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Trade Wars? What could this mean for the markets?

Is it part of “The Art of the Deal” a ploy to help negotiate better trade terms with China or is it the beginning of an all-out trade war.  The President announced tariffs on steel, aluminum and China countered with tariffs on U.S. farm products.

The Fed Weighs In

For over a decade, since the financial crisis, the Fed monetary policy has been supporting growth or “accommodative”.  At the recent March meeting, “some” members indicated it might become necessary to change statement language to acknowledge that “monetary policy eventually would likely gradually move from an accommodative stance to being a neutral or restraining factor for economic activity,”  “All participants agreed that the outlook for the economy beyond the current quarter had strengthened in recent months,” the minutes said.  The Fed is talking about slowing down the economy.  However, “There have been few historical examples of expansionary fiscal policy being implemented when the economy was operating at a high level of resource utilization,” the minutes said.  Further, “Participants did not see the steel and aluminum tariffs, by themselves, as likely to have a significant effect on the national economic outlook, but a strong majority of participants viewed the prospect of retaliatory trade actions by other countries, as well as other issues and uncertainties associated with trade policies, as downside risks for the U.S. economy,” the minutes read.  Are we headed for unchartered waters?

Is Volatility the New Norm?

In the first quarter of 2018 markets have experienced a greater amount of volatility than in 2017 and markets may remain on edge and be susceptible to more periods of uncertainty in the coming months.  Many investors often are itchy to make moves in such volatile environments.  “The American ethic, or probably Western ethic, is that hard work equates to better outcomes,” Columbia Business School professor Michael Mauboussin pointed out in 2011. “That’s not always true in the world of investing.”  What is Central Carolina Community Foundation, with an endowment of over $108 million, to do?

Don’t Panic, Stay the Course

As we continue into 2018, amid much uncertainty, speculation, shouts of “fake news”, and other noise, it seems that a piece of advice from Vanguard’s founder John Bogle may be prudent.  Bogle said “My rule — and it’s good only about 99% of the time, so I have to be careful here — when these crises come along, the best rule you can possible follow is not “Don’t stand there, do something,’ but ‘Don’t do something, stand there!'”.  Here at CCCF, we have chosen to align ourselves with such thinking as we are investing our endowment for perpetuity.

As the saying goes April showers lead to May flowers, so rather than frantically trying to avoid the storms of the markets that may come and go suddenly, we will pause and focus on the steady, distant horizon rather than the ever changing scenery of the immediate season.

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