In light of recent tariff and Geopolitical events, We’ve decided to begin publishing a short piece every Monday to discuss what we think we will be doing to navigate the recent crash and eventual recovery. We have a history of being both supportive and critical of any politician or perspective, so the commentary below not intended to be a comprehensive statement or endorsement any politician, candidate or platform. Please be aware that we will need to avoid publishing certain details for compliance purposes, but are happy to discuss any of the comments with you in the specific context of your account.  

We manage the account on your behalf.  That means that we are making adjustments, increasing/decreasing cash & cash investments, making portfolio decisions and carrying the stress of market turmoil on your behalf.  We love to hear from you about your needs (and feedback), but please don’t feel the burden of managing your portfolio.  Obviously, this note is for client’s of CoCreate, if you’re not a client of our firm consider reaching out to see if we can help you enhance the way your accounts are performing in this environment.

Also, publishing about the week ahead is a difficult task and some or all of the things we say may change or play out completely differently than we expect.  Regardless of short-term market fluctuations, we will remain disciplined and committed to following our time-tested approach.

Weekly F.A.Q. (maybe not with the “F”)

Will the issues we’re experiencing now affect my long-term financial plans?

This depends on your particular situation and a variety of factors:

• When you’re needing to withdrawal (or perhaps make extra contribution when the markets are low)
• How adaptive your distribution plans are
• If you’re in a portfolio producing a rising stream of income or if you are only able generate income by selling investments even if they are down in price (hint: all our portfolios have long histories of creating rising income through dividends).
• Whether you are withdrawing income at a reasonable rate (or are expecting to do so) or are spending in a way that is unsustainable.  We are generally quick to tell our clients who are over the withdrawal rate we plan for that they won’t be able to do this for the long-term.

What’s going on presently is, unfortunately, real.  Often, our response to various events and headlines is that they are just “noise.”  The issue with tariffs is that they will actually affect business profits, consumer purchasing power, and supply chains once they are implemented.  These aren’t transitory phenomena.  They will effect portfolio values negatively and then growth will resume.  The question on both sides is: how much?  The markets may have already accounted for the potential issues or they may have additional declines in the process. 

Our long-term forward projections are called Capital Market Assumptions.  These “CMAs” are how we estimate long-term returns.  When Covid hit, we expected to see slower growth for a number of years to come because the stimulus packages were inflationary and (as stimulus always does) borrowed from future growth to enhance the present situation.  The Covid economic recovery is actually still playing out and is likely still in its adolescent stages.   The trade-shifts and tariffs will be another adaptation to these Capital Market Assumptions. 

We have begun updating our client’s financial plans and hope to connect in detail with everyone this year for a more comprehensive update than usual.  With the updated information, we’ll be able to apply changes to our long-term projections and get a good idea of how they will affect each of our clients.  The good news is that unless we’ve already been telling you your withdrawals may not be sustainable, we’ve designed your plan-portfolio pairing to accommodate for situations like these.  Also, by being on the front-end of the situation, small adjustments to a financial plan can lead to significant improvement over time.  IF one of your goals does appear to be at risk, it can likely be addressed with a small, manageable adjustment if we don’t wait until it becomes a crisis.

A few notes about last week’s events:

Last week was relatively un-eventful compared to the previous weeks, giving us the breathing room to do much of our normal investment management work.  Last weeks economic/political events included the beginnings of “productive” (“?”) trade negotiations with a number of other countries and escalation of problems with China.  China’s actions included ban on a number of US imports (including the return of Boeing 737 deliveries), as well as a ban on the export of rare-earth minerals to all other countries.  “rare earth minerals include everything from magnets to lithium for batteries to Uranium.  China produces 60% of the world’s supply of these minerals so the ban will have a meaningful impact on global supply chains.  Much of the process of bringing industry back to the US, or establishing it in a different location will take many years.  Much of China’s Xi Jinping’s top priority will likely be preserving the dominance of the current political regime in China despite the intense recession they have been experiencing.  Xi Jinping’s visits around Southeast Asia didn’t appear to be as fruitful as he would have hoped, hence the complete ban on rare-earth minerals (an attempt to block reallocation of supply among different trading partners such as Vietnam).  We can assume that this response is positive for US negotiations as we remain the preferred destination for exports. 

The other noteworthy event was Federal Reserve chair Jerome Powell made a statement that declared there would be significant “uncertainty” from the tariff policies and lack of clarity in the rollout.  His statement announced that they would not be lowering interest rates until there was more certainty about what these would look like going forward.  President Trump, who is not a fan of his appointee, Powell, took issue with the statement.  The Economists we follow are mixed in their sentiment about this move, and several say that Powell’s Fed will have no option but to lower rates in June based on their dual mandate to manage stable currency value and low/reasonable unemployment.   We haven’t been crazy about Powell around our office, particularly because the Fed didn’t really even try to mitigate the Covid-stimulus-caused inflation until it was far too late.  Mostly it was because they either didn’t understand that inflation is excessive money-supply (both Democrat and Republican caused), or because they were simply dishonest with themselves and the public about their own power to manipulate the economy.  That being said, I believe this was the right move for Powell.  He is being cautious and cognizant of the inflationary effect of tariffs.  It also applies pressure on the Administration and we are firm believers in checks and balances within government are a good thing.

Our week consisted of our monthly deep dive into the investments we own in client accounts.  We can’t get too specific in a newsletter for legal/compliance reasons that would limit our ability to be flexible and adaptable in client accounts, but overall, we are quite happy with the mix of investments.  We look at and discuss a number of factors in this process including price action, financials (earnings, profit, assets, etc.), changes in management and product demand, and review what a variety of research analyst are saying.  We also rotate through various processes on a quarterly basis. This month we pulled a report card to measure our diversification using the “correlation coefficient” of each investment.  The correlation coefficient is essentially how frequently one investment moves in the same direction as another.  Our conversations also focused on potential outcomes from tariff policies.  Because we engage with these investments regularly and look for weaknesses or risks, the investments in our clients accounts have been very healthy going into this season and their financials and dividends remain strong.  If any of you would actually like to speak in detail about this process and your portfolio, we’re more than happy to talk through it.

On to this week’s playbook

I’m really grateful for the feedback from all of you who are reading this.  I had been considering how long to continue a weekly market update, but since a number of you are finding this helpful, we’ll continue to do it for longer.  The caveat, I would ask each of you reading this to be careful not to follow the markets too closely.  It’s potentially a very dangerous activity for those of us who are long-term investors because we generally will want to move one way or the other when what we need to do is simply stand our ground.  I would much rather have you ignore these emails than take that risk, so please know yourself and send these straight to your trash bin if they make you more nervous or tempt you to be overly tuned in.  You pay us to carry the day-to-day burden of managing your investments for you and we’re completely ok if you want to tune-out until things turn around.  (if you’re a client, please don’t unsubscribe because you’ll miss important logistical emails if you do.  Just reply to this email and I’ll take you off this particular list)

This week, we’ll be continuing to watch for policy developments and to watch corporate earnings announcements.  On the policy front, I expect that it will remain nearly impossible to determine what will happen next until whatever it is takes its final form.  If you read Trump’s book The Art of Negotiation, his first step is to create an extreme demand, the second is to create confusion by establishing many different and complex negotiating points while rapidly shifting from one to the next.  It seems that we are in this stage with international trade policy.  We will continue to watch this develop and respond in real time while exercising appropriate levels of patience and diligence.

We expect Corporate earnings to be a misdirect.  The first Quarter earnings won’t account for much of the trade issues we are experiencing because they were announced on April 2.  We believe that markets will take some comfort in reasonably strong earnings results.  We also expect significant adjustments to forward expectations as companies announce their assessment of the economic situation.  Most companies have prepared at least rudimentary plans to adapt and will probably announce much more detail on their earnings calls.  We expect markets to overreact to these announcements, possibly in both directions depending on whether the announcement is better or worse than consensus expectations.  When this happens, the right thing will be to wait to react until the dust settles. 

I hope you have found this insightful.  We will continue to publish the Weekly Playbook as long as it makes sense to do it.  In order to keep from spamming you, we may not always send it by email, but will certainly post it on our website at https://cocreatefinancial.com/ and in your client portal’s newsfeed.  We double down on commitment to stewarding your investments and financial plans with diligence and integrity when the economy and markets are turbulent.  Thank you to all of you who have trusted us to do so on your behalf.

Also, this may be the last time I try to begin writing at 4:00AM on Monday. As the news settles and there aren’t major changes happening throughout the weekend and in the first hours of the day, There may be some more room to get it out on a more reasonable schedule.