Market View January 2021
In this analysis:
- Reopening the economy
- New Investment Philosophy for a New Administration
- Publicly traded Real Estate is a bargain
A picture of jumping from 2020 to 2021 seems more appropriate than any other New Year picture. Perhaps bidding farewell to a year has never been more gratifying. Through all the turmoil, at least it was a profitable year, though stomachs were certainly tested.
That brings me to our first investment thesis of the New Year. Last year was a year for stay-at-home investments. We expect this year’s investment opportunities will surround the re-opening of the economy. You may have noticed some of these “re-opening companies” in your portfolios. As vaccines roll out that this Summer, we expect to see a resurgence in travel and entertainment. Both personal and business travel will pick up. I think most everyone is ready to get out and enjoy life again, and reservations for personal travel are already making a strong comeback for the second half of this year and 2022. Businesses will start
traveling to see customers too – they will have to because their competition will. Increased business and leisure travel will benefit airlines, hotels, and restaurants, along with many service-related businesses. There are many other examples, but the common theme is that places where people congregate to enjoy life will once again have customers. That should grow as more and more as consumers become comfortable and feel safe in doing so.
Bitcoin is the most popular, most well-known, and most valuable of the various cryptocurrencies. Still, most people struggle with the concept. For centuries man has used gold as a hedge to fiat (printed) currencies, but bitcoin seems destined to replace gold as the preferred alternative. When all are mined (expected around 2040), there will be 21 million coins (minus those lost). Since bitcoins are actually digital, you would not likely see coins like these pictured above.
You have probably noticed that for the past few months you have owned bitcoin in the form of a bitcoin ETF (ticker GBTC). If you have wondered what caused us to believe in bitcoin to the extent that we would add it to your portfolio, here was our logic. After watching bitcoin for over a decade and having never invested in it, something happened on Thursday, October 8, 2020 that got us thinking.
That something was hundred-billion-dollar payment processing company, Square,
announcing their purchase of $50M of bitcoin. They purchased it to back transactions. Although there had been a few noteworthy purchases prior to that, we saw Square’s purchase as unique. By making a move to capture bitcoin transactions, they effectively have forced PayPal, Global Payments and even MasterCard, Visa and American Express to do the same.
Add to that the gargantuan COVID-related stimulus passed, with the follow-up expected to come after the election, we already felt the need to own a hedge against a devalued dollar – for that matter, the devaluing of all major currencies due to unprecedented printing across developed economies
Up to that point we were holding gold, but we already realized that bitcoin may have some potential advantages. Bitcoin is easier to store and transfer than precious metals. It’s also more divisible. And the trend away from cash and toward digital transactions favors bitcoin. Afterall, the digitization of currency everywhere has been accelerated by COVID-19. If you think about it, most employees get paid by direct deposit to their bank. They then pay their bills online and most purchases are by debit or credit card. Many have not handled but a few dollars, if any, for years. For many young adults, the dollar is digital. Many are much more comfortable with a digital currency like bitcoin, which cannot be produced by a government. It has a finite supply.
New Administration – New Investment Philosophy
Just as bitcoin was part of our 30,000-foot view of the world, changing administrations dictates changes in the flow of money. Wayne Gretzky used to say he skated to where the puck was going, not where it has been. That is our philosophy with investments. Money always flows to where it is treated best, so our 30,000-foot view takes in considerations such as global trade policies, currencies, taxation, regulations and government attitudes towards these and their preferences or disdain for certain industries.
I could list many examples such as our current lack of China investment during the Trump administration and our current void of social media companies which seem to be in the crosshairs of both parties. Since President Biden seems inclined to be easier on trade and foreign restrictions there will be increase in those for two reasons. With more relaxed trade, and should he go forward with corporate tax increases, non-domestic companies will have the advantage of relatively lower costs attributed to taxation.
Infrastructure should finally get passed. The government has done little for our decaying roads, bridges and airports since the 2008 recession and with the elections behind us, there will likely be a bill passed. President Biden has mentioned it as a priority for growing jobs, in addition to the benefit of better infrastructure which, in itself, saves Americans millions of dollars in a number of ways. As a result, we have already begun to buy materials and infrastructure related companies, and that will accelerate when discussion of such a bill begins.
Another area of our focus is real estate. We believe that publicly traded real estate is still trading for around half the price of equivalents in the private market. When you add the attractive dividends, this is a sector that we believe will continue to step towards full valuation as COVID vaccinations continue and life begins to return to pre-COVID normal. Even if that takes a little longer than anticipated, the dividends and gradual appreciation is making the journey enjoyable. Makes me wonder why anyone, today, would entertain buying commercial real estate in the private market when the publicly traded market offers full liquidity, no closing costs, geographic diversification, attractive income potential and sells at half the price. In addition to the return to pre-COVID prices, we believe that real estate offers an exceptional hedge against inflation. With all the COVID stimulus and now a series of new government spending, we can expect, at some point, to realize some amount of inflation. One last bonus: the dividends from the properties are mostly tax-deferred due to pass-thru depreciation and likely to be taxed at long-term gains rates rather than as income.
Of course, there are other themes in our portfolios, but this should give you a good idea of recent, current, and some future changes. We expect another good year for our portfolios. While we attend to that, we hope you will stay healthy and safe and enjoy every day. We expect you can look forward to a more normal second half of 2021.
Best wishes for a happy and prosperous 2021,
January 22, 2021
The Beck Capital Management Team
Investment advisory services offered through Beck Capital Management LLC, a registered investment adviser.
This material represents an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results.
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Cryptocurrency is a digital representation of value that functions as a medium of exchange, a unit of account, or a store of value, but it does not have legal tender status. Cryptocurrencies are sometimes exchanged for U.S. dollars or other currencies around the world, but they are not generally backed or supported by any government or central bank. Their value is completely derived by market forces of supply and demand, and they are more volatile than traditional currencies. Cryptocurrencies are not covered by either FDIC or SIPC insurance. Legislative and regulatory changes or actions at the state, federal, or international level may adversely affect the use, transfer, exchange, and value of cryptocurrency.
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