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Sunday Digest
Edition XVI

After 15 straight weeks of putting my thoughts down in writing and sharing my insights with you, I decided to take a two-week hiatus to regroup, test some of my theories, and reassess what I was seeing in our markets. I am back now and enjoying another Sunday morning at the beach. Malibu is mystical. It’s not the famous people who live or visit, or the glamorous homes, or the beautiful people on the beaches and in the ocean, it’s the simple fact that Malibu is a unique microclimate where the mountains, desert, and asphalt meet the sea. This is hard to explain, but after more than 40 years on this same stretch of beach, every morning presents a new and refreshing reminder that the day ahead is full of promise and that our time on this earth is meant to be enjoyed to the absolute fullest. With this in mind, and after two amazingly gratifying doses of espresso topped with delicious whipped cream, I have a few insights from the past two weeks to share with you.

  1. We are still struggling to combat COVID-19. Amazingly, society is adapting to the “new normal” with ingenuity and determination. Despite all of the uncertainty, business is managing to adapt. It’s weird, but life continues on, just like the ocean waves.
  2. Science has provided us the ability to defy gravity as we travel by air and into space. Somehow, this has spread to the stock market. Despite the worst GDP and unemployment numbers ever, the stock market defies gravity. Are traders telling us that the future is bright? Or, is there simply no other repository for the trillions of dollars being printed? It feels as if I have been watching from the sidelines at a hot craps table in Las Vegas, while the chips continue roll into the gambler’s pockets. What’s keeping me out of the game? Is it risk avoidance, gambler’s fallacy, or simple common sense? 

  3. This is election season. Yet, it hardly feels like it. Where is Joe Biden? He seems to be missing in action. Is this by design? This didn’t work for Jimmy Carter as he hunkered down in the White House working on plans to free our hostages from Iran. And while we may not be seeing Mr. Biden, we sure are seeing our President…non-stop. 

  4. Gold prices have reached an all-time high, affirming the reality that tangible assets are highly coveted in times of insecurity. This includes real estate. Housing prices are up and sales in many areas are brisk. It’s more than just a “flight to the suburbs” – it’s the tangibility aspect at play here. As one of my longtime investors shared, “I may be paying more than it’s worth, but it will never be worth nothing.” 

  5. Government stimulus has provided a safety net for many and has created great wealth for some. More stimulus is needed and will likely be here soon. Remember, those folks in Washington want to stay there, and keeping the economic dream alive is paramount to their longevity.

  6. Post-election will be a telling time. Fasten your seatbelts…it’s going to be a wild and bumpy ride.

With some of the recent tax change proposals seemingly pointed at real estate, I expect to see an acceleration of property owners seeking to “cash out” in anticipation of increased taxes on capital gains and potential elimination of certain deductions that stimulate real estate investment. Many investors are concerned about the potential loss of the “tax-free exchange” and are willing to overpay for replacement properties. This may create opportunities to buy great real estate near term and to sell properties at inflated prices. Having pondered these tax proposals for the past two weeks, my opinion is that, post-election, our government will be far too preoccupied with greater matters to play with the tax code. 

Stay safe and healthy, remember that each day brings promise, and thank you for reading my letter.

Warmest regards,

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Lawrence N. Taylor

President

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