#195 Why duties and other actions are necessary to address trade disputes, but across the board tariffs are a blunt instrument that can lead to a devastating trade war and global recession. More information, including show notes, can be found here. Episode Summary With President Trump recently unveiling new tariffs, many investors and economists are asking the question, “has a trade war begun?” On this episode of Money For the Rest of Us, David Stein explores this idea and explains the new tariff plans, the potential impacts on the steel and aluminum industries, and why there are better solutions to the complex trade system than just blanket tariffs. Why new tariff plans were created and the concern surrounding national security When President Trump unveiled his new tariff plan and claimed via Twitter that “trade wars are good and easy to win,” the stock market fell 2% and people across the world began asking countless questions. Are these tariffs going to apply to every single country, even longstanding US trade partners? How will this impact the US economy? To answer these questions, David explains that trade investigations regarding steel, aluminum and oil imports have occurred several times in the past, and one of the main goals is to determine if competition from imports is having a negative impact on national security. National security goes beyond just national defense and include impacts on the overall domestic economy. Recent findings and insights on the 2018 aluminum report The January 2018 report on the aluminum industry found that there is a connection between the economic welfare of the US and national security because of the loss of skills, higher amounts of foreign investments, the unemployment rate of US forces, and many other reasons. Since the US aluminum industry is only operating at 43% of capacity, and aluminum imports comprise 90% of consumption and are up 60% from 2012, the Department of Commerce determined that aluminum imports are directly impacting national security. The report found domestic aluminum production was becoming unstable and nearing a point where US forces would be unable to respond to a national emergency that would require an increased level of production. How do the findings on the steel industry differ from those of the aluminum industry? When compared to the findings of the aluminum study, the US steel industry and the impact of foreign steel are not nearly as dramatic. While imports have increased due to foreign competition, there’s no shortage of domestic steel. Imported steel only makes up approximately 30% of US consumption, and the Department of Commerce recommendation for taking action was because steel imports were weakening the U.S. economy rather than there being insufficient steel to meet national defense needs. Additional solutions that could prevent a trade war and why trade needs to be viewed as a complex system After reviewing the latest findings on steel and aluminum in the United States, David explains why there are more effective solutions to global trade and imports than just blanket tariffs. Even if tariffs are deemed to be the best solution, they should be addressed on a country-by-country basis. Existing legislation such as the Defense Production Act of 1950 and the Buy American Act of 1933 already address the issue of foreign imports. Across the board tariffs could negatively impact longstanding trade partners, and U.S. exports could be taxed at a much higher rate in the coming months. While it is normal to want to protect a nation’s workforce and industries, it cannot be done in such a way that jeopardizes a country’s ability to interact with other countries’ economies. Global trade is a complex system that must be viewed as a whole, rather than individual parts. The long-term impacts of these recent developments are sure to spark continuing conversations, but to hear a stellar synopsis of the trade issue today be sure to listen to this podcast episode of Money For the Rest of Us. See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

#193 How planning helps us avoid catastrophic errors while maintaining flexibility and margins of safety allow us to thrive even if our plans don't work out. More information, including show notes, can be found here. Episode Summary There are two sides to the “why plan if life is so unpredictable?” debate that David talks about in this episode of Money For the Rest of Us. Some individuals believe you should plan even though countless variables exist, and others insist on not planning for even the slightest event. David has found that in every aspect of life, the only predictable idea is the fact that nothing is 100% predictable. He also believes that there must be a healthy balance between planning for the future and living life day by day. To hear David’s solutions to this age-old dilemma, and to learn how to maintain a healthy level of financial flexibility, be sure to listen to this episode. Is failure an option? Or are minor mistakes irrelevant as long as the bigger picture is intact? David discusses two companies in this episode that perfectly illustrate the question “why plan?” NASA is famous for operating under the “failure is not an option” mindset. After the devastating loss of the Challenger Space Shuttle in 1986, redundancy and extra precautions were built into every level of operation. While avoiding catastrophic mistakes is certainly of great importance, NASA’s high level of caution often leads to inflated costs and drawn out construction timelines. In a recent article published by Financial Times, John Thornhill writes about another aerospace company called Planet. Planet has deployed the world’s largest fleet of private satellites that circle the globe taking photos of Earth’s every inch. These nanosatellites known as CubeSats are not high-resolution cameras and they can cost as little as $20,000 to create. If one (or even a handful) of Planet’s satellites fail, it may be considered a failure but it does not threaten the operation of the entire network. Planet operates within the idea of failure being acceptable, as long as the greater goal is still being accomplished. Determining the right timing for action is often the most challenging part of financial planning Once you have decided that small failures are okay for your own financial decisions, you must then determine how to know when to act. When deciding when to sell, buy, or invest you should wait until the time is right, but understand that life happens and things will come up when you least expect them. For example, David explains how he used the tool Portfolio Visualizer to model retirement planning outcomes but the success depends on the assumptions used and the range of potential outcomes is wider than what we are typically comfortable with as individual investors. We are often taught that there is a single right answer to investment questions and not a range of correct answers that occur in actuality. It’s important to remember that there will not always be a clear path or “correct” decisions when planning for your financial future and that you often must simply go with your best guess and avoid catastrophic failures at all costs. Why there are no mathematical shortcuts for the variables of life and the importance of being flexible when planning for your future Unfortunately, there is not a tool that allows us to peer into the future to see how decisions will play out. Richard Bookstaber has stated so thoughtfully that “The world cannot be solved, it must only be lived.” There are no concrete answers for financial planning, but one thing is certain – life always comes with a level of unpredictability. Being able to have multiple streams of income and having a healthy level of concern over decisions while still moving forward are all critically important concepts. Why plan for your financial future? To know how to survive another day We plan for our futures because it helps us avoid disastrous errors that threaten our ability to survive financially. We play the game of finances while selecting which moves allow us to “lose the slowest” and survive to see another day. We plan to avoid the fundamental mistakes, but we live day by day in order to be flexible. Episode Chronology [1:42] David introduces the topic for this episode, “Why plan if life is so unpredictable?” [5:27] The idea of disruptive innovation, and why balance is key when planning your life [8:38] David explains multiple portfolio simulations while planning for a variety of variables [13:49] Insights on return model expectations from a recent paper on the Occam’s Razor Redux [15:53] Getting our timing right can be the biggest part of the challenge [18:58] Why there are no mathematical shortcuts for the variables of life [22:18] You have to use flexibility and care when planning for your financial future [26:01] It’s impossible to live in such a way that you won’t get damaged at all See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.