A BEAR Market
After the sharp selloff yesterday, the S&P 500 officially fell into bear market territory, down 20% or more from the high on a closing basis.
That means the bull market that began in March of 2020 has officially ended. The previous bull market lasted 11 years. This one lasted just under two years and three months. The culprit is inflation.
The market had rallied convincingly off the lows late last month on the hope that inflation peaked, and the Fed wouldn’t have to be as aggressive as feared to tame it. But those hopes were dashed when May inflation came in at a worse-than-expected 8.6%, the highest yet in this cycle and the worst in more than 40 years. The hideous number came after the market plunged last week when the World Bank and the International Monetary Fund (IMF) downgraded global growth forecasts for this year and next.
What’s next?
From a historical perspective, there is good news and bad news. Let’s get the bad news over with first. When plunging into bear market territory, the selling rarely stops at 20%. After crossing that important phycological barrier, further selling is prompted, and the market indexes usually fall further. The good news is that markets tend to be significantly higher a year after crossing into bear territory.
Things should get better, but probably not before they get worse. As a result, “BUY” ratings have been removed on all but ONEOK (OKE), as energy continues to buck the trend. The prognosis for the coming weeks, and perhaps months, is negative. But from a long-term perspective, many stocks have gotten cheap. There will be a time to buy. But not yet.
The portfolio looks ugly right now. But realize that we generated a high income and several stocks were called at prices significantly higher than the current price. The portfolio also sold outright positions in AGNC Investment Corp (AGNC) and U.S. Bancorp (USB). Profits were taken and income was generated when the market was in much better shape than it is now.
We will continue to generate a high income when the opportunities arise. And there will likely be great chances to buy stocks cheap later in the year. Strong total returns will be generated. But it will take longer than it did in the past.
Trades This Past Month
May 20th
XEL May 20 $70 calls at $3.00 - Expired
Xcel Energy Inc. (XEL) stock – Called
May 25th
Purchased ONEOK, Inc. (OKE) stock - $65.14
June 1st
Purchased Star Bulk Carriers Corp. (SBLK) - $33.30
Sold SBLK July 15 $34 calls at $1.60
Global Ship Lease (GSL) – Rating change “BUY” to “HOLD”
Innovative Industrial Partners (IIPR) – Rating change “BUY” to “HOLD”
One Liberty Properties (OLP) – Rating change “BUY” to “HOLD”
Star Bulk Carriers Corp. (SBLK) – Rating change “BUY” to “HOLD”
Portfolio Recap
Global Ship Lease, Inc. (GSL)
Yield 7.1%
This is not a good market for cyclical international companies regardless of the fundamentals. There was also bad news in the shipping industry this past week. GSL took a big hit along with the rest of the sector. The catalyst for the selloff was the World Bank and other organizations downgraded global growth projects for this year and next because of Chinese Covid issues, the war in the Ukraine, and inflation. Anything cyclical exposed to the global economy got sold.
The thing is that slowing global growth was already a well-known fact. It’s been a sure bet that the global economy would slow from what was previously expected for months now. Last week’s news is after the fact and frankly didn’t reveal anything that wasn’t already known. But that’s the market for you in the near term. Although shipping rates have plunged this week, they are likely to trend well above the levels of past years even with a slowing global economy. HOLD
Innovative Industrial Properties, Inc. (IIPR)
Yield 6.0%
The market turbulence of the last week is taking this marijuana farm REIT back down after it had been recovering somewhat. But this stock can move higher very quickly when the market settles down. The company is projected to grow earnings 37% this year and it sells at a price/earnings ratio close to that of the overall market. It also pays a large and rapidly growing dividend. With those attributes, IIPR doesn’t deserve to be down over 50% from the high. It may well fall further. But it should be a lot higher six months to a year from now. HOLD
ONEOK, Inc. (OKE)
Yield 6.1%
The bear market selling has taken everything down with it, including OKE. Energy took a huge hit on Monday along with everything else. But the sector snapped back strongly on Tuesday. Energy remains the lone bright spot in this market. And OKE is a stable and defensive income generator. There may be more panic selling that takes down OKE in the weeks and possibly months ahead. But this stock is very likely to trade a lot higher six months to a year from now. BUY
One Liberty Properties, Inc. (OLP)
Yield 7.1%
REITs had been in the crosshairs of the recent market tumult. As a cyclical REIT that had a stellar year in 2021, OLP took a big hit. But it had been trending higher over the past couple of weeks, albeit slowly. The operational performance at One Liberty remains strong. But this is an unforgiving and ugly market. The selling might get worse in the near term. We’ll see if it moves higher and investors realize the value in a more stable market. HOLD
Star Bulk Carriers Corp. (SBLK)
Yield 20.7%
This dry bulk shipping company was added to the portfolio in the last monthly issue. The urgency was that the stock went ex-dividend a couple days later and buying then entitled you to a massive $1.65 per share payout. But the timing has proven to be unfortunate. Shipping stocks took a huge hit over the past week as global growth was downgraded by a couple international economic think tanks and shipping rates plunged. Then the market rolled over.
As I mentioned above in the GSL write-up, it was already known that the global economy was slowing and would grow below previous expectations. But headlines move markets in the near term. The supply/demand dynamic remains strong for these shippers and rates will likely remain well above the levels of the last decade. We are likely in a secular bull market for shipping. The stocks should thrive in the years ahead. But things may well get worse for this stock before they get better. HOLD
Qualcomm Corp. (QCOM)
Yield 2.3%
This stock is cheap. The company is killing it not only with massive 5G smartphone royalties but on future high growth money makers like auto chips and the internet of things (IOT). It didn’t deserve to be dragged down this much. Analysts were slobbering all over this stock just a few months ago and nothing has really changed at the company. In the absence of a recession, QCOM should be a lot higher six months from now. HOLD
Visa Inc. (V)
Yield 0.8%
V is the poster child for a stock whose fortunes look bad now but great later. Everything related to global growth is getting clobbered. And the beatings probably aren’t over. But the company itself is killing it. The tremendous earnings boost it gets globally from the removal of Covid restrictions easily outweighs slower global growth or geopolitical uncertainty with the exception of a global recession. Visa’s earnings blew away expectations with YOY revenue growth of 25% and 30% earnings growth. This stock should be one of the first to reverse course and move higher when the market stabilizes. HOLD
Existing Covered Call Trades
Sell SBLK July 15 $34 calls at $1.60 or better
Although the market and the stock have tanked over the past week, the targeted call price was achievable on June 1. The stock is way down in the near term but likely to be higher six months to a year from now. In the meantime, we generated a huge income which includes the latest $1.65 dividend and the $1.60 call.
| 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 | $128.66 | $140.00 | 2.25% | -2.23% |
| One Liberty Properties | OLP | 7/28/21 | $30.37 | $25.27 | $33.00 | 7.12% | -13.19% |
| Visa Inc. | V | 12/22/21 | $217.96 | $192.26 | $225.00 | 0.78% | -11.47% |
| Global Ship Lease, Inc. | GSL | 2/23/22 | $24.96 | $19.16 | $28.00 | 7.13% | -21.97% |
| Innovative Industrial Props. | IIPR | 3/23/22 | $196.31 | $117.50 | $210.00 | 5.96% | -39.63% |
| ONEOK, Inc. | OKE | 5/25/22 | $65.14 | $61.10 | $67.00 | 6.12% | -6.20% |
| Star Buld Carriers Corp. | SBLK | 6/1/22 | $33.30 | $25.43 | $35.00 | 25.95% | -19.60% |
| EXISTING CALL TRADES | |||||||
| Open Recommendations | Ticker Symbol | Initial Action | Entry Date | Entry Price | Recent Price | Sell To Price or better | Total Return |
| SBLK July 15th $34 call | sblk220715C00034000 | Sell pending | 6/1/22 | 1.6 | $0.29 | $1.60 | 4.80% |
| As of close on 6/13/2022 | |||||||
| 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% |
| 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% | |