Let the market come to us...
Individuals, Businesses, Institutions, Retirement, Trusts, Portfolio Management
Cloak and Company, LLC. Is a unique money management firm. What we offer cannot be duplicated at traditional investment houses. Opportunity comes in many forms, small companies and large, fast growing or downsizing, real estate trusts or emerging markets, mature industries with outsized dividends or the startup biotech awaiting FDA approval. The well designed investment account will encompass them all. The key to diversification is not risk avoidance but balance.
Our stock selection process starts at the bottom, where we look for companies and situations that stand out. We look very closely at the company’s management, valuation, business model, growth prospects and other variables. We believe that some companies are superior to their peer groups and will outperform regardless of industry or economic circumstances.
Complementing this strategy is the opportunity in special situations. These are stocks that have an unusual profit potential due to non-recurring circumstances, such as recent performance disappointments, management changes, company mergers and acquisitions, or the release of a new product or technology. We do not rely on market timing; however, economic and macro circumstances are incorporated with investment decisions.
Both fundamental (company valuation and prospects) and technical analysis (stock action, momentum, instinct, incite, etc.) are brought together in generating investment ideas. Portfolios are fully invested, and some positions may be held for several years. Many sources of outside research complement our in-house process. Investment parameters are not limited to traditional stocks and bonds. Exchange-traded funds (ETF’s); real estate trusts (REITS), master limited partnerships (MLP’s) and preferred stocks that offer both income and appreciation potential will often represent large portions of a balanced account.
In summary, our approach is to minimize risk, know what we own, use patience and foresight and let the market come to us.
John R. Cloak
Mr. Cloak is a native New Mexican and has a BBA from the Anderson School of Management at the University of New Mexico. Prior to starting Cloak Advisors he was a first Vice President at Morgan Stanley Inc.
John started his securities career in 1983 with Dean Witter Reynolds; his extensive experience includes accreditation in virtually all facets of the securities Markets, including Futures, Currencies, Equity and Bond Valuations, Insurance, Annuities and Financial Planning.
John and his Firm are designated as an RIA or Registered Investment Advisor through the State of New Mexico Securities Division and the National Association of FINRA
In addition to his responsibilities at Cloak Advisors, John is a consultant with the New Mexico Securities Division in Santa Fe, NM. He also enjoys public speaking, editorializing and youth-oriented education forums. Monica and John enjoy spending time with their family and participate in many outdoor activities.
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.
January 1st, 2023
This report is for the fourth quarter and year ending December 31st 2022. Stock measures were mixed for the past three months, the Nasdaq declined 6.5% while the Russell 2000 rose 6%. Year to date Equity Index losses averaged approximately 28%. Short term interest rates were sharply higher for the quarter, the yield on the three month Treasury Bill climbed to 4.4% from 2.9%. One year ago the ten year Treasury Bond returned 1.5%, todays yield is 3.9%. Oil and natural gas prices have declined to $80/barrel and $4 ng/f respectively but remain higher for the year. Bitcoin is now below $17000 versus $45000 last year. Residential real estate prices have softened and inventories are improving. Commercial real estate seems stable but dependent upon the slow return of remote employees. Inflation measures are slowing but hot spots remain, especially food. The U.S. dollar is retreating against major currencies, Gold and Silver prices are firm. Third quarter GDP increased 3.2% and unemployment is at near record lows of 3.5%.
There is a traditional investment posture called the 60/40, that’s 60% stocks and 40% bonds. It just posted it’s worst year ever, a loss of -35%. Forget the over analysis about the impending recession which has failed to materialize, there better be an economic depression to justify the overcooked fiasco we have witnessed in 2022. As many times as we have witnessed it we can’t determine if it’s genuine panic or a choreographed Wall Street shakedown. The guarded warnings from front running Investment Bank CEO’s or the preselected guests for Market rallies or sell offs by financial media all seem a lot too “timely” to us. Over 8000 Mutual funds and countless Exchange Traded Funds (ETF’s) further complicate the picture. There is an assumption that because the Market or a security goes up or down that there must be a reason, a flaw, product failure or an accounting scandal etc. The unregulated hyperbole that is todays information sharing system is dangerous. The majority of investors run with a pack, they haven’t a choice, it’s a pooled Fund, liquidated and altered on the way down, diluted on the way up. A chain reaction ensues that takes months to unfold and years to rectify.
The Federal Reserve raising interest rates is undeniably the main culprit for recent volatility. The good news is that we are almost done! The normalized affect on corporate earnings remains to be seen. With the average stock down close to 40%, over kill comes to mind. As usual the most dynamic, fastest growing and over owned stocks have been hurt the most and represent significant opportunity going forward. FANG stocks (Facebook, Amazon, Netflix, Google and many others) led the advance of the last fifteen years and recently were the last to correct. We think likely an exclamation point, to a Bear Market that saw its low months ago and has since painfully revisited same on multiple occasions. Most recently the last few weeks of December. You’ve heard of Ghost Ships…abandoned freighters drifting on the high seas. Now we have orphaned stocks, companies with no analyst coverage and very few shareholders. For those with an understanding, the opportunities are exciting. The last week of trading was thin and listless. Tax loss selling was predominant. The January affect, when small capitalization stocks lead the advance has already begun.
Westerns are back, Yellowstone and 1883 for starters. Makes one wonder what our pioneer ancestors would think of todays generation. Depression, endless government handouts, gender anxiety, ADHD and of course the Tridemic of colds and flus from a group who has lost their natural immunity. From classrooms and colleges to the halls of leadership many young people have been swayed that the American dream is a path of shame and despair. What happened to that good ole midwestern work ethic? If fentanyl wasn’t enough now it’s Adderall the amphetamine of choice for the youth of America (boys mostly). National prescriptions are now at 40 million up 40% year over year. The boys who won’t sit still and stare out the window grew into men and won WWll, now they are drugged. Its estimated 5 million immigrants have crossed the border last year and that 100 million more are eyeing the red carpet. Why is that? When Larry Hagman who played J.R. Ewing in Dallas visited Romania in the 1980’s he was approached by an old peasant with tears in his eyes…. “you saved our country, we watch your show and ask ourselves why can’t we have those things like Americans?” Record low unemployment, record wages. Job opportunities everywhere!!!!! Get out the Dutch oven and Cowboy up America! It’s not that bad. In fact it’s great!!
China’s population has peaked and will start to decline, infrastructure and housing projects are at risk. New York is Lit! the first Cannabis shops are open, 36 total. New Mexico has over 1000. Sometimes Mom and Dad can’t help when your thrown in jail in another country. Turns out Sam Fried of the FTX Crypto scandal is the real deal in the flake department, no corporate structure, celebrity partners, a real pile! The Department of Justice is on it…. vows to investigate Ticketmaster as angry fans want to know why they couldn’t get their Taylor Swift tickets. Adamant calls for An Inspector General for Ukraine as $100 Billion in aide a mystery budget. Buenos Aires is trashed by 5 million celebrants after Argentines World Cup Victory, 10% of population goes nuts! What fun! Congress passes $1.7 trillion spending package, all 4100 unread pages! Building owners banning electric bikes in NYC, over 200 fires from lithium Bike batteries. Shipping costs falling dramatically, from $25k per intermodal container to $9k. Lumber prices down by 75%. Could it be? The head scratcher…Israel’s Netanyahu is back. We thought he just lost. Iran executing young people for speaking their mind.
Financial markets are likely at a significant inflection point. 2022 is being described as the worse since 2008. That would make this a fifteen year event. The period in between was excellent. Investing doesn’t mean buying a stock at the absolute low of a market cycle and then selling it at the perfect time after a three way split. It involves positioning yourself into an assortment of companies (a portfolio) and reaping the benefits of ownership over many years. In our opinion last years pull back has been 40% substantive and 60% fabrication and hype. Markets do not like uncertainty. The drawn out vote counting and the ambiguity of mail in elections has taken its toll. Limited, censured and partisan news flows must stop. We sense ongoing political risk as significant going forward. Disinterest and investor lethargy is not far behind. We think higher/normal interest rates are a positive and that the economy is more robust than thought. Without risk there is no reward. If you think the downside theatrics have been dramatic, wait till you see the upside! Nervous/volatile markets create abnormal price vs value disparities. As common sense returns, changes and forward looking adjustments become more predictable and fruitful. Cloakco portfolios are comprised of a large array of high quality companies and situations emphasizing both growth and income, our investment experience is tenured and far reaching. Please contact us if you would like to discuss your account. A warm welcome to our new customers. We appreciate your business and confidence. Have a great new year!!
January 3rd, 2021
This report is for the quarter and year ending December 31st 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!
Independent Account Protection
Accounts are carried by National Financial Services, LLC member FINRA/SIPC. Securities in accounts carried by National Financial, LLC (“NFS”), a Fidelity Investments Company, are protected by the Security Protection Investors Corporation (“SIPC”), up to $500,000 (including cash claims limited to $100,000).
For details see www.sipc.com
NFS has arranged for additional insurance protection for cash and securities to supplement its SIPC coverage. This additional protection covers total account net equity in excess of the $500,000/$100,000 coverage provided by SIPC.
Neither coverage protects against a decline in the market value of securities.
Brokerage services are offered by Mutual Securities, Inc. (“MSI”), Member FINRA/SIPC, a premier brokerage firm established in 1982 and based in Camarillo, California. Custody services are offered by National Financial Services, LLC (“NFS”), Member NYSE/SIPC, established in 1983, a Fidelity Investments Company, one of the largest providers of brokerage services.