Bad News Is Good News, for Now
The year has certainly started out in fine fashion. The S&P 500 has delivered positive returns for all four weeks so far this year. The S&P is up 6% YTD and the Nasdaq is up 11% YTD, as of Friday’s close.
But earnings have been lousy so far this quarter, with the average S&P 500 company that has reported so far posting -5% earnings growth from last year’s quarter. But the market was expecting that. Investors know there will be a declining economy this year, and the sooner it declines, the sooner the Fed will be done hiking rates.
It does make some sense. If the earnings were still solid and the economy was strong, inflationary pressures would be greater. And the Fed would have to continue raising rates until the economy does flounder. That’s the dynamic that caused last year’s bear market. But if the economy is already floundering and inflation is moving lower, we’re getting this over with. And a turnaround is closer on the horizon.
Bad news is good news for now. This market is anticipating inflation continuing to fall and a Fed that’s almost done hiking rates, all without too much economic pain. But negative surprises to any of those things would likely disappoint the market. Stickier inflation or a deeper-than-expected recession could send stocks reeling again.
There’s a lot of news coming out this week. The Fed is expected to raise the Fed Funds rate by just 0.25% on Wednesday. Investors will be disappointed if the hike is bigger or if the Central Bank strikes a hawkish tone in their statements. There are also a slew of big tech earnings this week. The nature of those earnings may determine if the tech rally continues.
Anything is possible. And I hope it goes well. But I still don’t trust this market or this rally. That’s why the portfolio is playing it safe for now with more defensive stocks and covered calls.
Trades This Month
January 20th
OKE January 20th $65 calls - Expired
XEL January 20th $65 calls – Expired
ONEOK, Inc. (OKE) – Called
Xcel Energy Inc. (XEL) – Called
January 24th
Purchased Medical Properties Trust, Inc. (MPW) - $13.22
Sold V March 17th $220 calls at $12.00 or better
Portfolio Recap
Brookfield Infrastructure Corporation (BIPC)
Yield: 3.2%
The infrastructure juggernaut has reawakened after a rough patch where the rising dollar held it back. BIPC is up over 14% YTD. The dollar strength was priced into the stock and the greenback is weakening and likely to weaken further as the Fed lightens up on the rate hikes. Meanwhile, investors are realizing that BIPC is a terrific recession stock because of the crucial nature of its assets and the revenue they generate. BUY
Global Ship Lease, Inc. (GSL)
Yield: 8.2%
Last year was rough for a cyclical international stock like GSL. But the worst may be over. The stock is still well off the September bottom and may permanently eclipse that level. It’s also up over 10% so far this year. The longer-term supply/demand dynamic is positive for container shipping and the stocks may be in a longer-term bull market. Plus, the opening of China could also be a positive catalyst for shipping activity and rates in the near term. HOLD
Intel Corp, (INTC)
Yield: 5.2%
The already beleaguered chip stock got another black eye this past week. Revenues plunged 32% for the quarter versus the prior year and demand for PC and server chips is falling. Global PC (personal computer) shipments fell 28.5% in the quarter. It’s the slowing economy but also some comeuppance for the abnormally high demand during the pandemic. Intel also said next quarter will be worse. The good news is that the company is employing a massive cost-cutting program and new products should also help the bottom line in the second half of this year. HOLD
Medical Properties Trust, Inc. (MPW)
Yield: 8.9%
This high-paying and recession-resistant hospital REIT has pulled back a little this past week after rallying strongly in the earlier part of this month. But the stock still remains in a technical uptrend that began in October. The dividend is safe, and the operational performance of the company is solid, with better than 30% earnings growth last quarter. MPW sells at a great value with a high yield and a recession-resistant business. This should be a good year. HOLD
Realty Income Corp. (O)
Yield: 4.4%
The legendary income REIT isn’t exciting, but it tends to deliver as advertised over time. O has delivered a positive return over the last year while the overall market is down double digits. It also returned about 13% over the last three months and 8% YTD and has finally overtaken the elusive 65 per share level. Hopefully, the stock can break out and run for more. But much depends on the overall market. A down market could spoil the party. But this is a popular and defensive income stock that should hold its own in the event of a recession. HOLD
Star Bulk Carriers Corp. (SBLK)
Yield: 27.8%
SBLK had been sort of bouncing around in a certain range for many months but has recently broken out to the highest level since August. Lower shipping rates and a slower global economy have already been factored into the stock and it is likely still the early innings of a multiyear positive cycle for shipping. It could continue to get a bounce from the opening of China which could bring us close to an economic recovery. HOLD
Qualcomm Corp. (QCOM)
Yield: 2.5%
QCOM has finally had a bit of a breakout. It has soared over 20% YTD and cracked the 130 per share level, the highest price since last summer. It has benefited from the tech rally this year and also got a significant lift from a very positive assessment from Barclays last week. The analyst said that the worst is over for chip stocks and QCOM should be among the first in the sector to rebound. Before long, the market, which tends to anticipate six to nine months ahead, may start pricing in a sustained recovery in the sector. HOLD
Visa Inc. (V)
Yield: 0.8%
The payments processing company stock has been loving the market rebound. It’s always among the first of its kind to recover when the market situation improves. V is up over 13% YTD and is now at the highest level since early April. V held up remarkably well last year with a -3.4% return and should thrive in the likely rebound this year. However, there is a strong chance the market gets bumpy again before it delivers a rally out of this bear market. That makes this a good point to sell a call and generate a strong income while the going is good. HOLD
The Williams Companies, Inc.
Yield: 5.4%
WMB has been a bit of a dud lately. It held up much better than its midstream energy peers when the sector took a hit in the fall. But it has been a laggard since the sector performance improved. The market seems to like its defensive characteristics best and it tends to rally with the more defensive plays. That could be a great thing if the current rally rolls over. It pays a big income and thrives amid inflation and recession. Prospects for this year remain excellent. BUY
Active Covered Call Trades
Sell O February 17th $62.50 calls at $3.00 or better
The stock has certainly broken out to a new level recently and currently sells well above the 62.50 per share strike price at over 68 per share. At this point, it appears likely to be called. But this is a risky market and a lot can change in three-plus weeks. We locked in a good income return regardless of what happens.
Sell V March 17th $220 calls at $12.00 or better
V has been looking very good as I mentioned above. It broke through the 230 per share level and is at the highest point in over nine months. But this is still a cyclical stock that could pull back if the economy weakens and the market sours on cyclical stocks.
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 | $133.40 | NA | 2.25% | 2.55% |
| Visa Inc. | V | 12/22/21 | $217.96 | $231.44 | NA | 0.78% | 7.00% |
| Global Ship Lease, Inc. | GSL | 2/23/22 | $24.96 | $18.40 | NA | 8.15% | -21.83% |
| Star Buld Carriers Corp. | SBLK | 6/1/22 | $33.30 | $23.39 | NA | 27.80% | -15.91% |
| Intel Corporation | INTC | 7/27/22 | $40.18 | $28.16 | NA | 5.18% | -28.28% |
| The Williams Companies | WMB | 8/24/22 | $35.58 | $31.51 | $38.00 | 5.40% | -9.10% |
| Realty Income Corporaton | O | 9/28/22 | $60.37 | $68.30 | $63.00 | 4.37% | 14.97% |
| Brookfield Infrastructure Cp. | BIPC | 11/9/22 | $42.43 | $44.28 | $46.00 | 3.19% | 5.18% |
| Medical Properties Trust | MPW | 1/24/23 | $13.22 | $13.06 | $15.00 | 8.88% | -1.21% |
EXISTING CALL TRADES | |||||||
| Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Recent Price | Sell To Price or better | Total Return |
| O Feb 17 $62.50 call | O230217C00062500 | Sell | 12/28/22 | $3.00 | $6.16 | $3.00 | 4.97% |
| V Mar 17 $220 call | V230317C00215000 | Sell | 1/24/23 | $12.00 | $15.07 | $12.00 | 5.51% |
| as of close on 1/27/2023 | |||||||
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% |
| ONEOK, Inc. | OKE | Called | 5/25/22 | $65.14 | 1/20/23 | $65 | 2.66% |
| Xcel Energy, Inc. | XEL | Called | 10/26/22 | $62.57 | 1/20//2023 | $65 | 4.67% |
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% | |
| OKE Jan 20th $65 call | In-the-money | 11/25/22 | $3.70 | 1/20/23 | $3.70 | 5.68% | |
| XEL Jan 20th $65 call | in-the-money | 11/25/22 | $5.00 | 1/20/23 | $5.00 | 7.99% | |
| QCOM Sep 16th $145 call | out-of-money | 7/20.2022 | $11.75 | 9/16/22 | 11.75 | 8.73% | |