The Long Term Investor

Drifting, drifting, drifting......that is the name of the game recently. There is really NOTHING going on that is driving the markets up or down.....although.....the HUGE event....the re-opening......is hanging over everything for the next 12-24 months. Like the markets I am LINGERING just below an all time high in my portfolio. For today.......I was slightly red and got beat by the SP50 by 0.21%. My UP stocks today were HONEYWELL, GOOGLE and NVIDIA.

NVIDIA has been on a tear since the split announcement and since I added my latest 30 shares on May 21, 2021. Since that time the shares are UP by $50 per share. I believe....but I am going from memory.....this week on June 3 is the shareholders meeting that will CONFIRM the stock split. It will than be from June 3 to July 21 for the split to take place. I am interested to see how the stock fluctuates during that span of time and immediately after the split.

 

This little article is a pretty good summary of the day and some of the events and items that will have a slight impact on stocks and funds going forward. EVERYTHING in the current markets seems to me to be......PSYCHOLOGICAL......at the moment rather, than analytical.

Stock market news live updates: Stocks trade mixed with technology shares under pressure

https://finance.yahoo.com/news/stock-market-news-live-updates-june-1-2021-114002062.html

(BOLD is my opinion OR what I consider important content)

"U.S. stocks ended mixed on Tuesday, paring earlier gains as technology stocks lost steam.

The Dow added just 45 points, or 0.1%, to come off session highs. The S&P 500 ended a tick below the flat line, while the Nasdaq also ended in slightly negative territory. Treasury yields rose across the curve, and the benchmark 10-year Treasury yield hovered above 1.6%. Brent and U.S. crude oil prices gained after OPEC+ suggested oil stockpiles would slide further as the post-pandemic recovery ramps later this year.

Over the past several weeks, equity investors have at least temporarily shaken off fears over fast-rising prices for consumer and producer goods during the economic recovery, especially as officials at the Federal Reserve reassured market participants that they did not yet see inflationary pressures that would warrant a shift in monetary policy in the near-term. Still, inflation hedges like precious metals were some of the best-performers in May, signaling an undercurrent of jitters over rising prices. Of 38 non-currency assets tracked by Deutsche Bank, silver was the best-performing asset with an 8.1% gain, followed by gold with a 7.9% increase, analysts from the bank wrote in a note Tuesday.

Later this week, investors are poised to receive a number of new economic data reports about the U.S. labor market, including the May jobs report. These will further elucidate the strength of the economic recovery, showing whether re-hiring has picked up enough to help alleviate labor shortages cited by a number of companies during the recovery. It will also signal whether the economy is getting closer to the Federal Reserve's goal of achieving maximum employment before pulling back on monetary policy support.

But monetary policy aside, some strategists said it would behoove investors to consider implications of new fiscal policies, especially with prospects of a stronger economy emboldening the government to raise taxes for new plans. Late last week, President Joe Biden unveiled a $6 trillion budget proposal for fiscal 2022, which would include a number of proposals around improving the country's infrastructure, educational resources and health care system and which would be funded in part by higher taxes.

"I think we're learning more and more about the president's budget and it's chock full of new taxes, not just for corporations but for individuals. Now, in a perverse manner, this fiscal drag may actually help inflation by muting it. But what it tells me as an investor, is that we've had all this stimulus, there's going to be some lagged effect going into the second half of this year," Nancy Tengler, chief investment officer of Laffer Tengler Investments, told Yahoo Finance.

"With rising taxes and probably rising interest rates, we're going to see a slowdown in the economy which would then yield a return to the growth rate from the value trade," she added. "So we've been positioning ourselves for that, adding to high-quality growth names on sale over the last six months."

MY COMMENT

The government is going to put a HUGE drag on the economy with the focus on NEW and HIGHER taxes. The unspoken drag will also be.....regulation. Unfortunately we are probably DOOMED to linger and drift while all the tax and spend "stuff" sorts itself out and we wait to see what actually becomes law.

Income taxes will have some impact ESPECIALLY the business and corporate rates. BUT....it is the capital gains taxes that will potentially have the GREATEST impact. Screwing around with capital gains taxes.....especially significantly raising them on the group of people that provide a big chunk of the capital that is the basis for the economy......is usually not a smart move.

The markets are going to continue to drift from day to day and week to week till we see how all this stuff works out. One thing is sure.....any tax or regulatory increase that can be passed on to the ultimate consumer WILL.

 

I dont believe we.....most of us....... are going to take a loss this year......the SP500 is up nearly 12% year to date.....only half way through the year. BETTER than the long term average for the Index of 10%-11%.....for a year.

AND....things are ONLY going to get better as the year moves on. As I have said many times......half or more of the country is not even re-opened yet. It is going to happen over the next 1-2 months. Think of the impact that is going to have on the economy and business.

AND.....as I have said many times....the stock markets are NOT the general economy. SO....as tax increases hit the general economy....especially capital gains tax increases.....and cause a complete drag on the economy....the markets will be fine. I FULLY expect that the result of the tax increases, regulation, etc, etc, WILL be a STAGNANT ECONOMY. I FULLY expect that employment and unemployment will end up in the toilet. It will be small business that takes it in the shorts....IF......there are economic issues.

BUT.......the markets and stock investors will do just fine. AND, the type of companies that I FAVOR.....the BIG CAP GROWTH COMPANIES.....will thrive.......regardless. As an example......look at the eight years from 2008 to 2016. A dismal stagnant economy. Unemployment numbers NEVER got to the point of being good or strong. YET...during that time investors.......made out just fine....in fact....way better than fine.

I have ZERO DOUBTS about the future for investors. YES......there will be many corrections.....and....at some point a BEAR MARKET. That is NORMAL for any long term investor. It sets up the next run up for the markets.

I HAVE NO DOUBT that there will be some events over the next 1-4 years that are DISASTROUS. Black swan......disastrous. It would be rare to go through a time period of 1-4 years with no BIG bumps in the road. In today's environment......I see it as a GIVEN. That is just part of being a long term investor.....in fact....that is the very reason to be a long term investor. You have to SMOOTH out the BRUTAL TIMES over the long term.

 

The good news.....at least in my state......a FREE STATE.....over the past week I have been in 5-6 restaurants, Dominos Pizza, HEB supermarket, Randalls supermarket, Walmart, a 7-11, etc, etc, etc. AND.....I have not worn a mask in any of them. The best are perhaps 50/50 mask versus maskless. The latest to do away with their mask requirement....HEB.....today was about 40% maskless. It is happening very quickly and it is going to be a GIANT SNOWBALL rolling down hill.

 

Dont misinterpret the post above as me being NEGATIVE on the markets or investing, etc, etc. Investors WILL do well as usual over the long term. BUT...we have not had a bear market since 2008....so we are past due. SOMETHING....will cause one at some time. There is no way to know what will kick it off or when it will happen. It is normal and just the price you pay for the great returns and ability to compound your money over the long term.

TODAY....futures show we will open in the green.....typical lately......but not an indicator of how we close for the day. It will be another normal day for the markets.....same as we have been seeing recently.

 

WELL.....I am starting out the day nicely. NVIDIA is my star of the day....so far.....up over $11 per share.

A bit of an anecdotal observation........on small business. They are really suffering right now. It is CLEAR that the shortage of workers is having a BIG impact. Many of the restaurants we have been in lately are very short staffed. This is impacting their ability to fill and serve tables. Help wanted signs are EVERYWHERE.

I dont see any......URGENCY......on the part of the government to get the economy going. We MUST get rid of the "extra" stay at home money. This distortion of the economy and employment is KILLING small business. First the virus and now this.....I would not want to be a business owner at the moment. How frustrating....they have customers....and....they cant serve them due to a lack of workers.

 

There is ABSOLUTELY no direction to the markets at the moment. There is nothing in the news or otherwise having any impact on stocks or funds. We are in a lingering, drifting, market at the moment. Part of this is probably just EXHAUSTION after the past year and a half of emotional and psychological turmoil in business and the markets. People and business are just WORN OUT.

Stock market news live updates: Stocks edge higher, oil prices extend gains

https://finance.yahoo.com/news/stock-market-news-live-updates-june-2-2021-223629493.html

(BOLD is my opinion OR what I consider important content)

"Stocks edged up Wednesday morning on the heels of a mixed session a day earlier, with the three major indexes struggling for direction at the start of June.

The three major indexes traded slightly above the flat line. Brent and West Texas intermediate crude oil prices extended gains after hitting their highest levels since 2018 on Tuesday after OPEC+ suggested demand would rebound during the recovery and opted for gradual supply increases. Treasury yields fell.

Shares of Zoom Video Communications (ZM) jumped after the company's first-quarter earnings and current-quarter guidance topped estimates, helping alleviate concerns over a growth slowdown for the software company as more in-person activities resume.

Investors this week digested more mixed data report on the U.S. economic recovery, with still more signs of supply-side disruptions emerging. On Tuesday, the Institute of Supply Management's headline index of manufacturing sector activity topped estimates, but the report also showed that labor shortages contributed to rising prices and capped production. The Labor Department's May jobs report on Friday is set to offer another look at the pace of re-hiring last month and the employment gaps still left to be filled following the pandemic.

But as jitters over rising inflation remain top of mind for many investors, some strategists suggested markets' reactions to recent economic data have been overblown, given the likelihood that many of these rising prices will prove transitory.

"Overall, a lot of the fears of inflation that are going on in the markets right now are more than necessary. Investors have just been a little bit more fearful than necessary at this time," Josh Kutin, Columbia Threadneedle Investments North America head of asset allocation, told Yahoo Finance. "That said, we have experienced some pretty serious reactions to it, even that big CPI [consumer price index] print we saw a couple weeks ago did surprise investors. And if we see something similar like that in that jobs report, that could create a little bit of a short-term blip."

Others also suggested that investors could be in for further choppiness in trading in the near-term.

"We've had such a run-up since the lows of the pandemic that now, I think we're going to see a summer that's a bumpy ride," Loreen Gilbert, WealthWise Financial chief executive officer, told Yahoo Finance. "And it's an opportunity for investors to go in as we see declines, because we do expect that we're in a bull market run that's going to continue."

MY COMMENT

We are in the dull and boring time of the re-opening. It is going to be erratic. I see it as the LET DOWN following the elation of the vaccines and start back to normal. It is a dangerous time for investors. NOT because the markets are going to be crazy....but because they are going to be dull and boring and not very exciting. After the past year and everything that has happened many investors are going to CRAVE ACTION. We have gotten used to the RUSH caused by ALL the positive and negative events of the past year.

The best course.....just SIT and WAIT. It is just going to take time to get back to normal. You cant just flip a switch and open the economy. It is going to happen in FITS and STARTS. AND....there will be a LOT of self imposed PAIN as we FLAIL AROUND.

 

HI RG

Good question. BUT....I dont see any similarity to 2007/2008 at all. Remember MUCH of that issue was caused by the out of control DERIVATIVES.....CDO's. The insanity of the LIAR LOANS.......and.....the packaging of loans into debt instruments that traded like free HEROIN. It was a BANKING CRISIS more than anything.....based on the CDO's being packaged/traded/sold by the BIG BANKS. That is why it NEARLY caused a collapse of the banking system.

Where I was at that time I saw the MANIA of people buying homes that they were not remotely qualified for. It was INSANITY and it ended quickly as most of them LOST the home they never should have bought in the first place.

NOW.........is not a CDO or FRAUD situation. It is not an unqualified buyer situation. The buyers I am seeing in my area are well funded, and well qualified. They are young people with very HIGH family income. Plus the mortgage companies seem to be doing a good job of documenting and qualifying buyers I dont see the current wave of buyers as being people that can simply walk away from a house.......they have assets and good jobs.

That does not mean the CRAZY INFLATING market we are seeing in housing will last forever. Real estate goes through the normal market cycles.....boom and bust. HOT markets are just about always followed by price or demand collapses. Some cities and areas will just continue to be hot, hot, hot, for a long time. BUT...much of the country will see prices and demand drop very unexpectedly and suddenly........just like always happens. WHEN? No one knows and when it happens it usually happens very quickly......one week the market is HOT and a few weeks later you can just FEEL that the air is out of it.

 

HERE is the potential ELEPHANT IN THE ROOM.....for real estate INVESTORS. CONTRARY to the headline....this is not a tool of the ULTRA-RICH....it is a tool of the bread and butter property investor. Talk about government shooting itself in the foot......this will have a big impact all over the country at the LOCAL level.

Biden Targets a Tax Break That Helped Trump Build His Fortune

https://finance.yahoo.com/news/biden-targets-tax-break-helped-090000749.html

(BOLD is my opinion OR what I consider important content)

"President Joe Biden is pushing to close a tax break that helped his predecessor amass a fortune.

The Democrat has proposed narrowing a tax code provision that allows real estate investors to avoid capital gains taxes when they sell property, as long as they use the gains to buy more. Former President Donald Trump’s most valuable investment, which traces back to his $95 million purchase of a west-side Manhattan development site, has benefited from the rule.

In 2005, when Trump’s partners agreed to sell the site for $1.8 billion -- a deal Trump resisted -- his cut was about $500 million. Because the partners then used the capital gains from the sale to purchase two office towers, they and Trump didn’t owe any tax on their gains. Today, Trump’s stake in the buildings is worth about $1.2 billion before accounting for debt. Biden’s plan would eliminate that kind of maneuver for Trump and thousands of others with real estate investments.

The so-called 1031 like-kind exchange rule, named after a section of the tax code, was created a century ago to aid family farmers. It has evolved into a beloved tool of property moguls, Fortune 500 companies and real estate trusts that can use it to create a daisy-chain of tax avoidance.

It works like this: An investor buys a building for $4 million and sells it later for $10 million. By redeploying the proceeds into a new property within six months, she can defer paying taxes on her gains. She can repeat that process indefinitely.

When coupled with another tax break that wipes out all capital gains at death, the 1031 provision can enable real estate investors to forgo capital gains taxes entirely, enabling family dynasties to pass on riches to heirs virtually tax-free. Some wealth managers call the strategy “swap ’til you drop.”

Critics say the 1031 break has strayed far from its original purpose and become a multibillion-dollar giveaway that would be better spent fueling infrastructure investment and social programs. Repealing it could add $19.6 billion in tax revenue over 10 years, according to a proposed budget published by the White House on Friday.

Real estate executives say that would decrease the number of transactions, squelch economic activity and reduce property values. The National Association of Realtors argues that 1031 exchanges are crucial to keeping the commercial real estate market humming and that they’re primarily used not by the super-rich, but by less affluent retirees, investors and landlords.

Yet Internal Revenue Service data shows that more than one-third of the tax savings from 1031s goes to large institutional investors such as real estate investment trusts and corporations. The tax break is also used by the richest Americans, from the Trump and Kushner families on the East Coast, to billionaires scooping up hundreds of thousands of acres of ranch land in the American West.

Which tax bracket benefits more -- the top 10% or the top 1% -- is subject to debate, in part because there is no robust public database of 1031 transactions. Developers aren’t required to disclose when they take advantage of the break, and specific IRS data aren’t publicly available.

“Disproportionately, the benefit goes to wealthy people,” said Mitchell Gans, a professor of tax law at Hofstra University, who pointed out that most Americans of modest means can’t afford to invest in real estate to begin with. “And the operative word is ‘disproportionately.’”

The Biden administration’s rule change would avoid hitting smaller transactions by allowing as much as $500,000 of capital gains to pass tax-free in any exchange.

Still, the proposal has stirred opposition beyond the real estate industry. The agricultural lobby in Washington has urged Congress not to make changes that would hurt small family farmers, and their concerns have been echoed by some Democrats from rural states, including representatives Jim Costa of California and Cindy Axne of Iowa. Several Democrats who have supported higher taxes for the rich didn’t respond to requests for comment about Biden’s proposal.

“I think most Democrats in Congress would agree that 1031s are bad policy and there’s no economic reason for that kind of tax break,” said Victor Fleischer, a former tax counsel for Senate Democrats who now teaches law at the University of California at Irvine. “But there are real estate people in every district, and the politics of the issue means that there’s a small number of people who fight for it very intensely. So there’s not much benefit for getting out ahead on it.”

During the Obama administration, White House attempts to cut 1031s were blocked, but congressional Republicans rescinded the break for other investments, such as art, as part of their 2017 tax overhaul. At the time, art dealers expressed concern that the change would reduce Americans’ presence in global art markets -- though high-profile U.S. buyers have made eight- and nine-figure purchases since.

Ranchers’ Benefit

Now, Sam Middleton, a real estate broker whose family has specialized in selling Texas land for more than a century, says losing 1031 exchanges would be a crippling blow to the market for family estates and family farms. He says about half of his firm’s deals involve 1031 exchanges.

“It’ll kill my business,” Middleton said. “For the large ranches, and for the smaller properties, too, the $5- to $10 million ranches for people who just want a place to get away for the weekend. It’s a very important part of the finances.”

His Chas. S. Middleton and Son firm is currently handling deals involving some of the state’s most storied properties: the Matador Ranch, operated by a subsidiary of Koch Industries Inc.; and the 6666 Ranch, which is being purchased by a group of investors including Taylor Sheridan, the actor and director who created the TV show “Yellowstone.” Middleton said he did not know whether either group planned to use a 1031 exchange. Spokespeople for Koch Industries and Sheridan didn’t respond to requests for comment.

Middleton is also brokering the sale of part of the 260,000-acre La Escalera ranch south of Fort Stockton, Texas. San Antonio construction magnate Gerald Lyda benefited from a 1031 exchange when he bought the property in 1992 using his capital gains from selling a New Mexico ranch to cable television billionaire Ted Turner. In an interview archived at the University of Texas at San Antonio, Lyda said the transaction’s details were too complex for him, so he “spent over a hundred thousand dollars getting it done right through professionals.”

Lyda died in 2005; his widow and other family members have run La Escalera as a hunting ground, farm and Black Angus cattle ranch, while earning additional income leasing the property’s energy and mineral rights.

Now they’re among the largest land owners in the U.S., according to the Land Report, and they’re selling 35,000 acres at an asking price of $41 million to billionaire real estate mogul Stan Kroenke, Middleton said. Kroenke, who married into the Walton family of Walmart Inc. fame, owns hundreds of retail shopping outlets, as well as the Los Angeles Rams, the Colorado Avalanche NHL franchise, the Denver Nuggets NBA team and Britain’s Arsenal F.C. soccer team. A spokesman for Kroenke declined to comment for this story.

Real estate industry analysts say that 1031 exchanges involving ultra-wealthy purchasers tell only part of the story. Family farmers and ranchers routinely use exchanges to upgrade and sometimes reorganize their properties, said Roger McEowen, who teaches agricultural law and taxation at Washburn University School of Law in Topeka, Kansas.

‘Powerful Stimulator’

A cottage industry of lawyers, brokers and intermediaries has developed to allow smaller investors to reap tax savings from 1031 transactions. Tens of thousands of small investors each year put their capital gains in pooled investment vehicles, called Delaware Statutory Trusts, to purchase properties and develop real estate. A study funded by the real estate industry and based on voluntary data from buyers and sellers estimates that the average purchase price of properties bought using 1031 exchanges is $500,000 and that 88% of all exchanges ultimately lead to a taxable sale.

“Section 1031 encourages real estate transactional activity, and in doing so, is a powerful stimulator of the U.S. economy,” said Suzanne Goldstein Baker, co-chair of the government affairs committee at the Federation of Exchange Accommodators, which lobbies to preserve the policy.

While some publicly traded companies disclose their 1031 activity in broad terms in SEC filings and investor calls, most private companies that use the rule make few details public. In Trump’s case, specifics came to light during a legal battle in which he accused his partners of selling the properties for less than they were worth. Eric Trump and Trump Organization General Counsel Alan Garten didn’t respond to questions seeking comment on the company’s use of the rule.

The family of Trump’s son-in-law, Jared Kushner, also benefited from a 1031 transaction that will take the sting out of their plan to sell a building for less than they paid for it. In 2007, as the U.S. property market was reaching an apex, Kushner Cos. sold more than 16,000 apartments for $1.9 billion. That included about $1 billion of capital gain, Charles Kushner, Jared Kushner’s father, said in a December email to Bloomberg News. “As it is common practice in the real estate industry, we looked to take advantage of the 1031-exchange provision of the tax code,” the elder Kushner wrote.

The family then purchased a Chicago office tower for $275 million, allowing for the deferral of that much of the capital gain. Thirteen years later, the company now has an agreement to sell that Chicago property, too. Last year Kushner Cos. was in talks to do so for about $180 million, though the closing of the deal has been delayed, two people familiar with the transaction said.

It’s never a good deal to sell properties for less than their purchase price, but in this case, the 1031 rule will allow Kushner Cos. to continue to defer capital gains from the 2007 sale equal to the value of the Chicago building’s eventual sale price. “We intend to use the same 1031-exchange provision of the tax code to defer” taxes on that amount as well, Charles Kushner wrote, adding that the $28 million in cash that his company will take out of the building is greater than the $17 million it put in.

A spokeswoman for the company said last week that the sale is expected to close later this year.

‘First Salvo’

Biden may find that Trump is something of an unwitting ally in his attempt to roll back the tax break. By eliminating the 1031 break for transactions involving equipment and art, Trump’s 2017 tax law neutralized some prior support.

Some art investors chafed at “cherry-picking” real estate as the only industry that would retain the 1031 break, said Diana Wierbicki, global head of art law at Withersworldwide. “But there was also a sense that, if they can take it away from some, they can take it away from others down the road.”

For now the real estate industry doesn’t seem too concerned.

“They throw this in in every first salvo of budget or tax negotiations, and it historically has always come out, I think that will happen again,” Joe McBride, head of commercial real estate finance at Trepp, said on a recent episode of the data-and-analytics company’s podcast. “Let’s be serious. Every Democrat in Congress probably has some sort of real estate investments going on or they have many wealthy friends who do and wealthy lobbyists who do. So it would surprise me if this actually does go through.”"

MY COMMENT

I agree that this is unlikely to pass.....but....if it is ever gong to happen NOW is probably the time that it "might". These exchanges are one of the primary PILLARS of the commercial property market. They are used by MANY smaller real estate investors. Using the BILLIONAIRES as straw men for this proposed change is obviously a good tactic. BUT....the real PAIN will be imposed on the smaller family real estate investors all over the country.

MUCH of the above article is politics and sensationalism. BUT....there is a real danger to the basic commercial property business in putting forward these sorts of ideas. As I said......we are going to see a lot of self imposed pain and turmoil over the short term. People ARE going to struggle more than they think with the impact of the pandemic and the emotional and psychological OVERLAY of the past 1.6 years.

 

NVIDIA......STILL the star of the day....at least for me....now +$18 per share for the day. I expect that the MASSIVE media coverage of the shareholder meeting and the approval of the stock split.........WILL......kick the stock higher short term.

GO DAX GO.....you are a SUPER SAVER.......congratulations.

 

DAX

I believe you WILL start your own trucking company. YOU have the drive and willpower to do it. It will all start with that first truck that you are saving for right now.