SKEPTIC’S GUIDE TO INVESTING
Straight Talk for All, Nonsense for None
About - Our podcast looks to help improve investing IQ. We share 15-30 minutes on finance, market and investment ideas. We bring experience and empathy to the complex process of financial wellness. Every journey is unique, so we look for ways our insights can help listeners. Also, we want to have fun😎
Your Hosts - Meet Steve Davenport, CFA and Clem Miller, CFA as they discus the latest in news, markets and investments. They each bring over 25 years in the investment industry to their discussions. Steve brings a domestic stock and quantitative emphasis, Clem has a more fundamental and international perspective. They hope to bring experience, honesty and humility to these podcasts. There are a lot of acronyms and financial terms which confuse more than they help. There are many entertainers versus analysts promoting get rich quick ideas. Let’s cut through the nonsense with straight talk!
Disclaimer - These podcasts are not intended as investment advice. Individuals please consult your own investment, tax and legal advisors. They provide these insights for educational purposes only.
SKEPTIC’S GUIDE TO INVESTING
Tariffs Decoded: From Economic Theory to Today's Reality
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Tariffs have moved from economic policy to political weapons, and smart investors need to understand the real impacts on markets and portfolios.
In this eye-opening exploration of the tariff landscape, we break down the fundamentals of international trade policy and how it affects your investments. From the recent 50% tariff on Brazil (imposed for political reasons) to the unrealistic expectation of "90 deals in 90 days," we cut through the rhetoric to reveal what's actually happening in global trade negotiations.
The conversation tackles a critical misconception: who actually pays for tariffs? Despite claims that tariffs are paid by foreign countries, the reality is they're taxes on US importers. We explore how these costs get distributed between companies, suppliers, and consumers depending on profit margins and market conditions. Using examples from Nike sneakers to Walmart's thin-margin business model, we illustrate how tariff impacts vary dramatically across industries.
We also examine why important commodities like copper are produced abroad rather than domestically. The challenges of developing new mines, semiconductor plants, and manufacturing facilities require years of investment – making immediate high tariffs disruptive rather than constructive. Instead, we discuss how smart economic alliances with resource-rich friendly nations might better serve American interests.
For investors navigating this complex environment, we offer practical advice for portfolio positioning. With markets near all-time highs, we suggest selective investments in technology companies less affected by tariffs, potential opportunities in energy infrastructure (particularly LNG production), and maintaining balance with lower-beta investments including gold ETFs and cash positions.
What does the future hold for tariffs and trade policy? Will we see the current rhetoric translate into lasting economic change, or will pragmatism eventually prevail? Listen now to gain the perspective you need to make informed investment decisions in an increasingly unpredictable world.
Straight Talk for All - Nonsense for None
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Disclaimer - These podcasts are not intended as investment advice. Individuals please consult your own investment, tax and legal advisors. They provide these insights for educational purposes only.
Hello everyone and welcome to Skeptic's Guide to Investing. Today, Clem Miller and I are going to discuss what's going on with tariffs. This may be the last podcast, or this may be one of 100 podcasts on tariffs and what's going to happen, but we think it's interesting to go back and look at where we've been, where we are and where we're going. I think that if anybody has any ideas, please put it in the comments section, because we're looking for ideas as where this can be going. So today also, I want to announce that we're going to put video up of this on YouTube, and it seems as though the powers that be have said that, in order to increase distribution, you should have a video as well as a podcast. So, in search for more listeners and more people to influence with their financial IQ, we've decided to give video a shot. Again, we realized that these are both faces for radio, but we're driven to perform for more people and to influence more financial wellness globally. So we felt like we had to go with the times and get a little more technically savvy. So you might notice some clumsiness at first, but we'll figure it out.
Steve Davenport:So today, the news is that we're going to do a 50% tariff on Brazil because we don't like the leader of Brazil and how he's treating the former president. Tomorrow it could be a tariff against Dunkin' Donuts because we don't like the way they're mixing the lattes. I don't know. It's a continually changing world and that's why we're trying to figure it out for you. So, clem, if you could summarize for me, you know, today is the 10th and so august 9th was the deadline and we've july 9th to oh, july 9th was the 90 days from liberation day and we've got two countries who we have agreements with, not 90. So tell me, are the next 88 coming in the next few days? Or what do you think is the schedule that we're going to see on tariffs and who gets done when and where Do you?
Clem Miller:have the answers? Do you have the answers? So I don't think anybody has firm answers, steve. And let me just say first of all that you know, with the video production, I hope I'm not turning off anybody with my long, longish hair which I've been growing recently in my retirement.
Clem Miller:So, I think there's a lot of other things they're looking at besides your hair. The so-called Liberation Day, which sort of went with this theme that Trump sticks with that, the president sticks with that somehow tariffs are going to liberate us from dependence on foreign powers, as measured by bilateral trade deficits, as measured by bilateral trade deficits. And, of course, I think many of us realize that foreign trade deficits are really not a good measure of economic prowess. And we can go into that a little bit more, Steve, if you want to. But let me just say that I think recently you had this 90-day delay because the market reacted so negatively to the Liberation Day tariffs. The 90 days ended on July 9th.
Clem Miller:There was this expectation that there would be 90 deals in 90 days, which was completely irrational. I think all of us who know anything about tariffs and international negotiations knows that 90 agreements in 90 days is ridiculous, is ridiculous. So I am totally unsurprised that, uh, you had only a few, uh, you know three agreements and even then, uh, my understanding is that only one is documented Actually, uh, the other two were just sort of described, uh, on a truth social post, uh, but only one was actually documented. Uh, even then, those deals are provisional, temporary, et cetera. So we hear that there are others in progress. You hear about the EU, you hear about India, you hear about Japan. Japan, I understand, was willing to negotiate something. They sent somebody to Washington to talk to Steve Bessette and my understanding is that in effect this person was this envoy from Japan, was kind of blown off by the administration. So I don't know if that was on purpose or it was a mistake of some kind?
Steve Davenport:Do you think this is about just showing power and the tariff deal is just a message? Is it? Is there really? Can we go back to like tariffs 101 and try to say to people, because I think a lot of people are confused about why there are different tariffs for different countries?
Steve Davenport:I was originally in my Economics 101 class. The idea was less tariffs equal less friction. So therefore goods move to wherever it's best to manufacture them and if that makes sense to manufacture in Vietnam, it gets manufactured in Vietnam. And so the goods and things that we move around the world are there for a reason. They have some advantage with lower cost labor. They have some advantage with raw materials with lower cost labor. They have some advantage with raw materials and we put these tariffs on because we feel like this person is producing in an area with very little environmental controls and therefore they have a distinct advantage over US production. And the tariffs are trying to rectify what is a situation that's somewhat unfair for one country or another. Is that how you would define the current environment? Because it is confusing that we say we have free trade, but every country we're negotiating a tariff in. So if we're negotiating tariffs in every single country, then there is no free trade in this world, right.
Clem Miller:Well, I approach it a little differently, stephen, the way you laid it out. So there've always been tariffs, but tariffs there's always been kind of a baseline of tariffs that each country has and that's within a framework that's governed by the world trade organization, uh, which formerly was called gat, uh, general agreement on trade and tariffs, and it varies a little bit by country, but it's quite low, it's like 1%, 2%, 3%, pretty much on average, and that's the result of multilateral negotiations that arguably have been have had some responsibility for economic growth during the 1960s to early 2000s. Then you had multilateral trade agreements like NAFTA, later USMCA, the Trans-Pacific, the biggest one of all, the European Union, which aimed to eliminate tariffs altogether among those countries, and that's actually a growth, a way for growth to increase. So tariffs until Trump came along, you know tariffs.
Steve Davenport:Did the euro and creation of the eurozone did it really eliminate the tariffs in between the countries? And then there was just one tariff for the overall correct european union.
Clem Miller:Correct so, but it's still there's tariffs right, yeah, well, within, okay, so among, within the so-called single market, the EU single market, there are no tariffs. Among the countries Outside, there is a single set of tariffs among those countries, applied uniformly vis-a-vis outside countries, and that's called. There's a term for that which is called a customs union. So they've all agreed to apply the same tariffs to, you know, imports from the us and japan and you know non-eu countries. So so that's that. But you know, I wanted to point out that outside the whole GATT-WTO framework, outside of free warrant, an exception from the WTO rules and circumstances where there are specific competitive threats, where there's been some kind of underpricing, intentional underpricing in order to tilt the playing field against, say, a dumping.
Steve Davenport:Right, exactly, that's called dumping, dumping is an evocative term for simply charging a price for a product that is far less than the market price. I just wanted to get back to the basics because I think that there's a lot of terms flying around and I'm not sure everybody I mean. I've heard about steel dumping by China trying to take over our steel industry, right. I've also heard about you know national security needs for us melting aluminum Correct. So I think that some of the terms I logically don't think that Canada is doing this so that our national security will be weakened. Is doing this so that our national security will be weakened? I think it has more to do with their natural resources and energy supply that it takes to smelt. But there's so many things being said in the media that I think sometimes we have to get back to. Is this really an issue of national security? Is it really an issue of dumping? Is it really an issue of just not being happy with a country and how they're behaving, as we saw today with Brazil and their 50% tariff?
Clem Miller:But what was a very structured system of anti-dumping duties, of national security tariffs, of free trade agreements, of WTO, has been of the day, as evidenced by trying to link Brazil tariffs to dropping a legal case against the former leader who tried to undertake a coup in Brazil.
Steve Davenport:That is really tariff by whim, correct I just want to put in perspective some of the things you see are significant issues like, I believe the copper tariff is a significant issue for our housing industry and a lot of other industries, but the tariff on whether bolson, whether the former president is indicted or not indicted, seems to me to be an overstep, or overreach.
Clem Miller:Yeah, I mean, there are purely economic issues, copper being an economic issue, and then there are political issues, like the Bolsonaro in Brazil issue. But even in terms of the economic issues, I think there's a fundamental misunderstanding, in the sense that you can put on a tariff and say that you're putting on this tariff to try to encourage domestic production of a commodity domestic production of a commodity but it can take years and years and years to actually have that commodity being produced. It takes years to develop a mine, for example. It can take years to build a semiconductor plant Correct.
Clem Miller:And Apple is going to take a few years to produce all their iPhones in the US, right. And then ratchet it up over time, very much like you would do with the I don't know if you recall the CAFE standards, steve, with respect to cars. So you would have emission standards with cars, and initially they weren't very restrictive, but over time, as technology improved, you ratcheted up the emission standards, and so one could do that with tariffs and start off pretty low and then eventually hit higher levels. But that's not what Trump is doing. Trump is putting on this huge tariff right away and it's incredibly disruptive, right that is.
Steve Davenport:Steve, that is, if he's actually going to do that. Yeah, I mean, is this just a publicity stunt? Is this just trying to get himself more attention on the international stage? Is this something that he thinks will change and resolve grudges that have gone on with the auto industry and other industries not being treated fairly by these countries that export to the US? I don't you think that we need to understand when he says that billions of dollars are coming into our coffers, it's really client and some of the intermediaries in the trade in between right, it's not a one-person benefits and everyone else suffers, right.
Clem Miller:Well, so the only transfer that's going on here is between companies that import and the US government. So when the US government puts on tariffs, they're putting it on US importers, and so they're, and it's paid at the port right when the goods are released by the importer to the government, and so the government's taking in more money. That is, the government is taking in more money, but the money is coming in from the imp increment of of wealth to the US economy. It's just a transfer. It's a tax, right, right, it's a tax on US as a tax.
Steve Davenport:it doesn't get borne completely by one party, usually Right. Well, what is a price increase There'll be. You know some the, the importer will say I'll lower my profit margin. I mean, if there's, if there's, a dollar of tariff, does anybody have any research that says you know the dollar of tariff gets? I mean, I've heard it divided almost equally between the consumer of the good through increased prices, the decrease in margin for the importer and some of it going to the US government. But it's not an all or nothing thing, right?
Clem Miller:No, it's going to depend on, not just on the particular industry but on the particular company, what happens. You know it could be that these importers go back to their suppliers overseas and say can you cover the cost of the tariff? But you know, if the supplier's margins are very narrow, they're not going to do that either. So you could say that wherever margins are already narrow, then likely the cost will be borne by the buyer right, by the customer Right. Where margins are wider, there's some more room for, and where there's less, yeah, where the margins are wider you have less, you have more ability to take tariffs out of corporate margins.
Steve Davenport:Right, there's a spectrum of it gets absorbed a lot by this or a little by this group and it varies. As I guess what I'm saying it's not as described, as all of this free money comes into the US, to the US government through the tariff and we're all just going to the government's going to reduce debt. The government's going to do something with that money that's going to benefit all of society. So tariffs are good. That seems like the philosophy that's being projected by the government and I'm not sure it's anybody in economics would agree with it 100%. Is that fair?
Clem Miller:I think the amount of tariff revenue that will come into the US government is only a small fraction of the income that comes in through corporate income taxes and through and through personal income taxes. So I don't think it makes up at all to any great degree the income that is lost from, say, the you know taxes, reducing taxes on the or keeping taxes low on the wealthy.
Steve Davenport:Yeah, I mean. One of the best examples I heard was that Nike, when they make a sneaker in China, makes it for about $3. And so if you put a tariff of 30%, it now becomes $4. But the ultimate sneaker is still being sold in the US for somewhere between $60 and $100. Yeah, it doesn't, you know. That can be absorbed by the end producer and the consumer probably doesn't see a change in the pricing because the pricing is so much anyway.
Clem Miller:Right, it's going to be consumed. It's going to be paid not by China, by the Chinese producer. It's going to be paid by the importer. It's going to come out of the out of the importers margin. That is, it's going to it would of the importer's margin, that is, it would come out of Nike's margin. When you have a margin that's so wide, it's going to come out of Nike's margin. But when you have something like Walmart, which has already squeezed margins and squeezed their suppliers, becomes a much more difficult circumstance. And and in order to uh find out who other than the consumer is going to pay those, uh, those tariffs, ultimately, and there's another issue with this that I mean.
Steve Davenport:we could go on on this topic all day, but another issue that I think people need to understand with something like copper is copper mines are some of the more dangerous places to work in the world. You're going deep down, the lack of oxygen, the danger of collapse. These are not the places that you really want to have a huge industry in this country, and so, because of the dangers and because of the environmental damage, the US has decided that it's better to import copper than it is to produce it itself. And there are richer mines in various countries which are just a product of the earth has different degrees of copper and different types of the crust. So how do we get to a point where we're looking for more semiconductor production and we're also looking for more copper? Don't we have to figure out what the US population is going to be better at doing, versus deciding that we're going to just punish everyone who produces everything for us?
Clem Miller:You know, the smart approach is to develop economic alliances, basically free trade agreements, where you have, as part of those free trade agreements, where you have, as part of those free trade agreements, countries that actually produce these minerals. So it would be great if the us? Uh didn't punish canada. Uh, if the us had a free trade agreement with australia, uh it, which is also a big mining country, mining mining supplier country. Uh, if the U? S had uh free trade agreement with Chile, which also has a lot of mining uh uh produce, if we had free trade agreements with those markets, we would be in? Uh in much better shape. Let's just take a look, steve, one more on the mining country front Greenland, right, canada has just signed a deal with Greenland to develop its mining resources. And the reason Canada was able to do that with Greenland and not the US is because the US was threatening them. So the first thing you can do is not threaten. The could try, we can aspire to it.
Steve Davenport:So if we were to look, today, July 10th, and where do you see, as we wrap up, this idea of tariffs? Where do you see the opportunity for investors today versus on Liberation Day with regards to tariffs? Are there investment opportunities for us to take advantage of, or is this just still a random walk that we don't really know how it's going to end up?
Clem Miller:So I think right now, there are, in effect, uh, two asset classes. I'll call them asset classes. They're not really asset classes, but two types of investments that I think are worthwhile. One are the advanced technology stocks, uh, and the advanced technology stocks uh not all of them, by the way. I'm not talking about just investing in in qqq or or what have you I. I'm talking about selective investing in in technology stocks, which, by and large, are or many of them at least, are not affected so much by tariffs. Right, I'm not talking about Apple. Apple is affected by tariffs.
Steve Davenport:I'm talking more like quantum and some of those AI.
Clem Miller:Well, yeah, I'm talking, yeah, I'm talking. Well, quantum computing is very sketchy and skeptic. I'm skeptical about quantum at this point. Right, it's, it's, it's deck. Some people have said it's decades down the line.
Clem Miller:But you know, if you've got, you know certain companies like Nvidia, for example, um, you've got some of the companies that provide power supplies to the cloud computing centers or supplies in general to the data centers. I think those are great investing opportunities. So there's this one side of the market where it's bifurcated. There's this one side of the market where you want to be in sort of higher growth, maybe higher beta, but still you don't want to be too risky. You don't want to get into stocks that have high short ratios or that have high peg ratios, or at least super high short ratios and super high peg ratios, but ratchet up the beta on that portion of the portfolio. Then you got the other portion of the portfolio which helps to balance off the high beta part, which would be lower beta, and including a nice dollop of gold, the gold ETF, which I hold and also cash.
Steve Davenport:I look at the market as fully. We're near all-time highs on the S&P. We've had an unbelievable rebound a rebound, I would say, that has been somewhat naive in terms of the impact of all these things because they keep getting pushed out. So the tariff story was one that created opportunity for people to buy when there was so much uncertainty in April and people bought. And now we're at a stage where we're at all time highs and we're trying to move through those and it seems like we're struggling.
Steve Davenport:So my recommendation to people is you just had a chance where you wondered about whether you should have sold and you held off and didn't sell when it went down in April, but now you're back to all-time highs. So if you're at all-time highs, my rule is think about what to take off the table and rebalance and then you say, well, what do I buy? And I still believe that the biggest revolution or the biggest impact that Trump can have is in our energy policy, and I think that the vision of LNG production on the two shores one to produce LNG for Japan and one to produce from the East Coast Germany I think that's the vision that I still have for energy and I still believe that if you were looking for something that's lower priced, more reasonable, with some good dividend yield, I feel that that's a place. I agree with you that some of the technology won't be affected by tariffs, but it feels to me like the multiples we're at make that stuff a little bit less attractive.
Clem Miller:Right. So, steve, one of the things that I didn't mention when I was talking just a little while ago, but you brought up, obviously, the all-time highs, is on a number of my higher technology, higher beta stocks, the ones that have reached some all-time highs at various points over the last couple of weeks. I have put on some limit orders where, if the stock reaches a particular price level, um, it will automatically sell off. It'll automatically sell so, and then I would capture those proceeds, uh, either to keep it in cash or to uh invest in other things. So, uh, I've got, you know, I've already had a couple of stocks reach the limit and hopefully in coming weeks or months we'll see some other ones reach those limits and I'll be able to pocket that money at that money.
Steve Davenport:Yes, I I think that, first of all, I want to remind everyone this is for educational purposes and we're trying to tell people what we're doing in our own portfolios or with our own ideas, so that they can think more broadly about solutions. The idea of selecting the company that's going to benefit the most from tariffs is, in my, looking for a needle in a haystack, because we don't know too much about the national situation. We don't know if there's going to be a bit of a whim. I would have thought that the oil companies in Brazil would have been a good investment if we knew that this 50% tariff wasn't going to get imposed, but now that it is that company, all Brazilian stocks are down today. So I think that this discussion is really about tossing ideas around and trying to come up with some strategies for people to help improve their understanding of markets. Is there anything else you want to finish up with today on tariffs or any ending thoughts you have?
Clem Miller:You know, I think that I think and I hope that by the end of 2025, all of this discussion of tariffs is going to be old news, that not much will have actually happened and will be beyond the issue. That's my hope and sort of semi-expectation you know, sort of semi-expectation.
Steve Davenport:Yeah, I've kind of come to the conclusion that tariffs, just like taxes, are hard because people will figure out ways to get around them, and I think that you know, on average the tariff is about 3% and we're talking about increasing it to 10%, and I think that if we were to do that with countries that we feel have been unfair to us in trade practices and other things and lower environmental standards, then yes, I think that the difference between 3% and 10% on this percent of the stuff we import to the United States, that's a rectification of some past misgivings or mistreatment, but I don't think we're. When we talk about 40s and 50%, I think what we're talking about is really about news and trying to make news, not trying to make solutions. So I would say that I hope it calms down, I hope we start to focus on good companies doing good things and not focus on who's mistreating who. Standard is based a lot on the fact that we have countries who are willing to produce aluminum and other things that we don't want to produce in the United States because they're dirty or because they're difficult or because they require a lot of energy sources that are more expensive here. So I think that practically, we try to move things in a way that's good for the economy and I hope we try to figure out how to make these tariffs somehow better for the country.
Steve Davenport:And what I don't want to do is win on the tariffs and go from 3% to 9% or 8% and then have no goodwill with any of our trading partners, because ultimately, I think goodwill matters and that's how I'd like to end. It is that everybody wants a little more goodwill and we've got to figure out a way to get along with all of our partners, the good, the bad and the ugly, as Clint Eastwood used to say. So I think that's it for today. I hope you enjoyed this podcast and I hope you'll share and listen and give us some comments. I hope you also enjoy the video. So thanks everybody, have a good day.
