Hello all!
It’s been a few months since I’ve written a newsletter, but needless to say, we’ve been busy closely monitoring the many market and geopolitical events unfolding at a rapid pace. In this edition, I’m sharing a few market comments, geopolitical observations, and some personal updates. And you’ll be happy to know—future newsletters won’t be nearly as lengthy!
Markets
On average, the market delivers two positive years for every down year, with most years experiencing a 10% or greater mid-year correction. If you tuned out all the news, the current correction on a chart would otherwise look quite normal and relatively orderly, following two years of 20%+ equity returns. It’s helpful to view this correction in the context of history, though I’m closely watching two key differences this time: tariffs and private credit.
For perspective, we saw nearly a 10% drop in the summer of 2023. But 2022 was the last time markets had a negative year—and it was also the only time since 2008 that markets finished down more than 10%. Of course, every period in history is different, with distinct causes for concern that negatively impact markets. In 2020, COVID-19 caused a sharp 30% drop followed by a quick recovery. In 2022, it was inflation. By the summer of 2023, the Fed had stopped increasing rates, and markets were hoping cuts would soon follow—they didn’t, for nearly another year.
Today’s primary concern can largely be distilled into one key driver: tariffs. It’s not just the potential for higher input costs, but also the uncertainty of knowing the actual cost of goods. If you’re a retailer, uncertainty over whether you can pass those costs on to consumers—or whether factors like tax cuts will offset them—can lead to delays in taking on risk. That, in turn, slows economic activity.
In 2020, I believed the life cycle of the correction would be short-lived, as herd immunity was inevitable—ultimately presenting a tremendous buying opportunity. For 2025, the life cycle of a trade war is far more difficult to predict. That said, a trade war still represents a relatively small portion of overall activity. About 70% of our economy is driven by consumer spending, which is mostly unaffected by tariffs, and only around 10% of consumer goods are sourced from imports (according to the Fed Reserve Bank of SF, 2019). A large share of spending is on services (like healthcare), which are not directly impacted by tariffs. Many businesses facing tariff-related challenges are slowing down due to the uncertainty, but I do believe this represents another buying opportunity. I just can’t predict where the bottom will be—or how long we’ll experience volatility.
In my view, one of two developments could restore the bull market: consummated trade deals or the Fed lowering rates. If either happens, I believe the market recovery would be swift. Through all this, interest rates have already dropped considerably. This is generally a sign of an economic slowdown and lower inflation, which could give the Fed reasons to cut rates—especially if the slowdown accelerates.
From a broader perspective, the U.S. market entering 2025 was already expensive by historical standards. As such, our base case called for lower returns than the prior two years—likely single-digit returns—though there remain pockets of opportunity (for example, international markets, which have recently started to outperform). And yes, I’m still bullish on the transformational power of AI.
We remain fans of gold and have recently increased our allocation to Treasuries in more conservative accounts. As Merrill’s economist Dave Rosenberg used to call it when we were both at Merrill, we like the “bond/bullion barbell” as a hedge. Longer-term, for aggressive investors, trying to time the market during disruptions like this is nearly impossible—and often counterproductive.
Geopolitics
Whew, what an active start to the year! Tariffs, trade wars, Ukraine, Gaza, UAP’s, Greenland, Canada, Gulf of America…
In my business, it’s never wise to make investment decisions based on ideology or geopolitical predictions. It’s harder than ever to avoid that temptation, but I remain focused on following the money and the economics, while doing my best to sift through actual news versus news designed to influence opinions. YOU and being good stewards of your money are what we care about.
One thing is certain: we are entering a new series of paradigms, and change is always unsettling. You may have heard of the concept of the "Overton Window," referring to topics considered acceptable for public discussion. That window is now far wider. UFOs (or UAPs) in New Jersey? A #1 podcast on Spotify discussing telepathy? It sounds like The X-Files, which I so enjoyed in my younger years! And yet, news that dominated headlines just a few months ago is quickly forgotten in favor of the latest political headlines out of D.C.
You might be thinking, “Great Matt, tell us something we don’t know!” How about this: many companies are using AI to improve the safety and efficiency of nuclear power, including micro-reactors as small as truck containers—aimed at eventually replacing carbon energy. Or this: an aviation startup (Boom) successfully flew a passenger jet supersonically, with the ability to avoid sonic booms over land. Or that brain to body/robot interfaces are enjoying rapid progress… perhaps finding solutions to those paralyzed in our lifetimes. We don’t have minutes in the day to keep up with everything going on, but there are still exciting developments happening all around us. And sometimes the best news is both simple and local—like a neighborlending a handwhen you least expect it. It is not all bad news and who knows… maybe it will end up just fine. As it has through so many difficult times in our history and remains the most likely scenario. Even if the future is different.
Since 2022, I’ve consistently recommended following your hurricane checklist: “Plan for the worst, hope for the best.” It’s never a bad strategy. That’s true in investing as well—keep cash on hand in case things get more volatile, but stay invested for the long term to capture competitive returns. And watch for buying opportunities.
Planning Thoughts
As of now, most believe that many (if not all) provisions of the Tax Cuts and Jobs Act of 2017 will be extended beyond their current expiration at the end of 2025. We are watching this closely and will keep you informed—especially regarding potential changes to items like the SALT tax limitation. It’s not unprecedented for extensions to occur after a deadline, which would present interesting planning decisions. For instance, the estate exemption could drop from just under $14 million to $7 million for some period—until new legislation is passed.
Separately (and unrelated to the current administration), we’ve seen beneficial ownership requirements for certain business owners (www.fincen.gov) undergo one of the most dizzying “on-again/off-again” application processes we’ve ever experienced. As of now, this requirement appears to have a deadline of March 21, just a few days away.
We’ll continue to keep an eye on important developments. In the meantime, attached is a handy 2025 Tax Guide.
Personal
SERIOUS kudos to Martha, who helped us update our website after many years! We’ll have blogs that include these newsletters, as well as events we’re participating in (for example, I’ll be speaking at the DIG Tech Summit). Martha is also launching a brilliant series called Money Minutes with Martha, where she’ll cover important financial topics in just a few minutes. Big shoutout to a few friends and clients who sat down for video chats about what it’s like to be a client. We did a “call-out” for this a while ago—let us know if you’d like to be part of it!
A few weeks ago, we had a retreat with your Harbour team at Wild Dunes. We’ve done this since 2021, and it’s a wonderful opportunity for our team to connect, assess what’s working, identify areas for improvement, and enjoy fellowship with our families. We haven’t advertised it much, but you might be interested to hear our mission statement:
At Harbour, our mission is to empower our clients with sophisticated, personalized financial strategies that secure their financial future and enable them to make a positive impact on their families, communities, and the causes they care about. We pride ourselves on a unique and successful investment approach, always putting our clients' total well-being at the forefront of everything we do. Within our firm, we cherish a culture where we treat each other as family, fostering a supportive and collaborative environment that reflects our commitment to serving with integrity, expertise, and a deep sense of responsibility. Together, we ensure that our clients achieve their goals while contributing to a better world.
Personal Note from Chris
Matt mentioned the importance of family in an earlier paragraph. Late last year my 55-year-old sister was diagnosed with an aggressive form of lung cancer. In December, she had surgery at MUSC to remove a portion of her right lobe. The surgery went well but the pathology report revealed microscopic tumors in the tissue. Tumors so small they don’t show up on scans and tests. In February, I accompanied her to M.D. Anderson in Houston for a second opinion only to be summoned home immediately due to my 86-year-old father’s failing health. He passed away peacefully just before we arrived bedside. I mention this because we’ve either been through it, are going through it, or will go through it…….whatever your “It” is at the moment. This experience coupled with raw emotion have changed the way I view relationships and people. I hug more frequently and for a little longer now. I focus more on being “in the moment”, not just “at the moment.” I try to be selfless and think of other’s needs before my own.
Finally, apologies for this newsletter being essentially a small book! We plan to send more frequent—but much shorter—notes in the future. As always, call us if you have questions!