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Income Advisor
Conservative investing. Double-digit income.

August 17, 2022

It’s starting to feel like a bull market. But let’s not bank on it just yet.

Inflation is moderating, and many see an end to the Fed tightening cycle by early next year. The Fed part is probably true. The Central Bank will likely raise the Fed Funds rate to around 3.5% and then stop. Higher than that would probably plunge the country and the world into a deeper recession. I doubt this Fed will have the belly to do that.

The Summer Rally
It’s starting to feel like a bull market. But let’s not bank on it just yet.

Inflation is moderating, and many see an end to the Fed tightening cycle by early next year. The Fed part is probably true. The Central Bank will likely raise the Fed Funds rate to around 3.5% and then stop. Higher than that would probably plunge the country and the world into a deeper recession. I doubt this Fed will have the belly to do that.

Inflation was lower in July than it was in June, suggesting that it may have peaked. Investors look ahead and see inflation falling and the Fed all done hiking rates by the beginning of next year, and maybe even talking about lowering them. Plus, earnings have been solid despite recession, with average EPS growth of about 6.7%. Such things are good enough to prompt a 15% S&P 500 rally off the low.

But not so fast. Inflation only went down one month because of lower gas prices induced by a recession. There’s no guarantee that it won’t start rising again in the fall. It’s too early to assume that we are clear of the catch-22 of a hard landing or inflation. Plus, earnings were crummy despite the good headline number. If it wasn’t for the energy sector, S&P 500 earnings would be negative for the quarter.

A lot of wishful thinking is powering this rally. But the market can be perplexing at times. It started rallying off the pandemic lows in March of 2020 and never looked back, despite the fact that the covid mess would linger another year. Of course, in the financial crisis, there were several double-digit rallies before the market bottomed.

It’s also the end of summer. That makes it unlikely that the market will decide whether this is a bear market rally or a new bull market in the next couple of weeks. In the absence of major headlines, the market tends to do whatever it was doing before everybody went on vacation and stopped paying attention.

We’ll get a much better idea of where things are going when the rubber hits the road after Labor Day.

Trades This Past Month
July 20th
Sold QCOM Sep 16 $145 calls at $11.75

July 27th
Purchased Intel Corporation (INTC) - $40.18

August 3rd
Intel (INTC) – Rating change “BUY” to “HOLD”

Portfolio Recap
Global Ship Lease, Inc. (GSL)
Yield: 7.7%
A glorious resurrection has been sputtering of late. The market rally and the increased confidence in the more cyclical plays had lifted GSL nicely, but recent China economic woes have put the kibosh on GSL’s drive higher, at least for now. But 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. Near-term movements will likely be at the mercy of fickle market sentiment. But the longer-term trajectory should be higher. HOLD

Intel Corp. (INTC)
Yield: 4.0%
The chipmaker’s earnings were a disaster. Other semiconductor companies fared even worse. It’s a double whammy of coming back to earth since the pandemic and now recession. INTC had already been decimated before this latest wave of bad news. I’m skeptical that the news could get much worse for Intel, and the longer term looks promising for this dirt-cheap stock. Hopefully, there is little downside left. We’ll see. HOLD

Yield: 6.4%
This midstream energy company reported solid earnings. And future forecasts have been trending higher. Earnings and revenues are expected to increase 7.9% and 11% respectively for the year. That may not sound impressive as energy earnings have grown 299% this quarter. But ONEOK’s earnings aren’t recovering from the pandemic abyss. They actually continued to rise through the pandemic amid resilient demand for natural gas. This stock should be solid in any environment going forward. Investors are realizing that fact as the stock is sharply higher over the past couple of weeks and may be poised for a run back to the high. BUY

One Liberty Properties, Inc. (OLP)
Yield: 6.6%
This diversified industrial REIT rallied in late July but then pulled back again this month. It should get a boost from 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: 24.55%
Ditto most of what I said about GSL. Earnings were spectacular, with 60% EPS growth for the quarter and 127% revenue growth over the same periods last year. Also, new shipping rates secured for next quarter are just slightly below this quarter 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 16th, from $1.3612 last quarter to $1.65 per share. The quarterly dividend alone is 5.3% of the purchase price. HOLD

Qualcomm Corp. (QCOM)
Yield: 2.0%
The chipmaker 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 16th $145 calls at $11.75 or better
QCOM had a convincing rally off the lows until it leveled off late last month. QCOM was surging in a highly uncertain market when the in-the-money calls were sold at a high premium. The stock is still over 5 per share above the strike price. But we’ll see which direction the market chooses when the rubber hits the road after Labor Day.

Open RecommendationsTicker SymbolEntry DateEntry PriceRecent PriceBuy at or Under PriceYieldTotal Return
Qualcomm Inc.QCOM5/5/21$152.13$142.51$140.001.98%15.60%
One Liberty PropertiesOLP7/28/21$30.37$27.12NA6.65%-5.14%
Visa Inc.V12/22/21$217.96$216.42NA0.69%-0.17%
Global Ship Lease, Inc.GSL2/23/22$24.96$19.37NA7.74%-21.11%
ONEOK, Inc.OKE5/25/22$65.14$63.48$67.005.89%-1.02%
Star Buld Carriers Corp.SBLK6/1/22$33.30$25.83NA24.55%-18.34%
Intel CorporationINTC7/27/22$40.18$36.34$42.004.02%-8.63%
Open RecommendationsTicker SymbolIntial ActionEntry DateEntry PriceRecent Price Sell To Price or betterTotal Return
QCOM Sep 16th $145 callQCOM220916c00145000Sell7/20/22$11.75$10.21$11.758.73%
as of close on 8/15/2022
SecurityTicker Symbol ActionEntry DateEntry PriceSale DateSale PriceTotal Return
Innovative Industrial Props.IIPRCalled6/2/20$87.829/18/20$100.0015.08%
U.S. BancorpUSBCalled7/22/20$36.269/18/20$383.42%
Brookfield Infras. Ptnrs.BIPCalled6/24/20$41.9210/16/20$458.49%
Starbucks Corp.SBUXCalled8/26/20$82.4110/16/20$886.18%
Visa CorporationVCalled9/22/20$200.5611/20/20$2000.00%
AbbVie Inc.ABBVCalled6/2/20$91.0412/31/20$10012.43%
Enterprise Prod. Prtnrs.EPDCalled6/24/20$18.141/15/21$2015.16%
Altria GroupMOCalled6/2/20$39.661/15/21$407.31%
U.S. BancorpUSBCalled11/25/20$44.681/15/21$451.66%
B&G Foods Inc,BGSCalled10/28/20$26.792/19/21$284.42%
Valero Energy Inc.VLOCalled8/26/20$53.703/26/21$6011.73%
Chevron Corp.CVXCalled12/23/20$85.694/1/21$9612.95%
KKR & Co.KKRCalled3/24/21$47.986/18/21$5514.92%
Digital Realty TrustDLRCalled1/27/21$149.177/16/21$1555.50%
NextEra Energy, Inc.NEECalled2/24/21$73.769/17/21$8010.00%
Brookfield Infras. Ptnrs.BIPCalled1/13/21$50.6310/15/21$5511.65%
AGNC Investment CorpAGNCSold1/13/21$15.521/19/22$155.92%
ONEOK, Inc.OKECalled5/26/21$52.512/18/22$6019.62%
KKR & Co.KKRSold8/25/21$64.522/23/22$58-9.73%
Valero Energy Inc.VLOCalled11/17/21$73.452/25/22$8315.53%
U.S BancorpUSBSold3/24/21$53.474/13/22$51-1.59%
Enterprise Product PtnrsEPDCalled3/17/21$23.214/14.2022$2411.25%
FS KKR Capital Corp.FSKCalled10/27/21$22.014/14/22$2313.58%
Xcel Energy Inc.XELCalled10/12/21$63.005/20/22$7012.66%
Innovative Industrial Props.IIPRSold3/23/22$196.317/20/22$93-51.23%
SecurityIn/out moneySell DateSell PriceExp. Date$ returnTotal % Return
IIPR Jul 17 $95 callout-of money6/3/20$3.007/17/20$3.003.40%
MO Jul 31 $42 callout-of-money6/17/20$1.607/31/20$1.604.03%
ABBV Sep 18 $100 callout-of-money7/15/20$4.609/18/20$4.605.05%
IIPR Sep 18 $100 callin-the-money7/22/20$5.009/18/20$5.005.69%
QCOM Sep 18 $95 callin-the-money6/24/20$4.309/18/20$4.304.82%
USB Sep 18 $37.50 callin-the-money7/22/20$2.009/18/20$2.005.52%
BIP Oct 16 $45 callin-the-money9/2/20$1.9510/16/20$1.954.65%
SBUX Oct 16 $87.50 callin-the-money10/16/20$3.3010/16/20$3.304.00%
V Nov 20 $200 callin-the-money9/22/20$10.0011/20/20$10.004.99%
ABBV Dec 31 $100 callin-the-money11/18/20$3.3012/31/20$3.303.62%
EPD Jan 15 $20 callin-the-money11/23/20$0.801/15/21$0.804.41%
MO Jan 15 $40 callin-the-money11/25/20$1.901/15/21$1.904.79%
USB Jan 15 $45 callin-the-money11/25/20$2.001/15/21$2.004.48%
BGS Feb 19 $27.50 callin-the-money12/11/20$2.402/19/21$2.408.96%
VLO Mar 26 $60 callin-the-money2/10/21$6.503/26/21$6.5012.10%
CVX Apr 1 $95.50 callin-the-money2/19/21$4.304/1/21$4.305.02%
AGNC Jun 18 $17 callout-of-money4/13/21$0.506/18/21$0.503.21%
KKR Jun 18 $55 callin-the-money4/28/21$3.006/18/21$3.006.25%
USB Jun 16 $57.50 callout-of-money4/28/21$2.806/18/21$2.805.24%
DLR Jul 16 $155 callin-the-money6/16/21$8.007/16/21$8.005.36%
AGNC Aug 20 $17 callout-of-money6/23/21$0.508/20/21$0.503.00%
OKE Aug 20 $57.50 callout-of-money6/23/21$3.508/20/21$3.506.67%
NEE Sep 17 $80 callin-the-money8/11/21$3.509/17/21$3.504.75%
BIP Oct 15 $55 callin-the-money9./01/2021$2.0010/15/21$2.003.95%
USB Nov 19 $60 callout-of-money9/24.2021$2.3011/19.2021$2.304.30%
OKE Nov 26 $65 callout-of-money10/20/21$2.2511/26/21$2.254.28%
KKR Dec 17 $75 callout-of-money10/26/21$3.5012/17/21$3.505.42%
QCOM Jan 21 $185 Callout-of-money11/30/21$9.651/21/22$9.657.17%
OLP Feb 18 $35 Callout-of-money11/19/21$1.502/18/22$1.504.94%
OKE Feb 18 $60 Callin-the-money1/5/22$2.752/18/22$2.755.24%
USB Feb 25 $61 callout-of-money1/13/22$2.502/25/22$2.504.68%
VLO Feb 25 $83 callin-the-money1/18/22$4.202/25/22$4.206.13%
EPD Apr 14th $24 callin-the-money3/2/22$1.254/14/22$1.255.69%
FSK Apr 14th $22.50 callin-the-money3/10/22$0.904/14/22$0.904.09%
XEL May 20th $70 callin-the-money3/30/22$3.005/20/22$3.004.76%
SBLK July 15th $134 callout-of-money6/1/22$1.607/15/22$1.604.80%