Anxious but exciting times for those Seniors and their parents.

Why Go?

Michael Kitces is a well-known CFP Professional and prolific blogger.  Kitces recently posted an article titled, “Why the Best ROI On College May Be For Those Who Would Have Been Successful Anyway”.    

Hopefully, you can read the linked article.  Even if you can’t, I will summarize and comment on what it says.

Why go to college?  The Kitces article says there are 2 good reasons:

  • The “Human Capital” rationale is that children go to college to develop their own personal skills and knowledge.
  • The “Signaling” rationale is that completing college signals to employers that the student has the skills to compete in the real world, the perseverance to complete the degree program, and the conformity to work through the bureaucracy therein.

These two reasons are not mutually exclusive and there are elements of truth to both.

Is College Worth the Cost?

It is no secret that the cost of college has exploded.  One chart in the Kitces article shows that the cost of college has increased by about 1100% since 1980, whereas CPI has increased by about 200%.  If you pay retail, it is easy to spend over $60,000 per year at a private college.

The Kitces article shows that college is worth the investment under some criteria but not in all cases.  The following is a summary taken from the article:

  • Strictly from an ROI standpoint, private college is likely not worth the investment if the student otherwise can go to a top in-state university.  The bump in salary you get from the diploma makes more sense the less you paid for the diploma.
  • The worst thing to do is to start college but drop out before completing the degree.  Completing “some college” but not getting the diploma does not correspond to a bump in salary post-completion.
  • The article segregates students into 4 basic abilities:  Excellent, Good, Fair and Poor.  There are different likely outcomes for each.
  • Excellent students – those who are likely to complete their Bachelor’s and possibly their Master’s degree – earn the best ROI from college.  They are the ablest.
  • Good students earn a lower ROI, and on down the line to Poor students, who the article says should not go to college.
  • The most important determinant of low ROI, according to the article, is the cost of attending some college but dropping out prior to getting the diploma.  The less “excellent” the student is, the more likely they will drop out.
  • Poor and even Fair students should opt for apprenticeships or trade schools, or perhaps the military, instead of college.  Parents should not force poor students to go to college.
  • The blanket statement that “College graduates earn x% more than high school graduates” is not relevant because the pool of kids who are going to college are likely more skilled and abler than are the pool of kids who aren’t going to college.
  • A student’s Major in college is important – engineers make more than art history majors – but not as important as just finishing and getting the diploma.


I believe a college education has become far too expensive, prohibitively so for many families.  Yet, there seems to be even more pressure, social and otherwise, on kids to go to the “best” college they can, public or private.  I think the social pressure needs to work in exactly the opposite direction.  Trade school and apprentice programs – learning to work with one’s hands – needs to be elevated and more esteemed in our economy.  There is a labor shortage in the current economy that is most acute at the trade level.  Some kids aren’t cut out to go to college.  If your’s is one of them, don’t send them to college.  Moreover, the path of going to community college and then on to state university also needs to be elevated.  Employers that are currently “selective” as to the colleges from which they recruit need to be less so because a lot of Excellent students can’t afford the “selective” colleges.  Lastly, as a sports fan, all of this is not good news for the NCAA, because so many “student-athletes” aren’t at college for the “student” aspect of it.  LeBron James just made headlines for calling the NCAA “corrupt”, and I think a lot of the corruption stems from trying to maintain the “student-athlete” facade against the reality that a lot of the athletes were never meant to be students.  “One and Done” is a joke.


President Trump on Thursday, March 1, announced that he intends to impose a 25% tariff on all steel imports and 10% on all aluminum imports.  Equity markets hated the announcement – the Dow Jones Industrial Average fell about 500 points immediately after the news.  I don’t like it, either.  Let me explain why I think these tariffs may be harmful to the economy.

Steel and Aluminum

The can is only a small percentage of the cost of a six-pack of beer, so beer (and soda) drinkers probably won’t notice much of a price increase, nor will demand suffer much.

The larger issue is with steel.  Every construction project uses steel.  The cost of President Trump’s proposed multi-trillion dollar infrastructure bill just went up.  The debt financing that will need to be raised in conjunction with the new infrastructure just got more expensive, meaning they will have to pay higher interest rates to place the debt.  The cost of autos just went up.  The cost of tractors and other farm equipment used to plant and harvest your food just went up.  Even if the steel is made in the US, its price just went up.  Everyone will pay more for stuff, especially big stuff, because steel became more expensive.  Maybe some jobs will be saved in steel plants, but others may be lost in other sectors, and there will be a cost to everyone else in the US.

Low Unemployment

At the same time, the US Unemployment Rate is 4.1%.  This is not historically low, but it is lower than it has been in many years.  Traditional Economics teaches that tariffs aren’t typically a good idea, but if a tariff is to be imposed, it should correspond with high unemployment in the target sector, not low unemployment.  The timing of this new tariff thus doesn’t make economic sense.

When Unemployment has been this low in the past, wages have tended to rise.  A Wall Street Journal article today by Greg Ip shows how the sub-4% Unemployment rate of the late 1960’s led to higher inflation into the 1970’s.  So far, wage growth has not been strong.  Could this new tariff be the tipping point?


What I am getting at is that the real danger with the new steel and aluminum tariff is that it could lead to higher inflation, which the stock and bond markets don’t want to see.  Other factors out there also could point to inflation, including the following:

  • Higher interest rates, which spooked the markets in late January and early February.  10-Year Treasury rates moved from the low-to-mid 2%’s up to just under 3%, and are now at 2.82%.
  • The new tax law is bullish, especially for corporations.  As they grow, they will need to hire new people in the 4.1% Unemployment environment, which means wages could go up.
  • The Dollar Index fell over 10% during 2017, meaning that imported goods cost 10% more in US Dollar terms.  Treasury Secretary Mnuchin has stated his desire for a “weaker Dollar”, although he retracted his statement to some degree.  The current Administration is not unhappy with the lower Dollar Index.  One way to look at it is the 10% lower Dollar plus the 25% steel tariff means that imported steel will now cost 35% more than it did at the start of 2017.
  • Now we have this new Tariff.


Perhaps this Administration wants higher inflation.  Their actions, achieved and stated, point in that direction.  High inflation didn’t work for the Nixon Administration, and, if it transpires this way, it won’t work for the Trump Administration.  There are a lot of countervailing forces that could inhibit inflation – the economy and the workforce is much more global now than it was during Nixon, and capital allocation through financial markets are more quick to react.  President Trump himself touts stock market performance as a proxy for the popularity of his own policies, so he may change course if the markets tell him that he’s wrong.  I don’t know if we will eventually see higher inflation, at least at a level north of 2%, but I do strongly believe that tariffs hurt a lot more than they help and they can lead to higher overall inflation.