July 5th, 2023

This report is for the second quarter ending June 30th, 2023. Stock index returns were varied during the three months. The Russell 2000 was flat, the Dow Jones Industrials rose 5%, the Nasdaq Composite gained 17% and the S&P 500 added 13%. For the year we estimate an overall advance of approximately 15% for the broad Market. Interest rates are higher, short Treasuries now pay 5-5.5% and the benchmark ten-year yields 3.9%. The price oil is down 12%. Precious metals are down slightly but remain higher for the year. Bitcoin rose to over $30k, that’s a 30% increase for the quarter and 90% year to date. Homes are not getting any cheaper while commercial real estate is now a wait and see prognosis. The economy is growing at an annual rate of 2-2.5% as measured by the GDP.

The largest five companies in the S&P 500 have increased in value by almost 3 Trillion dollars just this year. These five now comprise approximately 25% of the total weighting of the S&P. Similar comparisons apply to the Nasdaq composite, where a handful of stocks have produced a 30% YTD return. From our perspective the traditional stock indexes are losing significance. The downside metrics of the average stock were not reflected (-40% for the broad-based Russell 3000) during the Bear Market. Conversely the upside metrics for the average stock have been overstated during the current Rally. The perception is further skewed by press coverage which highlights the same. The lay investor is left with the impression that he lost more than most during the downturn and now there’s a raging Bull Market and he is still waiting at the train station. Financial reporting smells as bad as the rest. From promotion to click bait they will scare you badly on the downside and then quickly pivot as they highlight the winners on the morning show. What’s disarming is that everyone speaks with authority. The dollar will rise, no the dollar will crater, the at home movement will cause the office market to crash. AI will take over the world, rising rates have made housing unaffordable. And of course, everyone’s favorite… Recession!! Its ok, we are here to help.

Market volatility is quite something. When the froth is high, 5% intraday moves are almost common. As a transition occurs it can become nonsensical. One last body blow to dishearten the few remaining stalwarts. For most lay investors, stock price action is perceived as a report card on one’s holdings. If that were the case, then Facebook was failing when their stock price went to $90 seven months ago and it is succeeding wildly now that it trades at $300. Keep in mind that this is a corporation valued at 750 Billion. The truth is that very little has changed. Now imagine the price swings that occur with small growth companies that are undiscovered and unloved! We are not in a recession; corporate America is fine. The U.S. represents 1/4 of the world economy and 60% of the G-7 nations, the same as in 1990. Amidst all this stability and continuity, we’ve had to endure years and hours of doomsday prognostications. Do this, do that. De-risk, take shelter etc. all for naught. 🎵 Its summertime, The fish are bitin and your stock portfolio is good lookin. 🎵 Relax, spread out the picnic blanket, read the Sunday funnies and have some fried chicken.

Now happening, nature gone wild, North Carolina scientists say the ocean is thriving, increasing Great White shark population a result of an over abundance of wildlife. A Killer whale named White Gladys is leading a pack of Orcas attacking sailing yachts off the coast of Spain. Twenty-five ships sunk. Tech titan Greg Carr spends 100 million rehabbing million-acre Mozambique nature reserve, now called a sea of wildlife! Formerly drought stricken southwest and California are wet. Reservoirs overflowing, ski areas stayed open thru May! The Rio Grande is at 4x it’s normal flow, the snowpack is still melting. Education revamp, college enrollment continues to decline. Apprenticeship programs up over 50%, carpenters, electricians etc. even J.P. Morgan and McDonalds. Earn and learn! Social Security Administration is expanding. Trouble paying rent, need groceries? Apply now to the SSI / Supplemental Security Income Program! Wanna see what anarchy looks like? Witness France and Port-au-Prince Haiti! Over 1660 gangsters killed by vigilantes. More retailers resorting to Russian retail model. Cashier behind the plexi glass. May I take your order? Walmart closes another Chicago store, politician chimes “there will be no place left to shoplift”. Now estimated that Mexican cartels have executed more than 160k since 2006. Decorated Air Force veteran Dave Grusch now a whistleblower, claims recovered UFO ships and creatures a reality for decades! RFK Jr. blames 36 million kilograms of weed killer Atrazine applied to crops annually as the cause of sexual dysphoria and birth dearth! Had enough? 😊

David Rubenstein founder of the Carlyle Group gives a calm assessment of economics going forward. He sees two more moderate rate hikes then interest rates coming down in 2024, combined with moderate growth. As the stock Market recovery matures it will broaden. Yes, there are sectors and names where valuations are expensive. However by and large we think it is just the beginning of a very productive period for investors. Initial public offerings have been nonexistent. We are once again amazed by the value and opportunity that presents itself in todays securities markets. There are baskets of Real Estate Trusts yielding more than 12%, also large numbers of former glamour growth companies trading at single digit multiples and low PEG ratios. The current excitement and hype surrounding Artificial Intelligence is warranted. Software and hardware capabilities are expanding exponentially. Another dynamic cycle has reaffirmed confidence in our investment approach. Broad diversification and separately managed accounts allow our clients to participate in opportunities not available with standard investment fare. Going forward the Geopolitical drama will only increase. Public financial markets will not be for the faint of heart. Dramatic price swings are here to stay. However, for those with conviction and good guidance the opportunity is large. The equity markets have become less efficient, prices less representative of underlying fundamentals. That spells opportunity! The phrase shooting fish in a barrel comes to mind but that would be brazen. There are too many variables beyond our control. Let us know if we can help. Questions/consults, real estate, and employee benefits.

Cloak/abq