InSight

Market InSights:

Rudolph with Your Nose So Bright

Investing 2021

If you don’t recall the most famous reindeer of all, Rudolph, the Montgomery Ward creation possesses the special characteristic to guide Santa’s sleigh among a fog that would have otherwise canceled Christmas. Like Rudolph’s nose, I’m going to highlight a couple of macroeconomics bright spots that we like right now, that will surely support markets and guide us through the fog of 2021. Enjoy the holiday season and may you have a prosperous new year. 

Unemployment – I think it’s fair to say that the spike in unemployment (fastest spike ever) and the subsequent drop in unemployment (fastest drop ever) have given politicians the hyperbole they need, but the rate getting back to 6.7% means a couple of good things going forward. Firstly, the “easy to lose” and “easy to return” jobs were flushed out in the spike, and the jobs that could easily return have. This means that while each percentage point from here on out is going to be harder and harder, the headline risk of massive jobless swings has likely settled for now. Unemployment in the +6’s has been the recent peaks for prior negative economic swings. In 2003, we peaked at 6.3%, 1992 7.7% even the economic crisis in 2009 only saw a peak of 9.9%. So at least the unemployment figures have gotten back to “normal bad” and not “historically bad”. But here is the good news for 2021, from this point forward we will get positive headlines for employment. I think we have crested, the liquidity in the markets has helped, and near term the unemployment outlook is stable. This pandemic is different than a cyclical recession, this can be resolved as quickly as the damage was done, and for between 4-8 quarters we can see a routine and constructive print for joblessness. This will be a supportive series of headlines for markets. 

Inflation – Inflation will be a headwind for bonds and cash but will be constructive for some assets. Those invested in equities will see an increase in capital chasing the same number of assets. This inflation will be constructive for stocks and other hard assets from 2021 but will cut into the expectations for the buying power of dollars going forward. Expect long term dollar weakness. Additionally, we’re not alone, this pandemic is global and I anticipate every central bank to prefer adding liquidity to their economies over the risk of inflation. Expect countries that emerge from the pandemic quickly to see a major tailwind from global inflation, those whose course is slower and shutdowns longer to be hampered by it.  

Debt – Record low borrowing costs should tee up leveraged companies for success. This is absolutely a situation where “zombie” companies will be created, so investors should be aware of the health of companies they are buying, but long term, allowing companies that have been historically highly leveraged to restructure at amazing rates, or even granting companies that have healthy balance sheets more cheap capital to take on more cap-ex projects for the at least a decade or more will be supportive for the market on the whole. As I write this, the 2-10 spread is .8%, in my opinion giving corporate CFO’s carte blanche to begin issuing new debt and extending all maturities on existing debt. Seeing these companies become so tenacious in the debt market normally would spook investors, but it’s hard to imagine a more supportive environment for borrowers than sub-2% borrowing costs for AAA companies and sub-4% for high yield borrowers. Debt was low for the recovery after 2009 and is now bargain-basement prices. These are rates that are likely to persist through 2021 and with Janet Yellen (Dovish) at the treasury, and no change in the attitude of the Fed I’m not seeing a change in sight. This will likely mean yields will be below inflation for some time as central banks try to juice the recovery at the expense of inflation. 

Earnings – Companies have broadly been able to understate their earnings projections through the pandemic. The science of slow-rolling their debts, and lowering the expectations of analysts has been fantastic. Companies across sectors have been able to step over the lowered bar without major disruption this year. Now while, for the most part, the pandemic has given them top cover to have earnings below their historic figures, the companies in the S&P 500 have done a fantastic job this year of collectively using this window to reset the expectations of investors without sounding alarms. Managing expectations lower, then beating them has been a theme in 2020, that in 2021 will look like a great trajectory for earnings as we emerge from COVID-19. This is going to be a fantastic and virtuous atmosphere of rising earnings. The usual suspects for this earning improvement cycle will show up, banks, technology, and consumer discretionary investors will like this reset in the cycle and the aforementioned upswing in earnings these groups are poised for.

More related articles:

1031 Exchange Success Checklist: Pre-Planning, 45-Day Identification, and 180-Day Closing

Executing a 1031 exchange successfully takes more than just paperwork — it requires strategy, timing, and team coordination.Missing a deadline at any point could mean losing your tax deferral and paying immediate capital gains taxes. Here’s your full checklist to stay on track from before you sell all the way through closing on your replacement property:   ✅ Pre-1031 Exchange Planning (Before Selling Your Property) 1. Engage a Qualified Intermediary (QI): Hire a reputable, experienced QI to manage exchange documentation and hold your proceeds safely. 2. Review Tax and Financial Impacts: Meet with your CPA or tax advisor to model tax deferral benefits, potential boot (cash leftover), and reinvestment needs. 3. Line Up Your Investment Team: Assemble real estate brokers, attorneys, lenders, and property inspectors — all familiar with 1031 timelines. 4. Pre-Identify Potential Replacement Properties: Research target markets, property types, and build a shortlist of viable replacements. Consider both primary and backup options. 5. Pre-Arrange Financing (If Needed): Start pre-approval with lenders to avoid financing delays once your identification period begins. 6. Prepare Contingency Plans: Understand and select the identification rule you plan to use (Three-Property, 200% Rule, or 95% Rule).   ✅ 45-Day Identification Window (Starts Day of Sale Closing) 1. Mark the Identification Deadline Deadline: 45 calendar days from the date your relinquished property closes. 2. Identify Replacement Property in Writing: Submit a written identification to your QI with full legal descriptions — addresses, parcel numbers, etc. 3. Confirm Property Viability: Verify property availability, title status, and financing readiness. Conduct preliminary inspections if possible. 4. Use Backup Properties: Identify backup properties within the chosen rule (especially under the Three-Property or 200% Rule) in case your first choice falls through. 5. Stay Disciplined: Avoid emotional decisions. Only identify properties that meet your investment objectives and due diligence standards. 6. Double-Check IRS Requirements: Ensure your identification list is properly documented and submitted on time — no exceptions or corrections later.   ✅ 180-Day Closing Window (Runs Concurrently After Sale) 1. Mark the Final Closing Deadline Deadline: 180 calendar days from the date of the sale closing. If your tax return is due before 180 days, file an IRS extension to preserve the full closing window. 2. Conduct Final Due Diligence: Complete inspections, surveys, environmental assessments, and title review as quickly as possible. 3. Secure Final Financing (If Applicable): Lock financing terms well before closing dates to prevent lender delays. 4. Coordinate Escrow and Closing: Ensure escrow instructions include language reflecting the 1031 exchange and involve your QI in disbursing funds. 5. Monitor Closing Progress Weekly: Follow a tight closing calendar with your broker, attorney, title company, and lender to prevent last-minute issues. 6. Close and Record Title: The replacement property must be legally transferred — deed recorded — within 180 days to qualify.   🚨 Quick Timeline Snapshot Event Timing Close Sale of Relinquished Property Day 0 Identify Replacement Property By Day 45 Close on Replacement Property By Day 180 (Optional) File IRS Extension If needed to preserve full 180 days   Final Tips for Success Start early — treat pre-sale planning as mandatory, not optional. Communicate constantly with your QI, broker, attorney, and lender. Use backups — assume deals can fall through. Stay organized — deadlines are absolute, and missing one cannot be “fixed” later. With discipline, the right team, and proactive management, your 1031 exchange can be not just a tax-saving move, but a major leap forward for your real estate portfolio.   Printable Checklist Download

Read More »
Articles
Kevin Taylor

How to Survive a Bear Attack? (Pt. 2)

Don’t Discard your Strategy During a Recession We own stocks for a very deliberate reason. These equities are inflation resistant, generate cash, and the good companies grow at a rate faster than the economy they are a part of. They change prices wildly in a recession as people try to determine the long-term value of those features, but at the end of a recession, it is the only asset class that will be worth more after the economic slowdown. Stock prices might be down, but that doesn’t mean you need to change the way you invest. Remember you own these assets for a reason. This thought process applies to both long-term and short-term investors, and retirees. Long-Term Investors Long Term investors have the most to gain from a recession. It is very likely younger investors have been buying stocks at historically high prices. Any investor that began building their portfolio after 2001 has only had three windows where the broad market was trading below its historical average. That’s right, with the exception of three small windows in the last 20 years investors have been “overpaying” for their exposure to the market. Long-term investors might see the next window opening before their eyes right now.  If you’re regularly adding funds to a long-term account, such as a 401(k) or IRA, don’t stop during a recession. That’s huge! If you place most of your money in stocks, don’t “chase performance” and sell out of them. They may be falling in price while bonds are rising in price. Don’t chase bonds, don’t chase life insurance schemes, and don’t try to buy and sell rapidly. Don’t change what you are buying for the long term, in favor of what you see in the short term. Take advantage of the discount in prices – and keep saving.  Short-Term Investors and Retirees Although you may be uncomfortable during a bear market, don’t be tempted to sell your stocks or stock mutual funds at a loss across the board. Make two things a priority, lower your risk, and focus on cash flow. This is a time to focus on quality investments, and pair down the speculative portions of the portfolio – this isn’t the market for moonshots. Begin by accepting that speculative bets might be lost forever and start looking for investments that will survive economic contraction.  If you need income right away, it would be best to have money set aside in cash and bonds before the downturn. That way, you can withdraw from your cash while you wait for stock prices to recover. Then look for investments that can safely replace the cash you need on an annual basis – bonds, real estate, and dividend stalwarts are the keys here. If you can create a cash balance, then you can keep your more speculative investments grinding through the economic slowdown. Ideally, if you are retired, you and your CFP® know what your annual need for cash is, and what investments and institutions are working to replace that cash as fast as it is used. Investing Before and During a Recession It’s easy to go wrong during a recession if you forget or don’t understand how certain investments perform during a downturn. Or how they are related to each other. The stock market is a forward-looking vehicle. Stocks represent your right to a company’s future cash flows. So when warning signs of a recession “hit” these are the most skittish assets and will react the most violently. This doesn’t necessarily mean these companies won’t survive the recession or even become better as a result. What it means is that the amount that other people are willing to pay for a company’s future earnings is lower. When the recession becomes a thing of the past, people will begin to overpay for earnings again, and this is where you want to be in a position to sell shares to those people.  Stock prices often fall months before a recession begins, which also means that they often bounce back up before the recession is declared over. You can miss an entire downturn if you only follow the news. That is why it is vital to know the signs of a recession and recovery, and how assets perform during those periods.  These are our general expectations of asset behavior during a recession: Stocks: Prices for stocks tend to fall before the downturn begins, often selling off even at the scent of a recession. Stocks are the most volatile and skittish, during a recession. But they also have the most to gain. Good companies buy back their own stock during a recession, smart investors buy more shares at lower prices, and recessions make good companies leaner, and more financially fit for the next business cycle.  Real Estate: After stocks, Real Estate is the second most appetizing asset in a recession. And for some, it might be the most appropriate risk. Real Estate investors get the luxury of not having the mark-to-market value of their portfolio put in front of their face. During a recession, they make known their real estate is “down” but they are rarely bombarded with the daily and hourly reminders of the real estate market. This does two things, it reinforces patience for the investor and shifts their focus to the income the property produces. Both of these are things we noted above that stock investors need to learn in a recession.  Bonds: Prices for bonds tend to rise during a recession which means their yield declines. Good bonds (that is to say Bond from good companies) will often be over pursued their security – leading to an opportunity to sell overpriced bonds to scared or unprepared investors. Historically, The Federal Reserve (the Fed) stimulates the economy by lowering interest rates and purchasing Treasury bonds. But for the coming recession, this may not be the expectation as the Fed is in the first innings of raising its rates. This might be the macroeconomic element that causes this

Read More »
boulder colorado financial planners
Articles
Kevin Taylor

Real Estate Investment Due Diligence: Preliminary Assessment

When embarking on a real estate investment journey, one of the first critical steps is the preliminary assessment. This phase sets the foundation for your entire investment strategy and helps you determine whether a property aligns with your goals. In this article, we’ll explore the essential components of the preliminary assessment, including property identification and defining your investment objectives and strategy. Property Identification   1. Location and Geography The adage in real estate, “Location, location, location,” couldn’t be more accurate. The location of a property plays a pivotal role in its potential for success as an investment. Here are key considerations when identifying a property’s location: Neighborhood Analysis: Research the neighborhood’s safety, amenities, schools, and overall quality of life. Is it a desirable area for potential tenants or buyers? Proximity to Services: Evaluate the property’s proximity to essential services such as hospitals, grocery stores, public transportation, and highways. Accessibility can significantly affect property value. Market Trends: Study the historical and current trends in the local real estate market. Is the area experiencing growth, stability, or decline? Are property values appreciating or depreciating? Economic Factors: Consider the economic health of the region. Is there job growth, a diverse job market, or an influx of businesses? Economic stability often translates to higher demand for real estate. Future Development: Investigate any planned or ongoing infrastructure projects, zoning changes, or commercial developments in the area. These factors can impact property values and rental potential. 2. Property Type Real estate encompasses various property types, each with its unique set of characteristics and investment opportunities. Common property types include: Residential: This includes single-family homes, multifamily units (duplexes, apartment buildings), and condominiums. Residential properties often cater to renters or homeowners. Commercial: Commercial real estate includes office buildings, retail spaces, industrial warehouses, and hotels. It offers income potential through leasing to businesses. Industrial: Industrial properties are typically warehouses, manufacturing facilities, or distribution centers. They can provide stable rental income from industrial tenants. Mixed-Use: These properties combine two or more types, such as retail spaces on the ground floor with residential units above. They offer versatility but may require a deeper understanding of multiple markets. Vacant Land: Vacant land can be developed for various purposes, from residential housing to commercial or agricultural use. It offers the potential for significant capital appreciation. Investment Goals and Strategy   1. Identify Investment Objectives Your investment objectives serve as the compass that guides your real estate journey. Common investment objectives include: Rental Income: Generating consistent cash flow through rental properties, which can provide a steady stream of passive income. Capital Appreciation: Focusing on properties in areas expected to experience significant appreciation in value over time, with the intent to sell for a profit later. Portfolio Diversification: Adding real estate to diversify your investment portfolio and reduce risk. Tax Benefits: Utilizing tax advantages available to real estate investors, such as depreciation deductions and 1031 exchanges. Long-Term vs. Short-Term: Determining whether you’re looking for a long-term investment strategy (buy and hold) or a short-term approach (fix and flip) 2. Determine Investment Strategy Once you’ve identified your objectives, it’s crucial to align them with a specific investment strategy: Buy and Hold: Acquiring properties with the intention of holding onto them for an extended period, generating rental income, and potentially benefiting from long-term appreciation. Fix and Flip: Purchasing properties that require renovations or improvements, with the goal of selling them at a higher price after the enhancements are made. Wholesale: Acting as an intermediary between sellers and buyers, typically without taking ownership of the property, and earning a profit through the transaction. Development: Investing in undeveloped land or properties with development potential, where you can build and sell or lease the completed structures. DSTs: A pooled, small-scale, investment vehicle that provides directed exposure to the underlying investment and very limited liquidity. REITs or Funds: Investing in Real Estate Investment Trusts (REITs) or real estate funds, offering diversification and professional management. The preliminary assessment stage of real estate investment lays the groundwork for success. By carefully considering property location, type, investment objectives, and strategy, you set the stage for informed decision-making. This phase is just the beginning of your journey toward achieving your real estate investment goals. Stay tuned for our next articles, where we’ll delve deeper into the various aspects of real estate due diligence to ensure your investments are well-informed and profitable.

Read More »

Pin It on Pinterest