The Sticky Inflation Bummer
The market turned ugly again fast yesterday. It was the worst single-day selloff in years after reality crushed the pipedream that inflation is plunging and the Fed will stop being hawkish by early next year.
The headline inflation number came in at 8.3% for August versus an expected 8.1%. Although it was lower for the second straight month, after 8.5% in July and 9.1% in June, it was worse under the hood. CPI inflation was lower because of falling gas prices. Virtually everything else rose. Core inflation, which subtracts volatile food and energy prices, rose significantly from July to August.
This inflation is more baked in and stickier than many realized. After four Fed rate hikes, a down market this year, and two straight quarters of GDP contraction, inflation still shows no signs of weakening. That fact makes it far more likely that the Fed will have to be more aggressive for longer and probably drive the economy deeper into recession to get a handle on this inflation.
The situation doesn’t bode well for the overall market. But certain sectors are still thriving in the current environment. The midstream energy companies in our portfolio, ONEOK (OKE) and The Williams Companies (WMB), have strong positive returns YTD and have risen higher since yesterday’s report. These companies can thrive in recession and inflation and offer reasonable prices, high and safe dividends, and strong industry dynamics.
The portfolio has also sold two high-priced calls when both stocks were higher. The income from dividends and call premiums continues to roll in, offsetting much of the market decline. Bear markets don’t last forever. And stocks tend to trend higher over the longer term. There will be buying opportunities at some point. But not yet for the most part.
Trades This Past Month
August 24th
SOLD One Liberty Properties (OLP) - $24.89
Purchased Williams Companies Inc. (WMB) - $35.58
SOLD OKE October 21st $65 calls at $3.40
August 30th
Star Bulk Carriers Corp. (SBLK) – Rating change “HOLD” to “SELL HALF”
Qualcomm Corp. (QCOM) – Rating change “BUY” to “HOLD”
Portfolio Recap
Global Ship Lease, Inc. (GSL)
Yield 7.9%
The container ship company stock got crushed in the spring when cyclical stocks really fell out of favor. But GSL held up remarkably well in the market selloff since the middle of August. It even barely budged yesterday, the worst day in the market in more than two years. It looks like the downside may be over for this stock. The company also recently announced several new charter agreements that will boost earnings going forward. Shipping stocks may also be in a secular bull market, especially container ships. The longer-term trajectory should be higher. HOLD
Intel Corp. (INTC)
Yield 5.0%
The chip maker just made a massive investment in chip production. It partnered with BIP for a $30 billion investment in a semiconductor fabrication plant where Intel will maintain majority control by providing 51% of the capital. It’s a big and bold move. But the stock is still under pressure as growing recession worry weighs on projected PC sales over the next year. The one consolation is that its semiconductor peers are down a lot more over the past week. We’ll see if the tech sector continues to be under pressure in the days and weeks ahead. HOLD
ONEOK, Inc. (OKE)
Yield 6.3%
Even this very well-positioned midstream energy player sold off in the spring along with the rest of the energy sector. But it has been solid since the middle of June. It held up very well during the recent market selloff and still remains in an uptrend. It also helps that it’s an ideal stock for the current market. It’s still a compelling value. It pays a huge dividend that’s safe. The industry dynamics are favorable. And OKE is one of the few companies that can still thrive in recession and inflation. BUY
Star Bulk Carriers Corp. (SBLK)
Yield 31.3%
Most of what I said about GSL above is also true for SBLK. But it has been a little weaker recently because, unlike GSL, it didn’t report unexpected good news to counter the overall market decay and it pulled back a lot in the recent market selloff. The intermediate-term prognosis remains excellent for dry bulk shipping while the market is struggling with newfound worries about the U.S. and global economies. Half of the position was sold to be cautious in this turbulent and unpredictable market. Hopefully the remaining position can hold up and we can collect another huge dividend. HOLD
Qualcomm Corp. (QCOM)
Yield 2.3%
After a strong summer rally, QCOM has hit the skids again. It got hit as technology sold off again amid fears of higher rates and continuing inflation. Then it took another hit as semiconductor stocks sold off on recession worries. Even though QCOM is performing well individually on an operational basis, it just can’t overcome a market that is souring on the sector. The selling is overdone as earnings continue to be strong and the stock already sells at a cheap valuation. It can move higher fast and make up for lost time when the going gets good again. HOLD
Visa Inc. (V)
Yield 0.8%
As a cyclical stock V gets selling pressure when the market reels over recession worries. But inflation isn’t a problem for Visa. On weakness, V always falls to right around the 200 per share level, where it is now. But it comes roaring back every time the market selling abates. Profits are soaring as Covid restrictions have come down internationally, but the stock has been held back by pending legislation in Congress that could limit credit card fees. HOLD
The Williams Companies, Inc.
Yield 5.0%
The uptrend since the June low remains intact and the company is thriving. Natural gas demand is resilient. Earnings per share shot up 29% in the first half of 2022 versus the same period last year. The recently reported quarter featured a whopping 48% earnings per share spike over last year’s quarter. Williams also increased 2022 earnings guidance. Like OKE, it offers value and a high and safe yield in an industry with strong dynamics. BUY
Existing Covered Call Trades
Sold QCOM Sep 16th $145 calls at $11.75 or better
It looks to be a foregone conclusion that these options will expire without the stock being called considering QCOM is about $20 per share below the strike price with just two days to go before expiration on Friday. That’s fine. We locked in a massive 8.73% income from the call premium to add to the 7.17% call premium sold on this position earlier. We’re priming the income pump and keeping a stock that is very likely to have another day in the sun before long.
Sold OKE October 21st $65 calls at $3.40 or better
The stock is very strong today and ideal for the current market. It’s only about $1.50 per share below the strike price with over a month to go before expiration. It could go either way. But it is prudent to take high income where we can get it in this market. And even if midstream stocks thrive over the next month, we still have WMB.
| 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 | $124.93 | NA | 2.26% | -4.53% |
| Visa Inc. | V | 12/22/21 | $217.96 | $199.67 | NA | 0.73% | -7.90% |
| Global Ship Lease, Inc. | GSL | 2/23/22 | $24.96 | $19.18 | NA | 7.60% | -20.25% |
| ONEOK, Inc. | OKE | 5/25/22 | $65.14 | $61.68 | $67.00 | 6.28% | -3.83% |
| Star Buld Carriers Corp. | SBLK | 6/1/22 | $33.30 | $21.14 | NA | 31.28% | -28.49% |
| Intel Corporation | INTC | 7/27/22 | $40.18 | $29.29 | $42.00 | 4.63% | -26.36% |
| The Williams Companies | WMB | 8/24/22 | $35.58 | $32.79 | $38.00 | 5.02% | -6.62% |
| 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 | $0.02 | $11.75 | 8.73% |
| OKE Oct 21st $65 call | OKE221021C00065000 | Sell | 8/24/22 | $3.40 | $1.20 | $3.40 | 5.22% |
| as of close on 9/13/2022 | |||||||
| 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% |
| One Liberty Properties | OLP | Sold | 7/28/21 | $30.37 | 8/24/22 | $25 | -12.94% |
| 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% | |