Broken Banks Could Fix the Fed
This is a big week in the market. Investors are grappling with the fallout from the banking crisis and the Fed meeting later this week.
The failure of two banks last week also turns a spotlight on the vulnerabilities of smaller regional banks. The situation so far has not caused major reverberations in the market, as the government backstopped the fallout so far. But the situation might not be over. There could be more bank failures and ugly days for the market ahead.
While we might not be out of the woods yet on the banking problems, the situation could end up helping with the Fed. Stocks had been selling off every time the consensus shifted toward still-sticky inflation and a more hawkish Fed than previously anticipated. But the banking crisis may have given the Fed what it needed to wrap up this rate hiking cycle.
While it has consistently moved lower since June, inflation is still miles above the Fed’s target and the economy remains solid. The Fed needed to induce a further economic slowdown to get inflation under control. The banking problems may do just that. First, it gives the Fed evidence that things are indeed getting broken as a result of previous rate hikes. Second, the current issues are likely to cause banks to reduce lending going forward, and thus slow the economy.
The consensus has moved from an expected 0.50% Fed rate hike this week to a tossup between a 0.25% hike and no hike at all. We’ll see what they do. And of course, the Fed statement after the rate decision may be even more important to the market.
If this current crisis passes without much more damage, and it has the effect of taming the Fed’s hawkishness; the timeline for a market turnaround may move up. The Fed seemed Hell-bent on causing economic damage in order to tame inflation, they may have gotten it. When the market sees beyond this cycle and the inflation/hawkish Fed conundrum, it could muster a sustainable rally.
Trades This Month
March 7th
Sell QCOM March 31st $130 calls at $7.00 – Remove
March 14th
Medical Properties Trust - Rating change “BUY” to “HOLD”
March 17th
V March 17th $220 calls at $12.00 - Expired
Medical Properties Trust, Inc. (MPW) - Rating change “HOLD” to “SELL”
Portfolio Recap
Brookfield Infrastructure Corporation (BIPC)
Yield: 3.5%
The infrastructure juggernaut has been very bouncy over the last two years. It was hit along with everything else by covid as its transportation assets suffered. Lately, it has been hurt by the strong dollar and higher interest rates as the company does a lot of business overseas and has a relatively high credit balance. But BIPC has been forming a solid base at current levels. The stock is well below the 52-week high made last April, but it still has very resilient earnings, a great track record, and a safe dividend. BUY
Global Ship Lease, Inc. (GSL)
Yield: 7.9%
The container shipping company pulled back over the past couple months after soaring to the highest price since last spring. GSL has often pulled back like this in the past after a price surge. But it’s still up over 12% YTD. Earnings were strong and the company should continue to benefit from the opening of the Chinese economy in the months ahead. The longer-term supply/demand dynamic is positive for container shipping and the stocks may be in a longer-term bull market. GSL still sells at a cheap valuation with a safe dividend and things are looking up. HOLD
Intel Corp, (INTC)
Yield: 1.9%
This beleaguered stock continues to provide evidence that it has bottomed. The news has been even worse so far this year with the dividend cut and lower-than-expected earnings. But the stock was very beaten down already. Even with all this bad news the stock has rallied about 10% over the past week and 14% YTD. Intel is still a powerful industry player and its recent attempts to catch up to its competitors should succeed to a least some degree over time. Meanwhile, the stock sells at a fire-sale price at just above book value. The portfolio will hold on for now. HOLD
Rating change “HOLD” to “SELL”
Medical Properties Trust, Inc. (MPW)
Yield: 11.5%
I believe MPT is a solid REIT in a very recession-resistant business. The market doesn’t seem to agree. Some of its tenants have had problems paying rent. But these are well-chosen properties that can find other tenants, and they can recoup missed rent payments at a later date. But the banking crisis and the increasingly negative economic outlook in the near term make it nearly impossible for a company already under pressure to get the benefit of the doubt.
While the dividend should be secured with cash flows for the remainder of this year, the company could choose to use the cash flow for a special opportunity. It’s too much risk to continue to take in this market environment. SELL
Realty Income Corp. (O)
Yield: 4.9%
The legendary income REIT reported solid earnings last quarter. It grew profits by 9.2% year over year, added $9 billion in new properties for the year, and reported the highest occupancy rate in the last 20 years at 99%. But the stock has been moving lower recently on what is likely a long and bouncy slow slog higher over time. This is a popular and defensive income stock that should hold its own with inflation and in the event of a slowing economy or recession. HOLD
Star Bulk Carriers Corp. (SBLK)
Yield: 24.1%
Like GSL, SBLK has gotten new life this year. SBLK moved up a lot in February despite it being a tough month for the overall market. The shipping company pulled back over the last several weeks, which is not unusual for this stock after a surge. It is benefiting from more Chinese traffic as the country opens again. 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. HOLD
Qualcomm Corp. (QCOM)
Yield: 2.6%
This is a great longer-term stock of a company with a huge share of mobile 5G chips and strong exposure to some of the fastest-growing areas in technology. Meanwhile, it sells at a very cheap valuation by historical standards. But the stock is getting pushed around by this market and is vulnerable to weakness in the overall technology sector. It falls when investors turn negative on the Fed/inflation conundrum and rises when investors turn positive, like since the banking crisis emerged last week. At some point this year, the market should start sniffing out the recovery. And QCOM can make up for lost time fast when it moves. HOLD
Visa Inc. (V)
Yield: 0.8%
V rallied strongly at the beginning of the year with other cyclical stocks. But those stocks have since pulled back and V has remained pretty tough. True, the stock is tied to the performance of the overall market in the near term. And that could get worse before it gets better. But V held up with a -3.4% return in the 2022 bear market and should hold up relatively well again if the market turns south. It should also fly when the market finally starts anticipating the economic bottom and the next recovery. HOLD
The Williams Companies, Inc.
Yield: 6.2%
This midstream energy company has struggled YTD with a -12% return. WMB had been a strong performer, returning over 30% in 2022 and 38% in 2021. Williams reported solid earnings last quarter with 21% full-year growth over 2021. The issue is that the company expects slower growth of just 3% in 2023 as the benefit of recent acquisitions draws tougher comparisons. But the dividend is rock solid with 2.37 times coverage from cash flow and future growth is likely to resume at a stronger clip in the years ahead. It also has an inflation- and recession-resistant business that should help it to outperform the market through the rest of this year. BUY
Active Covered Call Trades
Sell V March 17th $220 calls at $12.00 - Expired
Call premium: $12.00
Dividend: $2.02
Total: $14.02 (total income of 6.4% in 15 months)
The calls helped get a higher income. But this stock still only provided a 6.4% income in 15 months. That’s because it was purchased just before the market turned south at the beginning of 2022. But we’re not finished with this stock yet. It has plenty of upside when the market turns around. Plus, there may be more call-writing opportunities even before it takes off. This position may still provide a splendid income and return at some point in the not-too-distant future.
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 | $120.23 | NA | 2.60% | -6.63% |
| Visa Inc. | V | 12/22/21 | $217.96 | $217.39 | NA | 0.83% | 0.71% |
| Global Ship Lease, Inc. | GSL | 2/23/22 | $24.96 | $18.34 | NA | 7.87% | -20.52% |
| Star Buld Carriers Corp. | SBLK | 6/1/22 | $33.30 | $20.36 | NA | 24.15% | -24.60% |
| Intel Corporation | INTC | 7/27/22 | $40.18 | $29.81 | NA | 1.68% | -23.11% |
| The Williams Companies | WMB | 8/24/22 | $35.58 | $28.30 | $38.00 | 6.21% | -17.10% |
| Brookfield Infrastructure Cp. | BIPC | 11/9/22 | $42.43 | $44.31 | $46.00 | 3.49% | 6.17% |
| Medical Properties Trust | MPW | 1/24/23 | $13.22 | $7.73 | $15.00 | 14.23% | -39.45% |
| EXISTING CALL TRADES | |||||||
| Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Recent Price | Sell To Price or better | Total Return |
| as of close on 3/17/2023 | |||||||
| 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% |
| Realty Income Corp. | O | Called | 9/28/22 | $60.37 | 2/17/23 | $63 | 5.41% |
| 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% | |
| O Feb 17th $62.50 call | in-the-money | 12/28/22 | $3.00 | 2/17/23 | $3.00 | 4.97% | |
| QCOM Sep 16th $145 call | out-of-money | 7/20.2022 | $11.75 | 9/16/22 | 11.75 | 8.73% | |
| V Mar 17th $220 call | out-of-money | 1/24/23 | $12.00 | 3/17/203 | $12.00 | 5.51% | |