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Writer's pictureDoug MacGray
Jul 226 min read

Good Night Bob, CrowdStrike, and Doug's Decisions

July 22, 2024


GOODNIGHT BOB:  I am starting this week with a few quotes in honor of Bob Newhart, an absolute giant in the humor industry. Bob Newhart passed away this past week at the age of 94: I agree with all these quotes:


"The only way to survive is to have a sense of humor."


"I think you should be a child for as long as you can. I have been successful for 74 years being able to do that. Don't rush into adulthood, it isn't all that much fun."  


"Laughter is the shortest distance between two people."


CROWDSTRIKE:  A company most people have never heard of, CrowdStrike, caused a major IT outage on Friday. CrowdStrike is a cybersecurity firm. There was no breach, but CrowdStrike released a faulty update to its software. Airlines, banks and telecom firms suffered major outages. Flights were cancelled, Visa payment processing was interrupted, and NBC Universal was impacted. This did not help the markets that have lately been ambivalent about tech stocks.


TOO MUCH VOLATILITY IN TECH: The week started well with the S&P 500 hitting a new high based largely on optimism about interest rate cuts. By mid-week, the tide turned for the S&P 500 as investors continued the recent trend of selling large cap, growth, tech stocks in favor of small-cap stocks which stand to benefit from the rate cuts. But as this trade continued, tech suffered a bit too much to sustain a rally, Nvidia fell 10% for the week. The tech slump only got worse when the Crowdstrike problems began.



LONGER-TERM PERFORMANCE:  Below are the annualized three-year and five-year numbers for these same indices.  



SMALLER STOCKS STILL OUTPERFORMING:  U.S. small cap stocks enjoyed another positive week, up 1.68%. As anticipation grows of potential interest rate cuts, and as large tech stocks continue to pull back, money has been put into lower valued small cap stocks. Below you can see the performance of the Russell 2000 (an index of small cap U.S. stocks) since July 10 when the rotation started. The Russell 2000 is up 7.63% while the "magnificent seven" stocks are down 7.5% (a 15% swing!). The S&P 500 and the NASDAQ Composite are also negative during this stretch.



U.S. INDUSTRIAL PRODUCTION RISES:  In June, U.S. industrial production increased by 0.6% after a 0.9% increase in May. In the second quarter, industrial production rose at an annual rate of 4.3%. One component of industrial production, manufacturing, rose at an annual rate of 3.4% in the second quarter.



RETAIL SALES FLAT IN JUNE:  U.S. retail sales did not rise or fall in June from the prior month. Retail sales in June were 2.3% higher than June of 2023.


BANK BRANCHES ARE CLOSING:  In the week ending July 16, 28 bank branches in the U.S. closed. This comes on the heels of 529 local branches being closed in the first half of the year in the U.S. Bank of America has closed nearly 100. 78% of Americans prefer using mobile and online banking services. One in four did not visit their bank in the past year.  



IS THE U.S. ECONOMY GROWING THIS QUARTER?:  According to Bank of America, Goldman Sachs, and the Atlanta Federal Reserve Bank, the U.S. economy's gross domestic product is growing at an annual rate of somewhere between 2.4% and 2.7% so far this quarter.


POWERBALL TRAGEDY:  The Wall Street Journal reported a horrible story this week. Paul and Sue Rosenau won the Powerball lottery in 2008 and received $59.6 million after taxes. Their granddaughter died exactly five years earlier, so they felt a divine call to put approximately half of the money into a foundation to help fight the disease that killed their granddaughter. They hired a man named John Priebe who worked for Principal Securities to help them with the foundation's money. He flew them in a private jet to Principal's headquarters where they met with an executive team who assured the Rosenaus that they had the expertise to keep the money safe and make it grow. The first thing Mr. Priebe did was buy $18.9 million in variable annuities, earning him about $1.2 million in commissions. The annuities charged the foundation up to 2% in annual fees and commissions that could exceed 6%. Within a few years, Mr. Priebe had put 93% of the foundation's assets into variable annuities. In the years that followed, Mr. Priebe repeatedly sold some of the variable annuities to buy others, earning new commissions each time. During a several year period in which the stock market doubled, the $28.3 million put into the foundation was now worth $26.3 million. The WSJ reporter estimated that had they just put the money in a diversified portfolio of stocks and bonds, they would have ended up with $12 to $25 million more than they had.  In 2017, Mr. Rosenau asked Mr. Priebe to disclose to him any costs, fees, charges, "of any kind" on these investments or planned investments, and Mr. Priebe emailed back, "There is no fee's on this Product." [sic]. The Roseaus eventually sued and were awarded $7.3 million in compensatory damages. Mr. Priebe committed suicide.


GENEROSITY OBSERVATIONS:  Generosity can take many forms. The best forms of generosity I have observed over the years are a genuine outpouring of a strong conviction, never inauthentic or for show. I met a man many years ago who came at it from one point of view. When discussing his finances, I made a reference to "his money." He quickly corrected me. "It's not my money; it's God's money." This conviction has played out in his life as he and his wife have given way, way more than 10% of their wealth to organizations that align with their religious convictions. But generosity is not always about tax deductible, charitable giving. One couple I know has one spouse who liked giving money to various charitable organizations. I'll call this spouse "Charity." The other spouse, I'll call Spouse, questioned some of this giving, although the disagreement was mild. At one point, Charity and Spouse were on the phone with a relative of Charity, I'll call, "In-law." In-law told Charity and Spouse that In-law needed an expensive piece of medical equipment, but was going to forego it because of the cost. Charity was wondering whether to call siblings to discuss helping to fund this, or to help in-law find a loan, or to help with some of the cost, but didn't offer anything on the call. When the phone call ended, Spouse said to Charity, "Why didn't you tell In-law that we are going to pay for it?" At that point, Charity realized that their disagreement on giving wasn't on "whether" to be generous, but "to whom" to be generous.


There is another generosity called generosity of attention. I took a run this morning on a route that ends with a half mile loop around a pond. When I hit the loop, two 60-year-old women were walking toward me. One was doing all the talking. I ran past them. As I circled, I came across them again, and the same lady was doing all the talking. The woman doing the listening was being generous. Actively listening, asking questions, and being genuinely curious about the answer (and then asking follow-up questions because of your curiosity), can be a wonderful act of generosity.


DOUG:  A friend saw this and snapped a picture and sent it to me on his phone. I hope this is not referring to me.



Have a great week!


Our purpose is to honor God by helping our clients see the objective, find the path, and navigate past the obstacles to a more prosperous future.



Douglas R. MacGray, J.D., C.F.P. ®

President

Stonecrop Wealth Advisors, LLC

Direct | Cell | Fax

(610) 628 4545


"People will tell you that things are only going to get crazier. Maybe they will. But they don’t have to. You don’t have to. You can slow down. You can take a breath. You can take back your mind."  Hamish McKenzie


"Keep your lives free from the love of money, and be content with what you have."  Hebrews 13:5 (NIV)


SOURCES:

RETAIL SALES FLAT IN JUNE: https://www.census.gov/retail/sales.html


(c) 2024 A.D., Stonecrop Wealth Advisors, LLC, All Rights Reserved


*S&P 500: This is a measure of the performance of the 500 largest companies in the United States, and it a common index to track the performance of U.S. equity markets, especially the large cap markets.

*MSCI All Country World Index X US: This is a broad measure of the performance of worldwide equity markets excluding the United States.

*Bloomberg U.S. Aggregate: This is a measure of the U.S. bond markets.


Investment advisory services offered through Stonecrop Wealth Advisors, LLC, a Registered Investment Advisor with the U.S. Securities and Exchange Commission.

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