Podcast Summary: The Long View – Ep. "Cullen Roche: What Tariffs Mean for Your Portfolio"

Release Date: April 22, 2025

Hosts:

• Christine Benz – Director of Personal Finance and Retirement Planning for Morningstar
• Dan Lefkovitz – Strategist for Morningstar Indexes

Guest:

• Cullen Roesch – Founder and Chief Investment Officer of Discipline Funds, Head of Orkem Group, Author

Introduction

In this insightful episode of The Long View, hosts Christine Benz and Dan Lefkovitz engage with Cullen Roesch, a seasoned investment expert, to unravel the complexities surrounding the impact of tariffs on investment portfolios. Released on April 22, 2025, the discussion delves deep into the economic underpinnings of tariff policies, their broader implications, and strategic investment approaches in volatile times.

Tariffs and Economic Misunderstandings

Timestamp: [01:31] – [07:42]

Cullen Roesch critiques the recent Trump-era tariff policies, terming opposition as "Tariff Derangement Syndrome (TDS)." He emphasizes that the backlash against tariffs often stems from a fundamental misunderstanding of global economic dynamics.

Key Points:

• Misconception of Free Trade: Roesch argues that free trade systems have historically been designed to benefit the United States, contrary to the narrative that the U.S. has been exploited by free trade.

  “The free trade system is actually a system that was largely built by the United States to benefit the United States.” – Cullen Roesch [03:15]

• Manufacturing Employment Reality: He highlights the decline in manufacturing employment from 40% to 7.5%, attributing it to a natural economic evolution towards a tech and services-based economy rather than solely to tariffs.

• Current Account Deficit: Roesch downplays the significance of the $1 trillion annual current account deficit in the context of the U.S.'s robust domestic income and vast private sector wealth.

  “The current account deficit... is not nearly as important as I think some people justifying tariffs would make it seem.” – Cullen Roesch [05:10]

• Reserve Currency Status: He defends the U.S. dollar's reserve currency status, attributing it to the global preference for engaging with the largest and most productive economy rather than any coercive imposition.

Assessing the Justifications for Tariffs

Timestamp: [07:42] – [09:54]

When questioned by Dan Lefkovitz, Roesch acknowledges that while he doesn't entirely dismiss the justifications for tariffs, he finds them largely unconvincing compared to the potential negative repercussions.

Key Points:

• Negotiation Tactic: Tariffs can serve as leverage to negotiate better trade terms, a strategy occasionally successful under Trump's administration.

• National Defense: The COVID-19 pandemic exposed vulnerabilities in supply chains, which tariffs aim to address by promoting domestic production. However, Roesch remains skeptical about the effectiveness of tariffs in significantly bolstering national defense capabilities.

  “I struggle with the idea that the United States is somehow incapable of potentially defending itself in a war just because... we have the largest military in human history.” – Cullen Roesch [08:45]

Winners and Losers in the Tariff Regime

Timestamp: [10:16] – [14:20]

Christine Benz prompts Roesch to discuss the sectors poised to benefit or suffer from sustained tariffs.

Key Points:

• Beneficiaries: Roesch humorously mentions Big Tech potentially benefiting through exemptions, but cautions against seeing specific sectors as true winners due to the broader economic "invisible tax" imposed by tariffs.

  “Milton Friedman referred to tariffs as an invisible tax.” – Cullen Roesch [11:00]

• LOSERS: Consumers face higher prices on goods, disproportionately affecting the poor and middle class. Additionally, reduced competition can stifle innovation and economic growth across industries.

• Economic Inequality: Tariffs tend to be regressive, increasing costs for necessities that lower-income groups rely on, while offering minimal benefits to the intended beneficiaries.

Inflation and Recession Concerns

Timestamp: [14:20] – [16:47]

Dan Lefkovitz inquires about the dual concerns of inflation and recession amidst rising tariffs.

Key Points:

• Inflation Impact: Roesch distinguishes tariffs from sustained inflation, suggesting tariffs may cause a one-time price spike without leading to ongoing inflation unless maintained over prolonged periods.

  “Tariffs... cause a one time adjustment in the price level.” – Cullen Roesch [15:00]

• Recession Risks: The greater concern lies in the potential economic slowdown due to uncertainty, reduced business investment, and decreased consumer spending, which could culminate in a recession.

  “The risk of economic slowdown and recession is probably the more worrisome part here.” – Cullen Roesch [16:00]

Investment Strategies Amid Tariff Uncertainty

Timestamp: [16:47] – [29:34]

The conversation shifts to investment strategies, with Roesch advocating for a time-horizon-centric approach.

Key Points:

• Defined Duration Investment: Roesch introduces his methodology, likening it to bond laddering, where different asset classes are aligned with specific time horizons to mitigate uncertainty.

• Investor Behavior: He observes that investors often react to market volatility by selling stocks for cash, driven by the need for certainty rather than fear of the market itself.

  “You're selling stocks to get cash because cash gives them certainty of time and that gives them the ability to be more comfortable over a specific time horizon.” – Cullen Roesch [18:30]

• Asset Allocation: Emphasizing the importance of aligning investments with personal time horizons, Roesch encourages investors to maintain a diversified portfolio that can withstand short-term volatility without necessitating panic-driven changes.

Fixed Income and Bond Strategies

Timestamp: [33:40] – [41:06]

Christine Benz and Roesch delve into fixed income strategies, particularly in the context of recent treasury market volatility.

Key Points:

• Disaggregating Bonds: Roesch criticizes bond aggregates for lacking certainty over specific time horizons and advocates for individual bond components to provide clear, predictable returns.

  “I’m a big advocate of disaggregating a bond aggregate into its individual components and actually ripping out the individual time horizons.” – Cullen Roesch [34:50]

• Safe Haven Status of Treasuries: Despite recent yield spikes, Roesch remains confident in U.S. Treasury bonds as the safest investment, citing the unparalleled size and security of the U.S. economy.

  “I don't see a scenario where... German or Japanese government bonds become really close competitors in terms of their safe haven stature.” – Cullen Roesch [38:50]

The Federal Reserve's Influence and Policy Risks

Timestamp: [41:06] – [44:01]

The discussion addresses potential political interference with the Federal Reserve and its implications for monetary policy.

Key Points:

• Fed Independence: Roesch warns against political pressures that could compromise the Federal Reserve's ability to implement unbiased monetary policies, potentially exacerbating inflation.

  “There could be a risk of this more sort of pro cyclical monetary policy where they're operating more in tandem with the government.” – Cullen Roesch [42:30]

• Potential Fed Chair Replacement: He speculates on the risks associated with replacing Fed Chair Powell with a more politically aligned individual, highlighting the danger of interest rate policies being swayed by political agendas rather than economic indicators.

Behavioral Traps and Investment Discipline

Timestamp: [44:16] – [46:26]

Roesch shares insights on avoiding behavioral pitfalls in investing, drawing from his macroeconomic studies.

Key Points:

• Avoiding Emotional Decisions: Understanding macroeconomic fundamentals helps investors resist the urge to make reactive, emotional decisions during market volatility.

• Staying Diversified and the Course: Emphasizing the importance of diversification and maintaining a long-term perspective to weather short-term market disturbances.

  “Understanding these things at a more fundamental level helps you stay the course, especially in the course of these very acute volatile environments like we're going through today.” – Cullen Roesch [45:00]

Discipline Fund ETF Strategy

Timestamp: [46:45] – [51:28]

Cullen Roesch discusses the performance and strategy behind his Discipline Fund ETF, which has outperformed in the tactical asset allocation category.

Key Points:

• Behaviorally Robust Portfolios: Inspired by John Bogle, Roesch developed a portfolio strategy that adjusts based on countercyclical metrics like credit spreads to maintain investor comfort and stability.

  “The goal of this methodology is to do something similar to what Bogle was trying to implement, where you're doing something that's very systematic, something that is really, it's helping you stay the course.” – Cullen Roesch [47:50]

• Countercyclical Rebalancing: By rebalancing away from dominant market trends during volatile periods, the fund aims to mitigate excessive volatility while capturing meaningful market upswings.

• Credit Spreads as Indicators: Rising credit spreads signal increasing economic risks, prompting strategic adjustments within the fund to protect against potential downturns.

Insights on Credit Spreads and Market Sensitivity

Timestamp: [51:28] – [53:53]

Roesch elaborates on the significance of credit spreads and their implications for the current economic environment.

Key Points:

• Rising Credit Spreads: An increase from 7% to 10.5% signals heightened risk, particularly for lower-rated entities, indicating potential economic stress.

  “Credit spreads are saying there is a rising risk of sensitivity at the balance sheet level for a lot of, especially the lower rated entities in the economy.” – Cullen Roesch [52:20]

• Economic Slowdown Indicators: Persistently increasing credit spreads could forewarn of a deeper economic slowdown due to reduced cash flow and investment activity.

Upcoming Projects and Conclusions

Timestamp: [53:53] – [57:29]

Roesch touches upon his forthcoming book, "Your Perfect Portfolio," aimed at helping investors identify portfolio strategies that align with their personal needs and time horizons. He emphasizes the importance of customization in investment portfolios to suit individual circumstances.

Key Points:

• Book Overview: The book examines 23 popular portfolios, providing a deep dive into each to assist investors in finding strategies that work uniquely for them.

  “My goal is to help people find the portfolio that works for them... you have to find somebody that works for you.” – Cullen Roesch [55:00]

• Final Thoughts: Roesch reiterates the necessity of maintaining diversified, long-term investment strategies and acknowledges the behavioral challenges investors face during turbulent times.

Conclusion

In this episode of The Long View, Cullen Roesch provides a comprehensive analysis of the current tariff policies and their multifaceted impact on the economy and investment portfolios. By advocating for time-horizon-based investment strategies and emphasizing the importance of diversification and disciplined portfolio management, Roesch offers valuable insights for investors navigating uncertain economic landscapes. His forthcoming book promises to further aid investors in crafting personalized and resilient investment strategies.

For more information, subscribe to The Long View on Apple Podcasts, Spotify, or your preferred podcast platform. Follow Christine Benz on X and LinkedIn, and Dan Lefkovitz on LinkedIn for additional insights and updates.