Unchartered Territory

As I watched markets such as 30-year US and UK Treasuries plummet on Wednesday night it was becoming clear that if Trump followed through as publicly proposed something in the global economy would soon break. It was concerning because without a pause or some kind of intervention, an economic or financial catastrophe was brewing. Whether it was part of his plan or due to pressure from within the Republican Party, he paused and provided the circuit breaker the market needed. It still appears to me, as I outlined last week, that there are two parts to this. It is negotiation in the short term and a strategic repositioning of the US in the long term.

While many are calling Trump pausing most tariffs for 90 days a ‘backflip’ I expect this was part of the plan. Push as hard as you can and at the point at which it looks like something in the system might break hit pause. One of Trump’s advantages in negotiations is his perceived unpredictability. I'm not sure his tactics are a great way to run a country or create stability but purely from a negotiation standpoint it’s effective. The world cheered as he hit pause but in one fell swoop, he set the minimum and maximum parameters and deadline for each country ahead of negotiations.

I'm not pro or anti-Trump in this view; I’m simply looking at it as objectively as I can. My observation is that the anti-Trump camp tends to underestimate him while his supporters tend to overestimate him. I pay attention to what he says and does but also what he doesn't say and do. There are patterns and a method to his madness. He uses hyperbole and misinformation to his advantage, and it keeps people uncertain, so they don’t know what to expect and can't get comfortable. You don’t know if he’s telling the truth or bluffing. You can’t be sure about anything. But that is how he negotiates. All of this gives him control of the negotiation.

With many moving parts to digest and many variables we either don't yet know or don’t know how they will interact. On top of all that at any moment the situation can change, and the goalposts can move. Trump could decide without warning to remove or exempt a country from tariffs. He could extend or truncate the pause in tariffs. Central Banks around the world could start dropping interest rates. The outcome of the escalating trade war between the USA and China will be pivotal. China could adjust its currency or retaliate in an unexpected manner. We don’t know which countries will retaliate, compromise or give in. At any point, there are weaknesses within the global economy or financial markets and these developments can apply additional stress.

There are mixed views on how this all plays out for the global economy. While tariffs are inflationary, they are also likely to negatively impact economic growth. Central banks will soon have to make a very tough choice to make. Do they raise interest rates to fight inflation and potentially destroy the economy or do they cut interest rates to save it and risk adding fuel to the inflationary fire? Unless inflation is running out of control, I believe that a slowing economy will be seen as the biggest pain point, and in the face of an economic slowdown Central Banks will choose to cut interest rates to stimulate the economy and deal with the consequences of high inflation later. There is a long way to go, and patience is key to taking advantage of opportunities as they unfold.

Vladimir Lenin famously said, “There are decades where nothing happens, and there are weeks where decades happen.” As this situation continues to unfold and eight decades of trade agreements are upended, it appears that this is one of those times. This is all unchartered territory. I watched an interview with the legendary investor and founder of Oaktree Capital, Howard Marks where he said this is the most significant change he has seen in his illustrious 5-decade career. When someone held in such high esteem in the investment world makes a comment like that, it’s worth being mindful that this is a significant moment that should not be underestimated.

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

The Art of the Tariff

There are a few layers to the tariff conversation that are worth elaborating on given the recent ‘Liberation Day’ tariff announcements and the subsequent share market reaction. Firstly, there's no scenario where you introduce tariffs, and it directly results in better global growth. This is not a positive for the global economic outlook. The share market and company share prices are falling because the prospect of sustained tariffs and potential trade wars are negative for economic growth and business conditions. Investors are no longer under the illusion that Trump is just posturing.

By applying tariffs across the board, he has laid the foundation for every country to effectively renegotiate their existing deals on his behalf and make a better offer. So, in the first instance that is an efficient way to conduct a bulk negotiation. Much simpler than going from country to country one at a time. The tone has been set. Some countries are more in need of the US than others and more amenable to doing a deal. I expect those countries to be rewarded and highlighted to set the tone. Others will simply be opportunistic. Those who retaliate will be penalised.

His policies are changing the shape of global alliances. Europe understands that they can no longer rely on the US and will massively boost defence spending. When there is someone else to do the heavy lifting others will happily take a step back. But once there is not then they become surprisingly capable. So, Europe will be okay with or without the US. The implications here are far reaching and bring into question the USA’s willingness to help allies who have always assumed that they have the US protection if needed. That extends to Australia too.

Prioritising the USA’s national security is more real than ever. The initial phase of the decoupling from China in the USA supply chain saw a range of nations such as Vietnam benefiting. Suddenly imports from China fell and the US was importing more from Vietnam. It looked like the risks in the supply chain were being addressed. But simultaneously Vietnam was importing more from China. There was merely an extra link added to the chain not a new chain. The aggressive tariffs on placed like Vietnam indicate that the US is not only aware of this but very serious about genuinely decoupling from China.

Part of the complication is that the tariffs create far reaching implications across every aspect of the global economy. It will take some time for the consequences to be understood and for the second and third order effects to flow through. These areas range from manufacturing and jobs in the US to the redirection of investment capital across the world. There will be impacts on interest rates, inflation and consumer sentiment. I have concerns about stagflation in the US as this plays out.

The rise of anti-USA sentiment across the world will have an economic impact too.  Travel from Canada to the US is down 70% since the introduction of tariff talks. Will Canadians stop buying US cars like Fords and Teslas? Quite possibly. But will the rest of the world stop buying McDonalds or Coca-Cola? Will they stop using Facebook or Microsoft? I think that is unlikely. However, investors need to consider the implications of all these issues on a case-by-case basis.

Trump’s approach is all about extracting better trade outcomes for the USA in the short term and national security and strategically positioning the USA in the long term. This is all about the USA and the USA’s position in the world in the years ahead. The Trump Administration is clearly of the view that where a country benefits from engaging with the US economy then there is a price to pay to participate. When it comes to defence rightly or wrongly, this is also their attitude. As Winston Churchill once said of the US back in World War II “You can always rely on the USA to do the right thing after they have tried everything else."

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

Are your dreams big enough?

I remember many years ago when I was a kid sitting around the dinner table and the family discussion turned to what you would do if you won $1m on lotto. It was always fun imagining what we would do with our newfound fortune. We were talking about buying houses, going on a holiday, selecting a new car, and giving money to our closest family and friends.

But after some quick calculations, it was clear there was not much imaginary lotto money left. Suddenly we were reducing the amount we were giving to family and friends, getting a cheaper car and scaling back the holidays. There was a major problem, but it was not a financial one. It was clear to me that even in our dreams of winning the lottery we had self-imposed financial limits.

I remember saying to mum and dad, “Why don’t we just pretend we won $5m or $10m?” Everyone stopped for a minute and recalibrated. We were rich again now and there was more than enough to go around. That conversation stuck with me for the rest of my life and had a profound effect on my mindset. It was a great insight into the way people limit themselves. It made me realise that if people think like that when they dream, how limiting must their thinking and expectations be in everyday life?

Admittedly, Australia often isn’t the best place to cultivate big ambitious thinking. Tall Poppy Syndrome is alive and well. We love it when people have a go but not when people get too big for their boots. We like people to do well but not too well. I guess it's why we are the ‘lucky country’ and not the ‘massively ambitious overachieving country.’

Too often people with big dreams are discouraged by well-meaning family and friends who haven’t succeeded in achieving their dreams. We limit ourselves to smaller goals because they are more acceptable. If our goals are big, we feel self-conscious about sharing them. I think we learn that at an early age and stop dreaming big and eventually forget how.

For any young people out there, if you have a big dream go for it. But don’t waste time. Don’t get caught up in talking about it. Pursue your dream relentlessly until you make it happen. Don’t do it to impress anyone or do it for anyone but you. Life is too short to spend chasing a goal for someone else.

For any older people out there, if you have a big dream, what’s stopping you? It’s easy to become shackled within the confines of everyday life, especially once you have kids and responsibilities. But life is short and there is no better time than now to start planning to do what you’ve always wanted to do. Find a way to start working on it now so you don’t regret it later.

So next time you hear someone talk about a crazy big dream that makes you raise your eyebrows, why not take a moment to wish them well and remind them to go all in and enjoy the journey ahead. It might just be the encouragement they need at the right time to help them, on their way to becoming the next champion athlete or business success story.

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

The Wisdom of Poor Charlie’s Almanack

I have often talked about the wisdom of the world's best investor, Warren Buffett. However, his business partner, Charlie Munger, while less famous, is equally wise and humorous. There are so many great insights to be gained from Charlie Munger who passed away in 2023 at the age of 99. Poor Charlie’s Almanack is more than just another business book. The book is a no-nonsense guide to thinking, making decisions, and living life.

1. Rationality

Munger was obsessed with rational thinking. He’s all about using logic, not impulse, to drive decisions. The trick is knowing your biases—like confirmation bias, where you only look for information that backs up what you already think, or availability bias, where you overvalue info that’s easy to remember. These little traps can badly impact your decision-making, but if you can identify them early, you can make far better decisions. Slow down and think rationally so you don’t let excitement or fear dictate your moves. Rational thinking can be the difference between success and failure in any part of your life.

2. Patience

In today’s world of instant gratification, patience can be both rare and difficult to have. Patience isn’t just for investing; it’s a life skill. Whether you’re building a career, a business, or a personal relationship, the key to success is often hanging in there long enough to see it through. Patience doesn’t mean sitting still, it means waiting for the right moment and making the most of it when it arrives. Munger talks about the power of finding a great business or opportunity and holding on for the long term, watching it compound over time. The same applies to everything else in life.

3. Consistency

It’s not often the smartest or most talented person who succeeds, it’s the one who shows up day after day grinding it out. Munger is a huge advocate of consistency and discipline. Success is about being disciplined enough to repeat what works and avoid what doesn’t. It’s about making the right decisions again and again, even when the excitement fades. Munger isn’t talking about perfection; he’s talking about steady progress. It’s boring, but it works. It’s a key factor in long-term success, regardless of your field.

4. Don’t Get in Your Own Way

We all have flaws and Munger often talked about his. But he was also quick to point out that the most important skill you can develop is learning to avoid self-sabotage. Whether it’s overconfidence, laziness, or just ignoring good advice, making the same mistakes over and over is a sure way to fail. Munger doesn’t just encourage people to avoid these behaviors—he pushes people to understand their weaknesses, face them, and actively work to get better. It’s not about eliminating mistakes, but about minimising them by learning from past errors and being brutally honest with yourself.

5. The Multi-Disciplinary Mind

Munger was a firm believer in the power of a multi-disciplinary approach to life. His thinking here is about pulling insights from multiple areas, from economics and history to psychology and biology, whatever paints a fuller picture. It makes sense, why limit yourself to a narrow field of expertise when you can tap into the knowledge of many? If you want to make better decisions, don’t box yourself into a single framework. Instead, consider different domains and apply the best tools to whatever challenge you’re facing. It's a great way to see the bigger picture and make better choices.

6. The Power of Reading and Lifelong Learning

Munger was a lifelong learner who knew that reading is the simplest shortcut to gaining wisdom. But it’s not just business books Munger recommends, he reads across the board. He suggests that the more you expose yourself to different ideas, the sharper your thinking becomes. Books are where you get the kind of intellectual flexibility that can help you solve problems in ways that others can’t even imagine. If you’re not reading regularly, you’re missing out. This reminds me of the famous quote by Mark Twain “The man who does not read has no advantage over the man who cannot read.”

7. Reputation and Integrity

Reputation is everything. You can lose money, time, and even opportunities, but once you lose your reputation, it’s nearly impossible to get it back. Munger’s success was rooted in doing business with integrity and maintaining a strong moral compass. He’s a firm believer that, in the end, the people who thrive are the ones who do the right thing—even when no one’s looking. Reputation isn’t just about avoiding doing the wrong thing; it’s about keeping your word and treating people well. Munger’s advice? Build a reputation based on trust and decency, and everything else will fall into place.

Poor Charlie’s Almanack isn’t just about making investment and money, it’s a blueprint for living a thoughtful, rational, and disciplined life. Munger’s style is simple: think better, wait longer, and avoid missteps along the way. It’s timeless advice that, when followed, will stand the test of time.

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.