Felonious Friday – Mug Shots and Fed Speak


Trump Aug 25 2023Never give up, never surrender!  

That’s the tag line from Galaxy Quest (great movie) and now Donald Trump has made it his new campaign slogan.  This is an image of his official mugs, sold on his own site along with tee-shirts and bumper stickers – all with the exact same image that’s all photo-shopped on because they haven’t actually made them yet but why let that stand in the way of taking orders (and cash!), right?  

Things are going to get interesting because, even if convicted, Trump is allowed to campaign from jail. Socialist candidate, Eugene Debs ran for President 100 years ago and got 3% of the vote so Trump can run a campaign from jail and, if elected, pardon himself – which is essentially the game plan. 

Another bonus is it doesn’t seem to be illegal to use money donated to his campaign to pay his lawyers – so why would he not run? We’re talking hundreds of millions of Dollars in legal fees he won’t have to pay if he keeps going (and if people keep buying mugs and such). This is Capitalism at it’s finest folks – maybe he is the right guy for the job?  

After watching the rest of the GOP field debate the other night, Trump is actually looking pretty good by comparison. Even the other GOP candidates thought so, raising their hands when asked if they would stand behind Donald Trump if he were convicted on some or all of the 90 counts against against him (so far) and got the most votes. Vivek Ramaswamy even said HE would pardon Trump if elected (and Chris Christie was loudly booed for saying he thought the charges made Trump unfit for office).  

Only 12M people (out of 330M of us) watched the debates but, somehow, everyone has an opinion already. ‘Merica! 

Anyway, enough of that. Powell is speaking from Jackson Hole, right after the Consumer Sentiment Report comes out at 10am. Consumer Sentiment is a survey that covers Current Economic Conditions, Consumer Expectations and Inflation Expectations and in July, we were at 71.2, which was up 11% from June and the best we’ve been since Oct of 2021 but still TERRIBLE compared to where we were when Trump took office in January of 2017.

Despite the headline pop in the July report,  sentiment for lower-income consumers fell, and consumers also spent more cautiously due to moderating employment and income growth, shrinking excess savings, restarting student loan repayments and tightening credit conditions. Jobs still seem to be plentiful but I don’t expect much improvement in today’s report as a lot of people have had vacation sticker-shock which are likely to bring inflation fears back to the forefront now that wages are beginning to stagnate.  

Speaking of Jobs, next week we’re back to Non-Farm Payrolls on Friday and it’s a holiday weekend so no one will hear that tree in the forest on Friday. We’ll have Consumer Confidence on Tuesday and the 2nd look at GDP on Wednesday (was 2.4%, should be higher) and then we get Personal Income & Spending, PCE Prices, Chicago PMI Thursday before the big kahuna on Friday – so a pretty busy data week with very low volumes – that should be interesting.  

There are still some earnings too – including Big Lots, which reminded me to look at Overstock (OSTK), who bought the assets of Bed, Bath and Beyond for $21.5M. While BBBY went Bankrupt, they were doing $11Bn in sales in 2022 (losing $700M) but OSTK, who had $2Bn in Sales and lost $35M, did not buy BBBY’s store leases or staff – they bought the name and the remaining merchandise and, most importantly, the customers!

We didn’t buy them in June and I regretted that but, fortunately, traders already became impatient and have since sold the stock back to $24 and Jeffries just reported yesterday that 589,000 people downloaded the Bed Bath and Beyond app this month – 178% more than last year and Daily Active Users popped 91% over last year. 

If OSTK can capture just 10% of BBBY’s business, that’s a 50% annual increase in their own business and I’m sure they are smart enough not to be trying to capture the unprofitable sales so, for our Long-Term Portfolio, let’s:  

    • Sell 20 OSTK 2025 $20 puts for $4.40 ($8,800) 
    • Buy 50 OSTK 2025 $20 calls for $10 ($50,000) 
    • Sell 40 OSTK 2025 $35 calls for $5 ($20,000) 
    • Sell 10 OSTK Oct $25 calls for $2.10 ($2,100) 

That’s net $19,100 on the $75,000+ spread and we’ve only used 56 out of 511 days we have to sell so let’s say we have a path to selling 8 more short-term calls for $2,000 – that would be $16,000 of income while we wait on our $75,000.  If OSTK goes lower, we still sell short-term calls, possibly more than 10 at a time and we use that money to roll the $20 calls to the $15 calls (now $12.30), which would cost $11,500 – less than we plan to collect selling longs. 

In fact, we can roll to the $10 calls for $23,000 and, if $18,000 of that money comes from short call sales, then we’d be in the $10/35 spread ($125,000) for net $24,100 and our break-even would be $14.82 – that’s 38% below the current price.  I feel pretty good about the risk/reward for this trade!  

Have a great weekend, 

    • Phil


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