Pennsylvania Investment Observer

The Reagan Legacy

by Daniel J. Nestlerode

Events of the past few days, have caused me to reflect on the investment business of the middle seventies until the end of Ronald Reagan's Presidency in 1988. In light of the polarization surrounding the Presidency of George Bush, reflecting on the polarization during the Reagan years seems constructive.

The economic disaster that started during the Johnson administration and continued through the Nixon, Ford and Carter Presidencies ended with Ronald Reagan. Following the prosperity of the Kennedy tax reduction in the early sixties, subsequent administrations were unable to solve the economic puzzle and bring prosperity to Main Street. By the end of Carter's term in office, unemployment was over ten percent, inflation and interest rates were in double figures, gold and precious metals were the leading investment and few companies were making investments in plant and equipment or talking about the promise of the great American economy. Tax rates were very high with the top tax rate at 70%. Still the government ran deficits, as no good politician can avoid spending more than the IRS collects. The mood of the country was one of hopelessness. The investment business was especially difficult as few of the products we had to sell (mutual funds and stocks) were credible with potential investors. I recall Pennsylvania Power and Light selling at a dividend yield of ten percent, yet no one thought that it was a good investment. Certificates of Deposit yielded over twelve percent and money market mutual funds, a rather new creation in those days, paid over fifteen percent annually. Stocks and stock mutual funds were very unpopular, indeed were not credible with anyone who had money to invest. It was a difficult time to be a commissioned stockbroker.

Reagan and his Federal Reserve Board Chairman Paul Volker took the economy and the markets to task and broke the back of inflation allowing interest rates to begin to decline. Further Reagan slashed income tax rates and started one of the longest periods of growth in the American economy up to that time. Unemployment dropped, interest rates dropped, inflation dropped and the stock market found its bottom in 1982 (with the Dow Jones Industrial Average under 800 - no I didn't leave out a digit - following fourteen years of no growth). I recall the moans and groans at the time as both Republicans and Democrats warned that Reagan's policies would bankrupt America and lead to even worse economic results. Reagan's policies were controversial and not well received in Washington or in the various repositories of economic knowledge. He was antiestablishment, yet he was for economic growth, low unemployment, interest rates and inflation rates. He was committed to a sound and healthy dollar and stock market. More than anyone else in modern times, Ronal Reagan reignited the American economy and brought the dream of living in a better more prosperous world to hundreds of millions of people, not only here in the United States, but around the world. One might also note that President Reagan appointed Alan Greenspan to be Chairman of the Federal Reserve Board.

America has had a lot of great leaders, political and otherwise. We have also had our share of controversial leaders. For me, Ronald Reagan was one the greatest Presidents of the twentieth century. For what he did to help me, my company and the industry in which I work, I say thank you! Ronald Reagan clearly made a difference to my family and me and to those who have profited by investing in the stock markets in the United States.

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