August 17, 2016

Brian Barry , ARS Investment Partners, LLC

Difficult Choices; Quality Opportunities

Difficult Economic and Political Choices Lie Ahead

“Future shock is the disorientation that affects an individual, a corporation, or a country when he or it is overwhelmed by change and the prospect of change.”

Alvin Toffler, Futurist and author of the book titled “Future Shock”

We live in a world of global disequilibrium and distortions which are likely to be with us for many years, and for clients the key question is how do you preserve and build capital under these conditions? In 1970, Alvin Toffler argued that society was undergoing tremendous structural change from a technological and social perspective that would overwhelm people leaving them disconnected and disoriented. Some 46 years later, the rapid rise in anti-establishment sentiment in Europe and the United States reflects the frustration of many people who are experiencing lower living standards, growing income inequality, a loss of confidence in government and declining optimism about the future. In addition to these issues, the Brexit vote reflects a growing sentiment of loss of sovereignty and self-determination. Globalization and technological advances have not benefited populations equally leaving many feeling disenfranchised.

The global economy remains volatile and unbalanced, but in the face of the many challenges the S&P 500 and Dow Jones Industrial Indices continue to make new highs. In light of the current geopolitical, economic and social conditions, investors should expect the continuation of the historically low interest-rate environment. Low rates are limiting options for capital to achieve returns and pushing investors to seek alternatives. We would caution market participants not to make investment decisions today using only traditional investment thinking with respect to current interest rates and equity valuations given the characteristics of the global economy. In a growth-challenged environment, investors should expect the United States to remain among the healthiest economies with the U.S. dollar and treasuries continuing to be in high demand. The U.S. economy is improving as indicated by the strength of consumer spending and housing activity. Many U.S. corporations had previously lowered earnings expectations for Q2, and therefore are able to meet or exceed expectations leading to higher share prices. In our view, the outlook for current interest rates, inflation rates and corporate profits continues to create favorable conditions for the second half of the year for well-positioned U.S. businesses.

(Please see PDF for full Outlook)

________________________

Brian P. Barry, CIMA

Portfolio Manager

A.R. Schmeidler & Co., Inc.

212.687.9800

bbarry@arschmeidler.com

A.R. Schmeidler & Co., Inc. • 500 Fifth Avenue • New York,

NY 10110 • 212-687-

9800 • www.arschme

July 28, 2016

Difficult Economic and

Political Choices Lie Ahead

“Future shock is the disorientation that affects an individual, a corporation, or

a country when he or it is overwhelmed by change and the prospect of

change.”

Alvin Toffler, Futurist and author of the book titled “Future Shock”

We live in a world of global disequilibrium

and distortions which are likely to

be with us for many years, and for clients the key question is how do you

preserve and build capital under these conditions? In 1970, Alvin Toffler

argued that society was undergoing tremendous structural change from a

technological and social perspective that would overwhelm people leaving

them disconnected and disoriented. Some 46 years later, the rapid rise in

anti-establishment sentiment in Europe and the United States reflects the

frustration of many people who are experiencing lower living standards,

growing income inequality, a loss of confidence in government and declining

optimism about the future. In addition to these issues, the Brexit vote reflects

a growing sentiment of loss of sovereignty and self-determination.

Globalization and technological advances have not benefited populations

equally leaving many feeling disenfranchised.

The global economy remains volatile and unbalanced, but in the face of the

many challenges the S&P 500 and Dow Jones Industrial Indices continue to

make new highs. In light of the current geopolitical, economic and social

conditions, investors should expect the continuation of the historically low

interest-rate environment.

Low rates are limiting options for capital to

achieve returns and pushing investors to seek alternatives.

We would

caution market participants not to make investment decisions today using

only traditional investment thinking with respect to current interest rates and

equity valuations given the characteristics of the global economy.

In a

growth-challenged environment, investors should expect the United States to

remain among the healthiest economies with the U.S. dollar and treasuries

continuing to be in high demand.

The U.S. economy is improving as

indicated by the strength of consumer spending and housing activity. Many

U.S. corporations had previously lowered earnings expectations for Q2, and

therefore are able to meet or exceed expectations leading to higher share

prices. In our view, the outlook for current interest rates, inflation rates and

corporate profits continues to create favorable conditions for the second half

of the year for well-positioned U.S. businesses.

In this issue of

THE OUTLOOK. . .

The Post–Brexit EU and

the United Kingdom

Global Disequilibrium

and the Upcoming

Elections

Global and NATO

Defense spending

Testing the Limits of

Monetary and Interest

Rate Policy

Investment Implications

July 28, 2016

Investors should expect

the continuation of the

historically low interest-

rate environment

A.R. Schmeidler & Co., Inc. • 500 Fifth Avenue • New York,

NY 10110 • 212-687-

9800 • www.arschme

July 28, 2016

The chart above from the International Monetary Fund shows the most recent

lowered growth projections for many of the developed economies.

Governments are facing many difficult choices from geopolitical, economic

and social perspectives in the months ahead. To deal with the economic

challenges, central banks will continue to employ the most aggressive

monetary policy actions in history. These policies have been implemented in

various forms and to varying degrees of success.

Unfortunately as

aggressive as monetary policy has been, fiscal policy has been insufficient to

support growth, and in some countries including several in Europe, it has

been contractionary. While perhaps well-intended, austerity policies have

had the effect of virtually guaranteeing slow to no-growth outcomes and high

unemployment, especially among youth. A strong fiscal policy response is

required to match monetary policy efforts which are nearer their limits. While

we have written about the need for productive fiscal policy initiatives for

several years, the level of frustration expressed by populations around the

world may finally force politicians to act as voters are determined to

challenge the political status quo.

The Post-Brexit EU and the UK

"The unique feature of the EU is that, although these are all sovereign,

independent states, they have pooled some of their ‘sovereignty’ in order to

gain strength and the benefits of size. Pooling sovereignty means, in practice,

that the Member States delegate some of their decision-making powers to

the shared institutions they have created, so that decisions on specific

matters of joint interest can be made democratically at European level. The

EU thus sits between the fully federal system found in the United States and

the loose, intergovernmental cooperation system seen in the United Nations.

Excerpt from EU publication “How the European Union Works

”

To deal with the

economic challenges,

central banks will

continue to employ the

most aggressive monetary

policy actions in history

The outlook for current

interest rates, inflation

rates and corporate profits

continues to create

favorable conditions for

the second half of the

year for well-positioned

U.S. businesses

A.R. Schmeidler & Co., Inc. • 500 Fifth Avenue • New York,

NY 10110 • 212-687-

9800 • www.arschme

July 28, 2016

The European Union (EU) was created in the aftermath of the Second World

War based on the ideals of a peaceful, united and prosperous Europe. The

intent was to foster economic cooperation with the idea that countries that

trade with one another become economically interdependent and so more

likely to avoid conflict.

The EU functioned relatively well from an economic

perspective when economies were doing better, but when the strains of slow

growth and rising unemployment manifested themselves in recent years,

resentments and doubts developed about the European project. The series of

economic crises experienced by the region since 2009 highlighted the

structural flaws of the EU initiative.

There are three primary issues

complicating the current situation in Europe and the UK. First, the emphasis

on austerity programs for many nations fostered deep resentments toward

Brussels (headquarters of the EU) and Germany, and allowed anti-European

parties to rise in influence. Second, the economic recovery has been uneven

and slow to materialize in part because the European approach, in contrast to

the U.S. one, did not properly recapitalize the banking system. Third, the civil

war in Syria, with the disruptive involvement of Russia, led to the massive

migration of refugees to Europe, and the Union was unprepared for the

challenges and not unified in its approach to address them.

For voters in the United Kingdom (UK) and many others in Europe, concerns

about sovereignty, self-determination, immigration, employment and a loss of

national identity have fueled populist movements. In October, Italy is holding

a referendum on the proposed structural changes of Mateo Renzi, its Prime

Minister. While at the same time, the Italian government wants to bail out the

banks with capital injections, but under EU rules a bail-in must occur whereby

shareholders, bondholders and bank depositors share in the losses. We

believe that the ECB will try to finesse an arrangement that protects bank

depositors, shareholders and creditors for Italy as a one-off situation. Italy,

which is the EU’s third largest economy, otherwise could at some point be the

next shoe to drop after Brexit. Furthermore, the recent coup attempt in

Turkey could heighten immigrant flows into Europe which in turn could result

in rising nationalistic sentiment, further weakening the Euro and slowing

economic growth. With many leading nations facing elections in the next 12

months, politicians must carefully weigh their policy options.

As things stand today, the future of the European Union (EU) is uncertain as

is its relationship with the UK. Undoing 40 years of political and economic

integration would be a complex and difficult process.

Fortunately, the

leadership transition in the UK was expeditious as Theresa May was

introduced as David Cameron’s successor on July 13th and many of the key

cabinet positions have alre

ady been filled. This will al

low plans for the Brexit

process to begin to be formulated with the current relationship between

Norway and the EU potentially being used as a model. The Brexit process

could take some time to be completed as negotiating trade agreements and

the free movement of individuals are complicated issues with important

implications for the involved nations.

A.R. Schmeidler & Co., Inc. • 500 Fifth Avenue • New York,

NY 10110 • 212-687-

9800 • www.arschme

July 28, 2016

Global Disequilibrium and the Upcoming Elections

One of the key questions facing European leaders is whether the Brexit vote

leads to an unraveling or forces greater integration of the EU given the large

cultural differences and different histories of its members.

Germany is

determined to see the EU remain intact.

Competing interests make a

solution difficult, but not impossible. Aside from the economic benefits of the

Union, the EU provided a stronger foundation for the security of its member

nations. However, the fourth terrorist attack in France in the past 12 months

will advance the position of Marine Le Pen, the far-right leader who is

President of the National Front (FN), a national-conservative political party in

France which has made immigration and national security a key element of

its platform.

As the chart below highlights, several of the key decision

makers will be forced to balance doing what is right for their own nations with

doing what is right for Europe while also trying to get re-elected.

The

favorability ratings for many incumbent

s are deteriorating, and key elections

in France, Germany and Italy will complicate matters while lengthening the

process. In the US, the improbable rise of Donald Trump as the Republican

nominee for President and the surprising showing of Bernie Sanders on the

Democratic side are reflections of the anti-establishment sentiment here at

home which is an outgrowth of the inability of Congress to effectively address

the needs of the nation. The likely change of leadership in so many nations

has added an element of unpredictability and uncertainty to the outlook.

However, there seems to be one area of common need globally and that is

the need to invest in infrastructure to stimulate growth and increase

productivity. Unlike the previous 30 years, the global economy can no longer

rely on credit-fueled growth by the private sector to the same degree as in the

past because of the excessive debt already in the system. Two critical

elements required for stronger growth are infrastructure spending and

structural change. Both Donald Trump and Hillary Clinton have made

infrastructure spending a prominent part of their platforms to drive economic

growth for the U.S. In Europe, the challenge will be whether Germany can

Governments are

being presented a

unique opportunity to

use low-cost debt to

make needed

infrastructure

investments

Several of the key

decision makers will

be forced to balance

doing what is right for

their own nations

with doing what is

right for Europe while

also trying to get re-

elected.

Global Election Cycle 2016-2018

Country

Legislative/Parliamentary

Presidential

United States

November '16, '18

November '16

Brazil

October '18

China

September '16

France

June '17

April '17

Germany

September '17

Italy

February '18

Russia

September '16

March '18

Austria

September '18

April '16

Portugal

January '16

Sweden

September '18

A.R. Schmeidler & Co., Inc. • 500 Fifth Avenue • New York,

NY 10110 • 212-687-

9800 • www.arschme

July 28, 2016

make the ideological shift with respect to supporting a move away from

austerity for the Southern tier nations by increasing spending to promote

economic growth in the EU. The need for increased infrastructure spending

is real and no longer able to be postponed. McKinsey Global Institute in a

2013 report estimated that the required global infrastructure spending needs

by 2030 were in excess of $57 trillion and growing. At the time, it was

estimated that the required global spending was greater than the total value

of the existing global infrastructure. For the United States, a 2013 American

Society of Civil Engineers report projected the spending needs to be in

excess of $3.6 trillion and rising.

The current record low interest-rate

environment has presented governments a unique opportunity to use low-

cost debt to fund the needed investments essential to foster a return to a

stronger-growth environment. Importantly the return on investment would be

higher than the cost of capital.

Global and NATO Defense Spending

The disequilibrium discussed in this Outlook is being manifested in many

areas with a critical one being that the world is a less-safe place with the

tragic terror attack in Nice and the failed coup being the most recent

examples. As a consequence, global defense spending is likely to increase

from the current levels of approximately $1.7 trillion. The United States,

which accounts for 39% of global defense spending at approximately $670

billion annually, had slowed spending

in recent years as a result of the

financial crisis and the budget sequestration. That trend is now reversing and

the initial policy statements from each presidential candidate support the

need for an increase in U.S. defense spending. The target amount for NATO

nations, ex the United States, is 2% o

f GDP or an estimated $320 billion per

year. From the Middle East to Europe to Asia, countries are increasing

defense spending at a significant rate

with Russia planning $320 billion by

2020, China intending to increase spending over 7% annually, and now

Japan is considering a constitutional change to increase its spending as well.

The United States is also working to

enhance South Korea’s Ballistic Missile

Defense (DMB) system as North Korea continues its aggressive

development of its nuclear program.

At the recent NATO Summit in Warsaw, participants highlighted that member

nations were facing “a range of security challenges and threats that originate

both from the east and from the south; from state and non-state actors; from

military forces and from terrorist, cyber, or hybrid attacks.” The group cited

Russia as the most significant threat and has committed both personnel and

increased spending to protect its members from Putin’s highly aggressive

actions. NATO nations are committing additional ground forces to the Baltic

region. NATO also stressed as a critical security issue the shifts in tactics by

ISIS to bring terrorism to Europe and in particular to France and Belgium.

The instability of the Middle East and North Africa are contributing to the

ongoing refugee crisis. This is also adding to security concerns for members

Global defense

spending is likely to

increase from the

current levels of

approximately $1.7

trillion

The initial policy

statements from each

presidential candidate

support the need for

an increase in U.S.

defense spending

A.R. Schmeidler & Co., Inc. • 500 Fifth Avenue • New York,

NY 10110 • 212-687-

9800 • www.arschme

July 28, 2016

as most are unprepared to handle the volume of refugees which is taxing

domestic security forces.

From an investment perspective, U.S. defense companies represent a

relatively small percentage weighting in the S&P 500, so most institutional

portfolios have a representation in defense of approximately 1.8% or less.

The top 5 defense companies have a market capitalization of about $280

billion. It is our view that these businesses represent important investments

that generate significant cash, maintain high and/or growing backlogs,

improving profit margins, raising dividends and repurchasing stock. These

businesses are not as dependent on economic activity as are others, but

rather on national security needs

and geopolitical conditions.

Testing the Limits of Monetary and Interest Rate Policy

The absence of supportive fiscal policy is forcing central banks to rethink the

limits of monetary policy initiatives.

Following meetings between Ben

Bernanke, the former Federal Reserve Chair, and the heads of the Bank of

Japan to discuss its battle with deflationary pressures, there has been

increased speculation regarding the possible introduction of “helicopter

money”. This is an unconventional policy that blends elements of monetary

and fiscal initiatives by printing large sums of money to finance government

programs in order to stimulate the economy. The central bank gives the

government money with no interest and no expectation of payment at a later

date to distribute in the form of spending. While many are skeptical about the

likelihood of its being introduced, we would caution that investors were also

skeptical of the likelihood of quantitative easing and “lower-for-longer”

interest rates as well. Prior to the financial crisis, interest rates were always

a positive number.

With $11.5 trillio

n in government bonds outstanding

carrying negative interest rates, the historic level of interest rates is no longer

the standard. Due to the development of negative interest rates as a policy

tool and the prospects of even further unconventional monetary policy

initiatives, gold has become of greater interest to investors in 2016. While

there are divergent views regarding gold, the economics of the current

environment have arguably made gold less expensive to own then at any

time in the past. Gold is considered a hedge against excessive currency

creation as well as economic, geopolitical and financial instability.

While many are

skeptical about the

likelihood of its being

introduced, we would

caution that investors

were also skeptical of

the likelihood of

quantitative easing

and “lower-for-

longer” interest rates

as well

A.R. Schmeidler & Co., Inc. • 500 Fifth Avenue • New York,

NY 10110 • 212-687-

9800 • www.arschme

July 28, 2016

Investment Implications

“America has been dealt an extraordinary hand, and I am optimistic about our

future. Our universities are second to none. We have many of the best

businesses on the planet - small, medium and large. Americans are among

the most entrepreneurial and innovative people in the world, from those who

work in entry-level jobs on the factory floor to Bill Gates... We face many

challenges. But they can be overcome...”

Jamie Dimon, Chairman and Chief

Executive of JPMorgan Chase in a recent NY Times Op-ed

As we have often stated in previous O

utlooks, the resilience and adaptability

of the U.S. have and will continue to make our economy standout relative to

others and perpetuate the view as a safe haven for capital. These attributes

become even more important in times of the global disequilibrium we see

today. Even with the many challenges we face, opportunities exist to build

and protect capital. Our portfolio strategy continues to focus on three areas

of emphasis – high-quality growth, high-quality dividends and opportunistic

investments. Our focus remains on selecting companies benefitting from

positive trends in cloud computing

and mobility, changes in

the financial and

healthcare industries, rising defense spending, increasing U.S. consumer

spending and the shift to a more service-oriented global economy led by

China and India. We continue to target companies that are gaining market

share, maintaining or improving profit margins, increasing free cash flow,

restructuring to gain more efficiency, increasing pricing power and/or growing

dividends. Companies that are able to more aggressively invest in the future

growth of their businesses will be more highly rewarded as there is a growing

view that many corporations have only been able to financially engineer their

performance improvements through share buybacks. This is an environment

that will reward companies with strong, qualitative fundamentals.

Furthermore with more than $11.5 tr

illion of government debt carrying a

negative yield, central bank bond buying is creating distortions in the bond

market forcing rates even lower, crowding out individual bond buyers and

forcing investors to seek alternative sources of income in the equity markets.

Central bank bond

buying is creating

distortions in the

bond market forcing

rates even lower,

crowding out

individual bond

buyers and forcing

investors to seek

alternative sources of

income in the equity

markets

A.R. Schmeidler & Co., Inc. • 500 Fifth Avenue • New York,

NY 10110 • 212-687-

9800 • www.arschme

July 28, 2016

Potential leadership changes could have a profound impact on the economic

policies implemented in 2016 and beyond. For the United States specifically

if the upcoming election brings about fiscal and structural changes which

have been deferred for a long time, the result would be a material

improvement in the economic outlook. The current record low interest-rate

environment is giving governments a unique opportunity use low-cost debt to

make the needed investments essential to foster a return to a stronger

growth environment.

With slow growth and deflationary pressures, we

expect markets to continue to ascribe greater value to companies with the

best industry-demand fundamentals and internal growth characteristics. The

dynamics of the global economy strongly suggest an environment which

offers investors the opportunity to build capital and protect income. The

disequilibrium discussed in this Out

look has been adding to market volatility

over the past few years, temporarily distorting the values of quality

businesses and presenting investors with attractive buying opportunities. We

expect this trend to continue. Investors should remain focused on taking

advantage of the businesses that are benefitting from the positives in the

U.S. and global economies.

The information and opinions in this report were prepared by A.R. Schmeidler & Co., Inc.

(“ARS”). Information, opinions and estimates contained in this report reflect a judgment at its

original date and are subject to change. ARS and its employees shall have no obligation to

update or amend any information contained herein.

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constitute an offer or solicitation of any transaction in any securities referred to herein or

investment advice to any person and ARS will not treat recipients as its customers by virtue of

their receiving this report. ARS or its employees have or may have a long or short position or

holding in the securities, options on securities, or other related investments mentioned herein.

This publication is being furnished to you for informational purposes and only on condition that

it will not form a primary basis for any investment decision. These materials are based upon

information generally available to the public from sources believed to be reliable.

representation is given with respect to their accuracy or completeness, and they may change

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This report may not be sold or redistributed in whole or part without the prior written consent of

A.R. Schmeidler & Co., Inc.

Brian Barry, ARS Investment Partners, LLC

Investing in a Changing World

As an exceptional year in the equity markets draws to a close, many investors have been caught either underweight the primary beneficiaries or out of the U.S. stock market altogether even as the major stock indices regularly reached new highs.

Jan 09, 2018

Brian Barry, ARS Investment Partners, LLC

The World is at an Inflection Point

With the presidential election less than one month away and a possible interest rate hike by the Federal Reserve before year end, investors should expect volatility to be with us following a fairly quiet few months. Our portfolio strategy ...

Oct 27, 2016