Key Economic Policy Issues: A Guide for Investors and Voters

Nicholas Sargen talks about the Republican proposal for corporate and personal tax cuts which is estimated to add $1.5 trillion to the US budget deficit over the next ten years. Sargen argues the case for personal tax cuts to boost the economy is less compelling, especially as the unemployment rate nears 4%.  SSV Board Vice President Rich DeMong moderated the forum. Following the presentation, questions were taken from the audience. A pdf version of the presentation can be download, and then listen to the podcast.

Nicholas Sargen is an international economist turned global money manager.  He has been involved in international financial markets since the early 1970s when he began his career at the U.S. Treasury and the Federal Reserve Bank of San Francisco.  He subsequently worked on Wall Street for 25 years holding senior positions with Morgan Guaranty Trust (VP International Economics Department), Salomon Brothers Inc. (Director of Bond Market Research), Prudential Insurance (CIO for Global Fixed Income Advisors) and J.P. Morgan Private Bank (Chief Investment Strategist).  In 2003 he became chief investment officer for the Western & Southern Financial Group and its affiliate, Fort Washington Investment Advisors Inc., where he now serves as chief economist.

Sargen has written extensively on international financial markets, and he recently authored a book, Global Shocks: An Investment Guide for Turbulent Markets. He appeared frequently on business television programs throughout his career on Wall Street and was a regular panelist on Louis Rukeyser’s Wall Street Week.  He was born and raised in the San Francisco Bay Area and received a B.A. in Economics from the University of California, Berkeley, and an M.A. and Ph.D. in Economics from Stanford University.  He is also an adjunct professor at the University of Virginia’s Darden School of Business, and he has recently relocated to Keswick, Virginia.

Program Summary

Nicholas P. Sargen began by stating that the roots of his presentation go back one year, to the time of the general election. With regard to political affiliation, he described himself as an independent, one who could be persuaded by arguments.

The following is just a sampling of the points included in Sargen’s comprehensive presentation. He identified five key issues in the Trump era: (1) How to cope with an aging population; (2) What to do with entitlement programs; (3) How to pay for them and still have room for tax cuts; (4) How to deal with globalization and growing income inequality; and (5) How to position your retirement and investment portfolios.

He presented four views of what’s ailing the economy: debt hangover from the global financial crisis; “secular stagnation”; supply side constraints; and too much government interference.  It’s a global phenomenon!

How to restore economic growth? The Republican approach is via tax policy changes and deregulation. The President and congressional leaders, however, are divided between tax cuts and tax reform. The case for corporate tax cuts is more compelling than for personal tax cuts. The issue for investors to decide is whether we can afford tax cuts.

Healthcare is much more difficult to fix than Social Security. Social Security can extend the retirement age to receive full benefits. Medical costs in the United States have been rising much faster than inflation, and medical expenses in our country are also the highest in the world. The key players in the medical arena do not agree on a solution.

What are the pros and cons related to the impact of globalization? The good: corporate profits have surged. The bad: workers have been hurt by foreign competition. The ugly: income inequality has increased. One consequence is the rise of populism.

What to do? Although the winning strategy has been to take risk, a market correction is overdue. Sargen does not foresee a bubble or bear market, yet you need to have realistic return expectations.

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