Investors May be Forced Into Booking Deeply Embedded Gains
Stocks took another leg down against the prolonged backdrop of “more of the same” that is fraying the nerves of investors who must now reassess what they own and why they own it. The S&P 500 breaking the 4,000 level, in what seems to be indiscriminate selling pressure, bodes well, I think, for the argument that a near-term bottom is soon to be realized. This week’s inflation data showed a slight decline, with inflation easing to 8.3%, hopefully implying a March peak. If so, I think an attempt to rally is a very likely scenario.
At present, there appears to be a major sea change in investor thinking. Within this highly-uncertain and fluid economic outlook investors across the board seem to be re-allocating risk away from assets dependent on forecasted earnings and into assets that have stated rates of return, indexed to inflation and where there looks to be a shortage, namely apartments in desirable areas of the country, coinciding with job markets exhibiting strong hiring and migration trends.
What I think may be more evident, however, is that investors simply want to reduce equity exposure to companies with big overseas vulnerabilities, opting instead to stick with defensive sectors and domestic companies that provide essential goods and services to consumers and businesses. In my opinion this became crystal clear during Monday’s session where 90% of all stocks traded lower on the day; 90%+ down days are rare, signaling capitulation.
Investors seem to be losing confidence and trust in the ability of the stock market to produce returns that come anywhere near those of the past decade, and money goes where it is best served. According to U-Haul’s annual growth state report, based on one-way U-Haul rentals migration to southeast cities with promising growth prospects remains strong. (Source: https://myuhaulstory.com/2022/01/03/u-haul-reveals-top-50-growth-states-of-2021/)
So, let’s assume this, in my opinion, vastly oversold stock market catches an inflation data friendly bid and the market puts together the first positive week in seven. Such a move higher may invite massive selling into strength due to the extreme level of fear of capital destruction that now seems to be driving the narrative. To this point, investors with long-term positions who are still sitting on phenomenal capital gains might opt for reducing equity exposure and realize those gains if the market cooperates.
In this situation, investors who booked stock market gains in the last 180 days might consider reinvesting those gains into the Qualified Opportunity Zone Funds (QOFs) like Belpointe PREP, LLC. Belpointe PREP (NYSE American: “OZ”) is positioned in what I believe is the sweet spot of the broader real estate investment sector. Belpointe PREP is building and acquiring multi-family residential Class A luxury apartment dwellings within opportunity zones (OZs) in cities like Nashville, TN, Sarasota/St. Petersburg, FL.
In addition, Belpointe PREP’s management team is actively seeking to acquire other QOFs that have stabilized their properties, and I believe there are some clear benefits to acquiring seasoned properties in lieu of new construction with all its attendant risks.
Belpointe PREP (NYSE American: “OZ”) is the first and thus far only publicly listed QOF and it requires no paperwork or documentation to invest. Belpointe PREP provides investors with the ability to pair off 2021 year-end gains (as well as year-to-date 2022 gains), using the 180-day look-back window, and reinvest those capital gains to defer taxes, in addition to offering investors an opportunity for growth and income for the next five years, out to December 31, 2026, where all capital appreciation and the majority of pass-through income may be tax-free.
The window to shelter 2021 capital gains narrows with each passing day—going back, as of this writing, to November 14, 2021. There is still time to allocate year-end 2021 capital gains in all asset classes: stocks, bonds, real estate, sale of a business or a partial stake, precious metals, crypto profits, livestock, collectibles; they all qualify and realized capital gains from any of them can be offset with like-kind dollar amount purchases of OZ stock. All with a couple of clicks of a mouse.
And the terms of investing in QOFs might just be extended. The two co-authors of the legislation that created OZs—Senators Cory Booker (D-NJ) and Tim Scott (R-SC)—are trying to make investing in QOFs even more attractive for investors. As of early April, they introduced a bill called the Opportunity Zones Transparency, Extension, and Improvement Act, designed to enhance the spirit of the original legislation and the benefits for investors seeking to invest in QOFs. The bill has strong bipartisan support and is currently in the committee stage in both the Senate and House.
Cody H. Laidlaw
255 Glenville Road
Greenwich, CT 06831
T: (203) 883-1944
Disclosure: Cody H. Laidlaw is the Chief Investor Relations Officer. Cody is also an investment advisor representative with Seaside Advisory Services, Inc. (d/b/a Seaside Financial & Insurance Services), a SEC registered investment adviser offering advisory accounts and services, and holds a long position in Belpointe PREP, LLC’s Class A units.
Important Information and Qualifications
Belpointe PREP, LLC (“Belpointe PREP”) has filed a registration statement (including a prospectus) with the U.S. Securities and Exchange Commission (SEC) for the offer and sale of up to $750,000,000 of Class A units representing limited liability interests in Belpointe PREP. You should read Belpointe PREP’s most recent prospectus and the other documents that it has filed with the SEC for more complete information about Belpointe PREP and the offering
Investing in Belpointe PREP’s Class A units involves a high degree of risk, including a complete loss of investment. Prior to making an investment decision, you should carefully consider Belpointe PREP’s investment objectives and strategy, risk factors, fees and expenses and any tax consequences that may results from an investment in Belpointe PREP’s Class A units. To view Belpointe PREP’s most recent prospectus containing this and other important information visit sec.gov or belpointeoz.com. Alternatively, you may request Belpointe PREP send you the prospectus by calling (203) 883-1944 or emailing email@example.com. Read the prospectus in its entirety before making an investment decision.
This communication, including any links embedded herein, may not be distributed in any jurisdiction where it is unlawful to do so. Nothing in this communication is or should be construed as an offer to sell or solicitation of an offer to buy Belpointe PREP’s Class A units in any jurisdiction where it is unlawful to do so.
Neither Belpointe PREP nor any of its affiliates provide investment or tax advice and do not represent in any manner that the outcomes described herein will result in any particular tax consequence. Prospective investors should consult their own investment and tax advisers concerning the U.S. federal, state and local income tax consequences, as well as any tax consequences under the laws of any other taxing jurisdiction, in relation to their personal tax circumstances, which may vary for prospective investors in different tax situations.
This communication may contain estimates, projections and other forward-looking statements, typically identified by words and phrases such as “anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” or the negative of such words and other comparable terminology. However, the absence of these words does not mean that a statement is not forward-looking. Any forward-looking statements expressing an expectation or belief as to future events is expressed in good faith and believed to be reasonable at the time such forward-looking statement is made. However, these statements are not guarantees of future events and involve risks, uncertainties and other factors beyond Belpointe PREP’s control. Therefore, we caution you against relying on any of these forward-looking statements. Actual outcomes and results may differ materially from what is expressed in any forward-looking statement. Except as required by applicable law, including federal securities laws, Belpointe PREP does not intend to update any of the forward-looking statements to conform them to actual results or revised expectations.
©2022 Belpointe PREP, LLC. All rights reserved.