Time for our regular batch of recently asked questions with my thoughts. Perhaps this might address one of your questions as well. Hope you find it helpful.
1. Why has the market been volatile lately?
Markets will always be forever volatile. Lately, they have been particularly uncertain because of concern about the presidential election. As I stated in a recent CNBC interview, there are also other factors that are weighing on the market over the last few days. In that article I stated:
“It’s more so a combination of three things,” said Michael Yoshikami, founder of Destination Wealth Management. “It’s uncertainty, it’s no stimulus and it’s an excess of optimism about Covid. If any one of those three things didn’t exist, I don’t think you’d see the downdraft you see now.”
Please remember that markets will not stop being volatile after the presidential election. There will be plenty of uncertainty on a permanent ongoing basis to cause markets to fluctuate more than they have in the past.
2. Do you think the real estate market will remain strong?
Home sales have slowed as markets have appreciated and real estate investors has started to pause based on inflated prices. Still, I don’t see an end to real estate strength though there likely will be a slowing of appreciation. Remember that interest rates greatly impact the real estate market and I do expect rates to be relatively low for a significant period of time.
3. Any truth to the rumor that a wealth tax is coming, which will essentially make every person’s net worth be taxed in a way that they must give a percentage of their assets?
There are plenty of proposals floating around. Certainly, during an election campaign, you hear these types of pronouncements for tax increases or tax decreases or whatever promise might seem to be in favor by a particular candidate to their target audience.
I don’t expect there to be a wealth tax as I believe it will be strongly challenged in the courts. But we will have to watch and see depending on who wins the election what tax policy will look like. You can be assured we are watching closely and will also be monitoring legislative agendas. These agendas (and our outlook for the future) will impact how we invest assets.
4. Do you still think interest rates will remain low for a long period of time?
I do. I just don’t see much inflationary pressure on the horizon and the COVID-19 crisis will continue to be a headwind for economic growth despite this week’s staggering GDP number. The economy is likely to grow slower short and mid-term. If it does that will decrease demand pressure and allow the Federal Reserve to keep rates low. Low inflation means low rates.
5. How would you describe the economic damage caused by the COVID-19 crisis?
In recent media interviews I have likened it to a 12-month earthquake. Do we ever recover from earthquakes? Yes, we do...... but it takes time. The damage to small business is significant and that is going to take years to replace from an economic growth standpoint.
I do believe we will see the economy bounce back and I think those that believe this is the end of the American dream are being too pessimistic. I believe you still will see a return to strong consumption. GDP numbers suggest that is already starting to occur despite the rise in virus cases. This is going to be a difficult time for another year, but the United States economy will bounce back. Really.....it will.
Hope these questions and answers provide you some insight into our thinking about the economy and how we are investing assets. Next week will be our monthly audio update. I think you’ll find it interesting.