March 5, 2018

The Markets

As Yogi Berra once said: It’s déjà vu all over again.

Last week, global stock markets took a bit of a dip after President Trump announced a 25 percent tariff on steel and a 10 percent tariff on aluminum. Tariffs are taxes on goods imported from other countries. In general, governments impose tariffs to enhance revenue and/or protect domestic industries from competition abroad.

Tariffs tend to spark fierce debate about protectionism and free trade. Proponents suggest tariffs may protect domestic companies and create jobs. Critics suggest tariffs may slow economic growth and drive prices higher.

Here’s the thing: tariffs don’t always produce the anticipated results. Let’s take a look at two examples while keeping in mind that World Trade Organization (WTO) rules do not allow countries to impose new tariffs unless they are ‘safeguards’ intended to protect a domestic industry.

In 2002, President George W. Bush imposed a tariff on steel. While the WTO was deliberating about the action, “…the European Union ended up hitting Bush where it hurt. The bloc planned tariffs on a wide range of products, including many produced in key swing states where job losses could hurt Bush’s chances of re-election,” reported Time. The WTO eventually decided the tariff was illegal. Eventually, in 2003, the tariff was removed.

In 2009, President Obama imposed a safeguard tariff on Chinese-made tires. China retaliated by restricting imports of American chicken feet (a culinary treat in China), reported The Economist. At the time, U.S. exports of chicken appendages were valued at about $278 million. Guess what happened?

Far fewer Chinese tires were exported to the United States. However, tire imports from South Korea, Thailand, and Indonesia doubled, more than offsetting the decline in Chinese-made tires, reported the Council on Foreign Affairs. On the other side of the tariff tiff, U.S. poultry exports to China fell, but U.S. poultry exports to Hong Kong rose. As they say, when one door closes, another door opens.

In the big picture, it’s unlikely U.S. tariffs on steel and aluminum will have significant impact on China, the reported target of the new steel tariffs. After all, China ranks eleventh on the list of nations sending steel to the United States, reported National Review. Most U.S. steel is imported from U.S. allies such as Canada, Mexico, and South Korea.

GPS INVESTMENT STRATEGIES are migrating towards another “new normal.”  As opposed to the old “new normal” of the Federal Reserve pumping the economy with low interest rates and printed money, the exact opposite has begun.  Now, the “Fed” is raising rates with 3 or 4 0.25% rate hikes expected this year and they have stopped purchasing assets through their “Quantitative Easing” plans developed out of the financial crisis QE

So what is the “new normal”?  First, with rising rates and/or inflationary environments portfolio allocations need to adapt.  Historic returns for traditional bonds cannot be expected as they have an inverse relationship to interest rates and they are starting in a rising rate environment near all-time low yields.  Alternative strategies will need to be implemented in portfolio construction.  See Paul Tudor Jones, who called the October 1987 crash, predicts inflation surge, bond price plunge.  While we do not make portfolio decisions based merely on opinions of analysts, one of our scenarios we have determined as a possibility is similarly depicted in this article. 

For bond alternatives with similar risk levels to traditional bonds as well as attractive yields we are looking at several categories:

  1. Rising rate friendly fixed income funds such as floating rate bonds and loans, TIPs and active managers such as the Pimco Income Fund among others who employ alternative and active management.
  2. Life Settlement Funds (for qualified investors)
  3. Risk Parity Funds
  4. Option Strategy Funds
  5. Market Neutral Funds
  6. Managed funds with exposure to commodities and other areas mentioned above

For stocks, there is the inflation issue as well as the valuation issue. With stocks at near their all-time highs on many valuation metrics, one must consider how long the party will last?  At GPS we are a goals-based firm and position each client’s portfolio to achieve those goals. That said, stocks are still an important part of a portfolio, even during riskier times like today.  One strategy we are bringing back for certain portfolios where it makes sense (we used these 10-12 years ago to combat all-time highs in the market in 2007-08) is the use of structured notes.  A structured note is a contract with a large financial institution somewhat like a CD (one example is a CD) where you have a predetermined outcome based on formulas within the investment.  Attached are 3 examples:

  1. A two year note based on the emerging market index. Investors receive:
    1. Twice the gains of the index with a limit of 23.25-27.25%. So if the index is up 10%, investors get 20% (see examples attached)
    2. A 10 % “buffer” or if the index declines the first 10% of a decline doesn’t count so to speak. For example, if the index is down 10% investors lose nothing, if it is down 15%, a 5 percent loss will be realized
  2. To potentially make money if the market goes up or down look at the attached 2 year capped Dual Direction Note based on the S&P 500 and the Russell 2000 indexes
    1. Basically, if those indexes rise, investors get 100% of the gain of the lesser of the two. If the index declines, investors profit with up to a 15% decline.  Anything more than that the 15% buffer reduces the amount of decline.  See attached
  3. For more conservative investors we have attached a FDIC insured S&P 500 CD
    1. No risk to the downside and 100% of the S&P 500 index SPX upside performance up to 60%

These are complicated investments and we will have conversations with our clients in which they are appropriate for.

GPS Navigation Strategy which attempts to identify long-term trends and stay invested in uptrends and avoid much of the significant downtrends is currently reflecting no trends right now as the choppy, flat market has indicated this year.  The short-term sudden moves currently occurring are not as favorable as the longer term trends such as last year.  We continue to monitor tis strategy and employ it within an overall asset allocation for those clients it suits their situation.

Data as of 3/2/18





Standard & Poor's 500 (Domestic Stocks)





Dow Jones Global ex-U.S.





10-year Treasury Note (Yield Only)





Gold (per ounce)





Bloomberg Commodity Index





DJ Equity All REIT Total Return Index





S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s,, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

what does your state export? Every state has adopted official symbols that represent its culture and heritage. You can probably name your state’s official bird and flower. It’s likely you recognize your state’s flag and its seal. Can you name its highest value export?

The United States exported about $1.6 trillion worth of goods during 2017, according to The World Factbook. Here is a list of the states that export the most, along with their highest value exports:

  1. Texas – fuel oil and light oil
  2. California – civilian aircraft, engines, and parts       
  3. Washington – civilian aircraft, tanks, and armored vehicles
  4. New York – diamonds and art
  5. Illinois – light oil and soybeans
  6. Michigan – trucks and passenger vehicles
  7. Louisiana – fuel oil and soybeans
  8. Florida – civilian aircraft and cellular phones
  9. Ohio – civilian aircraft and soybeans
  10. Pennsylvania – coal and medicine
  11. Indiana – medicine and gear boxes
  12. Georgia – civilian aircraft and gas turbines
  13. New Jersey – fuel oil and jewelry
  14. Tennessee – medical instruments and civilian aircraft
  15. North Carolina – civilian aircraft and medicine

It’s interesting to note top-exporting states often are top-importing states. The top 10 states by import are: California, Texas, Michigan, Illinois, New York, New Jersey, Georgia, Pennsylvania, Tennessee, and Florida.

Weekly Focus – Think About It

“So, vision begins with the eyes, but it truly takes place in the brain.”

--Fei-Fei Li, Director of Stanford’s Artificial Intelligence Lab

Best regards,

The Jim Goodland and Kristen Mueller Team at GPS


P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added.


* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.

* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.

* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.

* All indexes referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.

* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

* Past performance does not guarantee future results. Investing involves risk, including loss of principal.

* You cannot invest directly in an index.

* Stock investing involves risk including loss of principal.

* Consult your financial professional before making any investment decision.

Sources: (or go to