Larry Swedroe: The Drums Of (Trade) War

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Random Walker
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Larry Swedroe: The Drums Of (Trade) War

Post by Random Walker » Mon Jul 16, 2018 9:11 am

http://www.etf.com/sections/index-inves ... nopaging=1

Excellent Bogleheadish article. Larry uses the specific example of the current potential for a trade war to emphasize many more general important BH points: have a plan and stick to it, passive beats active, valuations matter, market prices risk, the market already knows and has incorporated into prices everything we know, if the news stresses you then maybe you have too much equity risk. It’s not overtly mentioned in the article, but Bogle’s “Don’t just do something, stand there” rings loud and clear throughout.

With regard to trade war specifically, interesting to learn that US markets expected to be less adversely affected than international because a smaller percentage of our GDP depends on trade. The world stock markets have recently reflected this with US outperforming Developed International and EM.

Dave

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danielc
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Re: Larry Swedroe: The Drums Of (Trade) War

Post by danielc » Mon Jul 16, 2018 9:29 am

Random Walker wrote:
Mon Jul 16, 2018 9:11 am
http://www.etf.com/sections/index-inves ... nopaging=1

Excellent Bogleheadish article. Larry uses the specific example of the current potential for a trade war to emphasize many more general important BH points: have a plan and stick to it, passive beats active, valuations matter, market prices risk, the market already knows and has incorporated into prices everything we know, if the news stresses you then maybe you have too much equity risk. It’s not overtly mentioned in the article, but Bogle’s “Don’t just do something, stand there” rings loud and clear throughout.

With regard to trade war specifically, interesting to learn that US markets expected to be less adversely affected than international because a smaller percentage of our GDP depends on trade. The world stock markets have recently reflected this with US outperforming Developed International and EM.

Dave
I'm in the accumulation phase and CAPE is high. I'm rooting for a market crash.

Random Walker
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Re: Larry Swedroe: The Drums Of (Trade) War

Post by Random Walker » Mon Jul 16, 2018 9:34 am

danielc wrote:
Mon Jul 16, 2018 9:29 am

I'm in the accumulation phase and CAPE is high. I'm rooting for a market crash.
I’m curious, looking at the relative valuations in the article, does that make you want to alter your equity allocations? Change US:Int?, increase ISV exposure?, increase EM or EMV exposure?

Dave

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danielc
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Re: Larry Swedroe: The Drums Of (Trade) War

Post by danielc » Mon Jul 16, 2018 9:50 am

Random Walker wrote:
Mon Jul 16, 2018 9:34 am
danielc wrote:
Mon Jul 16, 2018 9:29 am
I'm in the accumulation phase and CAPE is high. I'm rooting for a market crash.
I’m curious, looking at the relative valuations in the article, does that make you want to alter your equity allocations? Change US:Int?, increase ISV exposure?, increase EM or EMV exposure?
The thought had never crossed my mind. I guess I already knew that Int and EM were cheaper and they already make 40% of my target portfolio. I'm OK with that. I don't have ISV or EMV because I don't have cheap ways to access those and I think my portfolio is complex enough as it is.

Random Walker
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Re: Larry Swedroe: The Drums Of (Trade) War

Post by Random Walker » Mon Jul 16, 2018 9:57 am

I think I learned that ISV is an even better portfolio diversifier than EM. The reason being that the companies in ISV are smaller and much more subject to local economic conditions. Larger EM companies more subject to the larger effects common to TSM and Tot Int.

Dave

columbia
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Re: Larry Swedroe: The Drums Of (Trade) War

Post by columbia » Mon Jul 16, 2018 4:06 pm

International stocks would do better than U.S. stocks
Why so?

Random Walker
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Re: Larry Swedroe: The Drums Of (Trade) War

Post by Random Walker » Mon Jul 16, 2018 9:41 pm

columbia wrote:
Mon Jul 16, 2018 4:06 pm
International stocks would do better than U.S. stocks
Why so?
Market prices risk. Foreign stocks more dependent on international trade than US stocks. So given perception of increased worldwide risk to international trade by trade war, foreign stocks get hit harder. Foreign stock prices get hit harder, which implies higher future expected returns.

Dave

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Re: Larry Swedroe: The Drums Of (Trade) War

Post by Valuethinker » Tue Jul 17, 2018 9:36 am

Random Walker wrote:
Mon Jul 16, 2018 9:11 am
http://www.etf.com/sections/index-inves ... nopaging=1

Excellent Bogleheadish article. Larry uses the specific example of the current potential for a trade war to emphasize many more general important BH points: have a plan and stick to it, passive beats active, valuations matter, market prices risk, the market already knows and has incorporated into prices everything we know, if the news stresses you then maybe you have too much equity risk. It’s not overtly mentioned in the article, but Bogle’s “Don’t just do something, stand there” rings loud and clear throughout.

With regard to trade war specifically, interesting to learn that US markets expected to be less adversely affected than international because a smaller percentage of our GDP depends on trade. The world stock markets have recently reflected this with US outperforming Developed International and EM.

Dave
There is a risk to US multinationals in a trade war. They have large operations abroad. New regulations on Facebook and Google for example. China only permits a fixed number of foreign movies to be imported each year, so it's not good for Disney if they are not permitted to exhibit a particular film - as an example.

That's separate from imports and exports. Disney's royalties will not be in trade flows, I don't think, but in payment for services.

The US exports a lot of services and it's easy to throw up non tariff barriers on those services without it being obvious that's what you are doing.

I think one should not change one's investment strategy over the possibility of a trade war, because the results and extent are unpredictable.

One could say it is generally bad for markets, but difficult to determine whether it is specifically bad for specific markets.

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