Jonathan S. Raclin, Princicpal, Barrington Asset Management
Jonathan S. Raclin is a Principal of Barrington Asset Management.
Mr. Raclin graduated with a B.A. from St. Lawrence University and an M.A. from Northwestern University. Following service as a commissioned officer in the U.S. Marine Corps, Mr. Raclin was associated with White, Weld & Co., a Partner of William Blair & Company, and Executive Vice President for Capital Markets with The Chicago Corporation.
He is a former regional chairman of The National Association of Securities Dealers, a former President of the Bond Club of Chicago and of the Attic Club. He previously served as a director of the St. Simon’s Land Trust, and has been President of the Coastal Georgia Historical Society and Co-Chairman of Emmi Solutions, a privately held health care information company.
He is recently retired as a director of the Public Broadcasting Service in Washington, D.C.
In this 2,386 word interview, found exclusively in the Wall Street Transcript, Jonathan Raclin of Barrington Asset Management applies his long experience in the financial markets to this current point in our economic cycle.
“I employ an asset allocation approach using closed-end mutual funds. Presently, I own three mutual funds: Liberty All-Star Equity Fund (NYSE:USA), Liberty All-Star Growth Fund (NYSE:ASG) and Central Fund of Canada, now the Sprott Precious Metals Trust (NYSEARCA:CEF). The remainder of the portfolio is in cash.
…I find that valuation is an important component of determining what you want to own.
As opposed to relying upon somebody’s opinion as to what something may or may not be worth, I like the objective approach of being able to see what the fund is selling for relative to the net asset value. Sometimes, that ratio is at a premium, which is a cautionary sign.
Sometimes, it is at a discount, which often provides an opportunity.
I like closed-end funds where they have an objective distribution policy. In the case of the Liberty Funds, they pay a percentage of net asset value every quarter.
We are not dependent upon waiting until the end of the year or dependent upon some manager deciding what they are going to pay to the shareholders.”
The Barrington Asset Management principal has a sober view of the current economic cycle:
“I think people forget how strong the economy was before the virus showed up, by all criteria — unemployment, market valuations, GDP growth, almost everything that you could look at.
Everything looked very, very strong until the virus appeared. The result was dramatic with a significant drop in the stock market, that drop occurring in a very short period.
From a point of view of the government, I think that the current political administration, like the previous one, recognized that when we had the financial crisis back in 2008, a somewhat gradualist approach tended to suppress the rebound, and perhaps spread it out longer than otherwise would be the case.
This time, they basically decided to throw everything at it, including the kitchen sink, which is why we end up with these gigantic deficits.
The recovery has been exceptionally dramatic, both in terms of economic activity and, obviously, stock market results. Nothing breeds confidence in a somewhat dangerous approach as does short-term success.
The consequences of this have been huge increases in the national debt. And some of the proposals that Mr. Biden has put forward are going to significantly add to that debt.
I find it somewhat of a bizarre approach, that debt may not matter.
That might be true if you can finance with interest rates artificially controlled by the Federal Reserve. The Fed are buying Treasuries and mortgage bonds every month.
Paid for with money just created out of thin air.
On the fiscal side, the stimulus is flooding the market with cash. The administration has proposed an additional three or four programs, which means even more cash coming into the system.
It’s my view that the bond market has told you that this is going to continue for some time. It’s hard to see interest rates going up when the Federal Reserve is buying everything in sight.
Now, the consequences from the point of view of inflation are appearing, as one would expect, especially in very price-sensitive commodities.
We are going to see this problem get worse. It is going to be a real struggle for the Biden administration to continue.”
The Barrington Asset Management executive is not a fan of current Federal tax proposals:
“I will say I think that people do not appreciate the enormous consequences of the tax proposal of getting rid of what they call step-up in basis.
Basically, if you had bought a stock at $10 and then passed away, your heir might have a cost basis as of when you died — say, for example, $100. Under the new proposal, the cost basis would remain back at $10. That would result in an immediate tax due; you had a transference of ownership.
I have no idea how that is going to work without significant liquidation of investments — where else would people get the money to pay the tax?
So I think some of the tax proposals seem based more on revenge. I noticed recently an article that was talking about how very wealthy people like Warren Buffett and Elon Musk and Jeff Bezos apparently have not been paying any taxes on their “income.”
Well, it is not income, it is unrealized appreciation of assets.
If you are going to start taxing people based upon unrealized appreciation of assets that means you are going to have to start taxing them on their house, not just stocks.
What are you going to do about things like art and jewelry? What about a security with a loss? I am not sure that these proposals are very well thought out…
Diversify your assets and be an equity owner. I do not believe in debt, especially at these price levels. Number two, I believe in concentrating on distributions, preferably capital gains distributions, which are the majority of distributions from my funds. I believe that tax rates are going to go up, if only because we’re spending money at the speed of light.”
Get the complete picture of investing at this point in the economic cycle by reading the entire 2,386 word interview with Jonathan Raclin, found exclusively in the Wall Street Transcript.
Jonathan S. Raclin, Principal
Barrington Asset Management, Inc.
www.barringtonasset.com
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