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Lacas Advisory Group

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Address 1969 Upper Water Street, Tower Two Suite 1801 Halifax NS, B3J 3R7
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Caroline Jarmash

April 09, 2025

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Market Volatility Update April 2025 - by Andrew Lacas

TARIFF WEDNESDAY

 

I have put the release of our Q1 update on the back burner as I wanted to get out a quick note

regarding the Trump tariffs announced last night as well as current high level portfolio

positioning. We are now in a position that none of us have ever experienced, this creates doubt and

uncertainty.

 

With the first round of reciprocal tariffs announced, we have countries like China

with a roughly cumulative 67% tariff rate. When taking all the tariffs that were announced into

account, the global impact is a 26% tariff rate on all goods sold into the U.S. President Trump

announced that back in 1913 the U.S. was a tariff country with no taxes and was in great

economic shape. Fast forward 112 years and the world is a very different place and I’m not

sure if these tariffs will have the same “positive” impact. That being said, I can understand in

theory what the administration is attempting to achieve. If global trade patterns don’t change,

and that is a significant IF, according to research from Hedgeye Research, the announced

tariffs could potentially generate roughly $800B in revenue for the US, eating into the $1.8T

deficit. That is the first leg of the stool. The second leg of the stool is spending cuts. I think we

have all seen and heard about DOGE and what they are attempting to do. Whether we agree or

not with what they are doing or how it’s being done, at its core they are trying to get a handle on

government largess. These two actions when combined may also give the Fed cover to start

cutting interest rates thereby making it cheaper for the U.S. government to roll over the

astronomical debt that has to be re financed.

 

All these staggering changes paves the way for the third leg of the stool. From our research, we

believe that tax cuts are planned by the end of this year into early 2026. By reducing spending

and reducing the deficit this can allow for tax cuts as the ratios for the deficit to GDP would

actually improve. Cutting taxes could stimulate the economy at a time when it will most likely

already be starting to show rate of change improvements from the year before. Why this timing

you may ask? It would allow the tax cuts and improving economy to align perfectly with the

2026 mid-term elections. There may be a method to their madness but they are playing a

dangerous game.

 

What does all of this mean for us today and in the weeks and months? First, volatility will be

here for a while so we need to make that our friend and take advantage. We also have

continued concerns about the U.S. economy and as such will be watching the data closely to

see any signs of positive rate of change. As well, we are concerned about the continued heavy

concentration in a handful of companies and will continue to have an underweight exposure

until the data changes. We will take the administration at their word that this is the opening salvo and that it’s a starting point for negotiations. I don’t have to like it, but I do believe that to be the case. There will continue to be winners and losers and we believe being nimble and

active will benefit us. Don’t be shocked to see more activity in your portfolios as we continue to adjust to the economic changes and data as they come in. We always reserve the right to change our thinking and therefore positioning when the data changes.

For our two major equity portfolios I have some good news. Both our Alpha and North American core portfolios were coming into April with strong relative and absolute performance as they were both in strong positive return territory even with the NASDAQ -10%, S&P 500 roughly -4% and the TSX +1.5% YTD for the first quarter. Both the NA Core and Alpha portfolios outperformed all three benchmarks in Q1. Coming into today’s tariff meltdown Alpha was the most defensively positioned. In fact on April 2nd we raised another roughly 2.5% in cash taking our cash and fixed income position to just

north of 20%. Our NA Core model portfolio also came into the tariff announcements with just under 15% in cash and short term bonds. Both models also own bullion and or gold related companies which are trading with % points of all-time highs. We are positioned for volatility and have a healthy weighting of defense in our equity portfolios. We also have a number of companies that are positive on the day in both portfolios which will help to offset some of the red numbers we are seeing. We are not rushing into the equity markets and are also not panicking. Since we do have such a defense position

to our portfolios we will be making long term investment decisions on companies that we like from a fundamental standpoint that are getting caught up in this reaction. We are prepared and we have a plan.

 

If anybody would like to chat about their specific portfolios, Peter and I are both at our desks on our phones so please feel free to reach out at any time.

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