January 3rd, 2021

This report is for the quarter and year ending December 31^st 2020. Stock Market indexes rose 20% on average during the three and twelve month period. Interest rates remain very low, the thirty year mortgage now costs 2.66% , an all-time low. Third quarter GDP grew at an annualized rate of 33%, a record. Oil prices have risen slightly and Gold prices are constant at $1900/ounce. The U.S. Dollar has fallen to a two and a half year low against other major Currencies as budget and trade surpluses increase. As Global economics anticipate recovery, the USA becomes less of a safe haven. Bitcoins are now trading at almost $33,000, triple last quarter. Residential Real Estate continues to appreciate. Commercial properties are varied depending on the region and industry.

In late February as Virus fears began, Stock prices fell almost 40% in a thirty day period. The end of March began a steady advance carrying the Standard and Poor’s 500 60% higher. The Russell 2000, a measure of smaller more speculative companies has risen 100% from its March low. That’s correct….100% !  That pales to many individual stocks which have seen gains of 200%-1000%. In four decades of following securities we have never seen a stronger advance! Many variables are involved. The Federal Reserve and other World Banks have opened their checkbooks, buying financial assets and lowering the cost of money. Government Stimulus both Federal and State was immediate and ongoing. The current Congressional package is just shy of One Trillion Dollars. Turns out the ridiculed adage “We are from the Government and we are here to help” is true! At least for the short term. Checking and savings account balances have risen from $2 Trillion to $4 Trillion.

Travel, Dining, Education…..youth sports/activities, and many other categories are struggling. The upheaval and suffering of individuals and business wrought by Covid-19 is large in scope and a stark contrast to less affected sectors. Sole proprietors and Mom and Pop businesses have born the brunt of the mandatory shutdowns. Likely a third will not return! 25 Billion of unpaid rent has accrued, yet most midsized landlords do not qualify for PPE. The work at home revolution has spurred a big city exodus. An estimated 23 million are able to work anywhere, luxury home sales are up 40% as executives go country. Yacht brokers are very busy. A California exodus is underway as 13,000 Corporations move east just this year, including Tesla, Hewlett Packard and Oracle.

Lots going on Ladies and Gents…it’s official the U.K. has left the E.U., Brexit at last! Could it be? Peace and more Peace in the Middle East. Originally citizens were required to be land owners to vote. For better or worse the political base and process is morphing. Grass roots voter registration and mail in voting. The west coast wants sixteen year old’s to vote, “Students for Tomorrow” registered 60k 18 year old’s (18k in Georgia). It appears the Great Disruptor has been ousted. Electoral College results are almost finalized. The Georgia senate race is a show stopper! Stay tuned. Chinese and Russian military build outs and posturing accelerate. Cyber hacking is a critical national defense issue as SolarWinds Corp a major Federal contractor is compromised.

This just in…..  BlackRock the world’s largest asset manager is now requesting that companies  disclose the ethnic makeup of their employees before they invest. Nationwide drug abuse is not going away. San Franciscans are now three times more likely to die from a fentanyl overdose than the pandemic. 81k opioid deaths YTD nationally. Record pot sales of $1.8BL in Colorado, employee turnover now an issue… “I totally forgot to go to work today”. Resisting arrest is being decriminalized in Los Angeles. Misdemeanors and theft under $1000 will no longer be prosecuted.  USA population growth is virtually flat, marriage and birthrates continue decline. Websters dictionary may define the COVID Divorce.

Ok, settling in, lets keep our eye on the ball. Bitcoin, Toilet paper and Stocks tell the story of Supply and Demand. There are 21 million Bitcoins, that’s it. There is more toilet tissue on the way but when the shelves empty you’ve seen what happens. There are far fewer public companies available than ten years ago and after Pandemia the number of private companies will also shrink substantially. See where were going? There has been a run on Stocks and they were on sale to begin with. Byron Wein the Vice Chairman of Blackstone Partners and someone we listen to, sees a return to normalcy and thinks that the current Stock advance could last for years. Technological advances are on the cusp of yielding large increases in productivity. Artificial intelligence is becoming widely available. Government and politics are important but the private sector is leading in innovation, thought and results. NASA is passing the baton to SpaceX. Government agencies are deferring to data analytic companies for practical solutions.

Since our inception Cloak Advisors has consistently touted the viability and attractiveness of today’s Financial Markets. Cloakco accounts have substantially outperformed the averages. We have been willing to take risks for our customers and they are seeing the reward. Looking forward political uncertainty is the focus. The week and month ahead will bring drama and theater. The future will no doubt be Wild and Wooly and there are many things to be concerned about. Recent events are why you stay invested. The upside can be fast and furious, from out of nowhere it seems. The world may be witnessing a breakpoint, a long period of exponential innovation. Likened to a horse race, the big thoroughbred has been reigned in until the far turn. There will be some mud on the track and a jockey may lose a stirrup but we say give him the bit and let him run!

Cloak/abq