W. Ben Utley (00:13)
Hello, physician moms and dads. I'm Ben Utley, a certified financial planner and the service team leader here at Physician Family.
Nate Renneke is out of town. So for those of you that are listening to the podcast that are not clients, just know that our clients receive this information, this message about a week and a half ago as markets are crashing. ⁓ If your advisor hasn't reached out to you, or if you'd like to have someone to guide you through times like this, maybe you should see if we're a match. Go to physicianfamily.com, click get started, and we'll see what we can do. Or if you have questions, feel free to ask them.
Maybe we'll get them on the next show. So we've been getting a lot of calls and questions about what is going on. Seems like things are going bananas these days. So I'm going to begin with the basics. What is a tariff? That is the buzzword that we're hearing these days. What is a tariff? Long story short, a tariff is a tax. It's a tax on imported goods that's levied by a domestic country. So
We are the domestic country here in the United States. If you're listening to me overseas, I apologize for what's going on. I know it's a big mess, but anyway, for our U.S. listeners, ⁓ a tariff is a tax that you love on other countries. So how does it work? Well, let's imagine for a moment that ⁓ we like Italian wine. And so we want to buy a bottle of Italian wine and we've got great taste. So this is a hundred dollar bottle of wine, right?
And let's say that in their infinite wisdom, our leadership has imposed a 50 % tariff on that bottle of wine. Okay. So if I'm the guy who is selling the wine and I'm over in Italy, I price my bottle at a hundred dollars. Okay. If I'm the importer, I'm the guy who's like right there on the border and I'm complying with these great new rules that we have, I'm going to have to levy a 50 % tax on that. So the actual cost to a consumer in the United States is $150 for that bottle.
Okay, so now if I'm putting myself in the role of a physician who likes wine, I'm looking at that and I'm going, you know, I think that $150 bottle probably tastes about one third as good as it used to. So maybe I'm going to look around for some Sauvignon Blanc or I'm look for some Pinot Gris or something that doesn't cost $150 a bottle. And I'm more likely to switch my consumption to a wine that is manufactured here in the United States. If I want to keep drinking that wine, then I'm going to have to pay up for more of it.
And as a result, what's going to happen is the manufacturer of that wine is not going to suck up that cost. They're going to raise their prices and pass that on down to me, the consumer. Okay. be clear about this one thing. Tariffs are a tax that we pay on things that we buy from other countries. Okay. Now what is a reciprocal tariff? Reciprocal tariff is where Italy says, ⁓ well, you know, over here, we'd like to drink American whiskey.
And we're going to put a 50 % tariff on American whiskey. And it works that same way. And all of a sudden, all the folks that are down there in Kentucky and Tennessee are angry because now they're getting less money. They're, selling less of their goods. Okay. So what is the impact on us here? The impact is that the price of goods rises. Anything that has been tariffed goes up in price.
The other impact is that it tends to slow consumption because everything costs more. you know, back when, the last time we had inflation, also tariff driven, people stopped going out to eat so much. They stopped buying so many cars. They stopped buying homes. And even if you don't consume those goods, let's say you're not a wine drinker. Let's say you drive American cars. It will still drive up the costs of goods and service for you because it drives up the cost of living to people who consume anything in this economy.
I mean, when you think about it, we're tariffing the Chinese and ⁓ Sri Lanka and Cambodia, Pakistan. These are places where they make things that you buy at Nordstrom's or Walmart or Target or Amazon, right? Anything made out of plastic, anything made out of textiles, largely is being imported. And even if you, a physician, are able to pay these things, your people, the people who work for you that staff your clinics and your hospitals.
they're gonna be paying higher rates for those things. As a result, they're gonna need higher compensation. So there's gonna be wage inflation that goes with that. And you as the employer will feel it, okay? So that's the bad news. The good news is that I feel like physicians are relatively unimpacted by inflation in a lot of ways. So for example, I've seen physicians buy 80 and $100,000 cars. I've seen them buy $40,000 cars. Well,
In my mind, there's not a lot of difference in utility between a $40,000 car and an $80,000 car. So if there's a 25 % tariff, maybe instead of buying that $80,000 car, you buy a $60,000 car, right? So these inflationary shocks are not going to make or break your household expenditures. They're not going to make or break your retirement because the average consumer, middle income, lower income feels these much more strongly because they're closer to the bone.
Whereas us and the physicians that we serve, we're not feeling these so much because we have a larger portion of our income discretionary, right? In a sense, we don't like to burn it, but we do have money to burn. It's not like this is going to be our last dollar and we'll be out in the streets. Okay. So I think that the impact to physicians directly is mild to moderate. All right. So let's talk about what this does to the economy as a whole. All right.
So before I do that though, I wanted to find what is making air quotes here, the economy. The economy has to do with the flow of trade, whether it's inside the United States, outside the United States. You could just think of it as like the pace at which things are bought and sold. Every time something is bought or sold, there's a markup on that. There's a profit. Okay. And so you can think of this like a river with fish in it and where we're fishermen. Okay. And fish are women, by the way.
So we're standing on the edge of the river and we've got our net. Now, if there's a whole bunch of fish going up the river, then we just swing our net through there and we get more fish. Okay. And some of that we have to, you know, feed to our friends and family, but some of that fish we have leftover as profit, right? That we can sell and we can use for other things. Now, when that river flows more slowly and there are fewer fish to catch in the net, then there are less fish. And remember, we still have to eat to live. So we have less fish to sell.
which means they have lower profits. In fact, we may have no fish to sell or might have a deficit, right? And so that can be problematic. So the economy is the speed at which transactions occur. When those transactions slow down, become less profitable and some of them go out of business. So what do we do about the economy? Well, the Federal Reserve, the bankers that be,
⁓ They set short-term interest rates not intermediate term rates that dictate home prices and mortgages not long-term rates that dictate the rate of which the United States borrows but short-term rates that's really about the only tool that they have so the insidious thing about a tariff is a tariff brings economic stagnation at the same time that it brings increases in prices together we have stagnancy and inflation what they call stagflation
The last time we really saw this was in the seventies. And the last time we really feared it was the last time all these tariffs went on, particularly after COVID. All right. So usually the federal reserve will respond to a stagnant economy by reducing interest rates. This makes it more affordable to purchase a home. It makes it more affordable to purchase a car. It makes it more affordable to borrow for everything when they lower the interest rates. Okay. But when prices go up, that's bad because it's inflationary.
And the way the federal reserve typically fights inflation is to raise interest rates. So now if you're that federal reserve governor, you're in a tight spot because you're getting a stagnant economy at the same time that you're getting inflation. And so you want to lower interest rates, but you want to raise interest rates. So now you're really stuck in the crosshairs. Right? So what I have heard about this that makes sense to me is that perhaps this inflation will be transitory, which means that we'll get inflation.
but it won't keep going, right? So maybe prices increased by 10%, like they did last time we had inflation, but maybe they don't increase by 10 % every year. Maybe it's a 10 % bump one time, okay? So there's a chance that inflation could be transitory. There's also a really strong chance that we could have recession that last longer than recessions that we've had in the past, okay? So recession is just when the economy slows down. So if that's the case, the Federal Reserve might say, hey,
Inflation is not here to stay. It's temporary. It sucks, but we're not going to, we're not going to fight it by, you know, dealing with raising interest rates. Instead, we're going to fight what we believe to be the recession that is coming and will linger, in which case they would lower interest rates. Now, all of these things that I've told you so far are factual, rational, and logical. But if anything we've seen in the last two months, things are not factual, rational, or logical, and they're very fast paced.
So what can you do about it? Right? What should we as financial advisers do about it? Well, I'm going to tell you to stay the course, but for a different reason than I've told you in the past. In the past, there've been bad things that have happened that have been, you know, kind of natural disasters like COVID or, um, you know, unforeseen events that were market crises or bank crises like we had in 2008 or just.
Greed and fear showing their cards back in 2000, we had the dot com bubble or weird stuff when the thai baht imploded in 1998 when I started in this business. Okay. So those are kind of unavoidable. ⁓ as the Oregon ducks football coach would have called this, these are self-inflicted wounds. This is us fumbling the ball that is in our own hands. Right. And so all of this could reverse itself. If we decided to unfumble the ball, if we decided to back down on tariffs, it could go away.
in a very brief time period, there will be long-term consequences because these actions by our government have shaken the faith of other countries and their faith in us is printed right on our dollars. It says in God we trust, right? So it's shaken the faith. That's a long-term impact. Short-term impact could go away. So as I think about like maybe repositioning a portfolio or changing behavior,
I'm concerned that even if I knew what the right thing was to do for these circumstances, those circumstances could completely change overnight as we have seen many changes overnight. Right? So my advice to you is if you're doing the right thing, which is say that your portfolio is positioned for your time, which is say, ⁓ if you're looking at retirement in 30 years, you know, you probably have a fairly aggressive portfolio.
But this regime will be over in 30 years. It might be over in four years or eight years. Right. So that's what long-term means. So stay the course. If you're in retirement, there's a chance that if we're running your money, that it is relatively conservative. There's a big chunk of that that's in bonds and bonds have buffered this lately. Right. But if you're one those folks that is quote unquote, stacking VU, which is say you're stacking shares of the S and P 500 VO.
You need to take another look at your portfolio because they're not really diversified. If you don't have exposure to international, you can have exposure to emerging markets, then you are betting on the United States, which has been a great bet for the last 80 years, but I got to tell you, things are changing. Right. So you might relook at having a 100 % equity portfolio. You might relook at having everything invested in the United States. Right. But other than these things, I cannot think of anything immediately.
that physicians should be doing. And I also think that this will pass over time, even if we do, or even when we do have a recession, it won't last forever. And the chances are that you're going to need your money for a lot longer than the next three years or the next seven years. So what can you do about it right now? Okay. If you are not happy about what happened, ⁓ I don't blame you, but about the only thing you can do that I can think of would be to call your congressperson.
If you don't like what's happening, give your Congress person a call and make your voice known. That's about all you can do because I think we're stuck with the stuff until November of 2026. Okay. Which is the next time that we have a midterm election when Congress may change because Congress ultimately should have control over tariffs. do that. They do have the power to do so, but what can we do as mere mortals and mere retail investors? Probably the best thing for us to do.
It's the same thing that we would have told you to do for all these crises all the time, which is stay the course. And of course, we want you to stay tuned. So this is the Physician Family Financial Advisors podcast. If you're looking for an advisor and you're not sure if we're a match or not, go to Physician Family, tap on the get started, take a little quiz and we'll see if we should talk. Or if you have more questions that we haven't addressed today, send questions to podcasts at physicianfamily.com and we'll see if we can get those on the show.
And until next time, remember, you're not just making a living, you're making a life.
