Download Trumponomics vs. Reaganomics

Spring 2017
Private Wealth Management
The spring edition of InSight includes articles
that can help you at any stage of your financial
journey, whether you are acquiring assets,
reviewing your financial goals or curious about
the economy. Jan Leonard,
senior vice president
and trust managing
director, delivers some
guidance on selecting
and purchasing art.
Mary Lucas, senior
vice president and
director of financial
planning, provides a roadmap
for partnering with a financial planner,
including key areas to consider. And KC
Mathews, UMB Bank executive vice president
and chief investment officer, discusses the
current economic climate through a historic
lens.
This season, I am also pleased to announce
the launch of our UMB Private Banking
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designed this card with your lifestyle in mind,
with features that emphasize simplicity and
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your unique needs. With personal attention
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core of your UMB Private Banking relationship,
adding a UMB Private Banking Visa® Signature
Preferred credit card can help make managing
your finances simpler and more efficient so
you can focus on what matters most to you.
Please speak with your private banker if you’re
interested in learning more.
We hope you find the information in this
edition of InSight to be relevant and timely,
and we thank you for your continued
patronage.
Sincerely,
Trumponomics
vs.
Reaganomics
No Repeating and No Rhyming
Mark Twain said, “History doesn’t repeat itself, but
it often rhymes.” Will this be the case for our new
administration?
President Trump has outlined his pro-growth initiatives to stimulate the economy,
and he has clearly taken a page out of former President Ronald Reagan’s
playbook. Reagan’s campaign focused on fiscal stimulus, lower taxes, less
government interference (regulation), and a strong national defense—a platform
termed Reaganomics. In November 2016, I heard this storyline again, only this time
it was called Trumponomics.
While these actions worked to stimulate the economy during Reagan’s
administration, will they produce the same kind of results this time around? And if
they don’t, what does that mean for our economy?
While history may not repeat itself as Twain indicated, we don’t think it will rhyme
either in today’s very different economic environment.
A look back—fiscal stimulus in the 1980s
Several important acts passed by the Reagan administration in the 1980s worked
quite effectively, beginning with the Economic Recovery Tax Act of 1981, which
lowered the top marginal tax bracket from 70 percent to 50 percent. The Job
Training Partnership Act of 1982 was signed into law next, creating the first publicprivate partnerships in order to create jobs. In 1986, Reagan launched the Tax
Reform Act, simplifying the tax code.
Reaganomics’ resolution—intended and unintended
There’s no question there were some positive economic results during Reagan’s
administration. Unemployment declined from a peak of 10.8 percent in 1982 to
5.4 percent when he left office. Real gross domestic product (GDP) averaged 3.5
percent during his presidency with a high of 9.4 percent in 1983.
Dana Abraham
President
UMB Private Wealth Management
UMB.com/PrivateWealth
However, a byproduct resulted from all of this as well—the national debt. The U.S.
debt nearly tripled from $997 billion to $2.85 trillion.
Continued 
InSight Spring 2017
Déjà vu? Not quite—the new plot thickens
At this time we don’t know exactly how Trumponomics
will play out, but I do have a sense of déjà vu. The material
difference between the two platforms is that we are not at
the same stage of the economic cycle, so the results may be
very different. Unlike the Reagan era, we are not coming out
of a recession. In fact, it’s just the opposite—we are late in
the economic cycle. Key differences include:
Unemployment rate
• When Reagan took office, the unemployment rate was 7.5
percent and by 1982 it peaked at 10.8 percent.
• Today the unemployment rate stands at 4.8 percent and
appears to be headed lower, or at least stabilizing.
Interest rates
• Interest rates peaked in 1981, with long-term rates hitting
15.8 percent. And as inflation was breaking down, interest
rates lowered quickly.
KC Mathews, CFA
EVP, Chief Investment Officer, UMB Bank
As executive vice president and chief investment officer,
KC Mathews is responsible for the development, execution and
oversight of UMB’s investment strategy. Mathews has more than
20 years of diverse experience in the investment industry. He
earned a bachelor’s degree from the University of Minnesota
and a master’s degree in business administration from the
University of Notre Dame. He also attended the ABA National
Trust School at Northwestern University and is a Chartered
Financial Analyst (CFA) and member of the CFA Institute.
• Today, long-term interest rates are 2.5 percent and
headed higher, with virtually non-existent inflation.
Free trade and immigration
• Reagan was for free trade and immigration. In the early
1980s, there was a surge in immigration, which helped
support labor force growth.
• Trump is for fair-free trade and controlled immigration,
which means we could see less immigration under the
Trump program.
Factual foreshadowing
Let’s assume that some of Trump’s plans are executed in
2017. Will they translate into significantly faster economic
growth? Probably not. The reality is, even with all the
positive items that occurred with Reagan’s fiscal stimulus,
Reaganomics did not produce an overwhelming boom for
the economy.
Economic epilogue
However, all this being said, we do suggest that fiscal
stimulus will be beneficial for the U.S. economy in 2017, and
that economic growth will accelerate to 2.5 percent, up
from 1.6 percent in 2016. The Fed’s forecast is slightly more
conservative at 2.1 percent real GDP in 2017.
We are excited to introduce
the UMB Private Banking
Visa® Signature Preferred
credit card!
Please contact your private
banker for more information
on how this new solution
can help you reach your
financial goals.
One item to remember is that it’s still early; we are not
certain what Trump and his administration will accomplish.
However, if he is successful in implementing many of his
initiatives, we may have higher interest rates, an increase
in inflation and continued strength in the dollar. We are
confident we will also experience an improvement in
economic activity. n
Next Article 
UMB.com/PrivateWealth
2
InSight Spring 2017
Buying Art: A Cautionary Tale
On a recent Sunday evening, I received
a text message from a client who is an
avid and active art collector. She was
urgently requesting my opinion on the
value of a piece of art that was to be
auctioned the next morning. I was met
with a moment of excitement, as well
as slight panic. There were so many
questions to be answered and much
more detail needed to help her make
a wise decision. I immediately called
her with two important questions:
Why this item and why now?
For the occasional buyer or new
collector, I caution never to purchase
under pressure or in a short time frame.
My advice is to first educate yourself
by visiting museums and galleries,
reviewing magazines and online options,
as well as viewing art in the home of
friends. Become comfortable with your
personal style and taste in art.
For the established collector, I would
ask, “How does this fit into your existing
collection? Is this a favorite artist or an
opportunity you’ve been watching and
waiting for?” Whether you are a first
time buyer or an established buyer, here
are some tips that will help to ensure
your satisfaction and enjoyment in your
art purchases for years to come.
What to know prior to purchase
Education about the artist includes
knowing whether they are living or
deceased and who is representing
the artist. Are they represented by
a dealer, an estate, family or is the
artist representing himself or herself?
Also understand if this content is
representative or in high demand and
where the market is for this artist.
Knowledge about the piece itself
includes the condition, whether it is
signed and/or dated, the provenance
(history of ownership), and if it is
included in the artists’ catalogue
raisonné. Also ask if this piece is oneof-a-kind or one in a series, and find
out about recent sales by the artist and
sales by comparable artists.
Familiarity with the seller is also critical.
Know their reputation and understand
the terms of the sale. If the piece
is found to be inauthentic, what is
your recourse? Commission, written
agreement for return, payment plan,
extra charges for shipping and other
incidentals should be outlined clearly.
After purchase
Now that the prized piece is yours,
how you care for and protect your art
will directly affect its marketability and
value over time. The material of the
art piece will affect the way you care
for it in order to properly preserve
it over time. For example, organic
materials will deteriorate and are best
kept in an environment that has stable
temperature and humidity. Rotating
your art to allow a “resting” period is
also recommended. Regardless of the
material, I advise my clients never to
display fine art in direct sunlight or near
vents. And just as with any other major
purchase you make, don’t forget proper
insurance.
Now it’s time to think about your longterm plan for the art. Ask yourself if
you would like to see this as a gift to
a museum or charitable organization.
This is common practice by experienced
art collectors as a way to enhance
their legacy and extend the enjoyment,
education and history of the piece
by sharing with others. Your heirs
may or may not want your art, but a
conversation on this topic will mitigate
potential misunderstandings and add to
your peace of mind. A trusted advisor
can be a valuable asset in this process
and your estate planning team has
the experience and expertise to be an
objective presence to help you and your
family.
Current trends in art
Internet auctions can be a fun and
exciting adventure, but it’s still the
“wild, wild west” for the business of art.
And while increasing in popularity, the
preferred method is still to purchase
through more traditional sources. In
fact, most collectors enjoy the hunt,
the process and the relationships they
develop while looking for art. Whether
you’re working with a dealer or an artist,
it’s all a part of the purchase and your
story.
Another trend is the growth of
international, regional and local art fairs.
These can be intense entertainment
events where the competition of trying
to buy something before it’s taken can
lead to decisions that are too hasty.
The same rules apply before you go to
the fair. Research which artists will be
participating, current prices, ask for a
“hold” on an item, get terms in writing
and think about why you want to
purchase.
One very positive trend we’ve seen
lately is a heightened awareness about
the importance of having an inventory.
No longer just for museums and
galleries, this practical and valuable
first step can be an important piece of
your comprehensive legacy or estate
plan. Information should include an
image, artist name, type of object,
dimensions, condition description,
provenance, location and any historical
information available. While this can be
a DIY project, most enlist the help of a
professional to gather, document and
inventory a collection.
Research, plan, purchase
Back to my client: On day of the auction,
she decided to watch the online bidding
but did not participate. The item sold at
a premium price more than she wanted
to pay. She is patiently continuing the
search for work by this artist to enhance
her collection.
Regardless of whether she had taken
my advice, I must remember that even
the most experienced collectors can
get caught up in the excitement of an
internet auction, an international art fair
or any of the current trends grabbing
collectors’ attention. However, if you
keep a checklist of the information
you need to know prior to making a
purchase and have considered the longterm plan for this piece of art in your life,
it’s unlikely that you’ll regret the decision
you’ve made. n
Jan Leonard is senior vice president and
trust managing director for charitable
trusts, private foundations and fine art
services.
Next Article 
UMB.com/PrivateWealth
3
InSight Spring 2017
Choosing a Financial Planner
Financial planners offer a great deal of insight into the financial world, and they
have access to a wide range of resources to support and manage a strategy that
can help you reach your financial goals more quickly. Whether you’re saving for
retirement, a child’s college fund or future estate needs, a financial planner can
help analyze your current financial situation in relation to various markets and
assist you in creating a sound financial strategy.
The selection process
It is important to know what qualities
to look for before selecting your
financial advisor. Prepare and bring a
list of questions to the initial meeting
with a potential financial counselor and
consider the following:
Trust: Trust is central to a successful
financial planning relationship.
Consider whether you can see yourself
speaking with and sharing details
about your life with this individual,
potentially for many years to come.
Experience: It is important to know
the level of experience the candidate
has along with his or her qualifications.
Ask your network about their financial
planning experience and see if they
can provide recommendations or
suggestions to help you narrow down
your options.
Approach: Matching your financial
personality with your financial advisor
is critical, especially when it comes to
strategy. You need to feel comfortable
with the strategy and be sure that the
planner’s views are not too risky or too
cautious for you and your family.
Client requirements: Make sure you
understand the potential financial
advisor’s net worth requirements
before meeting with them. Some
financial associates cater to a specific
income bracket, which may also
influence their investment strategy.
Costs: Before committing to a financial
planner, there also needs to be a
discussion regarding service cost and
payment method. Planners should have
this information readily available and
be open to providing this upon request.
Partnering on your plan
Once an advisor is selected, this is
your chance to become more familiar
with the financial planning process
on a one-on-one basis. At the initial
meeting, the first step should be to
establish a relationship. Both you and
your planner should understand your
responsibilities in the planning process,
and your advisor must be informed of
how involved in the process you want
to be. Determining this information
right away helps set expectations for a
good working partnership.
Secondly, the planner should ask
about your current financial situation
so financial goals regarding timeframe
and risk tolerance are mutually
defined. After your financial picture
is established, the advisor evaluates
this information to determine what
must be done to help you reach your
financial goals. The advisor should
offer a financial plan recommendation
that specifically addresses the goals
expressed during this meeting. This
is the time to ask questions and gain
clarifications on the plan to ensure you
understand everything that has been
discussed and recommended.
Moving forward and monitoring
After a plan that meets expectations
has been developed, the next step
is implementation. At this point, you
should know exactly who will monitor
your portfolio’s progress toward your
goals and your point person for any
necessary changes based on market
shifts that occur for the duration of the
plan.
Finally, ongoing monitoring of the
portfolio is imperative. You and your
advisor should set a schedule for
future meetings to ensure necessary
discussions are occurring regarding
goal achievement and results.
Consider partnering with a financial
planner to help you reach your shortand long-term objectives. When the
selection process is handled correctly,
it is likely that you will find a dedicated
advisor whose investment style fits
your personal preferences. A planning
professional can help discern financial
situations and goals so your portfolio is
tailored to your unique needs. n
Mary Lucas is senior vice president and
director of financial planning in UMB’s
Private Wealth Management division.
Next Article 
UMB.com/PrivateWealth
4
InSight Spring 2017
2017 Outlook by the Numbers
2013
Real GDP Growth SAAR
ECONOMY
(year end)
2014
(year end)
2015
(year end)
2016
Most
Recent
2017E 1
1.50%
2.40%
2.60%
1.60%
1.90%*
2.50%
Trend
In the fourth quarter, real GDP came in at an annual rate of 1.9%, a deceleration from 3.5% in the third
quarter. Despite the slowdown, we still believe the fundamentals of the economy are improving as
consumer spending grew at a revised 3%.
Unemployment Rate
LABOR
MARKET
(year end)
7.40%
6.20%
5.30%
4.90%
4.70%**
4.80%
The unemployment rate fell back down to 4.7% in February from January’s 4.8%. The participation rate
remained largely unchanged at 63%. We expect the unemployment rate to be fairly steady going forward
as the participation rate increases with an improving economy.
Payroll Employment
193k
251k
229k
187k
235k**
175k
The U.S. economy added 235k new non-farm jobs in February, far surpassing economists’ expectations for
the second month in a row. Job growth was led by educational services, health care, and mining. Workers
saw modest wage growth, with average hourly earnings up 2.8% y/y.
Housing Starts
925k
1,003k
1,111k
1,166k
1,246k***
1,250k
U.S. homebuilding fell in January as construction activity declined broadly. Housing starts declined 2.6% to
1,246k. Upward revisions to December data suggest the housing recovery remained on track.
Building Permits
HOUSING
987k
1,053k
1,178
1,172
1,285k***
1,250k
Building permits for future construction increased 4.6% in January to an annual rate of 1,285k for January.
Multi-family permits increased sharply, though single family permits saw a decline for the month.
Housing Prices YoY
13.40%
4.30%
5.60%
5.30%
5.80%***
4.00%
U.S. home values rose 5.8% y/y in December, which is the fastest growth in 2.5 years. This upward trend is
likely to continue through 2017 as buyers continue to face a limited supply and the U.S. economy continues
to add jobs.
PCE Index YoY
1.30%
1.50%
0.30%
1.10%
1.90%***
1.70%
The U.S. PCE Index rose 0.4% in January, a 1.9% increase from a year earlier. Higher energy prices, which
can be volatile, have aided in pushing headline inflation higher.
Core PCE Index YoY
INFLATION
1.50%
1.60%
1.40%
1.70%
1.70%***
2.00%
In line with expectations, core inflation increased 0.3% in January but remains steady at 1.7% for the last
twelve months. Core PCE is beginning to trend up towards the Fed’s 2% target.
Consumer Price Index (CPI) YoY
1.50%
1.60%
0.10%
1.30%
2.50%***
1.90%
Posting their largest gain in nearly four years, consumer prices increased 0.6% to 2.5% y/y in January, up
from December’s 2.1%. Headline inflation saw an increase after a rebound in energy and commodity prices.
Core CPI YoY
1.80%
1.70%
1.80%
2.10%
2.30%***
2.40%
Core consumer prices increased by 0.3% in January to 2.30% y/y, a moderate increase from a month prior.
Rents, medical care, and motor vehicle prices all saw moderate increases.
Continued 
UMB.com/PrivateWealth
5
InSight Spring 2017
2017 Outlook by the Numbers
2013
Consumer Spending (PCE)
CONSUMER
(year end)
(year end)
2014
(year end)
2015
(year end)
2016
Most
Recent
2017E 1
1.50%
2.90%
3.20%
2.70%
2.50%*
2.90%
Trend
U.S. consumer spending rose less than expected in January, rising just 0.2% from December. The consumer
remains healthy and consumer spending will likely remain supported amid the growing optimism
surrounding the economy.
Consumer Confidence (U of MI)
79.2
84.1
92.9
91.8
95.7 **
96.0
After hitting decade highs in January, February’s reading of consumer sentiment ebbed slightly from 98.5
to 95.7. Consumer confidence remains favorable despite the retreat, due largely to division among political
party lines.
Projected Fed Funds
INTEREST
RATES
0.25%
0.25%
0.50%
0.75%
1.00%****
1.50%
We believe the Fed will raise the Fed Funds rate three times in 2017, reaching 1.50% by year-end 2017. Fed
rate increases are a positive reflection of the improvement in economic conditions, but at the same time
tighten financial conditions.
Projected 10-Year Treasury
3.00%
2.17%
2.30%
2.44%
2.39%****
3.00%
The 10 year Treasury yield has increased above 2.5% recently as inflation expectations have increased due
to an improved fiscal policy outlook. We expect the 10 year Treasury yield to trend higher throughout 2017.
S&P 500 Price
EQUITIES
1,848
2,059
2,044
2,239
2,363****
2,440
The market continues to trade near highs as investors weigh the potential economic and earnings benefit
of a more growth-focused fiscal policy from the Federal government under the new administration. We
believe returns will be in the upper single to low double digit range over the next 12 months.
S&P 500 Operating EPS Growth
6.80%
6.30%
-3.30%
0.00%
7.30%*****
15.00%
We believe earnings will grow by 15% y/y in 2017 as the drag from the energy sector wanes. There is
meaningful upside to our earnings estimates if we get corporate tax reform sometime in 2017 as the S&P
500 effective tax rate is around 28% compared to proposals of 15-20%.
World GDP
GLOBAL
ECONOMY
3.30%
3.40%
3.10%
3.10%
2.90%*
3.10%
Global economic growth continues to be subdued at around 3% given secular challenges such as slowing
labor force population, weak productivity, and high levels of debt. We expect uncertainty over upcoming
key elections in France and Germany to weigh on growth in 2017.
Emerging Markets GDP
5.00%
4.60%
4.40%
5.40%
4.50%*
5.20%
Emerging market growth has been pressured as commodity prices have been weak and China attempts
to stimulate its economy. We believe the recent rebound in commodity prices could help stabilize growth.
China continues to be the economic growth engine in the emerging markets.
*Quarter over Quarter Seasonally Adjusted Annualized Rate, as of 4Q 2016
**Monthly Seasonally Adjusted Annualized Rate, as of February, 2017
***As of January, 2017
****As of March, 2017
*****Trailing 4 quarters
1
E=Estimate
UMB.com/PrivateWealth
Positive
Trending Down
Neutral
Trending Up
Negative
Trending Down
Trending Up
6
InSight Spring 2017
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Disclosure and Important Considerations
UMB Private Wealth Management is a division within UMB Bank, n.a. that manages
active portfolios for employee benefit plans, endowments and foundations, fiduciary
accounts and individuals. UMB Financial Services, Inc.* is a wholly-owned subsidiary
of UMB Financial Corporation and an affiliate of UMB Bank, n.a. UMB Bank, n.a., is a
subsidiary of UMB Financial Corporation. Banking and trust services offered through
UMB Private Wealth Management, a division within UMB Bank, n.a.
This report is provided for informational purposes only and contains no investment
advice or recommendations to buy or sell any specific securities. Statements in
this report are based on the opinions of UMB Private Wealth Management and the
information available at the time this report was published.
All opinions represent our judgments as of the date of this report and are subject
to change at any time without notice. You should not use this report as a substitute
for your own judgment, and you should consult professional advisors before making
any tax, legal, financial planning or investment decisions. This report contains no
investment recommendations and you should not interpret the statements in this
report as investment, tax, legal, or financial planning advice. UMB Private Wealth
Management obtained information used in this report from third-party sources it
believes to be reliable, but this information is not necessarily comprehensive and UMB
Private Wealth Management does not guarantee that it is accurate.
All investments involve risk, including the possible loss of principal. This information
is not intended to be a forecast of future events and this is no guarantee of any future
results. Neither UMB Private Wealth Management nor its affiliates, directors, officers,
employees or agents accepts any liability for any loss or damage arising out of your
use of all or any part of this report.
“UMB” – Reg. U.S. Pat. & Tm. Off. Copyright © 2017. UMB Financial Corporation. All
Rights Reserved.
*Securities offered through UMB Financial Services, Inc. member FINRA, SIPC, or the
Investment Banking Division of UMB Bank, n.a.
Insurance products offered through UMB Insurance, Inc. You may not have an account
with all of these entities. Contact your UMB representative if you have any questions.
Securities and Insurance products are:
NOT FDIC INSURED • NO BANK GUARANTEE • NOT A DEPOSIT • NOT INSURED BY
ANY GOVERNMENT AGENCY • MAY LOSE VALUE
7