Jonathan Raclin of Barrington Asset Management Gives his Advice on Where to Invest Now

May 8, 2018

Jonathan S. Raclin, a Principal of Barrington Asset Management, Inc., has been Managing Director of the Enterprise Portfolio. Mr. Raclin graduated with a B.A. from St. Lawrence University and an M.A. from Northwestern University. Following service as a Commissioned Officer, United States Marine Corps, Mr. Raclin was previously associated with White, Weld & Co. as a Partner of William Blair & Company, L.L.C., and as 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, LLC, a privately held health care information company. He is currently a director of the Foundation for The Public Broadcasting Service in Washington, D.C. 

Mr. Raclin gives the benefit of his opinions on the U.S. economy and his investment advice in this exclusive interview in the Wall Street Transcript.

“TWST: What worries you? What could disrupt this strong uptrend that we are in?

Mr. Raclin: Well, I think you have to go back to the election, which was a great surprise. That night, the futures were down almost 800 points and then reversed as people began to recognize that perhaps he might lead us to a more prosperous environment. As the market started to move, people who were betting on the short side had to cover, added to all these algorithmic traders jumping on the momentum bandwagon. In January 2018, I think it had become euphoric.

The tax cuts and regulatory relief have obviously led to widening corporate margins, escalating security prices and increased economic activity. And that’s been leveraged by artificially low interest rates and extraordinarily large budget deficits. It’s really throwing a lot of gas on an already pretty strong fire. I think the positives are pretty well-recognized by the marketplace.

I think we have a number of issues, some of which are short term or perhaps on the back burner for most people: our constant military involvement around the world, Afghanistan, Libya, whatever, plus the confrontations with Russia in the Middle East and China in the East Asia waters. Things do look a little better with North Korea, but we will just have to see how this all works. We are stretched pretty thin militarily, but unless there is a crisis, it is below-the-fold news.

I think the trade war problem is pretty transitory, mostly because the cost of failure is too high. So I think we will resolve our issues with NAFTA and various bilateral relationships.

I think the Mueller investigation has now reached a point where it’s become almost a desperate search for a crime. I thought this thing started out as something to do with Russian collusion in the election, and it seems to have moved on to pornography stars and a series of bit players. My guess is this thing is now pretty much exhausted the patience of the American people. It seems likely that any result is going to have a lot of ironclad proof to it or people are just going to write it off as another political attack.

The two items of, in my mind, of consequence are the midterms, which look at this point like the Republicans lose the House. Some 40 Republicans have already announced that they are resigning or not running again. If Democrats win the house, they will control the committees. And if so, we have only begun to see the constant investigations in the run up to the presidential election.

The second biggest problem that I see is the budget deficits and the budget debt. We are now $21 trillion in debt. I don’t know anybody that knows what a trillion dollars is. We are adding to that at a rate of an estimated trillion dollars a year. That’s before we have any emergency, military or weather or what have you, and with a forecast that presumes an exceptionally robust economic environment, apparently, forever.

The Federal Reserve is now scheduled to roll off $50 billion a month in holdings, while having to finance significant deficits and refinance large amounts of short-term paper. People forget that the Obama Administration did not sell much in the way of long-term bonds, so they could increase the debt by 100% with little apparent increase in interest costs. The short-term bonds are coming due; they have to be refinanced. Interest rates are going up because the Federal Reserve is taking their foot off the brake while there is a lot more paper for sale. The component of interest in the budget deficit could become very significant. Right now, 1% increase in interest rates leads to a $200 billion addition to the deficit.”

Read all of Jonathan Raclin’s stock and fund recommendations in the complete interview in the Wall Street Transcript.