Obama’s Back, Now Diversify: BNY Mellon Analysts

Dick Hoey, Curtis Arledge foresee inflation, currency debasement and a pullback from the fiscal cliff in Obama’s second term

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With the re-election of President Obama, investors are looking to position themselves for the future, and that means focusing on how any tax increases may take a bite out of their portfolios, according to BNY Mellon’s top analysts.

Dick HoeyNow that a second Obama term is a reality, investors are advised to diversify to minimize any negative consequences from a potential increase in the capital gains tax, said Dick Hoey (left) at a media briefing on Wednesday in BNY Mellon’s Park Avenue offices in Manhattan.

For example, he said, now is a good time for families with large holdings in a single stock to think about moving some money into other more sheltered securities. (His fixed-income colleague David Leduc, chief investment officer of Standish Mellon Asset Management, recommends corporate credits and looking overseas to sovereign debt.)

“There is a substantial likelihood of higher capital gains,” Hoey said. “The current rate is the lowest capital gains tax that you, your children or your grandchildren will see in their lifetimes.”

Time to Face Facts

Hoey, along with BNY Mellon Investment Management CEO Curtis Arledge and C-level officers at the briefing, also recommended that advisors and their clients watch in 2013 and beyond for inflation, currency debasement and a pullback from the fiscal cliff during Obama’s second term.

Arledge said his impression of Obama’s Tuesday night acceptance speech was that the president set a somber tone for the economic problems the nation now faces, and that he refused to sugarcoat the need for greater fiscal responsibility.

“Last night’s speech shows Obama needs the whole country to be engaged,” Arledge said. “I think it’s the best speech he’s ever given.”

Key to Obama’s second term will be his choice of Treasury secretary, and Erskine Bowles may fit the bill, Arledge surmised, adding that in any case the new appointee must focus on reducing the U.S. deficit. And while the average citizen doesn’t think much about the deficit, it’s likely that Obama and his new Treasury secretary will spend some time teaching Americans about purchasing power, currency debasement and high debt-to-GDP ratios, Arledge said.

And outright debt cancellation by global central banks? “It may be a nuts and crazy idea, but it will be talked about more,” Arledge predicted.

The Taxman Cometh

The alternative minimum tax may also loom larger in the public sphere as 28 million U.S. households will be subject to the AMT as of Jan. 1, compared with 4 million now, Hoey warned, saying that he wouldn’t want to be the politicians on the other end of 28 million angry phone calls.

Whether policymakers end up resolving the nation’s fiscal cliff troubles with a series of little bargains or one grand bargain, some kind of resolution is inevitable in 2013, say BNY Mellon’s analysts.

“The election has been a big distractor,” Arledge said. “We haven’t focused on the fiscal cliff. We put it on the back burner, but now it’s on the front burner again.”

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View complete election coverage on AdvisorOne’s Election Impact 2012 home page.

Read 4 Post-Election Fiscal Cliff Scenarios at AdvisorOne.

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