January 06, 2017

Adam Klein @ ARS Investment Partners, LLC

Business Development

Weighing the Prospects of Trump’s Policies against Political and Economic Realities

“Don’t forget about the huge difference between expecting something and experiencing it.” Attributed to Angela Merkel

In our Outlook (October 13th) published before the Presidential election, we described a world at an inflection point. Monetary policy, which had succeeded in stabilizing economies and markets after the financial crisis, appeared to be reaching its limits. We wrote that “without proper fiscal policy, investors should expect more of the same low growth, low interest rates and low inflation … we have experienced for some time.” The election result in the U.S. is being interpreted as a call for change, and some of the initiatives being proposed echo the policies that we have called for in this Outlook for years. These include investing in U.S. infrastructure, making corporate tax policy globally competitive, repatriating cash held overseas by U.S . corporations and reducing the regulatory burden on businesses. Importantly for investors, there is a renewed sense of confidence and optimism developing from U.S. businesses and consumers as the long-awaited fisca l policy initiatives appear to be on the way to complement the accommodative monetary policy stance of the Federal Reserve. The outlook for corporate earnings (higher), inflation rates (slightly higher) and interest rates (trending higher, but continuing to be well below historical norms) remains supportive of equity investments.

Continue reading attached PDF for full Outlook.

Adam Klein

ARS Investment Partners, LLC

aklein@arsinvestmentpartners.com

646-736-0453

December 27, 2016

Weighing the Prospects of Trump’s Policies

against Political and Economic Realities

“Don’t forget about the huge difference between expecting something and

experiencing it.”

Attributed to Angela Merkel

In our Outlook (October 13th

) published before the Presidential election, we

described a world at an inflection point. Monetary policy, which had

succeeded in stabilizing economies and markets after the financial crisis,

appeared to be reaching its limits. We wrote that “without proper fiscal policy,

investors should expect more of the same low growth, low interest rates and

low inflation ... we have experienced for some time.” The election result in

the U.S. is being interpreted as a call for change, and some of the initiatives

being proposed echo the policies that we have called for in this Outlook for

years. These include investing in U.S. infrastructure, making corporate tax

policy globally competitive, repatriating cash held overseas by U.S.

corporations and reducing the regulatory burden on businesses. Importantly

for investors, there is a renewed sense of confidence and optimism

developing from U.S. businesses and consumers as the long-awaited fiscal

policy initiatives appear to be on the way to complement the accommodative

monetary policy stance of the Federal Reserve. The outlook for corporate

earnings (higher), inflation rates (slightly higher) and interest rates (trending

higher, but continuing to be well below historical norms) remains supportive

of equity investments.

The current optimism for future policy changes should be balanced against

the market conditions present today. Whenever rapid changes occur in the

markets as we have seen in the post-election period, it often gives us pause

as the global economy needs time to adjust. We cannot help but notice that

markets are already giving significant credit for legislation that could take

many months to pass, and possibly then only after considerable debate and

compromise. Furthermore, the confirmation process for Cabinet positions

may be contentious and drawn out. Even as new laws are passed, they

often require several months for their benefits to flow through the economy.

While we are awaiting those benefits, what economic impact will rising

interest rates, and oil and gas prices have in the meantime? And what

impact will a sharply rising dollar have on developing economies whose

depreciating currencies make it more difficult for them to service their dollar-

denominated debts? We also wonder whether investors are postponing

making security sales until January in anticipation of lower tax rates in the

New Year?

In this issue of

THE OUTLOOK. . .

Assessing the

economic impact of

Trump’s policy

proposals

Fiscal initiatives to

complement monetary

policy

Reasons for cautious

optimism

Investment

Implications

Important firm update

There is a renewed

sense of optimism as

the long awaited fiscal

policy initiatives appear

to be on the way to

complement the

accommodative

monetary policy stance

of the Federal Reserve

December 27, 2016

These are some of the questions we are asking as we witness a growing

chorus of optimists, many of whom were so cautious just six weeks ago.

In balancing the opportunities presented by the transition from an economy

supported primarily by monetary policy to one which also has added fiscal

policy initiatives, investors should consider an investment strategy with three

elements – owning quality growth companies, owning quality companies with

strong balance sheets and reasonable dividend growth prospects, and

owning opportunistic investments with specific catalysts. An added

challenge for market participants, many of whom were over-allocated to fixed

income, will involve the timing of getting back into the equity market given the

uncertainty as to the timing of policy implementation and anticipated market

volatility in 2017. Near-term uncertainties aside, equity investors with a

longer-term view should continue to be rewarded in the coming years as the

recovery continues.

The Handoff of Monetary Policy

to Fiscal Policy Likely to Begin in 2017

“The projections in this Economic Outlook offer the prospect that fiscal

initiatives could

catalyse

private economic activity and push the global

economy to the modestly higher growth rate of around 3.5% by 2018.

Durable exit from the low-growth trap depends on policy choices beyond

those of the monetary authorities – that is, of fiscal and structural, including

trade policies – as well as on concerted and effective implementation.”

“Escaping the Low-Growth Trap”, OECD, Economic Outlook No. 100,

10/28/16

The challenges in the world cannot be erased by one election as economic

headwinds such as excessive indebtedness, aging demographics,

underfunded pensions, excess capacity and declining productivity (not to

mention environmental) are structural in nature and will take years to

address. Of more immediate concern is the adjustment process the global

economy must undergo due to the rapid strengthening of the U.S. dollar and

nearly 1% rise in Treasury bond yields. The suddenness of these moves is

driving capital outflows from China, Europe and developing nations into the

United States. As many European and developing nations have already

been experiencing anemic growth, the challenges posed by a stronger U.S.

dollar and rising interest rates come at an inopportune time. China’s

currency reserves have declined by over $1 trillion in recent years and are

approaching the $3 trillion level. Recently the Euro has reached a multi-year

low, Italy is dealing with the need to form another new government

Near-term uncertainties

aside, equity investors

with a longer-term view

should continue to be

rewarded in the coming

years as the recovery

continues

December 27, 2016

and to strengthen a weak banking system, the region is struggling with

immigration issues, and austerity programs have fueled anger and anti-

establishment sentiment in many nations.

We continue to believe that the global economy could be at an important

inflection point in which fiscal policy initiatives, encouraged by the OECD and

other leading institutions, begin to be implemented and become supportive of

monetary policy. In recent months the economic data out of Europe has

improved, and its sustainability may accelerate the introduction of more pro-

growth initiatives. As the chart highlights, there are several important

elections coming up in 2017 and 2018, and the pressure is growing for

Europe to replace its austerity orientation with pro-growth fiscal policy

initiatives. The European Central Bank (ECB) President Mario Draghi has

repeatedly called upon governments to implement fiscal policy to support the

ECB’s highly aggressive monetary policy initiatives. Until these countries

adopt more pro-growth policies, the U.S. will remain a magnet for capital

flows and among the strongest economies in the world.

Reasons for Cautious Optimism

For several years, we have discussed the United States being the standout

economy among developed nations. While the post-financial crisis recovery

has been muted, the U.S. has continued to be a global leader due to its

adaptability, innovation and resilience. Prior to the November election, the

U.S. economy was slowly but steadily improving. The Federal Reserve

We continue to believe

that the global

economy could be at

an important inflection

point in which fiscal

policy initiatives begin

to be implemented and

become supportive of

monetary policy

Global Election Cycle 2016-‐2018

Country

Referendum (s)

Legislative /

Parliamentary

Presidential

United States

-‐

November 2016

November 2018

Brazil

-‐

October 2018

China

-‐

September 2016

-‐

France

-‐

November 2016

April -‐ May 2017

June 2017

Germany

-‐

March 2017

October 2017

May 2017

Italy

December 2016

February 2018

May 2018

Russia

-‐

September 2016

March 2018

Austria

-‐

September 2018

December 2016

Spain

September 2017

-‐

Greece

December 2016

-‐

Netherlands

-‐

March 2017

-‐

United Kingdom

June 2016

-‐

March 2017

-‐

December 27, 2016

recently announced that based on the improvements in economic data and

its projections for 2017, the FOMC anticipates three rate hikes next year.

Per the Council of Economic Advisors November 2016 Economic Indicators

report, U.S. corporate pre-tax earnings were projected to exceed $2.26

trillion with an increase of $78.3 billion for 2016 alone. After-tax earnings for

U.S. companies were estimated to be $1.69 trillion with an increase of $57

billion.

Personal income rose at an annual rate of $98.7 billion and is forecast

to be over $16.3 trillion, while wages and salaries rose $45.2 billion in

October. U.S. consumer net worth rose to an estimated $92.8 trillion in the

third quarter, and unemployment declined to 4.6% in the most recent report.

The Trump campaign platform identified four major economic policies which

have created excitement about the future – infrastructure spending,

corporate and individual tax reductions, lowering regulatory burdens and the

repatriation of corporate cash held overseas. In 2016, taxes on corporate

income were forecast to be $565 billion which represents a 25% rate as

many large corporations were paying well below the 35% statutory rate. The

President-elect has proposed lowering the rate to 15%, while the House plan

targeted a 20% rate. Even a 10% reduction in corporate taxes would

improve after-tax profits by over $56 billion with small and medium sized

businesses benefiting significantly. For consumers, any reduction in

personal income taxes would be welcome. Personal income taxes are

estimated to be $1.99 trillion in 2016, and much of the benefit of lower taxes

would likely be spent. Additionally, if the new Administration is effective in its

commitment to reduce unnecessary regulatory burdens, small and mid-sized

companies would again benefit significantly as would large corporations. In

speaking with small-business owners, lowering regulatory requirements for

them may be the most important element of the Trump platform as it would

make doing business less complex and costly. Estimates vary for the total

amount of U.S. corporate cash held overseas ranging from $2-3 trillion

dollars. If corporations are incented to bring home some portion of this cash,

there could be a significant ripple effect throughout the economy. If $1.5

trillion were to be repatriated at a 10% tax rate, the government would

receive $150 billion and corporations would have $1.35 trillion for increased

capital expenditures, dividends and/or share buybacks.

These policies are forecast to widen the deficit by anywhere from $3-6 trillion

over the next decade, but those numbers could vary significantly depending

on the ability of these fiscal policies to raise GDP growth and tax receipts. It

remains to be seen whether the President-elect’s campaign anti-trade

rhetoric becomes a reality, but this would likely offset the positives of the

fiscal policy initiatives described above. Given the selection of Rex

Tillerson

the CEO of Exxon Mobile, as Secretary of State as well as other Cabinet

appointments, we anticipate that the Trump Administration trade policies will

be more pragmatic than the campaign rhetoric would suggest.

We anticipate that

the Trump

Administration trade

policies will be more

pragmatic than the

campaign rhetoric

would suggest

The Trump campaign

platform identified four

major economic policies

which have created

excitement about the

future – infrastructure

spending, corporate

and individual tax

reductions, lowering

regulatory burdens and

the repatriation of

corporate cash held

overseas

December 27, 2016

Investment Implications

This Outlook highlights the positive potential for change in key areas over the

medium term. With investor sentiment potentially getting ahead of itself in

recent weeks, we approach the New Year a little guarded but with an

opportunistic bent. Over the medium term, however, we see investment

opportunities in many of the areas we have emphasized over the past year,

including companies with strong secular growth characteristics, high quality

companies with attractive and growing dividend payouts, opportunistic

investments in out-of-favor areas in the market, industries with special

catalysts, and U.S. domestically-oriented businesses (especially small

capitalization companies). Recently we have also increased exposure to

companies that will be direct beneficiaries of new administration priorities,

such as infrastructure investment and defense spending. We are also

focused on defensive, divided-paying stocks that have been discarded by the

market and have become more attractive since the election. With the U.S.

economy and consumer confidence improving, the outlook for small

capitalization stocks has also improved. As previously mentioned, the more

domestically-oriented, smaller market capitalization companies should be

major beneficiaries of the proposed tax cuts, the stronger U.S. dollar,

infrastructure spending, lower regulatory burdens, repatriation of overseas

cash from larger corporations and increased merger and acquisition activity.

The combination of these forces should increase after-tax earnings for these

companies. In the New Year, we will take advantage of any market

dislocations to build positions in the beneficiaries of our Outlook.

Important Update

We are also pleased to announce that effective December 20, 2016, the

firms of Somerset Capital Advisers, LLC led by Michael Schaenen and Ross

Taylor and Artemis Wealth LLC and PS Management, Inc. led by Sean

Lawless, have formally merged with A.R. Schmeidler & Co., Inc. The firm

has been renamed ARS Investment Partners, LLC. The combination of our

firms will allow us to better service our clients’ evolving needs in the coming

years. In January 2017, we will be introducing two new investment

strategies which leverage the collective capabilities of our expanded team –

the ARS Focused Small Cap Strategy and the ARS Focused ETF Strategy.

The ARS Focused Small Cap Strategy intends to invest in companies with

market capitalizations ranging from $100 million to $2.5 billion. The strategy

employs a high-conviction approach resulting in a portfolio of 15-20 small-

cap companies. The portfolio is long biased, while attempting to mitigate risk

via cash levels, prudent short sales, inverse ETF’s (Exchange Traded Funds)

and option strategies.

With investor

sentiment

potentially getting

ahead of itself in

recent weeks, we

approach the New

Year a little guarded

but with an

opportunistic bent.

Over the medium

term, however, we

see investment

opportunities in

many of the areas

we have

emphasized over

the past year

December 27, 2016

The ARS Focused ETF Strategy is designed to concentrate investments in

ETFs that provide the greatest exposure to ARS’ highest-conviction themes.

This may lead to investments in “narrow” industry ETFs. Typically, the

portfolio will focus on 5-10 themes that will result in 10-20 ETF investments.

These new offerings are just one example of the benefits of our firms coming

together. We are delighted to expand our investment and service

capabilities with these talented and experienced managers whom we have

known for several years. We look forward to introducing you to our new

colleagues at the earliest opportunity.

We want to wish all of our clients and readers Happy Holidays and a

healthy, joyful and prosperous New Year!

The information and opinions in this report were prepared by ARS Investment Partners, LLC

(“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. The contents of this report do not 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. No

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

without notice. ARS on its own behalf disclaims any and all liability relating to these materials,

including, without limitation, any express or implied recommendations or warranties for

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analyses contained herein are not intended as tax, legal or investment advice and may not be

suitable for your specific circumstances.

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

ARS Investment Partners, LLC.

Adam Klein, ARS Investment Partners, LLC

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