The market fell after President Trump tweeted that “trade wars are good, and easy to win.” But is this just a negotiation tactic or the beginning of a global trade war? Sara D’Elia talks to Michael Craig, Sr. Portfolio Manager, TD Asset Management, who assesses the current situation and provides a series of defensive investment strategies.
Markets fell yesterday after President Trump tweeted that trade wars are good and easy to win. Here to break down whether this is simply an negotiation tactic or something more substantive is Michael Craig from TD Asset Management. Thanks for being here, Mike.
Thank you for having me.
So I have to ask you, President Trump is renowned as a negotiator. Do you think these potential tariffs with steel at 25% and aluminum at 10%-- is it just a negotiation tactic, or are we looking at something bigger here?
I think the general market consensus is one that the market believes that this is a negotiating tactic, and I hope it is. Part of our job, though, is not only making returns for our client, but also managing risk, is to start thinking about what if it's not? And that is the risk we see, that this actually is just the beginning of a long, drawn out process in which he engages in a trade war, primarily with China.
One of the things I asked you about when we were talking ahead of the shoot was, if it's just steel and it's just aluminum, is it a big deal? But you said you think that it may not just be those two things.
Yeah, I think it's important to think about what's next. And I think I'd be really concerned if they start talking about intellectual property as the next salvo in this trade dispute. The president is well within his powers to do it. There was an act in 1974 that allows the president to make unilateral decisions on trade if areas of national interest or security interests are threatened.
And so Trump's-- if there's one thing that's been consistent with Trump from the very early on, is that he's a real hawk on trade. He thinks China has been unfair in trade with the US. And there's no real reason why you'd think he'd back down from that.
Markets fell quite a bit yesterday on the news of this potentially happening and worries mounting over trade wars. As an investor, how do you position for something like this?
As a professional investor, we think there's always nice ways to have various strategies that counteract this risk. One would be holding a bit more cash. One would be using currency, owning US dollars or yen. And the third way is using options strategies to mitigate that downside risk. So there's a variety of tools at our disposal that we are using to manage the volatility of this drawdown that we're seeing.
Something you do mention, Mike, is, in terms of looking at your portfolio or your strategy. Based on where you are in your life, what do you mean by that?
So if you're an investor and you've got a long horizon before retirement-- you know, you're not looking to retire for 10, 15, 20 years, moments of volatility like this, while unpleasant, in the long run will typically be offset by gains in future periods. And so the most important thing is to have your goals set straight and have a plan because periods of volatility like this will occur over and over again in your investment horizon.
For investors who are near retirement or in retirement, drawdowns like this actually are a lot more costly. And that's because you're nearing a point in time where you're actually going to start drawing down your assets, not adding to them. And so drawdowns can be quite painful. And it really is important to have a good strategy going forward in which you're going to be able to live off those assets.
And so for example, if you're near retirement and you've got 100% NASDAQ, that's probably not the best asset mix going into retirement because if it does come off substantially, it's going to really hurt you. And I would argue this is probably one of the best times in your financial life to seek professional advice on how to do that.
So it sounds like it can be a little bit uncomfortable, but look at asset allocation, look at some of your investing strategies, where you are in your life, and talk to your adviser.
Thanks very much, Mike.