U.S. Tariffs and China, Inflation, AI and Jobs, Oil Prices, Trusts and Retirement Accounts, Money Market ETFs, The Vatican, Gig Workers, U.S. Consumer & Cisco Systems Inc.

U.S. Tariffs are hurting China

Exports from China have dropped dramatically which has weighed on China’s economy. This has caused protests due to lost jobs and wages in their economy. Exports from China to the United States dropped 20% in April, but China did pick up exports from other countries like Indonesia, Thailand and Africa. While this may help a little, the export dollars for China to these other countries pales in comparison to the mighty consumption of the US consumer.

China’s economy depends on exports considering the fact that in 2024 1/3 of GDP growth came from exports. The Chinese government is panicking a little bit with the central bank in China saying it would cut interest rates and inject more liquidity into the financial system. Some factories in China are pausing their production and laying off workers until things pick up again. Goldman Sachs estimates that roughly 16,000,000 jobs in China come from exports to the United States.

With the news that tariffs are being lowered for 90 days it will be interesting to see how companies and these countries react. The US will still have a 30% tariff on many Chinese products, but that is much more manageable than the 145% that was in effect. It is important to remember this is a pause and that rhetoric could pick back up as negotiations continue. I do believe a reescalation in the trade war would really hurt the Chinese economy more than ours and I’m optimistic we will see a trade deal reached, but it will likely take time. I believe it is worth waiting for as a better trade agreement will benefit us for decades down the road.

Inflation continues to cool

The headline Consumer Price Index (CPI) for the month of April came in at a 12-month rate of 2.3%, which was below the estimate of 2.4% and marked the lowest reading since February 2021. Core CPI, which excludes food and energy, came in at 2.8% which matched expectations and was in line with March’s reading. Energy was a major help to the headline number as it fell 3.7% compared to last year with gasoline in particular down 11.8% over that timeframe.

While this is all great many economists are worried about what the next few months will look like on the inflation front due to tariffs. Joseph Gagnon from the Peterson Institute for International Economics said he believes a 10% average tariff rate would add as much as 1 percentage point to the CPI after about six to nine months. While I would agree with the idea that inflation will likely increase in the months ahead, I still don’t believe it will be to a problematic level for two reasons.

First, we should remember there are several players that can absorb the costs from these tariffs. You have to consider the companies importing products can reduce their margin, there would be shipping/transportation companies that can reduce their costs, the companies manufacturing products can lower their prices, and then yes, the consumer is the last piece of the puzzle that could now have higher prices. With all that said I don’t believe a 10% tariff would result in a 10% increase in prices due to all the places in the supply chain that can absorb some of the cost.

The second reason I wouldn’t be overly concerned is I wouldn’t see the tariff as embedded inflation and it could likely be viewed as a one-time lift to prices that would then be lapped next year. Nonetheless this story will be interesting to monitor in the coming months to see what the actual impact is, but I do remain optimistic about our economy and the inflation outlook. 

Could artificial intelligence create more jobs?

Many people think that artificial intelligence, also known as AI, is going to reduce jobs for people. The CEO of IBM, who admits that AI has replaced hundreds of workers, said it has created more jobs than it has eliminated. He went on to say it frees up investment that the employer can put to other areas that include such jobs as software engineering, sales, & marketing. Normal things like creating spreadsheets and other routine tasks can be done with artificial intelligence, but it still takes a human to do the critical thinking on how to use that data to enhance business for the company. If you’re working for a company and you don’t have much contact with other workers that relate to your job, your job could be at risk of being replaced by AI. Make sure your job involves using data to work with other people, which should give you job security in the growing world of AI. 

Oil at $50 a barrel?

There is talk that we could see oil drop from around $60 a barrel down to $50 a barrel, which would be a big benefit for consumers at the pump. The reason for this is that OPEC and its allies are increasing production of oil faster than anyone expected. By June they could be producing nearly 1,000,000 more barrels of oil per day compared to current levels. The United States is currently the number one producer of oil in the world with production of nearly 15,000,000 barrels per day.

If you’re wondering does that meet our consumption? It does not as that stands at 19.6 million barrels per day. OPEC is not taking this sitting down and they want to regain market share. To do it appears they’re willing to see lower oil prices. The reason why oil prices are expected to drop is that the demand is about the same as it was just one year ago, so the increase in production means we’ll probably have an oil glut for a while. At $50 a barrel most oil companies can still make money off of producing oil, but US oil companies might stop doing stock buybacks and could no longer build new wells. What this would do is hurt supply in the future and oil would turn around and increase once again.

If you invest in oil companies, you have to realize that supply/demand of oil will rule the price of the stock. But fortunately, most of the big oil companies pay a good dividend, which makes it a little bit easier to hold on when the stocks have a temporary decline. For consumers, this means the average cost per gallon of gasoline across the country, which is now around $3.20 per gallon, could drop to levels around $2.50 per gallon.

Consumers in California may not see declines in the prices at the pump as California continues to drive refiners out of the state and reject refined gasoline from other states that do not meet a ridiculously high standard. If you want to blame someone for higher gas prices in California you can blame the governor and Sacramento for ridiculous policies on gasoline.

Financial Planning: Trusts and Retirement Accounts Do Not Mix

Naming a living trust as the beneficiary of a retirement account—such as an IRA or 401(k)—is generally not a good idea due to potential tax inefficiencies and administrative complexity. Under the SECURE Act, the "stretch IRA" option has been largely eliminated for most non-spouse beneficiaries and replaced with a 10-year rule requiring the entire account to be withdrawn within a decade of the original owner's death.

If a trust is named as the beneficiary and it isn’t specifically drafted to be the beneficiary of a retirement account, it may not qualify for this 10-year treatment and could face even faster distribution requirements, such as a 5-year distribution period, accelerating taxes significantly. Instead, it’s typically better to name individual beneficiaries directly on retirement accounts to preserve flexibility and minimize tax impact.

For those needing control over distributions—for example, to protect minor children or spendthrift heirs—a carefully drafted trust designed to meet IRS requirements should be used with the help of a qualified estate planning attorney. For most other cases, listing actual people or charities as beneficiaries is a much simpler and more efficient strategy.

Should you use the new money market ETFs?

Over the last 10 years money market mutual funds have grown by 150% to $6.9 trillion from $2.75 trillion just 10 years ago. That far outpaces the growth of the average US stock fund, which only increased by 70% over the 10-year period from $9.5 trillion to $16 trillion. A positive for investors is fees on US stock mutual funds have fallen by almost 40% to 0.33% annually from 0.54% according to MorningStar.

Money market funds even though they have increased their assets by 150% actually saw their expenses rise to 0.21% from 0.19%. To catch people off guard, they have now come out with money market ETFs, but don’t fall for it. These new types of funds have not been tested yet and I fear investors will not understand how they work. Remember a true money market fund cannot break the dollar share price, but to the unknown investor who thinks it’s better to be in a money market ETF they are at risk of price fluctuations.

You may not like that the money market mutual funds have raised their fees a little bit but keep in mind for 10 years many of these companies waved all their fees because the yield was so low. They can now make a little bit of money off of these money market funds while still offering a yield that is more attractive than your checking/savings account in most cases. 

The Vatican has a financial mess on their hands

I was disappointed to learn that the Vatican is in a financial mess that I don’t see how they can get out of. Wall Street Journal reporters met with officials from the Vatican‘s bank, pension fund and regulatory institutions and things that were discovered were appalling in my opinion. It was discovered that nuns kept ledger’s that were written in pencil on paper. That’s shocking considering where technology is in today’s world! I remember from my accounting days, even back then it was a huge no no to use a pencil.

It appears auditors and people in charge have come and gone, scratching their heads by finding such things as huge amounts of money missing and there was even cash found in shopping bags. In the 19th century, they used to tax rich farmland owners that is now central and northern Italy. In 1870 it was taken away from the Vatican and it was only left with a 0.2 mi.² estate that is now called Vatican City. They do have investments including real estate, but no one seems to know the true value of those investments. They have priceless masterpieces from Michelangelo,

Caravaggio and Leonardo and over one million rare books, but they are carried on the balance sheet at only one euro because the Vatican has no intention of ever selling these assets. Unfortunately, they pay large insurance premiums on them, which is very costly. The pension plan had a 2 billion Euro liability, which at this time there’s no way for them to fund the full pension.

It’s a shame to see such a great religious organization in such financial ruin from fraud and deceit of those who were entrusted. Instead of trying to fix the problem, the only thing they have come up with was to ask the faithful to donate more money. The Vatican was actually built in the fourth century, but in its current state it has only been around for about 90 years. Hopefully they will get their situation figured out and get their books in order. They need to have a regular audit by outside auditors on a yearly basis to protect the future of the Vatican, but how do you audit and question the Pope? 

Gig workers may be better entrepreneurs

A gig worker is someone who is an independent contractor and takes on short term contracts for multiple companies. In a study from US tax records from 2012 to 2021, 2 1/2% of gig workers created their own company compared with only 0.7% of the working age population. Reasons that were submitted for this was they have the flexibility to start a business compared to someone working at a company for 40 hours a week. The flexibility gives them the opportunity to set up their business on their schedule instead of working 9 to 5 for an employer.

It was also discovered that the average age of gig workers that started their own company was 38, which compared to non-gig workers at 41 years old. Gig workers being more entrepreneurial makes sense to me since they work on their own and are not told what to do. In the beginning the gig entrepreneurs had higher gross profits than others who started businesses. Profits were 39% higher for gig workers after one year and after three years it rose to 42%. Unfortunately, companies founded by gig workers don’t survive as well, it appears they’ll take on a higher risk than the average person.

The likelihood of surviving the business for a gig worker was 69.4% after one year, which was below the 72% chance of survival for working age people. By year three, the chance of that gig worker’s business surviving was 45.2% versus 48.4% for the working age population. It takes a special person to become an entrepreneur and run their own business. I never forget the old saying about owning you own business: the best thing is you can set your own hours, between seven in the morning and seven at night and even that might be generous. If you want a good successful business, the best advice I have found is to work extremely hard and put in a lot of hours. 

The US consumer still looks strong

April retail sales were quite impressive when you look at the results compared to 2024. Listening to the news I thought it might be problematic as they pointed out the month over month growth of just 0.1%, but compared to last year they grew 5.2%. It’s even more impressive if you exclude gas stations as retail sales would have grown 6.2%. This is due to the fact that lower gas prices caused sales at gas stations to be down 6.8% compared to last year. There is no doubt about it that tariffs caused some pull forward in demand with areas like motor vehicle and parts dealers seeing sales climb 9.4%.

Furniture and home furnishing stores, which would also likely be impacted by tariffs saw sales climb 7.8% compared to last year. The one area that I really find interesting though is food services and drinking places, which saw sales climb 7.8% compared to last year. This tells me the consumer is still feeling confident as this area is quite discretionary and if people are worried about the economy they generally cut back on spending at restaurants. Also, there would be no pull forward in demand from the tariffs in this space. 

Did Cisco finally reach its high set back in 2000?

When I was watching the business news on Thursday morning, I noticed that Cisco, symbol CSCO, had passed $65 a share. I thought this was a big accomplishment because I remembered back during the tech boom Cisco was like Nvidia and some other high flyers of today and the stock went to exorbitant levels of which I remembered at $65 a share. However, when I looked back to see the high for the stock that occurred on March 20th, 2000, I noticed it hit $79.38 a share. So, investors who were sucked into the hype and bought the stock at that level still have not broken even.

The company does now pay $1.64 in yearly dividends so perhaps when you add that back in, you get to break even or perhaps even a little return on the stock. The first dividend was paid by the company on April 20th, 2011, but I know it was a much lower rate than $1.64 of today. With estimated earnings for July 2026 from the mean of 23 analysts at $3.99 the forward PE is about 16.3, which is reasonable, but I wouldn’t say it’s on sale and worth buying at this level. I wrote this piece not to recommend a buy or sell on Cisco stock, which I do think is a good company, but to bring back history because if you don’t remember history, then you’re probably doomed to repeat the same mistakes.