Episode 196 - Marks on the Markets: Tariff Shockwaves and Investor Values with special guest Deirdre Gibson
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ETF specialist for Praxis Investment Management Deirdre Gibson joins hosts Richard Cunningham and John Coleman in this month's Marks on the Markets. The team tackles the market impact of Trump's sweeping tariffs and reveal the surprising gap between what investors want and what advisors deliver. Gibson unpacks how Jesus' engagement with sinners offers Christians a blueprint for transforming companies through investment rather than simply avoiding problematic industries. The conversation delivers concrete market analysis alongside practical insights on how investors can weather economic uncertainty while staying true to their values.
Please note that the views expressed by the hosts and guests are their own and do not necessarily represent the opinions of Faith Driven Investor.
All opinions expressed on this podcast, including the team and guests, are solely their opinions. Host and guests may maintain positions in the companies and securities discussed. This podcast is for informational purposes only and should not be relied upon as specific investment advice for any individual or organization.
Episode Transcript
Transcription is done by an AI software. While technology is an incredible tool to automate this process, there will be misspellings and typos that might accompany it. Please keep that in mind as you work through it.
Richard Cunningham [00:00:00] You're listening to Faith Driven Investor, a podcast that highlights voices from a growing movement of Christ-following investors who believe that God owns it all and cares deeply about the heart posture behind our stewardship. Thanks for listening.
Intro [00:00:17] Hey everyone, all opinions expressed on this podcast, including the team and guests, are solely their opinions. Host and guests may maintain positions in the companies and securities discussed. And this podcast is for informational purposes only, and should not be relied upon as specific investment advice for any individual or organization. Thanks for listening.
Richard Cunningham [00:00:46] Welcome back, friends, to another episode of the Faith Driven Investor Podcast. It is the month of May, which is pretty hard to believe, honestly.
We're talking marks on the markets. I've got the one and only John Coleman with me in the podcast studio. John, we're about to say hey to our guest, Deirdre Gibson. Before we do that, how are you, man? What's new?
John Coleman [00:01:03] Richard, never a dull moment in markets today. You know, there are quarters where it's like super relaxed to be an investor and there are quarters where its not.
And we've started talking about this all year, but at least we got plenty of commentary for the Marks on the Markets episodes, Richard. I feel like we're never gonna be at a loss for content.
Richard Cunningham [00:01:22] No doubt, 2025 has brought it. Trump 2.0 has brought. We hit it last time in length with Bob Doll when we were doing Marks in the Markets with our tariffs. And we're probably gonna get into a little bit more of that today.
I know you're well briefed on the subject, but just for listeners out there, we're gonna get in to a lot of the market stuff on the back half of this episode. Deirdre Gibson's here as well to provide some market commentary. She's from Praxis Investment Management.
But before we do that, Deirdra, you have done a couple of really cool things lately that we wanna get into in terms of a talk at KA, some of the research coming out of your firm at Praxis. But before we go anywhere there, how are you welcome on to the FDI pod? What a joy to have you with us for your first official Faith Driven Investor podcast.
Deirdre Gibson [00:01:58] Well, thank you. It's absolutely a delight to be here.
Richard Cunningham [00:02:01] Awesome, and you're coming to us from Denver, kind of Littleton, just somewhere outside of the Denver area.
Deirdre Gibson [00:02:07] Yes, Denver, Colorado, the southern suburbs to be specific. Yeah, so I've got a fantastic view of the Rocky Mountain Front Range outside of my window as we speak.
Richard Cunningham [00:02:17] Not bad. Not bad and then your job title says you're an ETF specialist and one of the national sales directors at Praxis. So I think you need to set the record straight for just everyone out there. Can you tell us in layman's terms the difference between an ETF and a mutual fund?
Deirdre Gibson [00:02:31] Oh, yes, I love this question in part because for so long, I worked in finance or finance adjacent and I, I thought really that ETFs were basically just another kind of mutual fund.
So it is kind of in the name, right? You start with the fact that they're traded on the exchange. Okay, why does that make a difference? Well, if you're buying shares of mutual fund, you hand over a lot of cash will pretend it's a lot of cash. And that mutual fund manager has to do something with that. They're gonna turn around and buy some of the shares of the underlying stocks or bonds or whatever's in that mutual funds.
And likewise, when you wanna sell out of your mutual fund, they have to turn and sell some of underlying shares typically. And especially, you know, when do people wanna sell out often when things aren't going so well. So you're often, it's not such a great time, but all of those buying and selling transactions are taxable transactions.
Whereas, with shares of an ETF that are on the exchange, You know, it's all secondary market. Everyone's buying and selling from each other and from market makers. And all those shares are put there by a third party. It's called the authorized participant, the AP.
And that third party basically puts together the recipe of the stocks or bonds or whatever's in that ETF. And they trade it to the issuer in exchange for a bunch of shares of the ETF. That trade isn't taxable. And that allows portfolio managers to do all kinds of things to really avoid those tax implications.
So there's tax benefits, there's liquidity benefits, there's transparency benefits, which I think are super interesting from the point of view of a values-driven or faith-driven investor that you know day by day exactly what you own and how much of it.
And then, you know, a fourth one that ETF folks don't often talk about, but that's kind of close to my heart is that... The minimum investment is a share, or for some ETFs on some platforms, a fraction of a share.
So, you know, if you're opening up an account for your kid who's got $5, they might be able to get a diversified portfolio on day one, which is pretty special. I think, you now, I have a heart for people who are trying to get started in investing, and you know I think that's not often who the industry is set up to help, but I think it should be, I'd like it to be, and so that's one thing that I like about ETFs just for myself.
John Coleman [00:04:42] Yeah, what's interesting, before I joined Sovereign Capital, I worked at a big firm called Invesco for a period of time, and when I first joined, the ETF was already pretty cemented. This would have been 2012.
We had bought a firm called PowerShares at that time, which just became Inveso ETFs, and the ETF structurally just has so many advantages, I think, relative to the mutual fund structure. I know both kind of coexist today.
You highlighted it, the liquidity. The ability to create new ETFs at reasonably low cost that can index the market in different ways or provide different perspectives on the market. It's just become a really flexible financial instrument that the average person can access that can create differentiated exposures that would have been really challenging, I think, in the old model and can often do so in a less expensive way than a mutual fund could.
So it's a super fascinating instrument. It has been growing like gangbusters for 20 years now, I guess. I'm interested to see how much room there is to run. Maybe you know, I don't know what ETF penetration of public markets is today, and now there's direct indexing and things, but it feels like it's still a growing instrument right
Deirdre Gibson [00:05:51] Oh, for sure, absolutely. I think it'll keep growing for a long time, especially because, I mean, you mentioned the flexibility and that's another key difference.
You can put virtually anything into an ETF wrapper. And all of a sudden, regular retail investors, including, you know, your five-year-old with $5, can access options, alternatives, like real estate, all kinds of underlying commodities, futures, leveraged. I mean all kinds of products are available to the average investor that were not available previous to ETFs.
And I think that that piece is really going to grow, which of course, you know, it's a double-edged sword. Because if you think that an ETF is just going to be your regular vanilla stock and bond fund, and you haven't looked under the hood, even with these leveraged ETFs, you now, they have a certain timeframe to them.
And if you're not rebalancing your portfolio on the same timeframe, it's not like a 2X ETF is going to give you double over a month if their time period is meant to be daily. You really have to understand what's under the hood when you're looking at some of the hairier ETFs, kind of the spicy ones I call them, you know? Make sure, like, if you're not ready for spicy, vanilla's delicious, absolutely, stick with vanilla,
Richard Cunningham [00:07:02] Spoken like an ETF specialist, which I love. And so, Deirdre, that was actually quite a bit of the genesis of you coming onto the FTI podcast is a crowd that knows all about ETFs and mutual funds is our friends at Kingdom Advisors and the thousands of advisors that are tied up in that community.
And this year you gave a pretty seminal talk at the KA conference. And it was our good friend Amy Minnick who reached out to me and was like, hey, you all have to have Deirdra on the FDI pod. The conversation she led at KA was just moving.
And so I wanna give you a couple minutes to kind of just preview that. We're not gonna spend too much time here, but we'd love to hear a little bit about you and just kind of that conversation you led at Kingdom Advisors back in kind of early Q1 of this year.
Deirdre Gibson [00:07:39] Yeah, it was such a privilege to do it. And I really appreciated actually that the team at Praxis, you know, I came and I said, I really want to talk about this is really top of mind for me. And they said, you go for it, even though it felt perhaps a little bit dangerous, which is perhaps I shouldn't have because we were talking about the life of Jesus, like maybe I don't know, is Jesus dangerous perhaps in a way.
But part of it is, you I've been in this faith driven investment world for years and years now and I think a lot of us, when we look at the Bible to try to figure out what does it say about money, we look it, what does the Bible say about money, obviously, logically, like that's a normal thing. And there's a lot to be gleaned from that. There's a life that we have glean that from that, but I felt like there was also a lot to be gleamed from just looking at the life of Jesus.
And so what I mean by that is essentially in faith-based investing, there's three verbs, three actions you can really do. One of them is avoiding investments in companies or products or activities that are antithetical to your faith, not aligned with your values, all of that, right? One of the is to seek out those companies that have extra impact and blessing on the world. And then one of them is to engage with companies to make things better.
And I think the easiest one for most people to understand is the avoid side. Like that's simple. And it's simple to practice. Many forms of it are simple to practice because a lot of times it's just like, Okay, this is a cigarette company. The thing they make is cigarettes. It is a product that kills people when used as directed. Like, this a simple thing.
Whereas, you know, some things can be more complicated to understand it takes more analysis, more nuance. It frankly costs more money to pay for that analysis and nuance. So I think we head towards the avoid side. And actually this relates to the research you mentioned. So remind me, we'll come back to that connection.
But I think that the engaged piece is really a lot of what we see in Jesus' life. So the talk that I gave at KA really focused on Jesus engaging with the woman at the well, Jesus engaging the woman who was caught in adultery, and Jesus engaging with the women who poured out.
So there's actually more than one woman who poured perfume on his feet, right? But this was in Luke, I wanna say chapter seven and eight. So John had sent his people to say to Jesus, Are you the one? And he had said, tell them what you see, you know?
And then afterwards, Jesus is talking, presumably to the disciples or maybe just to the people who are standing there. And he says, John came neither eating nor drinking. And you said, oh, that guy has a demon. I'm paraphrasing slightly.
And then the son of man came eating and drinking. And you say, he's a glutton and a drunkard, a friend of tax collectors and sinners. And then the very next story Luke tells, he gets invited to the house of Simon the Pharisee and a woman, a sinful woman shows up and spends the whole time like weeping at his feet, washing with, you know, pouring the perfume, wiping with her hair.
And Simon is sitting there thinking like, what is wrong with this guy? He's letting this sinful woman touch his feet and all this stuff. And then he sort of gently points out like, Simon, you were supposed to give me a kiss when I arrived, you didn't do that, but she hasn't stopped kissing my feet. You were supposed to give me water to wash with, but you didn't do that. But she's been washing my feet with her tears. Those who've been forgiven much, love much."
And so it's just like, was he a glutton and a drunkard? No. Was he a friend of tax collectors and sinners? Oh yeah, totally. Guilty as charged, if you can call that guilt, you know?
So it really started to speak to me about what it means for us to engage in the marketplace. And when it comes back to this avoid... Seek, engage thing, there's only so much engagement you can do with a company you're not invested in.
Like you can write a letter, you can put something in the news, but what are you gonna really do to change somebody's hearts and minds? And is it really just like, we wanna change their behavior, but also I wanna change people's hearts and minds for Christ.
Like I want them to know who Jesus is. I want to be encountering Christians in the marketplace behaving as Jesus behaved with this powerful love and compassion and grace. And also, yeah, the go now and sin no more, but in this way that's not pharisaical, you know? I think he set the example, and I think there's opportunity for us as Christians in investments to do that with our investments.
John Coleman [00:12:03] Yeah, for sure. I mean, Deirdre, one of the things we focus on, so, you know, in my day job, I work at Sovereign's Capital, not always FDI. And our mission as a firm is to love God and love our neighbor through investing.
And one of propositions there is that the gospel is always more about what Christians are for than what we're against. Like, you mentioned Jesus always engaged with sinful women. He engaged with sinful everybody. That was one of hallmarks of Jesus, So it's not surprising that they were all. Sinful as well, and we all are, right?
But the idea is that the gospel is about how we help people flourish, how we love our neighbor, how we lean into others, and how Christians can be salt and light in a world that has struggles.
And one of the things that's embedded within that, I think, is if all we do is avoid, we actually lose our seat at the table. We lose our ability to lean into that.
And so two things we've been focused on. One is how do we create investment strategies that actually highlight companies that are creating human flourishing, that are leaning into this idea of love of neighbor? How do we funnel capital to entrepreneurs and business leaders who have this gospel mentality in the way they work with others?
And then in the case of companies where, that's not the case, where the leadership is different or where their focus is different, how do use our seat at the table through capital to speak into those, right?
We set up an advisory firm called Prosper Align, for example, that's intended to do corporate engagement. And proxy advisory for folks and the idea is when you have capital you have the ability to influence people but Christians have often lost that influence and a story I love to tell is you know in 1971 the very first kind of activist investor in the modern era was when the Episcopal Church engaged with General Motors over apartheid South Africa.
So at that time, the Episkopal Church held something like 0.03% or 0.003% of GM stock, but they opposed that company's operations in apartheids South Africa because they felt like they weren't abiding by human rights.
So they did the shareholder proposal at a board meeting to try and convince the company to take a stand against the acts of apartheid South Africa. They failed resoundingly. They were voted down by all the other institutional investors. I think they got two or 3% of the vote.
But their only ally was GM's lone blackboard member who just happened to be the pastor of a Baptist church in Philadelphia called the Zion Baptist Church. And his name was Leon Sullivan, and within a year after that, there was this movement to push all of corporate America to change its practices in apartheid South Africa. They actually called them the Sullivan principles after this GM board member.
And I think the church has lost that ability to kind of really speak into things, I think, in a constructive way where we're offering solutions. And this idea that we can use our capital to engage, I is one that's costless for Christian investors.
We have a voice by virtue of holding shares of these companies and our ability to then use that voice to try and put forward the values that we know to be true, the kind of values that we think Jesus would embrace, is a missed opportunity too often and one that is a huge opportunity I think for people, whether it's investment managers or institutions or individuals now.
Deirdre Gibson [00:15:19] Yeah, absolutely. It's so interesting. One of my devotionals over the weekend was talking about how Paul, speaking to the Greeks in Athens, I think, he had been walking around seeing all these temples everywhere to all of these different Greek gods, and he saw one to an unknown God.
And then when he was speaking, he's saying, hey, you guys have this temple for an unknown God. Like, let me tell you about this unknown God, and this devotion was all like, it was from the dwell app, in case anyone's wondering, really great app.
And it was really How he's using this to build a bridge across, this bridge is something that other people can come across that could lead to their eternal life. That's amazing. Let's not lose that opportunity by coming in with hostility where there are bridges that we could build instead.
Richard Cunningham [00:16:03] And the model I'm always reminded of is I've got a good pastor buddy here in Austin, who says, man, I am jealous of the people who get to go to work every day. He goes, my chance to interact with non-believers and do this engaged Deirdre that you're talking about is at the gas pump.
He goes I spend all day long inside the walls of a church talking to other Christians. And he goes, I just long sometimes to just kind of actually be out on the front lines. Powerful.
I just want to land the plane on this real quickly before we move on to that research. So what is maybe the practical application or how are you guys thinking about this or reconciling this? Because if the desire is to engage. What do we do with the cigarette company?
If we're shepherding and stewarding other investors' capital in the seats that we all sit in on behalf of other people and we have a fiduciary call, how have you thought about that Deirdre?
Deirdre Gibson [00:16:45] That's a great question, Richard. I have heard some folks say, well, you should just own everything, but nobody I know has unlimited time and resources and energy to engage with all of the companies and perhaps not with all of the company's on all of topics.
So what we at Praxis do is choose engagement themes and these themes last for multiple years. So my colleague, Chris Meyer is the lead engager in most of our company engagements, although our team is growing. So that may change in the future.
And he told me that it takes two years. Typically to build up that level of trust when you have a conversation going. And then once you have that trust built up where they know, hey, you're not just pitchforks at the gate. You're actually showing up. You care about this company.
You are invested in it. Your clients benefit from the company's wellbeing, but you're bringing to them these issues that are also risks for the company. I mean, that alone, like just having the patience to show up for a couple of years until the trust is built is really powerful.
Now, I had the opportunity to have an amazing conversation with Chris and also with an advisor who's been thinking about these things really deeply lately on Friday. And a big part of the conversation was, how do you know, like kind of like you said, it's a really important part of the process.
So we'd screen out a bunch of companies where like, we're going to shake the dust here. This is not the time and place for us. You know, again, I don't think we're gonna convince a cigarette company to stop selling cigarettes like that's. Not our jam. Maybe it's somebody else's, like, I hope somebody else is called to help them transition to hemp clothing or something, I don't know. But for us, that's not it.
And so we choose the themes where we can become experts, where we could partner with others. And so one of those themes has included the topics of child safety online. And I think a lot of us have seen some really shocking stuff. And it's everything, right? It's child sexual exploitation, it's also bullying, It's also mental health like there's a huge mental health crisis among Gen Z And all of that stuff kind of falls into like, what's going on with children and young people online.
And the conversation you were having with Chris, like part of the conversation, the question was being asked was like, at what point do you give up? As I'm listening to Chris talk about how he approaches this, and also as I'm thinking about my own background, which I spent two years as a full-time, like fighting human trafficking, that was my job.
And so I have like deep somewhere buried in my brain, a lot of stories I've really tried hard to forget, truly traumatizing stories about things that have happened to kids, to young people, around human trafficking and stuff like that.
And in my mind, like, well, there's no world in which these companies stop existing or stop dramatically influencing. Our society and our future and the world that our kids are gonna live in. So like, I don't want him to stop. I desperately want him to keep those conversations going as long as necessary. I wanna bring more people to the table.
For me, that issue, like, okay, with cigarettes, that's a whole thing because they have practices of targeting children in third world countries where they are not sufficiently protected. But we can at least pretend to ourselves for a moment that people have a choice about whether to smoke or not.
But I don't know that today people have a choice about whether to go online or not. Like that's not how we can live our lives very much. Even Chris himself who lives on a homestead like he built his house with his hands.
So yeah, I hope that he never stops and I hope others join us because it's so important that we have a seat at that table. Children's lives depend on it.
Richard Cunningham [00:20:11] Well, thank you for unpacking that. That's helpful framing. And now I want to kind of pivot into kind of speaking to Chris, the Praxis firm more broadly is this research that you all put out and this will be kind of our last topic before we go markets.
And it's pretty staggering on just when we're thinking about the financial advisor client relationship, something that you'll dove into was the client's desire to have these faith and values alignment types conversation with their advisors.
This exact thing we're talking about, is it negative screening? Is it leaning in to engage? What is the advisor doing at the firm level to do such a thing and the client's desire for that convo, but an advisor's apprehension to have the conversation. So give us a little bit of the kind of the primer on the research and what you guys found.
Deirdre Gibson [00:20:50] Yes, yes. So just to set the stage, the survey was filled out by over a thousand individual investors. We screened for people who are actually making investment decisions in their home, either alone or, you know, with their partner. But everything else was, you know, a representative sample of the American public, right? And then 400 plus financial advisors.
And around, I think, 67% of the investors are identified as being religious or spiritual in which, again, that matches up with the Pew Research is kind of the gold standard of like, you know, looking at, at least among secular institutions, I guess, looking religion in American life, and likewise with advisors.
But here was the thing, and you mentioned it, in several different ways that the question was asked, investors repeatedly said, it's really important to me that my advisor understand what my values are, understand what my preferences are, give me information, give me options about how I can align my investments with these. And consistently advisers. Underestimated how important that was to investors.
So in the ranges, I would say, of investors saying like 70% to 85% were saying that that's important and advisors more close to 50% to 60%. But only 9% of advisors said they initiate that conversation. A third of advisors saying they never initiate that conversation. They just don't have that conversation at all. Typically it's the investor bringing it up.
And now here's a really interesting thing to me. That's more investors than describe themselves as religious. So faith-filled investors, but also regular people who just have values really want to see those values at work in the world. And they want to them work in their money. And that's like something, they're coming to the advisor for expertise and the advisor is holding back from giving it. So then the question is why?
Richard Cunningham [00:22:44] Yep, absolutely. That's what was top of mind for me.
Deirdre Gibson [00:22:47] Right. So a best guess based on the data, you know, is that advisors really want to come up with the best financial solution. Like they are obviously, it's their job to be concerned about the financial outcomes and they're concerned that the faith driven opportunities aren't as good from various considerations.
I think in some cases, that's a misperception. And in other cases, I think it's a mis-perception about what the alternative is, because And this was one of the parts of the research that we thought was really surprising. A lot of investors, if their advisor isn't giving them these options, so investors are going off and doing this on their own.
Even investors who have a financial advisor are keeping money on the side and going off in investing on their on. And as far as we can tell, what are they investing it in? Sometimes mutual funds and ETFs and things that you wouldn't expect, but sometimes things that they, they check the box private equity.
And it had a description that was like direct investments in private companies. And I don't think that most regular retail investors have access to private equity, but I think they are talking about direct investments in private company, which could be small companies, like small businesses.
So I'm even wondering if it's like, years ago, my friend Jonathan, who asked me if he should pull all of his retirement savings out of his, he worked for a ministry. He was very upset that they didn't have any faith aligned options in their 403B. And he was like, maybe I should just pull it all and invest in this business in my neighborhood that's doing these great things. I was like please don't do that, Donovan. I want you to retire well and I don't think this is gonna get you there. And so I wonder if that's what people are doing, you know?
John Coleman [00:24:24] Yeah, there's definitely what we find as we talk to people is there's such latent demand for this, but often clients are very restricted by the platforms with which they operate with the financial advisors.
And one of the things I think that's been most constraining is that the larger platforms in particular, wire houses, et cetera, don't really allow their financial advisors the flexibility, at least on the investment side, to interfaith driven investing. Now. In terms of planning, in terms of life advice, I think there's greater flexibility for that. I think financial advisors serve as coaches for financial decisions.
But the frustrating thing we see is people get fired up about faith-driven investing and then they go to their advisor and they're at a wirehouse and they say, we really have no options for you. Or you can get in a Catholic screening fund that follows the bishop's guidelines that kind of negative screens some of your public equities, but that's it.
And so as people lean into the space, what's the solution for that? Because institutions are able to move right now. Often they're intermediated, but they have a little more discretion. Ultra-high net worth, high net worth individuals who are willing to go off platform have the ability to kind of allocate to funds, to investment managers that they're fired up about.
But there's this chicken and egg right now in the financial advisor community where most platforms effectively prohibit. Their clients from investing in things that are aligned with their faith and their advisors are stuck. They don't really have the opportunity. So if they get someone excited about it, often their only opportunity is to go off platform unless it's an independent advisor of Blue Trust or an Eversource or someone like that who is explicitly kind of faith oriented that has more flexibility as an RIA to get into those sorts of products and has a motivation to do that.
So what breaks that dam, so to speak, because most advisors do sit on broker dealer platforms or wirehouse platforms that effectively won't allow them to participate in the faith driven investing movement right now. What's the solution to that?
Deirdre Gibson [00:26:20] You know, I would tell those advisors, don't be afraid to be the squeaky wheel. Don't underestimate the power of your voice asking for those products over time because that is exactly what's brought those products on board with other platforms.
And I think there's a case to be made that clients at wirehouses are expecting the best. They're expecting the fullest spectrum of the best of what's available out there. In a lot of wirehouses, they know that they have the clout to make certain demands.
So speaking from an issuer standpoint, they can demand a certain amount of pay to play. They often require that you have a sales team making X number of phone calls and visits and emails to your advisors per year, which is hilarious to me, because I feel like a lot of advisors don't really necessarily want that. But they call it product support. They want that product support, they want it shown that you're selling the product.
And, you know, a lot faith-based Issuers are smaller, have a smaller sales team, maybe a smaller marketing budget, but that doesn't mean that the product isn't quality product.
And I feel like with demand from the advisor base towards the national accounts folks at the wire houses, I think that they would see that, hey, over time, maybe there's an ability to bend those rules. Like a rule that you made is a rule that you can break in order to bring your clients the best of what's available, including within the faith-driven space.
Richard Cunningham [00:27:45] Well, it's important that you guys are putting out research like this because I think it's this type of stuff that shows, Hey, there is a business case. Also, if you're willing to be the squeak, we'll be the advisor that hangs up a shingle and says, Hey we actually have a competency, a willingness to go carve out that opportunity for you. Mr. And Mrs. Client to gain access to the FDI space is huge.
It's friends like Tim McGreedy. He were out there saying, Hey now I'm actually going to provide the research on the quality of the product. And then it's issuers who are putting forth as we were just talking about. Excellent competitive product as well. And it's kind of a multifaceted approach.
And I think we all just kind of pray that this is a tide that raises all boats. And so thank you all for this research. I think it proves a very important business case out there for advisors to keep leaning in.
All right, friends, well, in the time remaining, let's make a pivot and let's go markets. John, I want to start with you because you put out just this morning. So we're recording this on May 5th. It's a Monday. So I just want to make the disclaimer that anything we say today. Just given the speed and velocity of headlines and volatility that we're experiencing by the time it releases on May 12th. Could be out of date here in a week's time, but John, you put out a wonderful piece this morning, just a full-blown deep dive on tariffs.
And I think if we're gonna have any type of market or economy conversation, kind of need a level set on where we are in the tariff situation. A lot of just kind of getting in the head of what is the Trump administration thinking, help us understand that and kind of set the playing field for us here.
John Coleman [00:29:01] Yeah, absolutely. So obviously quite a lot of my time today is thinking about tariffs and the impact on the economy broadly, as well as individual companies that we work with.
About three weeks ago, I put out an explainer on what I thought might be happening in the administration, what their goals were, and what tools they were thinking about using in pursuit of those goals.
I think what we've seen over the course of the last month, so Liberation Day was just about a month ago, in early April, Liberation day being the day that President Trump announced sweeping tariffs that were basically benchmarked against the trade deficit that we had with different countries.
So he has been a long-standing advocate that we should reduce our trade deficit, that we should try and re-onsure American manufacturing, both for our national security and for the benefit American workers, and that's something he's been talking about for around 30 years. So this was part of the campaign promise, but I think the scale and speed at which he tried to implement these tariffs and how aggressive they were was probably a surprise to many people.
So in the intervening month, what we saw was financial markets initially took a heavy dive. They went down quite substantially. They've actually returned to above their pre-liberation day rates right now. So the stock market is back up where it was before liberation day, But there continue to be a lot of concerns about the economy.
And what I might do is just lay out some of those concerns, lay out what I think the Trump administration is trying to accomplish. And then what I wrote today that Richard is referencing is what I think might be a soft landing for the American global economy that would help to achieve the Trump administration's goals, but do so in a way that's not economically damaging.
So what we've witnessed over the course of the last month is a worrying set of factors that are playing into the economy. First, the stock market was down and then it was back up. But the stock market is really just responsive to underlying economic principles.
And I think what everyone is watching right now is whether the tariffs create a greater possibility of recession, both because they slow down general economic activity, but also because they negatively impact American companies.
So if you're a small business and you source 80% of your goods from China Suddenly, the cost of those goods went up 145% overnight, with some exceptions, right? If you source your goods from Italy, those might have been just stopped in port, at least they went up 10%. Some of these foreign suppliers are rerouting their shipment, so there's a real danger that it causes an economic slowdown.
As a response to the tariffs, many foreign governments and even domestic participants began to sell off treasuries, so we saw rates going up rather than decreasing, which was, I think, the policy outcome that the administration wanted.
And tariffs are inflationary, right? Meaning that if you raise the cost of goods because of their input costs, because of tariffs. Naturally, those prices go up, that's inflation.
And the problem is if you get in a situation where you've got inflation, you've got a general economic slowdown, you got rates rising, and you have the economy kind of in a state of dysfunction, you get what's called stagflation, which is actually what happened to Japan for about 20 years that basically killed its economic growth. And so I think that's been the concern in people's minds.
The Trump administration seems to be fully aware of that right now. Scott Besson has taken to making public comments that are trying to ease some concerns. President Trump has done so as well, which is one reason I think markets have recovered.
And I think in the intervening month, we've gotten greater clarity in what they're trying to accomplish. And I it's four things, primarily. The first of those is, as I said, President Trump wants to reduce the trade deficit, and he wants to re-onshore manufacturing.
If you look at his electoral coalition, it really was a coalition of the working class this time. Even many union supporters actually came out for a Republican president, which was quite unusual. And so he has this belief in re-onshoring manufacturing, eliminating the The second is they want to level playing fields with other countries.
What they're right about is for decades now, the United States has actually often allowed other countries to raise their trade barriers, whether that be tariffs or whether that be prohibiting U.S. Companies from operating. And that's true in Canada, it's true and China, it is true in the European Union elsewhere.
But America hasn't raised its own barriers by and large. And so they get a sense that that's unfair, that it's actually unfair barriers to American producers who would like to operate abroad. And so, they wanna institute this principle of reciprocity to try and lower foreign trade barriers.
The third is that they're trying to secure critical supply chains. I think many people were made aware of those during COVID, where we were aware suddenly that we didn't have access to pharmaceuticals or medical devices, because many of the supply chains for those were overseas.
And even more concerning were often in adversaries like China, who could use those supply chains as negotiating leverage. And so in certain sectors that they view as critical, they want to make sure America has secure supply chains, and the fourth is a really target.
Attempt to change most of our allies position towards China. You know, China is the primary geostrategic adversary of the United States right now. China is a dictatorship. It's a communist dictatorship.
And I think there's rising concern that they have the economic and military leverage in order to put free countries like the United states into a corner. And President Trump sees this as an opportunity to try and mitigate or diminish the influence of China and its government on international economic and military or strategic affairs.
With that in mind is those goals of the Trump administration, because I don't think those are going away. They're very committed to that path. What would a soft landing look like?
And I laid out just a few places, and then I'd love Deirdre to comment as she sees it as well, where we could implement those policies, but do so in a way that potentially leads to a soft-landing both for the American economy and the global economy.
The first step in my mind is to assure that the tariffs are modest and genuinely reciprocal. And what I mean by that is modest, a five to 10% tariff probably isn't that distortionary. It causes some inflation because it's a part of the supply chains that are coming in. It is an alternative source of tax revenue, effectively like a consumption tax.
But you could probably bear a 5% to 10% tariff on almost all goods coming into the United States. And if it were relatively egalitarian, that might cause a little inflation, it might cause a little slowdown, but it would give American companies an advantage on the edge to price compete with foreign producers of supplies, and it would provide an alternative source of taxation effectively to complement income taxes. It would serve as a consumption tax.
And then if they were to make it modest and genuinely reciprocal, we could simultaneously lower foreign barriers to domestic producers. And what this means is if Canada, for example, has a variety of restrictions on US financial institutions right now, making it practically impossible for US banks to operate in Canada, that is an unfair barrier to American banks if we allow Canadian banks to compete in the United States.
If the Trump administration said, we'll be willing to maintain our lower tariff rate, we'll willing to maintained our lower barriers to entry for Canadian banks, but you have to lower your own barriers to American competition, that's reciprocity, right?
In game theory, it's called tip for tap, meaning that we really just do what other countries are doing in the pursuit of lowering their barriers. And so I think the first step is to cement that with the vast majority of countries and the vast of majority of products, what we really want is a modest tariff to achieve those goals and to implement true reciprocity where we are willing to lower our trade barriers as long as other countries are willing lower theirs and if they keep them high, we're going to match those. Right? Meaning that we are just going to try and keep a level playing field with that.
The second component of that in my mind is to identify very clearly what industries we consider critical. So if one of the goals was to secure critical American supply chains, we need to give the economy clarity on which supply chains are critical, where we're going to focus our effort to re-onsure or what's called friend-sure, meaning move it to allied countries or countries that we feel are secure.
There are obvious categories for this, pharmaceuticals, medical devices, everything associated with artificial intelligence and computing, so things like semiconductors, sensitive national security inputs, et cetera.
But until they release a list of what these critical products or critical categories are and how they're going to treat those, it's very difficult for business actors to where they genuinely are going to have to switch those supply chains. Or make the investment to build those out in the United States and I think clarity around those industries would also give American companies clarity enough to invest to build their supply chains onshore or for insure those.
The third component of that in my mind is to give similar clarity on which partnerships with friendly or allied nations. We will look to turn to as we move away from China, so that as American producers are trying to build substitute supply chains outside of China, that they know which countries the United States is going to have lower trade barriers with, or we're going to a consistent trade relationship.
That might be the Philippines, it might be Brazil, it might Mexico, it may be Canada, but as soon as we can clarify those, that gives the admin the ability to build mutually advantageous trade relationships with those countries and to give American businesses and foreign suppliers the clarity to relocate their supply chains, which might reside in China or other nations now and build out capacity in those countries knowing that that investment will pay off.
The fourth component in my mind, there are only two more, is a well-articulated approach to China, Richard. So I think we need to be very clear about what our approach to China is.
And I would bifurcate that between the critical industries we just mentioned, where I think on-shoring is an imminent need and something we need take action on now, versus non-critical industries.
So if you're buying socks or tennis shoes from China, for example, those are not as critical as defense technology or semiconductors. And if we want to tariff those goods, my advice would be to stair-step those tariffs in so that American companies and other foreign suppliers have the ability over years, not months, to move their manufacturing supply chains to more advantageous countries like Vietnam or the Philippines so that we can secure those. Supplies.
And if the administration would give us clarity on what its intended approach is with China and give us time in non-critical industries to face tariffs or trade barriers in over a period of years, that might give American companies the time and breathing room to switch their operations without dramatically increasing costs.
And then the final component that I think might play a part in this. Is if tariffs are a stick that you use to punish foreign countries that are erecting their own trade barriers or to force American companies to switch their supply chains, you need to complement that with the carrot of incentives for our companies or others to invest in reshoring those supply chains or moving them to friendlier locales.
Scott Besant has hinted at some of this. He hinted that there is going to be favorable tax treatment, accelerated depreciation schedules, for example, for Americans who relocate manufacturing here on the equipment necessary to build that, President Trump has solicited investment from private companies like NVIDIA and Apple, foreign countries like Saudi Arabia into the United States that hopefully will go towards reshoring some of that capacity, but they need to think through the tax incentives, potentially credit lines that allow businesses to pay for the capital improvements they need, to reshore manufacturing capabilities, different types of subsidies or incentives that make it more possible for U.S. Companies to a return on investment.
For switching those supply chains, whether they are onshore here in the United States or in friendlier nations. And so if we could do that, if we can take a more modest and reciprocal approach to tariffs If we could clearly identify critical industries, if we could identify the countries that will friend short with us, where we'll have an advantageous trade relationship, and if we can clarify the strategy with China and then provide positive incentives, I think we could potentially see an outcome to this tariff situation that doesn't lead to the type of economic difficulty that many analysts are predicting right now.
Richard Cunningham [00:41:42] Ladies and gentlemen, John Coleman on tariffs. We might need to package that and just make sure the Trump administration sees that. That was robust.
John Coleman [00:41:49] That's Richard's nice way of saying, I talk too much, Deirdre, so.
Deirdre Gibson [00:41:53] No, that was incredible. And I think Richard is right, because the administration is paying attention to the markets. That much is clear, and I think a lot of us appreciate it.
Richard Cunningham [00:42:02] Absolutely dear how would you respond I mean there's endless there that you could you know threads that you can pull on But what is in particularly you know kind of top of mind for you as you hear John and unpack that
Deirdre Gibson [00:42:11] You know, a few things are top of mind and one of them is just, you know, we've got all of the economic data that we've been looking at, sort of the hard GDP data and then all of the consumer and investor sentiment data. And those, the hard to stop data are telling very, very different stories. You know? We have a functionally resilient economy and a lot of people who are scared. And when you have that kind of divergence, that can be a setup for either opportunity or surprise.
So I think it's, for one thing, a really good moment for investors to be paying attention to consumer behavior as well as economic indicators, because I think in a lot of sectors, that's really what drives earnings.
I kind of, maybe a personal example of this, but my five-year-old is trying to earn money for a small motorcycle type device. And you know, five- year-olds don't earn money quickly. And I was looking at it and looking at the news and thinking... This thing's gonna double in price before he gets there. Maybe I should buy it early and just hide it in the basement until he actually like finishes earning the money.
And then I literally the next day was reading the Wall Street Journal and like, oh, everybody else is having the same thought. Everyone else is bringing in the goods and services, the goods really before the tariffs hit, okay. So that's a great example of like, you know, what's happening in our households is happening in everyone's households.
Another example of that that I've seen just on the investor behavior side, and I always have a really strong interest in behavioral finance, is sort of the coming home of the home bias. So home bias and behavioral finance means anybody, and this is global, anybody is likely to invest more in companies in their own country.
And Americans, I mean, I think for good reason, we've done this a ton, right? Americans, it's not uncommon to have an entirely US-based portfolio, or pretty close to it. You know, in the last decade, well, the numbers have really been on our side for that.
But I do think, especially with everything that John just said about the way that this is changing geopolitically, it's a nice time to consider rebalancing in that regard and to really be looking at what our opportunities are. I think the opportunities globally are going to be changing from an investor's standpoint.
The third thing that comes to mind is that amidst all of this, there has been, you know like uncertainty is always when people have a like to. And that flight to safety narrative has gotten a little mixed up lately. It just hasn't been the same as we've expected. And so I think it's a good moment to keep your eye on your fixed income exposure. It's a moment for active management.
Now I say this with some bias because Praxis does have our flagship fund as an actively managed impact bond fund. And it's got all the cool impacty stuff that we were talking about in the earlier part of our conversation, all of the faith driven activities built into it, which I think is really cool. So take that for what it's worth. But those are some of the things that are kind of top of mind for me.
John Coleman [00:44:53] And I think the behavioral finance part of this is important, because people's reaction to the terrorists is going to be almost as important as the policies themselves. And what we're seeing is a lot of business owners in the presence of uncertainty. Like you said, there's a fight to safety and there's also natural conservatism.
So if you're a big business right now and you're uncertain about whether there will be a recession, what your input costs will be, what your providers will be charging you, you're going to pull back on spending now and there is a vicious cycle, whereas people pull back, it impacts others, others pull back and there's a general tightening or conservatism in the economy.
And that is a vicious cycle that can send you into a pretty deep economic recession if you're not careful. And so one of the questions I have throughout this moment, whether it be tariffs or other policies that are happening in the economy, is how do you give the American consumer and how do give American businesses the confidence to spend, the confidence to continue capital investments, because if that confidence goes away, which is really behavioral finance thing.
It will change the way money flows through the economy. And that's one of the things I think I'm most concerned about right now is if we enter this period where people are generally just very conservative with their cash because they're worried about the uncertainty of the markets or the tariff regime or what other companies are going to do, we will end up in a recession. It's a given, right? That is the very nature of it.
And those things can be deep unless you're willing to use the tools to get you out of recession. And our tools are more limited than they were a few years ago. I mean, our fiscal situation is not. Incredible right now as a country and so fiscal stimulus might be more difficult than it was in the past.
Monetary policy is more possible now because rates are higher than they once were, but we're still at long-term averages for treasury rates and for fixed income rates right now. It's not like they're incredibly low. They're just higher than great financial crisis levels.
And so I think we need to be very careful because the fiscal and monetary tools at our disposal are not quite what we'd hope they would be to generally stimulate our way out of recession. And so generating this confidence in people that we can continue to invest and spend will be important to making it either a mild recession or keeping us out of it entirely.
Richard Cunningham [00:47:05] Well, good commentary from you both and just kind of to put a few kind of closing numbers behind it all because John, you spoke about the pre-liberation day levels that markets have kind of returned to and I like the framing of what you were saying is like, hey, this is critical that we navigate this to a soft landing because I think markets have processed a lot of the news and, you know, from April 22nd to May 2nd, nine-day positive run for US stock market, which is the longest winning streak in more than two And so that S&P 500 is still. Is only down 3.5% year to day.
Now small caps are taking it on the chin a little bit harder down kind of 10% year-to-date. NASDAQ tech kind of mag seven as we know kind of leads the charge there, dramatically is down 7.5%, year to date. So back to those pre-liberation day levels, experiencing some of the shock of it, but I think of process the information, John, that you talked about, but critical that we navigate this thing to a soft landing going forward where the recession conversation really becomes a present one.
And are we able to bounce back as you were talking about? Deidre could not agree more also on the behavioral finance component of this and how business owners are going to react and their necessity and need for, I think we would all agree, just predictable information. Very, very tough and challenging to navigate a business in the midst of not knowing what's kind of coming around each corner. I know there's so much more to say, but we are coming up on our time and I want to be sensitive to that. Deidra, you look like you're about to come out of your seat. Was there something you were about to add real quickly?
Deirdre Gibson [00:48:28] I just want to pose a potentially crazy question.
Richard Cunningham [00:48:32] Ask it.
Deirdre Gibson [00:48:33] Okay. Just thinking about this from a long-term standpoint and from sort of a meta standpoint, I mean, we're Christians on a Christian podcast talking about money from a Christian perspective, right?
And one of the things I have noticed, especially, again, since becoming a mom, so biased here, but a lot of the most important work done in the economy is unpaid or low-paid work, like parenting and caregiving for elderly parents and all of this stuff and This is often work where it's not very easily monetizable, but it does reflect the Imago day, the reality that every human is inherently valuable regardless of their productive capacity.
And so there's been this thing in the back of my mind, especially as AI has been coming online and now quantum computing has taken leaps and bounds that were unfathomable maybe even a few years ago. How do we think about these things and build a world an economy, how do we build an economy in which humans can thrive?
Is this a moment, this moment of rather extreme disruption and change, is this a movement where we can think about these things and build some of those things in now? I don't know whose job that is to think about those things or put those into perspective, but I wanna put this out there into the world of like-minded humans who are working in finance and government and economics to think about, you know, maybe it's.
My best idea is a poor one right now, which is like some approach maybe to universal basic income, but maybe it solves this confidence question that John was asking of, you know, some version of life where we've got, and I don't know where that comes from. Again, I have no ideas. It's not good. I'm not suggesting this, but just can we think about this? How do we think about the economy starting from the viewpoint that every human matters and not just for our productive capacity and build from there?
Richard Cunningham [00:50:25] This is epic because we typically close every FDI pod with the exact same question. And so we're switching it up today and our guest is asking the question. So do you have a powerful, important question? John, what do you think? How would you riff on that?
John Coleman [00:50:35] Oh my gosh, that's a, we got to do podcast part two. There is a lot to unpack there. I'll actually just lay out my own scripture reference from a couple of days ago.
So I listened to the Hallow. I do my lectio with Hallow every day. So, I'm Protestant, not Catholic, but Hallow has this wonderful thing where for 10 minutes a day, you meditate on a scripture. And I believe it was yesterday or the day before that scripture was about the loaves and issues, right, where... God once again proved that.
It's not what we have, it's not our ability to control our material resources. But he's in control and he can do a lot with what little we have even if we don't understand how that's gonna work.
So you know, the little boy brings five loaves and two fishes and they feed 5,000 men which was probably 15 or 20,000 people at this gathering and then they have tons left over. There's a surplus after it, right? Because Jesus was able to do something extraordinary with overabundance with what little his followers could bring to him as long as they had faith.
And I think that may intersect with some of what Deirdre is talking about, because I think often we feel very constrained by a materialistic view of the world, by this idea of focusing on people's productive capacity and what that means for their identity or by the resources that we have at our disposal.
And it is good to periodically step back and know that God has an entirely different view of us as individuals, and he has an entire different economy that he runs in the world, and his provision is greater than anything that we could possibly imagine.
And in times like this where you're tempted either to devalue people who are not working or not productive, where people devalute themselves because they're worried that AI is going to take their jobs, where we're worried about economic uncertainty and what that might mean for the economy, I think anchoring on ourselves in the perspective of our faith where we know every person is infinitely worthy and possesses dignity regardless of what they can produce in a materialistic sense.
And that ultimately materialistic stuff is not what we rely on and that God is going to right the arc of history regardless of whether we go into a recession or AI eats jobs. Christians don't have to be as afraid of these types of things as non-Christians would because we have faith that there is an arc of History that the creator of the universe is writing and that he actually has our best interest in mind and that He wants abundance for us.
That doesn't necessarily mean material abundance, like the loaves and fishes. But he wants us to live fulfilling and flourishing lives. And if we can take confidence in that, I think it rewrites our identity and allows us to approach markets in a way that's got a greater peace and a greater confidence than the average person would.
Richard Cunningham [00:53:19] Well said, John. I'll take a quick real stab at this, and that is, in Matthew 25, dear Joe, parable of the talents, the final steward, who is the one that is told, you need to be somewhere where there's weeping and gnashing of teeth. The mistake was not that this servant was a poor investor. That really didn't do anything, squandered, didn't even invest in the first place.
The mistake of that servant was they didn't know the heart of his master. And he made wrongful assumptions about the master and the master's intentions. And I think that is where we can get in the most trouble as believers, is we don't go get to know the master. And we make wrong assumptions.
And so as a faith driven investor, faith driven entrepreneur, we choose not to do anything and we squander what's put in front of us. I think what you're talking about is this big grand macro question, like where do we even start kind of biting away at that enormous apple?
And it's for each of us individually as the FTE or the FDI to say, hey, how do I get to the master and how would the master inform me? And so we aren't found to be that last servant. And so that is my two cents. I'd love to hear your greater answers or give us any kind of final commentary as we close here.
John Coleman [00:54:19] Well, part two will have to be the UBI and in-center discussion. I know. Seriously, that's teaming up a massive topic. But Deirdre opened up quantum computing and artificial intelligence in the last five minutes. You've got to be. I'm sorry.
Deirdre Gibson [00:54:33] I'm sorry.
John Coleman [00:54:35] Fascinating, fascinating topics to dig into, but I think that's a really encouraging word, Richard. There's a reason you're the host here.
And Deirdre, I think your heart and the way that you laid out both the earlier investing conversation around engagement and faith-driven investing and the way that want to emphasize the dignity of individuals in the midst of all of this, I think is an incredible perspective and one that's too often lost in our financial kind of discussions in the marketplace, but one in which we certainly have to anchor ourselves.
Deirdre Gibson [00:55:04] Yeah, we don't want to rely too heavily on the idea that a rising tide lifts all boats. Some boats are anchored too tight.
Richard Cunningham [00:55:11] Well, Deirdre Gibson, Praxis Investment Management. What a joy to have you on the Faith Driven Investor podcast. Ladies and gentlemen, for John Coleman, I'm Richard Cunningham. We will catch you next time. Thanks for tuning in.
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