James McLaughlin PowerPoint Presentation

During AFB's 2009 JLTLI Opening Plenary Panel, Keynote Speaker James McLaughlin, AFB Trustee and Managing Director of Convergent Wealth Advisors, provided an explanation of the current economic crisis and gave insight on surviving the economic challenges ahead.

Below is the transcript of Mr. McLaughlin's PowerPoint presentation from the Opening Plenary.

Download the PDF version of the presentation (right-click and select "save target as").

Slide 1

The Economy, Markets and Policy Implications
Josephine L. Taylor Leadership Institute
Washington, DC
March 6, 2009

Jamie McLaughlin, Managing Director
Convergent Wealth Advisors

Slide 2

AGENDA

• President Barack Obama
• State of the global economic markets
• The banking crisis and credit dislocation
• Projected US fiscal policy and tax implications

Slide 3

1861, 1933, 2009

Photo of Barack Obama

Slide 4

"Presidential power emanates from the power to persuade."
- Richard Neustadt

Photo of an orchestra

Slide 5

UNSHAKABLE SERENITY

"Propelled by what some psychologists call self-efficacy, the placid assumption that they can handle whatever the future throws at them. Candidates in this mold, most heroically F.D.R. and Ronald Reagan, are driven upward by a desire to realize some capacity in their nature. They rise with an unshakable serenity that is inexplicable to their critics."

- David Brooks
("Thinking About Obama," NY Times, 10/16/08)

Slide 6

GLOBAL ECONOMY

• Fragile
• Deep, prolonged recession
• Credit dislocation remains severe
• International central bank coordination - unprecedented liquidity
• Formulation of new regulatory regimes - both US and international

Slide 7

WHO TURNED THE LIGHTS OUT?

Graph dated 2/27/09 showing the percentage fluctuations in real GDP growth from Q1 of 2000 to Q3 of 2008.

The main message that the graph presents is the precipitous drop in the economy quarter over quarter when normally it's a gradual change. The consumer quickly withdrew from the economy and stopped spending, therefore the reference to "who turned the lights out?." Consumer psychology was very negative and showed up immediately in the data, which is very unusual.

Slide 8

WHEN WILL THE MISERY END?

• "Bear markets end when investors give up hope." (James Grant, Grant's Interest Rate Observer)
• "The consumer remains in terrible shape...and (has) been shocked into a new frugality." (Stephen S. Roach, Morgan Stanley)
• "If governments are quick and clear in their intentions, we will probably have an unusually long and deep global recession through 2010. If they don't, it's likely to be worse than that." (A. Michael Spence, Stanford University)
• "While the technical recession could be over by the end of the year, the broader credit cycle will likely remain a significant drag on economic activity well in to the next decade." (George Cooper, author, The Origin of Financial Crises)

Slide 9

US FISCAL AND TAX POLICY

• Spending proposals frame debate
  • Fiscal stimulus - nearly universal support from leading economists,
  • and a more activist government
  • can we have both?
  • "...a promiscuous unwillingness to set priorities and accept trade-offs."
    - David Brooks
    "A Moderate Manifesto," NY Times, 3/6/09
• Tax proposals
  • Income tax - largely progressive initiatives
  • Estate and gifts tax

Slide 10

NO PLACE TO HIDE

• Markets:
  • US equities
  • International equities
  • Fixed income/credit related
  • Alternatives

Slide 11

ECONOMIC SCENARIOS

• Depression
• Prolonged recession
• Trendless
• Stabilization
• Rapid recovery

Slide 12

FINANCIAL REFORM

Key Themes: Reshape financial industry/restore confidence in financial systems

• U.S.
  • Super-regulator
  • Move to principles-based system vs. the current rules-based system
• Global
  • Call for global financial organization for coordination of independent sovereign regulators
  • Common accounting principles, full transparency, abolish mark-to-market accounting

Slide 13

HOW TO FIX THE BANKS AND RESTORE CREDIT

• "Toxic" assets + no pricing mechanism = dislocation
  • Fair value v. hold-to-maturity value?
• Stress tests (19 largest banks) - Tier 1 capital adequacy
• Large banks (Citi, BofA, Wells Fargo, JPMorgan) have most of the risk - are they too big to fail, too complex?
• Systemic risk
• Nationalization (i.e. restructuring)
• Shareholders interests v. bondholders interests
• Good bank/bad bank solution (Swedish or Mellon Bank model)
• Relief from "mark to market" accounting rules

Slide 14

PROJECTED ECONOMIC CHALLENGES

Key Themes: Deleveraging; no quick fix; unintended consequences

• Credit restoration
• Deflation/inflation
• US debt management - role of China
• US dollar and trade imbalance
• EU - labor issues and Euro
• Mending a new world economy

Slide 15

Disclosure: These remarks reflect solely the personal views of Jamie McLaughlin, and do not necessarily reflect the views of Convergent Wealth Advisors. The information contained in this summary is for informational purposes only and is not to be, and should not be construed as, investment, legal or tax advice.