More Fed Stuff
After good news on inflation, the market awaits the Fed’s rate decision and comments later today. It could lead to a rally or a fizzle.
Inflation for November was less than expected with CPI at 7.1% versus an expected 7.3% and core inflation at 6.0% versus an expected 6.1%. It’s welcome news that inflation is moving lower and has probably peaked, down from 9.1% in June. But it’s still a long way from the 2% Fed target.
The twin catalysts of high inflation and a hawkish Fed that caused the bear market appear to be getting better. Inflation is lower and the Fed is widely expected to raise the Fed Funds rate by 0.50% today, versus a 0.75% hike the last four times. But there is probably still too much uncertainty for a sustained rally at this point.
Nobody knows how fast inflation will decline or how aggressive the Fed will have to be in reaction. And the biggest risk heading into 2023 is a deeper recession than currently expected. The market is pricing in a very mild recession. But it is still unclear how much damage the Fed rate hikes have done already or how much it will take to tame inflation.
Although the market anticipates, the end of the current troubles still isn’t visible. Until there is more clarity on how inflation and recession will unfold in the new year, the market probably won’t be able to rally out of this bear market.
Given the cautious outlook, the portfolio has mostly defensive stocks. Also, it makes sense to take advantage of rallies to sell higher-priced covered calls after stocks move higher.
Trades past month
November 23rd
Sell O January 20th $65 calls at $2.35 or better – Pending
November 25th
SOLD OKE January 20th $65 calls at $3.70
SOLD XEL January 20th $65 calls at $5.00
December 7th
Sell O January 20th $65 calls at $2.35 or better – Remove
Portfolio Recap
Brookfield Infrastructure Corporation (BIPC)
Yield: 3.3%
Sure, BIPC is up since being added to the portfolio early last month. But the performance hasn’t kept up with other oversold defensive stocks over the same period. It’s likely because of turbulence in China and/or a stronger dollar. But it should be a temporary blip as the company’s crucial assets will continue to deliver steady earnings through a recession, it has inflation adjustments built into its contracts, the dividend is solid, and the stock is cheap now. Hopefully, it will move higher in the next couple of weeks, and we can sell a call for a nice income. BUY
Global Ship Lease, Inc. (GSL)
Yield: 8.8%
There are plenty of headwinds for this shipping company. There are ongoing covid issues in China, a global economic slowdown, and falling shipping rates. Although the longer-term supply/demand dynamic is positive for container shipping, it’s a rough time. However, GSL is still off the bottom made in September. Perhaps the bottom is already in, and the market is anticipating better times ahead as China reopens. HOLD
Intel Corp. (INTC)
Yield: 5.1%
INTC has been a dog, no question. But the environment has been improving for technology. It has been one of the better-performing S&P 500 sectors over the last month as inflation looks to have peaked and longer-term interest rates have moved lower. The situation will surely improve for technology at some point. Hopefully, the big turnaround isn’t that far off. Intel’s individual prospects should significantly improve as growth investments come to fruition. It’s been a painful slog. But it could prove to be worth the pain over time. BUY
ONEOK Inc. (OKE)
Yield: 5.6%
This midstream energy stock has rallied sharply off the September lows but has moved sideways over the last month. Although the rally has sputtered, it is likely that OKE and other midstream energy companies have the right stuff going into 2023. Revenues are both recession- and inflation-resistant. The high dividend is safe. And the stock is still reasonably valued. The short-term behavior of the stock is anyone’s guess. But OKE should deliver positive results over the course of 2023. BUY
Realty Income Corp. (O)
Yield: 4.6%
The legendary income REIT hit a near-term high just around the time the calls were highlighted. Unfortunately, the stock moved lower before we could get the targeted price. The calls were removed as time passed and the price declined. But the stock has since moved higher again and there should be more chances in the future. O is low-priced ahead of a likely recession, which is historically a time of market outperformance for the stock. BUY
Star Bulk Carriers Corp. (SBLK)
Yield: 32.9%
The third-quarter earnings were significantly lower than last year’s quarter as shipping volumes and rates have decreased in the slower economy. The stock is also facing headwinds from the China covid situation. But slowing business has already been factored into the price as the stock is down 40% from the high. It is well worth noting that Star Bulk declared a $1.20 quarterly dividend and traded ex-dividend on November 29th. The dividend changes almost every quarter according to profits. Although lower than last quarter’s $1.65 payout, the dividend was paid on December 12th and is still 6% of the current stock price. HOLD
Qualcomm Corp. (QCOM)
Yield: 2.4%
After a stellar performance in 2021, QCOM is down 30% YTD in 2022. That’s about the same as the overall semiconductor sector this year. That’s the bad news. The good news is that technology stocks can turn around fast and make up for lost time as the environment changes, and it likely will in the new year. Qualcomm just announced a profit slowdown for the quarters ahead. But the market has been pricing that in all year, even when current profits were still booming. Before long, the market may start sniffing out a recovery. HOLD
Visa Inc. (V)
Yield: 0.8%
In a very tough year for cyclical and financial stocks, V is even YTD. That’s not bad in an environment that is hostile to stocks like V. The company once again killed it on earnings. The payments processing giant continues to benefit from the end of covid restrictions internationally despite the slower economy. Of course, when the market eventually turns, V has a history of being one of the first stocks to move higher. We have had to endure little pain en route to likely better performance in 2023. HOLD
The Williams Companies, Inc.
Yield: 4.9%
WMB has moved up strongly since late September. It also tends to be more resilient in choppy markets. The stock is still very much in an uptrend ahead of a period of strong relative performance. The company posted strong earnings because of resilient natural gas demand, something that is likely to endure through the recession based on shortages overseas. Like OKE, WBM has leveled off since rising sharply. We’ll see which way it breaks next. But it should be solid through the new year. BUY
Xcel Energy Inc.
Yield: 2.7%
While most other defensive dividend stocks have leveled off since rallying from the October lows, this clean energy utility is still forging higher. It was added to the portfolio because it was timely after a huge selloff that is proving to be unjustified. Investors seem to agree and continue to value utilities and XEL in particular as a great stock to own ahead of a likely recession in 2023. But the market remains uncertain, and we’ll see if XEL moved back toward the high or levels off in the weeks ahead. BUY
Active Covered Call Trades
Sell OKE January 20th $65 calls at $3.70 or better
I do like this stock going forward. Earnings should be resilient in an environment of inflation and recession. But it makes sense to target stocks for calls after a rally and get the high premium and possible high total return. I don’t trust the market here and even if OKE gets called we still have WMB.
Sell XEL January 20th $65 calls at $5.00 or better
This stock has been strong, and the calls are well in the money with a 65-strike price and a current 71.60 share price. But that was necessary to get a high call premium. If the market heads south again after the recent upturn in the market proves to be a bear market rally, XEL could get pulled down with everything else.
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 | $123.49 | NA | 2.43% | -5.07% |
| Visa Inc. | V | 12/22/21 | $217.96 | $213.04 | NA | 0.84% | -1.50% |
| Global Ship Lease, Inc. | GSL | 2/23/22 | $24.96 | $17.39 | NA | 8.77% | -26.12% |
| ONEOK, Inc. | OKE | 5/25/22 | $65.14 | $66.96 | $67.00 | 5.59% | 6.05% |
| Star Buld Carriers Corp. | SBLK | 6/1/22 | $33.30 | $20.04 | NA | 32.93% | -27.95% |
| Intel Corporation | INTC | 7/27/22 | $40.18 | $28.73 | NA | 5.08% | -26.83% |
| The Williams Companies | WMB | 8/24/22 | $35.58 | $33.79 | $38.00 | 5.12% | -2.53% |
| Realty Income Corporaton | O | 9/28/22 | $60.37 | $64.96 | $63.00 | 4.60% | 8.92% |
| Xcel Energy Inc. | XEL | 10/26/22 | $62.57 | $71.60 | $65.00 | 2.72% | 14.43% |
| Brookfield Infrastructure corp. | BIPC | 11/9/22 | $42.43 | $43.98 | $46.00 | 3.28% | 4.47% |
EXISTING CALL TRADES | |||||||
| Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Recent Price | Sell To Price or better | Total Return |
| OKE Jan 20 $65 call | OKE230120C00065000 | Sell | 11/25/22 | $3.70 | $3.58 | $3.70 | 5.68% |
| XEL Jan 20 $65 call | XEL230120C00065000 | Sell | 11/25/22 | $5.00 | $7.40 | $5.00 | 7.99% |
| as of close on 12/13/2022 | |||||||
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% | |
| OKE Oct 21st $65 call | out-of-money | 8/24/22 | $3.40 | 10/21/22 | $3.40 | 5.22% | |
| QCOM Sep 16th $145 call | out-of-money | 7/20.2022 | $11.75 | 9/16/22 | 11.75 | 8.73% | |