Stocks at a Crossroad
It’s that time of the month. I mean when all eyes are on the Fed, of course. But this time investors have one eye on the Fed and the other eye on Russia.
At the same time, a new narrative is emerging: slowing economic growth. The last several trading days are reflecting investor angst that inflation, the Russian war, and a tightening Fed will slow growth both domestically and internationally. That’s new.
It’s causing a reversal in the markets, at least temporarily. Oil prices are plummeting to under $100 per barrel from $130 just last week. Energy stocks, which had been juggernauts all year, are falling sharply. The fear is that high prices and slowing growth will kill demand for oil and gas.
Of course, the sector was up over 40% YTD last week and it had to take a breather at some point. We’ll see if this slowing growth narrative gains any lasting traction.
Normally, slowing growth would help counter inflation as falling demand reduces price pressure. And slowing growth could also temper the Fed with moderating inflation and economic weakness. But Russia is screwing up that natural check and balance. Soaring oil, wheat and other products will likely induce higher inflation even if the economy slows.
The market is at a crossroad. The S&P 500 just hit a “death cross,” where the 50-day moving average crosses the 200-day moving average. It’s a warning sign. It could indicate a bottom or trouble ahead. It’s hard to tell which because much depends on news of the war, which is impossible to predict.
Tomorrow’s Fed announcement shouldn’t be a surprise. They’ll raise the Fed Funds rate 0.25%. They’ll say they’re serious about quelling inflation but also concerned about the negative affects of the war, or something. It shouldn’t be a big event, as it’s expected. Then, investors can get back to focusing on war developments.
These times are highly uncertain. For that reason, I am refraining from buying discounted stocks at this point. But things can change quickly. In the meantime, we just sold two calls and boosted the already high income on Enterprise Products Partners (EPD) and FS KKR Corp. (FSK) when those stocks were near the high.
Trades Past Month
February 18
OLP February 18 $35 calls at $1.50 – Expired
OKE February 18 $60 calls at $2.75 - Expired
ONEOK, Inc. (OKE) stock - Called
February 23
Sell V Mar 25 $230 calls at $9.00 or better – Remove
Purchased Global Ship Lease, Inc. (GSL) - $24.96
February 25
VLO February 25 $83 calls at $4.20 – Expired
Valero Energy Inc. (VLO) stock – Called
March 2
Sold EPD April 14 $24 calls at $1.25
March 10
Sell FSK April 14 $22.50 calls at $0.90
Stock Portfolio Recap
Enterprise Product Partners (EPD)
Yield 7.4%
The price surge that started in late February when Russia invaded the Ukraine has petered. EPD began pulling back last week and is down over 5%. Energy stocks are pulling back as investors fear demand destruction amidst higher prices and Fed tightening. That’s OK. EPD moves in spurts, usually along with the rest of the sector. We also targeted a call when the stock was near the high. Prospects are still solid for the rest of the year and we just beefed up the already high income with a call premium. (This security generates a K1 form at tax time). HOLD
FS KKR Corp. (FSK)
Yield 10.9%
This BDC also appears to have topped out in the short term when we a sold a call. It’s still having a good year in a tough market. But fears of an economic slowdown hurt FSK as its small businesses tend to be more cyclical. Worries about inflation suited it better. We’ll see what market narrative gets traction in the weeks ahead. But we already supplemented that massive income with a covered call. HOLD
Global Ship Lease, Inc. (GSL)
Yield 6.0%
Despite being in the global shipping business at a time of geopolitical crisis, GSL continues to move higher. That’s because the container shipping business is still hot as rates remain high with a favorable supply/demand dynamic that should last. It has been under pressure in the last few days as fears of an economic slowdown concern investors. We’ll see if this slower economy theme continues to gain traction or gives way to something else in the weeks ahead. BUY
One Liberty Properties, Inc. (OLP)
Yield 5.8%
REITs are acting better and so is OLP. Real Estate had been the worst-performing sector of the S&P 500 this year. But in the last month, it’s become one of the best-performing sectors. OLP is special, being in the higher growth industrial REIT area, and didn’t really deserve to get knocked back. It was a victim of temporary sector gyrations. It’s been recovering. Hopefully, it gets back near where it was before too long, and we’ll sell another call. HOLD
Qualcomm Corp. (QCOM)
Yield 1.8%
QCOM had remained very solid near the high point of the range after a big surge late last year despite a tortured technology sector market. But succumb it has. It capitulated over the past month and lost nearly all the gains from the recent surge. I stuck with the stock because it showed good relative strength and had a special set of circumstances that helped insulate it from pressure in the sector. Business is booming from 5G and it raised earnings guidance and future prospects are stellar as well. It has some support around this level, but if it weakens further, it will be sold. HOLD
U.S. Bancorp (USB)
Yield 3.5%
The situation got worse for financial stocks after the Russia/Ukraine crisis as interest rates pulled back. But the market has been improving of late as the 10-year yield moved back up above 2%. Meanwhile, inflation is getting even worse. It’s worth being patient through the current volatility because a bank-friendly environment should reemerge in a relatively short time. But it’s a fluid situation that needs to be watched closely. HOLD
Visa Inc. (V)
Yield 0.7%
This global payments company stock is acting better lately. V crashed after the initial shock of the Russian invasion as investors soured on anything international. While U.S. business is booming the global recovery was adding another leg to Visa’s recovery. This year looked very promising. It got clobbered but has been moving higher recently as investors recognize V as a good place to bottom fish in the panic phase of the crisis. I expect business to remain strongly growing this year and the stock should take off again if this crisis fades. HOLD
Xcel Energy Inc. (XEL)
Yield 2.8%
This alternative energy utility stock had floundered badly through most of February. But it sprung back with a vengeance and got to within bad breath distance of the 52-week high. The reason is that alternative energy stocks have been red hot as conventional energy prices go through the roof. The situation with oil these days makes clean energy a more viable and economic alternative. I like the stock longer term and the recent wild swings are externally induced in a crazy market. HOLD
Existing call trades
Sell EPD April 14 $24 calls at $1.25 or better
Fortunes have been reversing. Energy stocks had returned more than 40% YTD but are selling of late as investors fear demand destruction as a result of the high prices, geopolitical tensions, and Fed rate hikes. The calls were timed well when the stock was near the 52-week high. We’ll get a great income and I still like the stock for the remainder of the year.
Sell FSK April 14 $22.50 calls at $0.90 or better
These calls were also sold when the stock was near the recent high. It has pulled back as well since last week as fears of a slower economy have been the prevailing narrative over the past few days. The calls supplement an already massive yield.
| CIA STOCK PORTFOLIO | |||||||
| Open Recommendations | Ticker Symbol | Entry Date | Entry Price | Recent Price | Buy at or Under Price | Yield | Total Return |
| Enterprise Product Ptnrs C | EPD | 3/17/21 | $23.21 | $24.58 | $25.00 | 7.38% | 14.80% |
| U.S. Bancorp | USB | 3/24/21 | $53.47 | $53.95 | $57.00 | 3.49% | 4.04% |
| Qualcomm Inc. | QCOM | 5/5/21 | $134.65 | $141.29 | $140.00 | 1.79% | 6.79% |
| One Liberty Properties | OLP | 7/28/21 | $30.37 | $30.76 | $33.00 | 5.82% | 1.73% |
| Xcel Energy Inc. | XEL | 10/12/21 | $63.00 | $69.51 | $67.00 | 2.77% | 11.88% |
| FS KKR Capital Corp. C | FSK | 10/27/21 | $22.01 | $22.28 | $24.00 | 10.89% | 4.35% |
| Visa Inc. | V | 12/22/21 | $217.96 | $200.33 | $225.00 | 0.76% | -9.74% |
| Global Ship Lease, Inc. | GSL | 2/23/22 | $24.96 | $27.45 | $28.00 | 3.47% | 9.98% |
| EXISTING CALL TRADES | |||||||
| Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Recent Price | Sell To Price or better | Total Return |
| EPD Apr 14th $24 call | EPD220414C00023000 | Sell | 3/2/22 | $1.25 | $1.11 | $1.25 | 5.39% |
| FSK Apr 14th $22.50 call | FSK 220414C00022500 | Sell | 3/10/22 | $0.90 | $0.49 | $0.90 | 4.89% |
| as of close on 3/14/2022 | |||||||
| 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% |
| 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% | |