My Recollections of & Response to a Rational Man’s Remarks

On December 7th Robert E. Rubin, co-chair of the Council on Foreign Relations and Secretary of the Treasury in both terms of the Clinton presidency, spoke at a breakfast meeting of The New York Public Library’s Financial Services Leadership Forum. This writeup summarizes my recall of his comments and opinions.

The following paragraphs offer my perspective on the merits of his advice and the prospects for achieving the public policy objectives he outlined that morning.

Bob Rubin’s awareness of the breadth and complexity of the White House world into which our president-elect will soon be stepping draws upon his long years in that environment. His description of the primary responsibility of a president’s chief of staff stands in stark contrast to the cavalier indifference to, even rejection of daily intelligence briefings asserted by Donald Trump. Today’s world is dominated by demographic challenges, struggling economies and military conflict on every continent. Rising nationalist sentiment in the developed world threatens global trade, climate initiatives and diplomatic goals. Can anyone with eyes and a mind half open not know that critical developments in many spheres are occurring by the hour, if not every minute and demand a president’s constant attention?

Rubin expressed a rather pale confidence that his policy recommendations will eventually be adopted. His “faith-based” conviction relies on our country’s history. It is useful to recall that any country’s history is a panoply with three dimensions: a parade of events, its people and its institutions. Events occur by plan or accident. Success or failure in coping with their consequences depends on the strength of civic institutions and the intelligence, resourcefulness and even bravery of its citizens.

Today the largest event on our local landscape is the election of Donald Trump. His messaging by tweet, off-the-cuff policy pronouncements and nominees for cabinet and ambassadorial positions leaves some in slack-jawed doubt and dread about his understanding of how to lead a preeminent world power. Others are cheering his arrival. As he wraps up a multicity post-election victory lap enthusiastic audiences shout out “Lock her up” and “Build the wall” when he repeats his campaign promises to “Drain the swamp” and “Make America great again”. Time will tell how this presidency affects our economy, our markets and our position as the global hegemon. As loyal Americans we will hope for the best outcomes and be prepared to cope with any unhappy realities.

Drawing on two decades of academic research two Harvard professors of government recently raised a startling question: Is Donald Trump a threat to democracy? The attached New York Times article is not apocalyptic, but their 2 granular analysis of his words and actions identifies a risk we should soberly acknowledge and guard against.

What then can any one of us do? My personal early move has been to join the Sierra Club and the American Civil Liberties Union. As a nation we must look to our institutions for comfort. Our ultimate defense will be the Supreme Court. In it I have confidence, regardless of the person elevated to the ninth seat. At least six, if not seven on the Court today have the practical and philosophical wisdom to find the majority needed to reach the right side of tough decisions brought before them. Our front line institutional barrier to the inclinations some see in the new president and his cabinet officers will be the Senate. A few Republican senators must find common ground with a supermajority of Democrats and stand together on the most critical topics. Those thoughtful legislators will deserve our highest praise.

I invite your comments on my views and your personal observations on the state of our world. I will be looking for faint signs of buyer’s remorse from some of you. Meanwhile we will all go about our business.

My recent Constant Contact eblast spoke about the McKinsey Global Institute’s conclusion that equity returns looking forward will be lower than those recorded in past decades. I encouraged those of you who have substantial wealth or advise those investors to look closely at Private Placement Life Insurance (PPLI) as a core component of the equity portfolio.

A properly designed PPLI policy will enhance the owner’s investment returns through lower expenses, elimination of taxes on the investment gains and access to a full range of investment strategies. Net of all transaction costs, including charges for the life insurance component of the transaction, your investment returns will be higher than those a taxable portfolio can deliver. To top it all off, you could gift the policy’s life insurance benefit to a favorite charity and leverage your public and social prestige.

But is this the right time to act? The Dow and S&P indexes are up some 10% since Trump’s election. Some of his enthusiasts even see his campaign promises as leading to a Dow value going from almost 20,000 now up to 30,000. (They may not have noticed that the emerging market indices are flat.) Fabled investors like Carl Icahn and sages like David Stockman warn that the equity market is in or approaching bubble territory. And, delay is the default option for conventional tax and accounting professionals in uncertain times like these.

Not so for PPLI investing! Private placement life insurance investing is a long term commitment, not a tactical trading decision. Spreading the investment over three to five years will dampen the impact of market volatility and reduces the 3 significance of timing the implementation decision. Wealthy investors who have examined and approved the PPLI concept have nothing to lose by acting now to allocate a modest fraction of their family’s equity portfolio to PPLI funds. The remaining questions will be: Who is the insured person? Apply to which insurance company? How much is enough? Which funds offered by the insurer are the best fit with the remainder of the family portfolio?

The bottom line for me is that PPLI investment is a politically neutral conclusion, valid in both up and down markets. It will prove to be a good outcome in both the subdued return environment predicted by the McKinsey Global Institute and in the halcyon future confidently offered by our incoming president. No investment is without risk, but this one has a very limited downside if done intelligently and in proportion.

I could help you examine your options, consult on the design of a PPLI policy that best fits your circumstances and priorities, shepherd the life insurance application and underwriting process and support your selection from the policy’s medley of investment funds. Look forward to your call.