The London interbank offered rate (LIBOR) is one of the most famous and essential financial benchmarks in the world because it dictated how interest rates change for both commercial and consumer debt. However, after a series of scandals and a lack of quantitative substance, the secured overnight financing rate (SOFR) will replace LIBOR in the American debt markets.
Whether you own corporate debt or have a mortgage, the SOFR will have substantial impact on all American debt going forward. Since this benchmark relies on historical data instead of future projections, manipulation and inefficiencies should be drastically reduced.
For example, there is so much liquidity in the treasury markets from which SOFR is built on, that price-fixing and other market manipulation will be much more difficult. Finally, the SOFR is a secured rate, meaning there is collateral behind any changes influenced by it. In contrast, LIBOR was unsecured and had no rigid backing to justify any rate fluctuations.
What does this mean for investors?
We are still a few years away from a complete SOFR transition; borrowers will have a more reliable gauge for their future loans, especially with their bank.
The fall of Evergrande could impact American portfolios
Evergrande is a Chinese real estate developer with $300 billion worth of debt on the verge of collapse. News about Evergrande continues to disseminate across many different news outlets, but what is actually happening?
Some analysts refer to Evergrande as the world’s most indebted property developer, which has issued investor warnings, and the potential impact of default could result in a global shockwave.
Many analysts speculate whether Evergrande is too big to fail, referencing banks from the economic crisis in 2008. The share price has plunged close to 80% year-to-date, and the most impacted parties would be banks, homebuyers, and investors. Ultimately, Chinese regulators will help decide the fate of this massive real estate developer, but until then, investors should be aware that many rating agencies are warry of future performance.
The New Tax Proposal
Everybody wants to know what the Biden administration tax plan encompasses. Although nothing is set in stone, expected tax changes include an increase across the board for the highest earners, capital gains tax, and corporate income tax. Most analysts expect that the step-up death benefit will become more difficult due to a proposed loophole elimination, drastically affecting how estate planning will be handled going forward.
Analysts foresee choppy waters for the markets next quarter, but there are silver linings
The economic reopening of the United States has resulted in a dynamic reaction from the markets. Many geopolitical elections and changes are forecasted to impact the European economy, especially since the European Central Bank will reduce its asset purchases. This leads to uncertainty for American investors who are looking to diversify their investments internationally. While the economic reopening was met with polarizing acceptance, many analysts believe that 2022 will be a significant growth year for most major countries – especially in the global stock markets.
Alternative assets are drawing plenty of attention, but are they a good fit for your portfolio?
Alternative assets such as cryptocurrencies, artwork, and private equity are all unique investments because they aim to mitigate shareholder risk in traditional portfolios and provide access to unorthodox returns. However, investors should understand some of the key attributes of alternative investments to determine if they are the right fit for their portfolio.
- Cryptocurrency and other alternative investments may have significant tax differences as opposed tostocks, bonds, and real estate. Each alternative asset class has its own rules for taxation and unique risksdepending on the market they trade it.
- Many alternative investment brokerages emphasize fractional ownership and long-term investment.Investors who value transparency and complete ownership of their assets may shy away from art piecesand digital assets that only offer fractional ownership.
New On Lake Street
we are excited to announce that Lake Street’s very own, Justin M. Terzo, CPA, has been named to the 2021 Forbes Top Next-Gen Wealth Advisors list! This year Justin has been ranked 5th in Illinois and it is his 3rd time receiving this recognition. Congrats to Justin for all his hard work and client dedication.
Articles We’re Reading
Potential U.S. debt default: Why to stay the course… (link)
Can You Save Too Much in a Health Savings Account?…(link)
Jobless claims drop to pandemic low of 348,000 in sign companies still hiring despite delta… (link)
Market Snapshot
For the Month Ending 9/30/2021 (Cumulative Returns)1
Did You Know?
El Salvador Recently Accepted Bitcoin as Legal Tender:
El Salvador is one of the first countries to recognize and accept the cryptocurrency, Bitcoin as legal tender. According to El Salvador’s president, Nayib Bukele, Bitcoin transactions should make transferring and spending money much more efficient. Large corporations like McDonald’s and Starbucks have already adopted the payment method in El Salvador, which may set a precedent for large-scale acceptance. …(link)
Some of the most interesting aspects of El Salvador’s Bitcoin adoption include:
- Establishing September 7th as Bitcoin Day
- Opening 200 Bitcoin ATMs across the country
- Offering citizenship for foreigners who invest 3 Bitcoins in the El Salvador economy
Presented by the Investment Committee of Lake Street, an SEC Registered Investment Adviser
The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. Diversification does not ensure a profit or guarantee against a loss. There is no assurance that any investment strategy will be successful. Investing involves risk and you may incur a profit or a loss.
