Gulfport, FL

As I alluded to last month, I am successfully homeless, and we also added a third animal to the Fleury Clan Traveling Zoo! MAXIMUS (or Max), the Mastador, is the newest member of our clan and we are so excited to show him the world. He is a first generation or “F1” Mastador. His dad is an English Mastiff and mom is a Labrador Retriever. We expect Max to be about 150lbs, or so.

A big thanks to my mom for letting us crash with her… animals and all, in Gulfport, FL until we find a property of our own in this state. We aren’t sure exactly where yet, but we’ll probably stay relatively close to mom.

Since my last letter, we have covered 2,803 miles and logged around 50 hours of “windshield time” on our way from Eagle, CO, to Gulfport, FL, by way of Hinckley, MN… and so, that is the primary reason for my tardiness with this letter.

I can also report from firsthand experience that the housing markets are absolutely booming in both Eagle, CO, and most parts of FL. Eagle County, CO, is still twice as expensive per square foot as anything we are looking at in FL, if you can believe that.

To be clear, we don’t currently own a property in either CO or FL, but since we are planning to split our time between the two states going forward, we are in the market for something in both places. But I think the market in Eagle County is a little overextended and so I am waiting patiently for it to become more “reasonably expensive” (as it usually is) instead of “insanely expensive,” as I think it is now.

As regular readers know, I think all the money recently printed in the USA and around the world (both in response to COVID and even before that) will keep pushing home prices higher via inflation, so, on one hand it may sound like I am “fighting the FED” and going against my own views on inflation with this mindset.

Ultimately, I think more people moved to Eagle County than will stay. Whether it be due to COVID being an afterthought by next summer (fingers crossed for that) or just because the winters are long or some combination of these and other factors – I think a lot of people came to the mountains recently who won’t be there 2-3 years from now. I guess we’ll have to wait and see. It certainly wouldn’t be the first time I would be wrong on the direction of real estate prices in the Eagle Valley if it doesn’t turn out that way. I was certain the market would drop after we bought our home there, back in 2016. It tuned out I was dead wrong.

To clarify, I don’t expect home prices to crash in Eagle. I don’t even expect the prices to become cheap, relative to anything anywhere else. It will always be expensive to live there and home values will reflect that. I just expect there to come a day when they are not so insanely expensive as they are now. And when that day comes, I plan to be ready to take action.

Anyway, enough about me…

Performance

The S&P 500 was up 2.22% in June (as measured by our preferred instrument the SPY exchange traded fund.)

Net of management and trading costs, the Appreciation Strategy was up more than double the index! Meanwhile, the Income Strategy took a breather after a very strong start to the year. Income was actually down slightly (less than 1%) for the month.

The Appreciation Strategy also ended up beating the SPY by about 1% for the second quarter, and with half the year remaining has almost caught the index for the full year 2021.

The Income Strategy beat its benchmark (half the SPY on the upside) in the second quarter and is ahead for the full year. The Income Strategy is having an excellent year after several years of mediocre returns.

Even though I do expect growth stocks to lead the market higher from here if the market is in fact to keep heading higher, that doesn’t mean I expect the value stocks (which mostly drive the returns of the Income Strategy) to be poor. Value stocks have been so beaten down for so long that they still have plenty of room to run on the upside, and likely with less volatility.

For many of our clients, a combination of the two strategies makes a lot of sense and we offer combination portfolios of 50/50 split between them, or 25/75 between them. If you’d like to discuss adding more diversification (or going the other direction) just let us know.

Outlook

Earnings season is officially underway. JP Morgan and Goldman Sachs kicked off the season when they both reported earnings for the second quarter, this morning. Both of them beat expectations… by a lot.
JP Morgan’s earnings were up almost 3x and Goldman Sachs’ earnings were up an incredible 27x, from the same quarter last year – which saw the entire world locked down due to COVID19.

Which brings me to the outlook of this being the easiest comparison to 1 year ago for any earnings season that we have ever witnessed, or maybe ever happened in the history of markets.

Never before has the current quarter been compared to the same quarter in the prior year where say, 95% of your revenue was down in the case of airline stocks, for example. So, when the airlines compare this second quarter 2021 revenue to second quarter 2020 revenue, how do you think it will do?

The only trouble is that we all know this. So, the numbers need to come through in a big way – because I and every analyst on Wall Street expect big numbers. If anyone misses expectations or doesn’t beat by enough – look out. The stock will drop, hard. It’s always about expectations and the surprise factor when it comes to earnings.

And that is why “trading” around earnings is a lot like gambling. Even though we know that the economy is vastly better than it was 1 year ago, we can’t know which companies will surprise us on the upside, or the downside. We sometimes take opportunities to trim big profits or accumulate “starter” positions for new clients ahead of earnings. But we don’t make big moves in anticipation of earnings.

The vast majority of companies in our strategies will report their earnings in July, and so we will have a sense of how things went by the next time I write to you, in early August. I am optimistic that there is a still a lot of room for more upside as the economy reopens, and folks get back to having fun.

I think inflation is going to be a much bigger problem, much sooner than anyone is talking about though, and that could create headwinds for markets if the FED responds by raising interest rates. Here in Gulfport, FL, I have run into several restaurants who have kept their dining rooms closed or aren’t offering carryout or Uber Eats ordering due to staffing issues. They simply can’t get people to work.

McDonald’s (MCD) is stepping up their game trying to attract employees by offering tuition and emergency child care, according to the Wall St. Journal, yesterday. And perhaps more pointedly, this article out this morning with the headline, “Customers Are Back at Restaurants and Bars, but Workers Have Moved On.”

*Those articles are both behind a paywall, so let me know if you need access and we can get you a pdf.

In closing

Something you might be interested to know… there is such a thing as the “Asset Manager Code.” It is produced and maintained by the CFA Institute and “outlines the ethical and professional responsibilities of organizations that manage assets on behalf of clients.”

The Code states that managers have these responsibilities to their clients:

To act in a professional and ethical manner at all times
To act for the benefit of clients
To act with independence and objectivity
To act with skill, competence, and diligence
To communicate with clients in a timely and accurate manner
To uphold the rules governing capital markets

Organizations must submit a notification form on an annual basis by 30 June of each year with information as of the most recent 31 December.

So, I just thought it was worth sharing that we recently submitted our notification for the year, to maintain compliance with the Asset Manager Code. You can read more about the Asset Manager Code, here.

Overall, it was an excellent month and quarter for the Elevate Strategies and therefore, our client portfolios. I am excited to be raising a puppy with my wife and daughter and for the chance to have Sunday dinners with mom, again.

Here is to a strong finish to 2021!

Thank you all for your trust and confidence in our firm, which allows me to set up my office pretty much anywhere in the world and live a comfortable life, doing what I love to do. I appreciate each of you more than words can express.

As always, thank you for reading!

Shane Fleury, CFA
Chief Investment Officer
Elevate Capital Advisors

Legal Information and Disclosures
This commentary expresses the views of the author as of the date indicated and such views are subject to change without notice. Elevate Capital Advisors, LLC (“Elevate”) has no duty or obligation to update the information contained herein. This information is being made available for educational purposes only. Certain information contained herein concerning economic trends and performance is based on or derived from information provided by independent third-party sources. Elevate believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based. This memorandum, including the information contained herein, may not be copied, reproduced, republished, or posted in whole or in part, in any form without the prior written consent of Elevate. Further, wherever there exists the potential for profit there is also the risk of loss.