The Rally Continues, for Now
The market is having a big day today. July CPI came out and showed moderation in inflation at 8.5% versus 9.1% in the prior month. Core inflation, which excludes volatile food and energy prices, was 5.9%, the same as last month.
The lower CPI number was widely expected as gasoline and other commodity prices have come down significantly amid the recession fears. But it was still lower than the expected 8.7%. Core inflation didn’t go down, but it didn’t rise either, suggesting a possible leveling off.
The report feeds into the recent hopeful market narrative that inflation is peaking, and the Fed will be all done raising rates by the end of the year. That vision is the strongest catalyst for the market’s better than 13% rise off the June low.
Hopefully, the market has this right. But let’s face it: One month where the inflation rate finally wasn’t the worst yet is a little thin to pin such hopes on. Inflation has trended consistently higher for the last year and a half and during that time there were several months were inflation was lower than the previous month. Big deal. The inflation beast is far from being tamed, even if it has indeed peaked for now.
I remain hopeful that the market’s current narrative pans out, but still skeptical that it will.
It’s very possible that this inflation won’t be tamed with a soft landing or just a mild recession. The Fed may have to continue to raise rates deep into next year while the economy gets worse. This market will be extremely disappointed by news that alters the rosy scenario. It will likely not react well, especially after such a big rally.
Also, even if the market can maintain the higher prices from the recent rally, it will likely need a lot more good news to move significantly higher from here amid still-high inflation, a hawkish Fed, and a likely recession.
With the viability of continued rising stock prices questionable, it’s a great time to enhance income return by selling covered calls. The market is uncertain, but income is money in the bank. The latest targeted call on portfolio position Qualcomm (QCOM) provides an 8.3% premium on the original purchase price. Visa (V) and possibly ONEOK (OKE) will likely be targeted for covered calls next.
Trades This Past MonthJuly 15th
SBLK July 15 $34 calls at $1.60 -
Expired
July 20thSold QCOM Sep 16 $145 calls at $11.75
July 27thPurchased Intel Corporation (INTC) - $40.18
August 3rd
Intel (INTC) – Rating change “BUY” to “HOLD”
Portfolio Recap
Global Ship Lease, Inc. (GSL)
Yield 7.6%
After crashing in the spring over concerns of slowing global growth and then a U.S. recession, GSL came roaring back over 30% in just a few weeks. The company was always strong operationally. Second-quarter earnings beat expectations with 86.4% revenue growth and 184.6% earnings per share growth over last year’s quarter. But that’s largely because of a huge fleet expansion over the last year and investors are more concerned about shipping rates over the next several quarters.
The global growth slowdown may not pull down shipping rates as much as previously feared. Shipping stocks may also be in a secular bull market as supply, especially for container ships, won’t keep up with growing demand in the years ahead. Investors have been sensing the selling may be overdone. We’ll see if this positive scenario continues to play out in the weeks ahead. HOLD
Intel Corp. (INTC)
Yield 4.1%
The chip maker reported earnings last week that were a disaster. Both revenues and earnings were well below expectations where revenue dropped 22% and earnings came in at an $0.11 per share loss versus and expected $0.69 profit. Intel also lowered guidance for 2022. The company blamed supply chains, China, and its own execution.
This year was always going to be bad. That’s why the stock was so low. The main attraction was the longer term and the cheap price as the company refocused on the foundry business and technology. Last week, the near term got even worse while the longer-term outlook may have improved. The new CHIPS Act will likely provide generous subsidies for its foundry business expansion. But chip stocks have been weaker of late on a spate of weaker-than-expected earnings. We’ll see if the stock can get some upside traction in the weeks ahead. HOLD
ONEOK, Inc. (OKE)
Yield 6.4%
This midstream energy company reported solid earnings earlier this week that surpassed expectations. Earnings per share rose 21% over the same quarter last year and natural gas demand remains very strong , and volumes and its systems continue to increase. Although OKE has leveled off since late last month, it has been trending generally higher since the middle of June. It also sells at a cheap valuation with a rock-solid dividend. BUY
One Liberty Properties, Inc. (OLP)
Yield 6.4%
This diversified industrial REIT rallied in late July but then pulled back again early this month. It has moved higher over the past couple of days recent economic reports that are showing strength in manufacturing despite the recession. As a more cyclical REIT, it had been under more pressure than the REIT sector as the market shunned cyclical stocks in a slowing economy. But OLP has rallied along with cyclical plays recently. I’ll watch closely to see if cyclical stocks reverse. HOLD
Star Bulk Carriers Corp. (SBLK)
Yield 25.2%
SBLK has been soaring this past month, up over 25% from the low. Earnings were reported last week and showed 60% EPS growth for the quarter and 127% growth over the same periods last year. In addition, new shipping rates secured for next quarter are just slightly below this quarter’s despite the slower global economy. The supply/demand dynamic remains strong, and the selling has likely been overdone.
The company also raised the next dividend, payable on September 16, from $1.3612 last quarter to $1.65 per share. The quarterly dividend alone is 5.3% of the purchase price. The above yield is a lot higher than the yield in last week’s update because when companies pay variable dividends yield is calculated using the last four quarterly dividends. That number rose with the recent higher dividend. HOLD
Qualcomm Corp. (QCOM)
Yield 2.0%
The chip maker stock has leveled off and pulled back slightly after a 25% rally in the first half of July. Earnings were again spectacular, but the company warned of lower smartphone sales in the second half of the year. The likelihood of slowing phone sales has pressured this stock lower for most of the year. That’s why QCOM is still well off the high. But those slower sales haven’t even materialized yet, and the company still expects 23% year-over-year revenue growth for the rest of the year. The stock sells at 12 times forward earnings, which is cheap for this level of growth. BUY
Visa Inc. (V)
Yield 0.7%
Visa’s earnings knocked it out of the park. It beat expectations on both earnings and revenues, which were up 33% and 19%, respectively. The company continues to benefit from increased global business from the ending of Covid restrictions despite slower global growth. The stock is normally very quick to recover with the overall market, but it has been more sluggish this time around because of a pending bill in the Senate that will limit credit card fees. We’ll see what the bill looks like and gauge the chances of passage. In the meantime, business is still booming despite inflation and recession. HOLD
Existing Covered Call Trades
Sold QCOM Sep 16 $145 calls at $11.75 or better
QCOM was surging in a highly uncertain market when the in-the-money calls were sold at a high premium. The stock has since pulled back below the strike the price but we secured a massive premium that accounts for 8.73% of the purchase price. The calls still have five weeks to go and anything can happen with the stock. But I still don’t trust this market and would rather secure the call premium when things are good.
| CIA STOCK PORTFOLIO | |||||||
| Open Recommendations | Ticker Symbol | Entry Date | Entry Price | Recent Price | Buy at or Under Price | Yield | Total Return |
| Qualcomm Inc. | QCOM | 5/5/21 | $134.65 | $142.51 | $140.00 | 2.00% | 8.29% |
| One Liberty Properties | OLP | 7/28/21 | $30.37 | $26.05 | NA | 6.97% | -8.89% |
| Visa Inc. | V | 12/22/21 | $217.96 | $210.26 | NA | 0.71% | -3.19% |
| Global Ship Lease, Inc. | GSL | 2/23/22 | $24.96 | $19.76 | NA | 7.65% | -19.52% |
| ONEOK, Inc. | OKE | 5/25/22 | $65.14 | $61.38 | $67.00 | 6.39% | -4.30% |
| Star Buld Carriers Corp. | SBLK | 6/1/22 | $33.30 | $26.00 | NA | 25.19% | -17.80% |
| Intel Corporation | INTC | 7/27/22 | $40.18 | $34.52 | $42.00 | 4.13% | -13.21% |
| EXISTING CALL TRADES | |||||||
| Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Recent Price | Sell To Price or better | Total Return |
| QCOM Sep 16th $145 call | QCOM220916c00145000 | Sell | 7/20/22 | $11.75 | $5.46 | $11.75 | 8.73% |
| as of close on 8/09/2022 | |||||||
| SOLD STOCKS | |||||||
| Security | Ticker Symbol | Action | Entry Date | Entry Price | Sale Date | Sale Price | Total Return |
| Innovative Industrial Props. | IIPR | Called | 6/2/20 | $87.82 | 9/18/20 | $100.00 | 15.08% |
| Qualcomm | QCOM | Called | 6/24/20 | $89.14 | 9/18/20 | $95.00 | 7.30% |
| U.S. Bancorp | USB | Called | 7/22/20 | $36.26 | 9/18/20 | $38 | 3.42% |
| Brookfield Infras. Ptnrs. | BIP | Called | 6/24/20 | $41.92 | 10/16/20 | $45 | 8.49% |
| Starbucks Corp. | SBUX | Called | 8/26/20 | $82.41 | 10/16/20 | $88 | 6.18% |
| Visa Corporation | V | Called | 9/22/20 | $200.56 | 11/20/20 | $200 | 0.00% |
| AbbVie Inc. | ABBV | Called | 6/2/20 | $91.04 | 12/31/20 | $100 | 12.43% |
| Enterprise Prod. Prtnrs. | EPD | Called | 6/24/20 | $18.14 | 1/15/21 | $20 | 15.16% |
| Altria Group | MO | Called | 6/2/20 | $39.66 | 1/15/21 | $40 | 7.31% |
| U.S. Bancorp | USB | Called | 11/25/20 | $44.68 | 1/15/21 | $45 | 1.66% |
| B&G Foods Inc, | BGS | Called | 10/28/20 | $26.79 | 2/19/21 | $28 | 4.42% |
| Valero Energy Inc. | VLO | Called | 8/26/20 | $53.70 | 3/26/21 | $60 | 11.73% |
| Chevron Corp. | CVX | Called | 12/23/20 | $85.69 | 4/1/21 | $96 | 12.95% |
| KKR & Co. | KKR | Called | 3/24/21 | $47.98 | 6/18/21 | $55 | 14.92% |
| Digital Realty Trust | DLR | Called | 1/27/21 | $149.17 | 7/16/21 | $155 | 5.50% |
| NextEra Energy, Inc. | NEE | Called | 2/24/21 | $73.76 | 9/17/21 | $80 | 10.00% |
| Brookfield Infras. Ptnrs. | BIP | Called | 1/13/21 | $50.63 | 10/15/21 | $55 | 11.65% |
| AGNC Investment Corp | AGNC | Sold | 1/13/21 | $15.52 | 1/19/22 | $15 | 5.92% |
| ONEOK, Inc. | OKE | Called | 5/26/21 | $52.51 | 2/18/22 | $60 | 19.62% |
| KKR & Co. | KKR | Sold | 8/25/21 | $64.52 | 2/23/22 | $58 | -9.73% |
| Valero Energy Inc. | VLO | Called | 11/17/21 | $73.45 | 2/25/22 | $83 | 15.53% |
| U.S Bancorp | USB | Sold | 3/24/21 | $53.47 | 4/13/22 | $51 | -1.59% |
| Enterprise Product Ptnrs | EPD | Called | 3/17/21 | $23.21 | 4/14.2022 | $24 | 11.25% |
| FS KKR Capital Corp. | FSK | Called | 10/27/21 | $22.01 | 4/14/22 | $23 | 13.58% |
| Xcel Energy Inc. | XEL | Called | 10/12/21 | $63.00 | 5/20/22 | $70 | 12.66% |
| Innovative Industrial Props. | IIPR | Sold | 3/23/22 | $196.31 | 7/20/22 | $93 | -51.23% |
| EXPIRED OPTIONS | |||||||
| Security | In/out money | Sell Date | Sell Price | Exp. Date | $ return | Total % Return | |
| IIPR Jul 17 $95 call | out-of money | 6/3/20 | $3.00 | 7/17/20 | $3.00 | 3.40% | |
| MO Jul 31 $42 call | out-of-money | 6/17/20 | $1.60 | 7/31/20 | $1.60 | 4.03% | |
| ABBV Sep 18 $100 call | out-of-money | 7/15/20 | $4.60 | 9/18/20 | $4.60 | 5.05% | |
| IIPR Sep 18 $100 call | in-the-money | 7/22/20 | $5.00 | 9/18/20 | $5.00 | 5.69% | |
| QCOM Sep 18 $95 call | in-the-money | 6/24/20 | $4.30 | 9/18/20 | $4.30 | 4.82% | |
| USB Sep 18 $37.50 call | in-the-money | 7/22/20 | $2.00 | 9/18/20 | $2.00 | 5.52% | |
| BIP Oct 16 $45 call | in-the-money | 9/2/20 | $1.95 | 10/16/20 | $1.95 | 4.65% | |
| SBUX Oct 16 $87.50 call | in-the-money | 10/16/20 | $3.30 | 10/16/20 | $3.30 | 4.00% | |
| V Nov 20 $200 call | in-the-money | 9/22/20 | $10.00 | 11/20/20 | $10.00 | 4.99% | |
| ABBV Dec 31 $100 call | in-the-money | 11/18/20 | $3.30 | 12/31/20 | $3.30 | 3.62% | |
| EPD Jan 15 $20 call | in-the-money | 11/23/20 | $0.80 | 1/15/21 | $0.80 | 4.41% | |
| MO Jan 15 $40 call | in-the-money | 11/25/20 | $1.90 | 1/15/21 | $1.90 | 4.79% | |
| USB Jan 15 $45 call | in-the-money | 11/25/20 | $2.00 | 1/15/21 | $2.00 | 4.48% | |
| BGS Feb 19 $27.50 call | in-the-money | 12/11/20 | $2.40 | 2/19/21 | $2.40 | 8.96% | |
| VLO Mar 26 $60 call | in-the-money | 2/10/21 | $6.50 | 3/26/21 | $6.50 | 12.10% | |
| CVX Apr 1 $95.50 call | in-the-money | 2/19/21 | $4.30 | 4/1/21 | $4.30 | 5.02% | |
| AGNC Jun 18 $17 call | out-of-money | 4/13/21 | $0.50 | 6/18/21 | $0.50 | 3.21% | |
| KKR Jun 18 $55 call | in-the-money | 4/28/21 | $3.00 | 6/18/21 | $3.00 | 6.25% | |
| USB Jun 16 $57.50 call | out-of-money | 4/28/21 | $2.80 | 6/18/21 | $2.80 | 5.24% | |
| DLR Jul 16 $155 call | in-the-money | 6/16/21 | $8.00 | 7/16/21 | $8.00 | 5.36% | |
| AGNC Aug 20 $17 call | out-of-money | 6/23/21 | $0.50 | 8/20/21 | $0.50 | 3.00% | |
| OKE Aug 20 $57.50 call | out-of-money | 6/23/21 | $3.50 | 8/20/21 | $3.50 | 6.67% | |
| NEE Sep 17 $80 call | in-the-money | 8/11/21 | $3.50 | 9/17/21 | $3.50 | 4.75% | |
| BIP Oct 15 $55 call | in-the-money | 9./01/2021 | $2.00 | 10/15/21 | $2.00 | 3.95% | |
| USB Nov 19 $60 call | out-of-money | 9/24.2021 | $2.30 | 11/19.2021 | $2.30 | 4.30% | |
| OKE Nov 26 $65 call | out-of-money | 10/20/21 | $2.25 | 11/26/21 | $2.25 | 4.28% | |
| KKR Dec 17 $75 call | out-of-money | 10/26/21 | $3.50 | 12/17/21 | $3.50 | 5.42% | |
| QCOM Jan 21 $185 Call | out-of-money | 11/30/21 | $9.65 | 1/21/22 | $9.65 | 7.17% | |
| OLP Feb 18 $35 Call | out-of-money | 11/19/21 | $1.50 | 2/18/22 | $1.50 | 4.94% | |
| OKE Feb 18 $60 Call | in-the-money | 1/5/22 | $2.75 | 2/18/22 | $2.75 | 5.24% | |
| USB Feb 25 $61 call | out-of-money | 1/13/22 | $2.50 | 2/25/22 | $2.50 | 4.68% | |
| VLO Feb 25 $83 call | in-the-money | 1/18/22 | $4.20 | 2/25/22 | $4.20 | 6.13% | |
| EPD Apr 14th $24 call | in-the-money | 3/2/22 | $1.25 | 4/14/22 | $1.25 | 5.69% | |
| FSK Apr 14th $22.50 call | in-the-money | 3/10/22 | $0.90 | 4/14/22 | $0.90 | 4.09% | |
| XEL May 20th $70 call | in-the-money | 3/30/22 | $3.00 | 5/20/22 | $3.00 | 4.76% | |
| SBLK July 15th $134 call | out-of-money | 6/1/22 | $1.60 | 7/15/22 | $1.60 | 4.80% | |