INVESTMENT COMMENTARY – FOURTH QUARTER, 2021

Inflation and COVID dominated headlines in 2021 as the market plowed ahead to record highs. The two are related – COVID led to shutdowns which slowed both demand and production in 2020. Government reaction to the shutdowns was to stimulate the economy through easy monetary policy (low interest rates) and simply easy money (sending money directly into the pockets of consumers).

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Homeowners, Home Prices and Rising Costs

The real estate housing market has been one of the unexpected beneficiaries of the Covid-19 pandemic. While existing homeowners have seen the benefits of increased home valuations, they are also experiencing the downside of higher property taxes and higher home maintenance costs. Median home prices for an existing single-family home were up over 13% YoY in October 2021. For context, this is the highest increase in valuation of single-family homes on an inflation adjusted basis since the 2008 housing bubble. This is thanks, in-part, to increased demand from the 72…

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Structured Products: Attractive Marketing Pitch, Usually Not Good Investments

Aside from selling traditional stocks and bonds, Wall Street’s investment banks sell structured products to provide different return characteristics. These products are structured like notes with specific return terms and maturity dates. Unlike bonds with fixed coupons, the return during the period of investment is linked to an underlying asset. Depending on how these products are constructed, they can provide an infinite number of investment returns. Many structured products limit the upside return of a risky asset, such as a stock index, in exchange for protection against losses in that…

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MAKE UP TO BREAK UP?

With the recently announced split of General Electric (GE) into three parts and Johnson & Johnson (JNJ) into two, it seems like a good time to discuss why some companies split up. It’s also a good time to discuss why companies merge in the first place. The short answer is because their stock will go up. The foremost job of the CEO of a public company is to maximize shareholder value, which results in an increased stock price. While that may sound cynical, CEOs are largely compensated via company stock…

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YEAR-END GIFTING: STRATEGIES AND TAX BENEFITS

As the holiday season and the end of 2021 rapidly approaches, many Americans are contemplating their annual gifting strategies. Whether you are considering giving a gift this year as a tax shelter, to reduce your taxable estate, or just out of the kindness of your heart, it is important you understand the various regulations governing gifting and how they will impact your finances. Charitable Gifting Charitable gifting can have great impacts both for those in need and the donor. Donations to charitable organizations are tax-deductible for the donor. It may…

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