24.7 C
New York
Wednesday, August 17, 2022

Subscribe

Which Way Wednesday – Biden Proposes $3.5Tn in New Stimulus

$3,500,000,000,000.

Is that going to be enough?  It's been 3 months since our last $2.1Tn stimulus so isn't it time for another round?  Look how great the economy is doing – it can't be because 40% of last Quarter's $5Tn GDP was stimulus, could it?  Yesterday, the CORE CPI came in at 0.9%, 50% higher than the 0.6% expected by leading economoroins.   Remember when the CPI used to be high and they said "Don't worry, the Core CPI is still under 0.2%" – well that's completely out the window….

The key takeaway from the report is that the price increases in June were broad based, featuring a 10.5% increase in the index for used cars and trucks, a 0.8% increase in the food at home index, a 2.5% increase in the gasoline index, and a 0.5% increase in the household index. That should put the Fed's "transitory inflation" narrative to the test, particularly with total CPI running at an annualized rate of 7.2% over the last six months.

The Democrats $3.5Tn package includes $1.2Tn of pure infrastructure spending and calls for an expansion of Medicare to provide money for dental, vision and hearing benefits.  Money is also expected to be devoted to a series of climate provisions, after liberal Democrats warned that they would not support the bipartisan framework without the promise of further climate action.  

The resolution is expected to include language prohibiting tax increases on small businesses and people making less than $400,000 and the Senate Finance Committee had been drafting tax provisions to help pay for the spending. They include a restructuring the international business tax code to tax overseas profits more heavily in an effort to discourage U.S. corporations from moving profits abroad. They would also collapse dozens of tax benefits aimed at energy companies – especially oil and gas firms – into three categories focused on renewable energy sources and energy efficiency.

The Biggest Agency and Program Winners in Biden's FY 2022 Budget -  Government Executive

This is how we plan our investing for next year – go where the Government is giving and pull back from where the Government is taking away.  Speaking of taking it away – we still like to play oil below the $75 line with tight stops above.  Yesterday's API Report showed just a 4Mb draw in Crude but it was wiped out by a 3.7Mb build in Distillates.  Gasoline broke the tie with a 1.5Mb draw but that's not likely to be enough to hold $75 if the EIA Report (10:30) also indicates the holiday draw-downs are fading fast.

Clearly, if the Biden Budget is passed, Health Care stocks should do well but not Pharma, as Bernie Sanders still wants to pay for the increased Medicare by negotiating better prices on medicine.  Our friends at Walgreen's (WBA) should do well(er) and their recent dip down to $47 makes them attractive again:

We already have WBA in our Member Portfolios but, as a new trade, I'd go with:

  • Sell 5 WBA 2023 $40 puts for $4 ($2,000) 
  • Buy 10 WBA 2023 $45 calls for $6.70 ($6,700)
  • Sell 10 WBA 2023 $52.50 calls for $3.80 ($3,800) 

That's net $900 on the $7,500 spread that's $2,300 in the money to start.  All WBA has to do is be over $55 by Jan 2023 and the net gain is $6,600 (733%) and the worst case is the stock drops below $40 and your spread expires completely worthless and you end up owning 500 shares at net $41.80, which would STILL be an 11.6% discount to the current price.  Aren't options great?  

Even in a no-margin IRA account, we're still gaining $6,600 against a $20,900 commitment to buy WBA and that's 31.57% in 18 months.  At $47.32, WBA is at a $41Bn market cap but they make over $4Bn a year so the P/E is 10 down here and would be 8x at $40 – so that seems pretty safe.  More seniors more drugs and WBA gets their fee, no matter what price is negotiated and, of course, endless vaccines still to come.

Another stock to pay attention to that PSW Members already have is Sunpower (SPWR), the solar manufacturer.   I LOVE them because they are still small enough ($5Bn at $28) to grow, especially with only $1.5Bn in sales and $50M in profits while $600Bn is being steered towards renewable energy.  30x is a bit rich for me but that should be down to 15x next year and I can't see how $28 will even be possible after that so, as a new trade I like:  

  • Sell 10 SPWR 2023 $30 puts for $9.50 ($9,500)
  • Buy 20 SPWR 2023 $25 calls for $9.65 ($19,300)
  • Sell 20 SPWR 2023 $40 calls for $5 ($10,000) 

That's a net CREDIT of $200 on the $30,000 spread so the upside potential is $30,200 (15,100%) if SPWR is over $40 in 18 months.  It's an aggressive worst case as we'd end up owning 1,000 shares at $30 – or $29.98 with the credit – but, as I said, I can't see any reason this stock won't do well in this evironment.

With less risk, you could just sell the puts and that would net you in for $20.50 if assigned and it's a nice 50%(ish) return on your money if SPWR simply clears $30 over the next 18 months – that's not bad!  

Lots of fun ways to make money using options to leverage sensible long-term bets on the macros.  Our net commitment here is to own $50,000 worth of stocks we feel are right for the next two years and, if all goes well, we can make up to $36,800 (73%) over 18 months, pretty much 10% per month against our commitment – and using only $700 in actual cash!   Aren't options fantastic?  

 

51 COMMENTS

Subscribe
Notify of
51 Comments
Inline Feedbacks
View all comments

Good Morning.

Good hazy, smoky cool morning.

for what its worth dept, today someone sold 1900 Jan23 WBA $42.50 puts for $5.00

How have Joe Biden’s first six months been? Our panelists weigh in

Stockburn, WBA You always find some suckers. Even looking at myself, my great winning stock of the century!!!!!!

"Crab prices"   so sad,  there is nothing else like the experience of sitting at a table for a couple of hours cracking steamed crabs with a hammer and knife and eating them with your bare hands.  

yodi,  that sucker collected $950,000 for promising to buy WBA at 20% discount to today's price 

stockburn how low can you go the sucker might still get the stock at this price!

No Phil no stock any more sold them to buy the Jan 23 35/55 in the hope at least to break even. But I thing 55 today is more like a fools dream???

someone with lots of pull must have not liked the eia report and needed some time to exit positions lol

Might better have a look at CAG 3.2% div. Making an offer for the Jan22 30 put for 1.05 just to put a foot in and even better than the div.

PHIL/AAPL  Longs:

    80 June 22 $105s, 

    40 '23 $100s

    20 '22 $75s 

    5   '23 $110s 

    And shorts are:

    -40 June 22 $160s 

    -40        '23 $160s 

    -40 Sept '21 $135s ($5.5)

    -20 June 22 $50 puts, -5 '23 $140 puts

 

Sold 40 'Sept $135s as sugg. About to (finally) close out the (NAKED!) long $75s and $110s but wondering about rolling the short Sept $135s first?

Any thoughts?

THX!

Pirate/SPCE  I hope you took that short last week!

Phil,

What do you think about CCL at these levels? Not sure if you have covered this already

Thanks

SPWR big drop today.

KRUS , up 19%    its a chain of sushi restaurants   wtf.  looks like they lose money on every sale.   Phil, they have one in Aventura, go check out whats so special 

KRUS     they have a real crab roll,  4 pieces $2.65 ? 

Yes when stocks are flying on thin air with nothing but stock sales funding them it is and was a great short. SPCE. Lots of good hype though.

PHIL/AAPL Thanks for AAPL wisdom. Have done most of it and now have

100 '23 $130c

40 '23 $100c

-40  June '22 $160c

-40 '23 $160c

So I should be able to sell 60 Jun '22 calls rather than 40, agreed?

Thx.

Sushi chains are actually quite big business here in Japan.  So much so that there are several large chains that do quite well and compete with each other fiercely.  They are always packed on the weekends, and they don't just serve sushi, they also have dessert, noodles tempura, ramen etc.   Its fun for the kids to order something and wait for it to come, kind of like the baggage claim at the airport.

They are primarily "conveyor belt" sushi restaurants that are mostly automated and standardized — so like most businesses that become automated, the need for actual well-trained chefs becomes less important.   And they are becoming more automated with each passing day:

Pandemic speeds up automation at conveyor belt sushi chains

Now how this will translate to the U.S., I have no idea, but its definitely something that could be a successful niche.

For those that are interested, here is a video showing how the systems at a KRUS store in Japan works behind the scenes.  Its in Japanese, but you can get the gist of just how completely automated and efficient it is, and just how little need there is for actual sushi chefs.  In fact in Japan, almost all, if not all the staff are just part-timers and college kids.  Even the dishes are automatically whisked away and washed by automation.   Its actually like a little glimpse into the future of how all chain restaurants will one day operate.

https://www.youtube.com/watch?v=dSuz7knZqmo

Stay Connected

160,892FansLike
408,803FollowersFollow
2,120SubscribersSubscribe

Latest Articles

51
0
Would love your thoughts, please comment.x
()
x