Inflation Versus the Virus
All eyes are on the Fed. Sure, there’s inflation and Omicron and some other stuff. But Wall Street types mostly care about the Fed.
Today, there was the ugliest inflation reading yet. The Producer Price Index showed an increase of 9.6% for November. That was much higher than expected and the highest such reading ever recorded.
The scariest part about that number seems to be that it comes ahead of today’s Fed meeting. Today’s selloff seems to be more about fear of the Fed raising interest rates sooner than the fact that inflation is exploding.
Then there’s the virus. The spread of Omicron could trigger more lockdowns and slow the economic recovery. But a slower economy would temper inflation and make the Fed less likely to tighten more aggressively. The market is getting torn by fears that pulled in opposite directions.
Because of that paradox, neither cyclical stocks nor technology stocks can get any traction. One day cyclicals sell off because of virus fears and the next tech day they rally back and technology sells off because of inflation. We’ll see how this tug-of-war plays out.
Despite the current issues, the market closed at another all-time on Friday. The market’s default direction seems to be higher for the time being. The portfolio is mostly two kinds of stocks right now: stocks that have moved a lot higher and we sold calls on, and stocks that are likely to move higher in the next few weeks.
It’s still a better time to sell covered calls than to buy stocks.
Trades past month
November 17th
Purchased Valero Energy (VLO) - $73.25
November 19th
USB November 19th $60 calls at $2.30 - Expired
Sold OLP February 18th $35 calls at $1.50 or better
November 24th
Sell QCOM January 21st $185 calls at $9.65 or better
November 26th
OKE November 26th$65 calls at $2.25 -Expired
November 30th
SOLD QCOM January 21st $185 calls at $9.65
Stock Portfolio Recap
AGNC Investment Corp. (AGNC)
Yield 9.4%
AGNC benefits from a steeper yield curve, as they earn higher profits on the spread between short- and long-term interest rates. But interest rates continue to not cooperate even though inflation is the highest it’s been in about 40 years and the economy is booming. Perhaps central bank intervention has skewed the bond markets. This stock needs higher rates to appreciate. Hopefully the Fed tapering will get rates moving higher. BUY
Enterprise Product Partners (EPD)
Yield 8.6%
This midstream energy partnership has had a decent year, returning about 17%. However, it has underperformed the market in a year where energy is the top-performing sector, and it has significantly underperformed the midstream energy index. The likely reason for the underperformance is the fact that Enterprise moves a lot of oil, and the market sees that as a dying business over time. But the stock is still cheap and the high distribution is very safe. The next time EPD has a spike higher we will look to sell covered calls, and perhaps in-the-money ones to assure a double-digit income at least. BUY
FS KKR Corp. (FSK)
Yield 11.6%
This BDC is still knocking around near the lower point of the recent range. Earnings were solid and FSK continues to benefit from the current environment. Strong economic growth is good for small companies. It only needs to get back up near the higher point of the recent range and there should be a good call writing opportunity. A solid call premium combined with that massive yield should provide a great income. BUY
KKR & Co., Inc. (KKR)
Yield 0.8%
After the huge surge in October and early November, this alternative investment asset manager stock has morphed into a cyclical groupie. It’s consolidating because it had to and now it just bounces around with the fortunes of the financial sector, which change with the wind in the near term. I still like financials over the next year, and KKR in particular. But it looks like it will ride out the rest of the year in a similar fashion as the past month. We sold calls when the price was higher, and it looks like the timing was good. HOLD
Valero Energy Corp. (VLO)
Yield 5.6%
This refiner stock is doing great business as gasoline and diesel demand is booming and prices are rising. But the stock is still at the mercy of the Omicron headlines for the time being. That’s OK. I believe once this temporary dance abates, the trends of high demand and rising prices will dominate again and VLO should get another surge. Meanwhile, the dividend is rock solid. BUY
One Liberty Properties, Inc. (OLP)
Yield 5.3%
I like the way this diversified industrial REIT is acting. It got a big boost after a positive earnings report last month. It did pull back somewhat, but it has remained above the pre-earnings levels and it has moved higher in December. We sold the calls at the very highest high after a nice move. OLP should still stay in this new higher range, but it might take a while before it breaks out even higher. HOLD
ONEOK, Inc. (OKE)
Yield 6.0%
This has been a terrific midstream energy stock that has vastly outperformed its peers. OKE has returned a stellar 67% this year. But the stock is still priced below the pre-pandemic highs despite higher earnings and stronger growth. It’s in a similar predicament as VLO right now. Omicron is the near-term antidote to the energy rally. But the stock is still positioned well for the year ahead. HOLD
Qualcomm Corp. (QCOM)
Yield 1.5%
The huge rally that drove QCOM 40% higher in a month has leveled off. But the behavior is still encouraging. The stock is hanging tough near the recent highs despite choppy waters for the tech sector. It still looks like it wants to go higher as soon as external pressures abate. HOLD
U.S. Bancorp (USB)
Yield 3.2%
OK, this regional bank stock took a hit in the last half of November. The yield curve flattened and then the virus news pulled cyclical stocks down more. But USB has been recovering in December so far. Business at the bank is booming and will likely get even better if interest rates trend higher. It should have some good days ahead. In the meantime, this newsletter has already milked the position for two calls so far, and we’re not done yet. HOLD
Xcel Energy Inc. (XEL)
Yield 2.8%
This alternative energy utility continues to make a sustained, yet choppy, move above the recent low. It is likely this normal range pattern will deliver higher prices in the months ahead. XEL seems well on its way as it just hit the highest price since September. The pattern dictates that the stock will move at least a few dollars higher from the current price. We will look to sell calls at that higher price. BUY
Existing Call Trades
Sell KKR December 17 $75 calls at $3.50 - Expiring
This stock ran away after we sold the calls in late October. It hit a high of about 84 per share in early November. But the stock has consolidated since. Today, the stock price is about $2.50 per share below the strike price, and the options expire on Friday. It looks like we will keep the stock at this point. But we’ll see. That’s OK because prospects still lock good for the stock into next year. Either way we’ll secure a great income and/or a high return in a relatively short amount of time.
Sell OLP February 18 $35 calls at $1.50 or better
It took a little over a week after the initial recommendation to get these calls at the targeted price. But OLP tends to be a slow-moving stock and we were able to lock in a high call premium when the stock was at the high after a surge. The calls still have a long way to go before expiration, but it looks like they were well timed at this point.
Sell QCOM January 21 $185 calls at $9.65 or better
The calls were targeted in the last monthly issue at $9.65. The stock moved lower by the time the issue was available. But the calls price was hit, and subscribers were able to get the targeted price on November 30. You were also able to get that price and better this past Monday. If you didn’t get the targeted price, it may very well hit it again over the next week.
| CIA STOCK PORTFOLIO | |||||||
| Open Recommendations | Ticker Symbol | Entry Date | Entry Price | Price on 12/14/21 | Buy at or Under Price | Yield | Total Return |
| AGNC Investment Corp. | AGNC | 1/13/2021 | 15.52 | 15.34 | 17.00 | 9.39% | 7.04% |
| Enterprise Product Partners | EPD | 3/17/2021 | 23.21 | 21.10 | 25.00 | 8.41% | -3.35% |
| U.S. Bancorp | USB | 3/24/21 | 53.47 | 56.82 | 57.00 | 3.19% | 8.68% |
| Qualcomm Inc. | QCOM | 5/5/21 | 134.65 | 183.32 | 140.00 | 1.48% | 38.01% |
| ONEOK, Inc. | OKE | 5/26/21 | 52.51 | 60.20 | 60.00 | 6.03% | 18.43% |
| One Liberty Properties, inc. | OLP | 7/28/21 | 30.37 | 34.07 | 33.00 | 5.31% | 13.82% |
| KKR & Co., Inc. | KKR | 8/25/21 | 64.52 | 72.39 | 70.00 | 0.77% | 12.40% |
| Xcel Energy Inc. | XEL | 10/12/21 | 63.00 | 67.46 | 67.00 | 2.75% | 7.08% |
| FS KKR Capital Corp. | FSK | 10/27/21 | 22.01 | 21.15 | 24.00 | 11.59% | -3.91% |
| Valero Energy Corp. | VLO | 11/17/21 | 73.45 | 68.22 | 85.00 | 5.58% | -5.88% |
| EXISTING CALL TRADES | |||||||
| Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Price on 12/14/21 | Sell To Price or Better | Total Return |
| KKR Dec 17 $75 call | KKR211217C00080000 | Sell | 10/26/21 | 3.50 | 0.40 | 3.50 | 5.42% |
| OLP Feb 18 $35 call | OLP220218C00035000 | Sell | 11/19/21 | 1.50 | 1.00 | 1.50 | 4.94% |
| QCOM Jan 21 185 call | QCOM220121C00185000 | Sell | 11/30/21 | 9.65 | 7.50 | 9.65 | 7.17% |
| 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 | 38.00 | 3.42% |
| Brookfield Infras. Ptnrs. | BIP | Called | 6/24/20 | 41.92 | 10/16/20 | 45.00 | 8.49% |
| Starbucks Corp. | SBUX | Called | 8/26/20 | 82.41 | 10/16/20 | 88.00 | 6.18% |
| Visa Corporation | V | Called | 9/22/20 | 200.56 | 11/20/20 | 200.00 | 0.00% |
| AbbVie Inc. | ABBV | Called | 6/2/20 | 91.04 | 12/31/20 | 100.00 | 12.43% |
| Enterprise Prod. Prtnrs. | EPD | Called | 6/24/20 | 18.14 | 1/15/21 | 20.00 | 15.16% |
| Altria Group | MO | Called | 6/2/20 | 39.66 | 1/15/21 | 40.00 | 7.31% |
| U.S. Bancorp | USB | Called | 11/25/20 | 44.68 | 1/15/21 | 45.00 | 1.66% |
| B&G Foods Inc, | BGS | Called | 10/28/20 | 26.79 | 2/19/21 | 28.00 | 4.42% |
| Valero Energy Inc. | VLO | Called | 8/26/20 | 53.70 | 3/26/21 | 60.00 | 11.73% |
| Chevron Corp. | CVX | Called | 12/23/20 | 85.69 | 4/1/21 | 96.00 | 12.95% |
| KKR & Co. | KKR | Called | 3/24/21 | 47.98 | 6/18/21 | 55.00 | 14.92% |
| Digital Realty Trust | DLR | Called | 1/27/21 | 149.17 | 7/16/21 | 155.00 | 5.50% |
| NextEra Energy, Inc. | NEE | Called | 2/24/21 | 73.76 | 9/17/21 | 80.00 | 10.00% |
| Brookfield Infras. Ptnrs. | BIP | Called | 1/13/21 | 50.63 | 10/15/21 | 55.00 | 11.65% |
| 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% | |