Tariffs, International Trade and Game Theory

  If you were in charge… If you oversaw your own country, what trade policy would you pursue?  Would you be friendly and cooperative or unfriendly and betraying?  Maximizing your country’s payoff may be more difficult than imagined.  Game theory can be used to measure success and failure.  It can also validate just how hard it can be to strike the right balance and allow both trade partners to win.   The prisoner’s dilemma… The current trade and tariff dialogue between the U.S. and China is essentially a repeated prisoner’s dilemma – a workhorse model of game theory that captures the tradeoff between mutually beneficial cooperation and individually beneficial betrayal[1]. If played once, there is only one outcome where neither side can do better with a different strategy: both sides betray one another.  While unfriendly, the mutual betrayal results in equilibrium or balance.  The shortfall of playing one time as if there is no tomorrow, is that trading partners have an infinite number of days in which to trade goods. If prisoner’s dilemma is played multiple times, even infinitely, game Read on! →

Fireworks to Celebrate the mid-point of 2017!

  As I write this commentary at the mid-point of 2017, the markets have made steady progress in the first 6 months despite what has been an unpredictable and often concerning geopolitical environment around the world.  I often tell clients and interested parties that unexpected events can have an impact on markets but they are generally short-lived.  At the end of the day, the markets go back to being influenced by companies and their profits.  That seems to be the case so far in 2017 as we get ready to celebrate with July 4th fireworks, even though every week is filled with news about our partisan politics or the latest terrorist incident.   In the U.S., the Federal Reserve (Fed) made good on raising interest rates.  Unemployment is low, workers are producing goods and services and financial markets have responded in-kind.  While somewhat different economic factors are in play, most overseas’ economies and financial markets are outperforming the U.S.  Even bonds, an asset class most felt would lag as the Fed raised rates, have done well on a relative basis.  Read on! →

What is “VUCA” for Dow 20,000? – A Message from the Pulpit

Being a fairly regular attendee at church, I enjoy the reflection that comes from listening to our Clergy explain the liturgy in ways that tie our lives, habits and values to what is happening in the world around us.  As with most large groups, I expect how the message is interpreted and acted on varies widely within the congregation.  As our democracy embarks on a new period of its long evolution, concerns are at a crescendo and opinions on the outcome of issues are not always positive or optimistic.  Under this backdrop, our Rector gave what I believe was a thoughtful sermon on how to put the current state of affairs in context while offering ways each of us could move forward in a caring, positive way as individuals.  That should not come as a surprise given the role Clergy play in our communities.  What might come as a surprise and at the risk of being accused of not paying attention, I couldn’t help but make a connection between the sermon’s foundation – VUCA – and what happens every day in Read on! →

MARKET-VIEW 2ND QUARTER 2014

Portfolio Recap The 2nd quarter was marked by very low equity market volatility and steady, positive performance across all major indices.  Our diversified approach to managing investments continued to focus on limiting downside equity risk through a bias for value-oriented, high quality, dividend paying domestic and international equities.  In the short term, volatility and potential for loss has been further mitigated by allocating fewer investment dollars to US Small Cap stocks.   They have experienced significant gains over the past several years and in our opinion, have been richly valued for quite some time.  This is why we reduced our positions in the latter half of 2013, well in advance of Fed Chair Janet Yellen’s remark about the category valuations being stretched. Hybrid investments, led by preferred stock, global bonds and energy infrastructure, had a strong quarter validating our belief the asset class can perform well during strong equity markets.  Our consumer-focused emerging market investments slightly under-performed during the quarter but exceeded our expectation on a risk-adjusted basis.  Despite headwinds created by the Federal Reserve’s plan to stop tapering and end Read on! →

Spring Thaw

The weather is finally starting to turn, and economic data is returning to a more trustworthy state.  It’s early however and first quarter earnings season is just beginning as well.  Expectations are relatively low, in large part due to the weather, but there is increased interest in forward guidance which could be the catalyst for the next move in the market.  With corporate confidence improving and some fiscal concerns receding, we expect a relatively optimistic, yet cautious, tone to prevail. On the economic front, both versions of the Institute for Supply Management’s (ISM) surveys showed improvement.  The Manufacturing Index rose while new orders encouragingly increased.  The Non-Manufacturing Index, representing the larger service side of our economy, showed a nice gain with the employment component having the largest gain.  Auto sales appear to be rebounding from a weather induced pause, indicating that consumer demand is still decent and confidence is improving.   The Leading Economic Indicators Index (LEI) rose in March, the most in four months, and above consensus estimates. Six of its ten components made positive contributions indicating widespread strength among Read on! →