The Fed was expecting to raise rates another 0.75% at their July 27th meeting but, in our Live Trading Webinar, we noted that there were enough changes in the data they were pointing to at the time (June 15th), that we felt there was no way they would go to 1% and even a possibility that the Fed would only raise rates 0.5%.
They still have 3 more meetings: Sept 21st, Nov 2nd and Dec 14th and we are currently at 1.5% and the target is 3.5% so 0.5% x 4 gets us there – even if they are sticking with 3.5%. What has changed is that commodities, including oil have calmed down and the economic outlook has gotten considerably worse (see yesterday’s report) and the Fed is attempting to make a “soft landing” – another 0.75% could put us into a power dive and the last thing the Fed wants to do is reverse itself at the September meeting.
Over in England (calling it the “United” Kingdom seems wrong at this point), we finally found out how many scandals it takes to get Boris Johnson to resign and the answer is 157 but, finally, after HALF of his cabinet resigned in protest – the Prime Minister is stepping aside.
Imagine if Republicans had that kind of honor?
We’re still drifting along in the Indexes but, with the Dollar still at 107, drifting along is pretty good. May 18th is the last day we had an up day with strong volume – so we’re still waiting for better technical signals but we’re also still picking up opportunities. Yesterday, in our Future Is Now Portfolio, we spent $36,360 (25% of our cash) adjusting 5 of our positions (also 25%) as we set ourselves up for HOPEFULLY a move higher into earnings.
Not much going on otherwise – we’re just waiting on tomorrow’s Non-Farm Payroll numbers – something the Fed will also be watching closely. As long as we’re holding 3,840 (weak bounce) on the S&P 500, we’re out of the danger zone.
Our Gold (/GC), Silver (/SI) and Copper (/HG) plays are bouncing this morning as China is reportedly considering a $220Bn stimulus package to counterbalance another round of Covid Lockdowns. That’s like the US doing $500Bn but even more powerful as China doesn’t give 90% of the money to rich people. Copper is already up at the 5% line for the day.
MRK is looking to buy SGEN for $40Bn, which is 33% over yesterday’s close. That’s going to be good for the undervalued Biotech Sector and M&A activity like that can often tell you where the bottom is going to form. We have a good amount of Biotech in our portfolios – including the long-suffering Biotech ETF – LABU.
SGEN lost $674M last year on $1.5Bn in sales and expects to lose about the same this year on $1.8Bn in sales so MRK is paying over 20x sales for SGEN so imagine what some of these other Biotechs might be worth? We have AMGN, BNTX, GILD, LABU, MRNA and PFE representing Pharma/Biotech in our Long-Term Portfolio and we’re going to add Walgreens (WBA) as they are back to stupidly cheap at $37.78:
- Sell 10 WBA 2024 $45 puts for $10.20 ($10,200)
- Buy 30 WBA 2024 $35 calls for $6.25 ($18,750)
- Sell 20 WBA 2024 $50 calls for $1.50 ($3,000)
That’s net $5,550 on the $45,000 spread so we have $39,450 (710%) of upside potential at $50 but we’re only 2/3 covered so we’ll be able to reduce the basis along the way when we get a good bounce to sell into. If it goes the other way, our worst case is owning 1,000 shares of WBA at net $50.55, which is way over the current price but we’re happy to double down if WBA gets cheaper as we like it for the very long-term.
See, plenty of things to buy in this market!