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It’s generally advisable for investors to be long-term bullish because the average bull market has lasted longer than the average bear market over time, and because average bull market gains have exceeded average bear market losses. As famed investor, Sir John Templeton, wisely advised, “Never stay bearish too long”. That said, certain drawdowns occur which require heightened capital discipline by the investor, in the absence of which great financial pain may be administered. What are the risks and probabilities of what is now an escalating ‘trade spat’, and how might these risks be mitigated?

The risks include:

• Widespread fretting over tariff-related uncertainty in impacted industries. This week the Federal Reserve Bank of Dallas shared survey results of 25 American energy companies, every one of which expressed tariff fretting.¹ Following new auto tariffs and the associated drop in stock prices, U.S. auto executives likely joined the gloom this week. Even consumer sentiment is reported to be taking a hit. Universally dismal sentiment can become a self-fulfilling economic prophecy.

• The immediate inflationary price increases resulting from new tariffs. One energy executive from the Dallas Fed survey said, “The administration’s tariffs immediately increased the cost of our casing and tubing by 25 percent even though inventory costs our pipe brokers less, and U.S. tubular manufacturers immediately raised their prices to reflect the anticipated tariffs on steel”.²

• Inflationary pressure means higher interest rates, which reduces consumer spending, which lowers economic activity, which reduces corporate earnings and causes job losses. A full-blown trade war can quickly introduce stagflation, or high inflation in a stagnant economy with high unemployment.

• The S&P 500 entered ‘Trump’s Trade Spat’ from historically lofty valuations and is now pricing-in tariff risks. It’s been reported retail investors, the worst on earth, are ‘buying the dip’ while savvy institutional investors are ‘selling the rally’ hand over fist.³ The S&P 500 is below the 200 DMA and is in a technically vulnerable position.

The probability these risks will derail the economy and introduce a bear market recession are challenging to discern. Will President Trump get the concessions he wants, put a halt on tariffs, and avert a trade war? If not, won’t he look weak and foolish pulling back without benefit? Might he push the issue without resolution, single-handedly ushering in a global bear market recession and causing financial hardship to potentially millions of people?

As investors, it seems to me we’ll be wise to recognize three things: 1) a trade war can potentially burn our economic house down and murder the bull market, 2) this may or may not happen, and 3) market participants are pricing in this new risk.

Prudent responses might include:

• Focus on high quality businesses least likely to experience tariff-related price increases, and businesses easily able to pass price increases on to consumers.

• Consider adding an inflation hedge or two to your portfolio.

• Raise some cash and reduce risk in your portfolio by slimming highly inflated and highly exposed positions.

• Increase holdings in defensive sectors with lower valuations and more reliable earnings.

• Place a higher value on income today than the promise of income tomorrow. Reinvest investment income to compound returns over time.

Think about it, Shaun.

“Give a portion to seven, or even to eight, for you know not what disaster may happen on earth”. ~Ecclesiastes 11:2

1,2 Stansberry Research, “The Stansberry Digest”, March 27, 2025

3 Bloomberg, “Retail Investors Are Buying the Dip as Stocks Slide”, March 28, 2025 https://www.bloomberg.com/news/newsletters/2025-03-21/retail-investors-are-buying-the-dip-as-stocks-slide

The opinions voiced in this material are general and are not intended to provide specific recommendations. The economic forecasts set forth in this commentary may not develop as predicted. Dividends are not guaranteed, can stop at any time, and will not necessarily enhance investment performance or returns.

Good can always be found in even the harshest of life’s misfortunes and experiences. While it’s not generally my inclination to see that good, I have faithful friends who routinely point it out. I remember having lunch at Iceberg Lake on Mt. Whitney in 2010, when suddenly before our eyes an avalanche released on the very slope we were to ascend! Moments later, while I was a bit panicked about the possibility other parts of the mountain would start falling off, my climbing buddy shed light on the truth a far lower probability existed for another avalanche to release on our route given the development. This is, in respects, a relevant analogy to the ongoing slide in stock prices, and as a fearful sentiment builds in this market, this may prove a beneficial time to identify the good in it.

• We remain in a solid ‘earnings-growth’ market. S&P 500 businesses have seen 8% average earnings growth in the last decade, only 7% annually long-term, and yet the forecast for 2025 is 9.5%. Fidelity sees 14% earnings growth ahead and thinks the estimate is too low!¹ A bear market in stocks will not likely accompany such earnings growth.

• Most measured sell-off’s are corrections (drop of 10%-20%), not bear markets (drop of 20%+), especially during the blow-off tops of highly speculative advancements (AI). Remember, the market is highly contrarian by nature, equipped to inflict the maximum amount of pain on the greatest number of investors possible. It’s also true the financial pain of selling in a bull market that hasn’t yet run its course can exceed that of selling too late in an oncoming bear market.

• The media sells hysteria, and its reporting does not constitute investment research, but it can be thanked for contributing to what has quickly become the poorest market sentiment since a month before the 2022 bear market bottom,² evidence also suggesting we are in a mere correction.

• Market declines generally bear broadly lower stock valuations, and lower P/E ratios mean there is less froth built into stock prices, meaning less debris to dodge, like the terrain on a slope following an avalanche.

Just as our best decision from Iceberg Lake clearly was to ascend the already-released hill, wise reactions to the present sell-off might include:

• Do not panic! When fear is identified immediately take a long walk in nature and think about something entirely different. Do not think about investment decisions until calm is restored.

• Have your bear market ‘stop-loss’ program in place and rely exclusively on pre-positioned tools, not your emotions or intellect, to instigate action.

• Focus on high quality businesses with gushing free cash flow and sustainable retained earnings; ride the earnings wave.

• Don’t approach the slope until the avalanche stops! You don’t need to pinpoint the bottom, but you do need to avoid doubling down before the house burns down, and a full-blown trade war can burn the house down.

May God bless our investing efforts and intentions, Shaun.

“Do not lay up for yourselves treasures on earth, where moth and rust destroy and where thieves break in and steal, but lay up for yourselves treasures in heaven, where neither moth nor rust destroys and where thieves do not break in and steal.  ~Mathew 6:19-21

1 FPA (Financial Planning Association) Live Lunch Presentation, Iron Works, Warwick, RI, January 8, 2025, Fidelity Investments 2025 Outlook

2 Dr. Eifrig’s Health & Wealth Bulletin, “The Market Won’t Stay Down for Long, March 12, 2025

The opinions voiced in this material are general and are not intended to provide specific recommendations. The economic forecasts set forth in this commentary may not develop as predicted.

Savvy vegetable gardeners understand the first hard frost is a game changer for the home-grown food plot, introducing a whole new growing environment. Such a shift may be occurring in the global stock market dynamic that has been dominant in recent years. The “U.S. exceptionalism trade”, in which American stocks have soared while global stock prices have remained subdued, has reversed sharply since the swearing in of Donald J. Trump as 47’th President. What force is behind this changing investment theme, and will it continue or reverse?

The consensus opinion suggested President Trump’s business-friendly administration would give further advantage to U.S. stocks over foreign equities. While this thesis may prove true in the longer term, there is a more relevant factor playing out today. The “twin deficit”—the U.S. trade deficit and federal budget deficit—has played a major role in inflating U.S. asset prices. This cycle works by the U.S. borrowing money to purchase foreign goods, with trading partners then reinvesting that money into U.S. assets, fueling stock market growth. Historical trends show that when the twin deficit grows, U.S. stock prices rise, but when it contracts (as in 2022), markets suffer significant declines.¹

The Trump administration’s efforts to reduce both the U.S. trade deficit and federal budget deficit may lead to a decline in high U.S. asset prices in the short-term. While the President’s tariff policy is aimed at upending the trade deficit, a reduction in the federal budget deficit could come from Elon Musk and his “Department of Government Efficiency” (DOGE) implementing significant spending cuts.² The first half of President Trump’s second term may involve the market discovering which of the President’s arguments are negotiation tactics aimed at gaining concessions, and which are convictions he will indeed act on. The universally dismal record of historical tariffs has the financial world hoping Trump’s tariffs are short-lived, and that a full-blown trade war is averted. The issue of whether ‘The Administration’ allows DOGE savings to marginally reduce government deficits or uses it as an opportunity to “give” cash to American consumers (to prevent a reduction in U.S. consumption), is worthy of our attention due to its effect on earnings and stock prices.

While we applaud the reduction of government overspending and waste, we don’t want to be ignorant of the pain the corrective process requires. The savvy gardener is acquainted with the ‘first frost date’ in their respective zone and watches daily temperatures closely as it approaches to ensure a successful transition into the winter gardening season. As investors we want to do the same as we wait for these two issues to play out by:

• Watching for a market rotation away from U.S. equities.

• Keeping a short leash on high valuation securities.

• Staying alert to policy changes that could affect trade and corporate profitability.

Think about it and may God bless your gardening and investing efforts!

Shaun

“Be wise as serpents, and innocent as doves” ~Mathew 10:16

1,2 Porter & Co., The Big Secret on Wall Street, “A One-Two Punch to U.S. Stocks”, February 27, 2025

While the endeavors are in ways dissimilar, successfully planning and surviving a big mountain expedition, and building and multi-generationally retaining a financial estate have much in common. The mountaineer must be conditioned (with strength, endurance, balance, and cold tolerance), equipped (with appropriate clothing and gear, and know how and when to use every item), and familiar with the chosen route (to remain within the skill set, maintain a margin for error, and stay on course). The mountaineer is afforded little tolerance for error, but so is the multigenerational wealth builder! Consider the skills and practices applied in their success:

• Maintaining a net positive cash flow by working hard, increasing specialization in the chosen field, spending less than earnings, and investing the difference productively is foundational.

• Effective Asset Management, among other things, requires:

  • Diversification into numerous non-correlated investments. Today 33% of SPY, a popular S&P 500 ETF, is invested in 10 stocks! That’s not diversification, as millions of American investors heavily exposed to this ETF may be about to discover.

  • An understanding we dwell in an inflationary culture, which forces more risk-taking than is natural, a concentration on assets with historical returns exceeding inflation coupled with avoidance of those which haven’t, and judicious risk mitigation strategies to sidestep the occasional meltdown unavoidable to fiscally reckless and heavily indebted societies.

  • Minimization of investment expenses, which directly dilute returns and compound the reduction indefinitely into the future.

• Advanced Tax Planning, contrary to what most CPA’s suggest, involves:

  • Replacing the idea taxes should be minimized each year, with the more thoughtful idea lifetime taxes should be minimized.

  • Applying the means (Tax Loss Harvesting, Strategic Roth Conversions, QCD’s, CRT’s, etc.) to maximize taxes paid in low bracket years, minimize taxes paid in high bracket years, and prevent (not merely delay) every tax dollar possible.

• Advanced Estate Planning goes beyond protecting the primary residence, naming trustees and executors, and properly designating beneficiaries, and:

  • Utilizes the lifetime gift tax exemption and GST exclusion.

  • Exploits the “step-up in basis” benefit for eligible assets.

  • Accounts for the possibility the Tax Cuts and Jobs Act of 2017 sunsets on December 31, 2025.

• Logistical Retirement Income Planning arranges for a passive, sustainable retirement income stream that a) evaluates each possible source, b) meets expenses, c) satisfies Required Minimum Distributions, d) is prudent from an investment perspective, e) is compatible with the long-term tax strategy, and f) doesn’t interfere with the estate plan. What an interesting puzzle!

• Asset Protection Strategies include the use of trusts, corporations, LLC’s, and liability insurance to isolate and minimize risk exposure with each wealth-building endeavor.

The complexity of both the large mountain expedition and the creation and retention of a financial estate requires a team effort. Both involve risks that must be identified and mitigated, and threaten deadly consequences for incompetence or neglect. Apply a thoughtful, diligent, holistic, and team approach to maximize your probability of success.

God bless your wealth-building and estate retention efforts! Shaun

“A good man leaves an inheritance to his children’s children” ~Proverbs 13:22

Though an attempt is being made to present the concept in a favorable light, tariffs must be judged by their record. Free and open trade has Biblical roots and is mutually and highly beneficial in many respects, but ‘Protectionism’, a national trade policy seeking to protect domestic manufacturers by imposing tariffs on the imports of foreign producers, grows from the destructive root of subsidization. Voluntary subsidy wastes precious capital, feeds apathy, encourages substandard performance, and stifles creativity and effort. Tying one arm of a superior boxer behind his back is neither a noble, nor a fruitful solution for the inferior boxer, who might otherwise have learned from the beating. What is the record on tariffs and why, as investors, should we think about it?

The long record of tariffs proves that after subsidizing uncompetitive domestic manufacturers, tariffs increase prices, reduce employment, interfere with free-market supply-demand dynamics, and antagonize trading partners (Frederic Bastiat famously recognized that “when goods don’t cross borders, soldiers will”). The record on tariffs is so universally dismal that many on both sides of the aisle understand “A trade war has no winners”. Consider the facts:

• The nation against which a tariff is applied doesn’t actually pay the tariff, consumers of imported products do in the form of higher prices. A Howard Marks study of President Obama’s 2011 tire tariffs revealed Americans were forced to spend $1.1 billion more on tires to preserve 1,200 domestic jobs, an average cost of $1 million per job, each of which paid $40,000. Marks cited similar results from a study of steel tariffs imposed by President Bush in 2002.¹ Tariffs represent a tax on Americans.

• The Smoot-Hawley Tariff Act of 1930 triggered the most prominent trade war of the 20’th century. The retaliatory tariffs on U.S. goods caused a 61% plunge in exports by 1933, and a repeal of Smoot-Hawley in 1934. There is widespread agreement among historians and economists the Smoot-Hawley Act and its associated trade war amplified and prolonged the agonies of The Great Depression.²

• Trade wars produce extensive uncertainty in the global business environment. What company wants to risk capital in a hostile nation that might over-tax its products or nationalize its assets?

President Trump’s tariffs introduce a significant new uncertainty to an expensive stock market and are capable of stoking inflation, ushering in a bear market recession, and/or inciting new military conflicts. It’s noteworthy the President wants lower interest rates, yet imposes inflationary tariffs which may force the Fed to increase rates. It’s also mentionable our Commander in Chief understands tax cuts are good because people and businesses generally make wiser financial decisions than the government, resulting in increased production, jobs, and economic growth, which in turn provides more revenue for the government, yet puzzling he fails to see that government taxes in the form of tariffs won’t produce opposite results.

At minimum we should expect increased volatility in 2025 as a result of the new dynamic.

Think about it, Shaun.

“So Hiram supplied the cedars and evergreens Solomon needed, and Solomon supplied Hiram annually with 20,000 cors of wheat and 20,000 baths of pure olive oil. So the Lord gave Solomon wisdom, and Hiram and Solomon were at peace and made a treaty.”   ~ 1 Kings 5:10-12

1 Howard Marks, “Political Reality Meets Economic Reality”, Memo to Oaktree Clients, January 2019

2 Foundation for Economic Education, “The catastrophic results of the Smoot-Hawley Tariff Act of 1929-1930”, December 10, 2016

I learned three valuable lessons on a 2014 Rocky Mountain climb that have claimed the lives of many mountaineers, but God graciously preserved me. Flying from sea level to Denver, hitching a ride the following morning to 12,000 feet, and climbing the Continental Divide in winter taught me the importance of proper climatization. Establishing an investment position in any security at too high an entry point is equally reckless; price always matters. I also learned that daily pack walks on flat ground at sea level don’t constitute proper training for a winter expedition at 14,000 feet, but failing to perform proper due diligence on a security already priced to perfection before committing one’s precious capital is equally negligent. Thirdly, the section of the ‘The Divide’ we traversed offered no escape route, but maintaining a position in a speculative bubble without an exit plan is equally dangerous. Are Artificial Intelligence (AI) and Bitcoin sound investments? Is it wise to buy them now?

The AI sector and Bitcoin are being evaluated together because they are both enjoying the euphoric investor sentiment associated with past bubbles, like that of the internet in 1997 and housing in 2003. Consider how bond guru Howard Marks, of Oaktree Capital Management, characterizes a bubble: “a security, asset class, or market being driven by:

• Highly irrational exuberance

• Outright adoration for the investment, and a belief that it can’t miss

• Widespread fear of missing out (FOMO)

• Broad conviction that for this investment, there’s no price too high”¹

It’s difficult to confirm the presence of something as subjective as “irrational exuberance”, but with Bitcoin trading at 7 times its price of 27 months ago, and AI posterchild, Nvidia, increasing 11 times in the same period,² rational buying seems to have departed these markets some time ago. The fact that I am asked every day about AI and Bitcoin by people who do not ordinarily occupy their time thinking about financial investments suggests to me that adoration and FOMO are affecting the price of both, and since FOMO invigorates purchases aimed primarily at quenching fear, the 4’th destructive sentiment is also likely present.

It’s important to understand that both of these investments provide something of value to humanity and are actively changing the world we live in, and as a result, will likely be around for a long time. Bitcoin provides a store of value that is uncompromised and private, and AI is shortening the learning curve in virtually all industries. The question is not whether these are legitimate investments, but in what manner and capacity they should be purchased, and at what price. Investments in internet stocks in 2007 evaporated immeasurable wealth, but it went on to change the way people gather and store information and communicate globally. I suspect in another 18 years something similar might be said of AI and Bitcoin.

We might summarize this brief analysis by understanding that God put the Continental Divide there to be climbed, but it must be done thoughtfully, with adequate preparation, and the risks must be mitigated to the extent they can be. Most stocks that soared in the internet frenzy later went to zero and don’t exist anymore, and the same will likely happen in both AI and Crypto. I suggest the following before you venture into these expensive markets:

• Do your due diligence and know what you are buying and why

• Realize these are speculations and limit your investment to an amount you can afford to lose

• Maintain an exit plan to limit your potential loss

Think about it, Shaun.

“When something is on the pedestal of popularity, the risk of a decline is high” ~Howard Marks

“Give a portion to seven, or even eight, for you don’t know what disaster may happen on earth.” ~Ecclesiastes 11:2

1 Oaktree Capital Management, Howard Marks’ Memo, “On Bubble Watch”, January, 2025 2 Yahoo Finance, 5 Year Price Chart for BTC and NVDA, January 31, 2025.

The opinions voiced in this material are general and are not intended to provide specific recommendations.

The Mt. Shasta guide team my climbing buddy and I hired to get certified in Crevasse Rescue in 2011 were the strongest young climbers we’ve ever seen, but over the five-day expedition three separate misjudgments of both terrain and technical strategy unnecessarily placed us in immediate life-threatening danger, harrowing ordeals still scary to think about today. The decisions were so bad that with only modest mountaineering experience we were able to identify each miscalculation, only to be overruled by the authority of the head guide. There is undoubtedly widespread confusion today over the 2025 U.S. economic and financial outlook due to recent ‘Fed’ misjudgments, in particular with trends in inflation, earnings, and interest rates. What is the true condition set for the economy and stock market, which direction does each pursue, and what is the potential range of outcomes?

‘The Fed’ has been promoting a narrative that lower rates will bring the economy to a soft landing in controlled inflation, but the economy isn’t slowing, it doesn’t need lower rates, and inflation isn’t contained. S&P 500 businesses have seen 8% average earnings growth in the last decade, only 7% annually long-term, and yet the forecast for 2025 is 9.5%.¹ Fidelity sees 14% earnings growth ahead and thinks the estimate is too low!² Tuesday’s employment report shattered estimates, revealing 256,000 new jobs were created in December and dropping unemployment to 4.1%.³ Let’s understand these simple facts about the economy today:

• There is no indication of an oncoming recession anywhere on the horizon as far as the eye can see, though another increase in bankruptcies is possible in this new higher rate era.
• Interest rates are probably net neutral at best in this economy (meaning, about right or too low).
• Absent a recession, the probability of a significant bear market is low, and risk of a systemic crisis is even lower.
• A strong economy is constructive for business investment.

The stock market is far less correlated to the true condition of the economy than most investors realize. The market looks forward to future earnings, while a recession is identified only in hindsight; also, economic reporters are bankers and politicians who never admit to a recession until it’s over. Let’s think about relevant market factors and the two most probable outcomes for a frothy market with a strong economy underneath it:

• 22 times earnings places the S&P 500 into the top decile of observations,⁴ making it the top concern for stocks in 2025. By my count the S&P 500 could drop 23% just to get to its average long-term multiple, all other things being equal, and the market seldom lingers amongst its averages.
• Higher valuations always lead to lower forward returns, and vice versa. A study of people who paid today’s rare multiple for the S&P 500 over a 27-year period universally earned ten-year average returns between -2% and 2%.⁵
• A new administration with new policies, especially when tariffs are involved, will probably add to the increased volatility generally associated with an expensive market.
• The two most probable outcomes I see, in this order, are a) a volatile market moves sideways or even down in 2025, allowing corporate earnings to catch up to prices and lowering multiples while avoiding a bear market and setting the stage for more sustainable growth, or b) a blow-off top, in what would be a third consecutive year of huge gains, but ending in a significant and protracted bear market bust that would likely take the economy with it.

Focus on quality and look for value and income. Diversify, but don’t risk the cash you may need for expenses or emergencies in the next five years. Ride the bull for its duration but have your “risk off” plan in place and honor it.

Think about it, Shaun.

“It’s not what you buy, it’s what you pay that counts. Good investing doesn’t come from buying good things, but from buying things well. There’s no asset so good that it can’t become overpriced, and thus dangerous, and few assets so bad that they can’t get cheap enough to be a bargain.” ~Howard Marks

“Be shrewd as a serpent, yet innocent as a dove” ~Matthew 10:16

1 Google, “Average S&P 500 Earnings 2024”, December 17, 2024
2 FPA (Financial Planning Association) Live Lunch Presentation, Iron Works, Warwick, RI, January 8, 2025, Fidelity Investments 2025 Outlook
3 MarketWatch, “Jobs report shows big 256,000 increase in December. Unemployment drops to 4.1%”, January 11, 2025
4,5 Oaktree Capital Management, Howard Marks’ Memo, “On Bubble Watch”, January, 2025

The opinions voiced in this material are general and are not intended to provide specific recommendations.