Dear Friends and Family,

Tariffs…This week the stock market declined as the tariff war rhetoric escalated. This trade war is nowhere near the size of the last major trade war, but it is the biggest tariff war since 1929.

Congress, in 1929, passed a major tariff bill that started a major trade war. Although U.S. won there were some minor side effects. A great depression which lead to a World War which led to the rise of Communism which led to Al Qaeda and the Taliban. Nighty years later we are still dealing with the effects.

On the other hand, there was one important result of that tariff war; a strong desire for free or low tariffs. Low tariffs were instituted and what followed was seventy plus years of growing world prosperity. By 2016 the average U.S. tariff was 4% on imports and foreign countries were taxing our exports at 5%. These tariffs were mostly symbolic rather than economic. It allowed politicians to claim we put a tariff on imported products to protect our workers.

The sad fact is that in a trade war we are more interested in tariffs to protect unionized workers and other organized groups than we are in the fact that tariffs hurt everyone but disproportionately hurt the poor. It was true in 1929 when the Chamber of Commerce wrote the tariff bill and it is true with the tariff activities we currently see. The current tariffs are probably the highest tax increase on the poor in the history of the U.S.

So, what do we do about our investments? We continue to buy and sell where appropriate. Liquidating to try to avoid a short term decline always is a bad idea. If you sell out the odds are one of two outcomes. The issues are resolved, and you miss getting back in before the market appreciates, or you do not believe that it is time to get back in and miss even more of the rally. Selling out is the main reason for the average investors showing returns of less than half of index returns.

Many companies are predicting that the rest of the year will not be exceptional. Generally, they are concerned about the tariffs. On the other hand, we have never seen as many new investment ideas that we need to review. These companies meet our criteria of Safety, Quality, Growth and Value. Most importantly, while they are predicting conservatively, they are buying their shares back aggressively.

Katz Family Financial