July 4th, 2024

This report is for the second quarter ending June 30th, 2024. The Standard and Poor’s 500 rose 4% for the three-month period, the Russell 2000 decreased (4.76%) and the Dow Jones Industrials were down slightly. Interest rates rose 27 basis points, the ten-year Treasury now yields 4.63%. The price of Gold gained 4% to $2343/ounce. Bitcoin dropped 10% from recent highs. Oil prices were unchanged at $83/barrel. Real Estate prices are region specific but stable and down slightly. Inflation is moderating at the 3% level. Gross Domestic Product (GDP) growth is slowing with estimates of a 1.5% increase during the first Quarter of 2024.

The post Covid economic transition continues. News coverage is dominated by the largest companies and industries. Geopolitical goings-on overshadow a generally stable business backdrop, however, the pace is slowing and there are sectors in distress. Retail sales are flat, recreational vehicle and bicycle businesses are in a depression. Restaurants have become a crap shoot. Online retailing continues its steady encroachment upon the brick-and-mortar shops, inflicting pain and attrition on long lived family establishments and the property owners who must deal with declining lease rates. The decades long progression of criminal tolerance and the degradation of first responders is taking its toll as many inner-city business owners throw in the towel. Work ethic is a major constraint. Many employers are simply ghosted by new hires. Medical directors at major hospitals complain that new resident doctors call in sick or take days off to “find their safe space”.

Peter Lynch, the retired manager of the legendary Magellan Fund was famous for discovering hidden gems, ten bangers he called them. Small capitalization stocks that went up 1000% or more. The past few years it has been the largest companies in the world leading the advance. Apple, Nvidia and Microsoft comprise 20% of the Standard and Poor’s 500. Nvidia itself is responsible for 21% of this year’s gains. These celebrity AI darlings are priced to perfection and already owned by every Tom, Dick and Harry! Kudos to these Hi-Tech front runners, they are deserved success stories. But handle with care. Market measures are becoming ever more concentrated. It is a risky venture attempting to match the posted returns of the Nasdaq Composite or the S & P 500 for that matter. Very much like jumping on a fast moving streetcar.

We are often asked how to hedge or take advantage of the next Market crash. “Gee whiz, with such a run-up and stocks at an all-time high and all…doesn’t it make sense?” Our response belies the current conventional wisdom, the Instagram likes, the trending news wires. In fact, we postulate that the average stock in the broad Market is nowhere near record highs! Take for instance the Russell 2000 which measures the performance of 2000 preselected companies valued at less than a Billion dollars. This broad based indicator now stands at 2047, that’s 400 points or 20% below it’s 11/2021 level of 2445. That’s right, Down 20% from more than two and a half years ago! Chew on that for a few minutes. The polarity and concentration of the current Stock Market is at an all-time high! As with many other topics the level of misinformation and outright B.S. is also at an all-time high! In future commentaries we will likely discontinue to report statistics on the oft quoted Stock Market indicators because frankly they are Bogus! Cloak Advisors is invested in over 200 New York Stock Exchange and Nasdaq listed securities and we are not rookies. We were thinking of starting a protest movement but perhaps we will float the Cloakster Index, it could go viral! You can like us on social media as soon as we open an account!

Janet Yellen acknowledges high debt levels but states the interest expense relative to GDP is historically perfectly normal. We repeat…Uncle Sam is not going broke! AI news articles are popping up everywhere, you can spot them, they are bland and rambling! Panic rooms and bunkers are all the rage as anticipation of civil unrest coming into the November 5th election is overwhelming many with anxiety. Thinking of running for office? All 500 congressional seats are up for grabs in Mexico’s elections, 36 candidates have already been assassinated! Navy Seals incorporating DEI, gotta get those pronouns right! Home improvement just got safer…Home Depot security now using German Shepards…good boy. New York Mayor Adams recommends unionizing lifeguards, wants to employ the new migrants because they’re good swimmers. Brilliant! Philadelphia’s College of the Arts and many other colleges are closing, too many out of code forts, encampments and screaming protesters has stopped enrollment. No! Mental health apocalypse, 18–30-year-olds suffering Gender, interpersonal and macro concerns. Gosh!

We think financial markets are healthy but largely misunderstood. Private Equity is thriving and larger than the public markets, our clients are invested. We continue to see more opportunity than we have funds to invest. Obscure and unfollowed situations abound, many at salvage value. Many companies are running TV spots to garner some much-needed attention. World events are a wildcard. The glaring near term impediment is November’s election. The country is on edge! As always one must be an optimist, but we do not see high valuations as an issue. We have a disconnect with the current front page assessment of financial markets. For Cloak Advisors, three months of mostly listless price action has added some sass to this quarter’s commentary. IT enhancements, cybersecurity investments and the successful, no issue, completion of our fifth routine audit by the New Mexico Securities Division adds stability going forward. We can help with your Healthcare insurance, employee benefits and Real Estate. Welcome to our new customers. Enjoy America’s Birthday, we recommend hot dogs with onions, mustard and green Chile!

Cloak/abq