Warming Weather; Heating Economy; Pets

Hey Influence Traders,

I hope that everyone had a good weekend.

Except for an emergency trip to the vet for Smoky the cat, mine was pretty uneventful.

(He’s fine, by the way.)

The weather has calmed down and the vaccine rollout seems to be taming COVID.

And the markets continue to run …

COVID

The vaccine rollout seems to be calming the COVID storm.

The CDC just reported that over 96 million vaccine doses have been delivered across the U.S.

77 million doses have been administered.

Nearly 20% of U.S. adults – over 50 million people – have received one or more doses.

This is moving us towards herd immunity and to the economy opening more quickly.

Best Day Since June

One thing that is not calm is the broad market.

The S&P came out of the gates swinging on Monday.

It’s 2% rise was its best day since last June.

The Markets are Not the Economy – but Growth Is on the Horizon

Everyone knows that the markets are not the sole driver of economic growth.

But with the impending stimulus and other spending bills on the horizon, growth prospects are on the rise.

Some economists started the year calling for 4.2% growth …

That number was raised shortly thereafter by Bank of America to 5% …

I guess the spending is being taken seriously, because last week Goldman Sachs pegged GDP growth at … 7%! 

Dampening Effects?

Yes, some such as Sen. Elizabeth Warren and her wealth tax proposal, are trying to dampen growth,

She unveiled her “Ultra-Millionaire Tax Act” on Monday, which would impose a 2% annual tax on the net worth of households and trusts between $50 million and $1 billion, and an additional 1% for net worth over $1 billion.

The bill, which has broad support from the liberal wing of the Democrat party, is anticipated to bring in $3 trillion in revenue over 10 years.

While possible to pass in the House, the bill has little hope in the Senate.

Run Hot

But on the whole, DC seems ready to allow the economy to make a #PowerMove and run hot.

The House passed its $1.9 Trillion COVID relief bill, and while its prospects look dim to be passed untouched through the Senate, some early concessions have been made to let it through.

A pending hot economy, inflation and potentially rising rates are impacting many sectors.

When Ripples Collide

A trip to the vet, the pandemic, people with cash in their pockets and moving to ecommerce got me thinking …

What About Pets?

Pet ownership increased in the US by more than 10% during the pandemic …

The global pet food market hit almost $97 billion in 2020 …

It’s projected to register a compound annual growth rate (CAGR) of 4.8% through 2026.

While the pandemic had a negative impact on supply chains that caused the pet industry to suffer supply and cash flow issues early in 2020, the segment saw steady demand for growth through the end of the year.

People around the globe adopted more pets in an effort to gain companionship during the lockdowns …

And that required more supplies.

At the same time, suppliers and buyers shifted their focus from retail stores to e-commerce platforms.

It’s Not Just About Traditional Pet Supplies

Some big names in pet food and supplies have garnered a lot of attention recently and have seen strong growth in share prices:

  • Chewy.com (TICKER: CHWY): E-commerce supplier of pet medications, food and supplies has seen a 248% return this past year and continues to solidly perform.

  • Freshpet (TICKER: FRPT): Pet food and treat manufacturer and distributor has seen a 133% return this past year and is still moving up.

But people are moving to treat pets more like they treat themselves (and better, in some cases), with a greater focus on healthy eating and preventative medicine.

With disposable incomes on the rise, pet owners can afford it.

Earlier this year, I began watching Zomedica (Ticker: ZOM), a development-stage diagnostic and pharmaceutical company for pets with a focus on the needs of clinical veterinarians.

By the way, within the $100 billion U.S. pet market, veterinarian and related services account for 1/3 of all spending.

The problem with ZOM is that it has had a meteoric rise in the past quarter fueled by the impending release of its first products and a Robinhood push …

In fact, over the past year ZOM is up over 900%!

While people are still high on it, there does not seem to be much runway left.

Yes, it is launching its first product shortly, the Truforma diagnostics system, but ZOM does not own the patents to it and has to lease the IP, which will dampen revenues.

In addition, ZOM is playing in a niche market – estimated to be under a $3 billion total opportunity.

I will continue to keep an eye on ZOM, though, and if there is a pullback prior to its product launch I might put on a small trade.

Pet Insurance

After we got back from the vet, my wife filled out pet insurance paperwork.

This made me realize that all of this new found pet “humanitarianism” has to be compensated.

Trupanion (Ticker: TRUP): an established leader in pet medical insurance. TRUP’s enrollment increased 33% in 2020 over the prior year, with almost 863,000 pets enrolled in plans. This helped to drive its revenue up 31% year over year to $502 million, which brought it close to breakeven.

Like other pet companies, TRUP saw a healthy rise over the past year (+227%), but it has had a 10% pullback over the past month and has growth prospects.

There are a number of large competitors in the space, such as IDEXX Laboratories (Ticker: IDXX) and Zoetis (Ticker: ZTS), which are ripe to have market share taken.

TRUP’s CEO stated in the company’s Q4 update that, “We’re set up well to capture the growing opportunities within our large, underpenetrated market," which the company estimates to be at $32.8 billion.

But one of the big reasons I like TRUP is that Aflac (Ticker: AFL) recently bought a 10% stake.

Leveraging AFL’s market position should help TRUP gain market share in the U.S. and global markets.

Cutting Through the Noise for You.

Frank

Weekly Roundup – Stimulus, Crypto, COVID and Trading

Hey Influence Traders,

Its the weekend, which means its time for the Weekly Roundup.

I had a busy week — after returning from the slopes I made a #PowerMove to DC to see some of my inside sources face-to-face …

The Highlights

  • The weather has calmed down … the fallout from GameStop has not.

  • Bonds were on the move; stocks were flat.

  • Cryptos did an about face from the prior week.

  • And Friday was a busy news day:

    • Johnson & Johnsons (Ticker: JNJ) vaccine was greenlit by F.D.A. advisers.

    • The SEC suspended trading in 15 securities because of questionable trading and social media activity.”

DC Action

This week was not as slow as last week on the confirmation front.

Folks in DC actually got to work … if only slightly.

Confirmations

  • Secretary of Energy: Jennifer Granholm was confirmed. She is a former two-term governor of Michigan who has experience in dealing with the auto industry. She should help Biden’s push to rollout electric vehicles and EV charging stations.

  • Secretary of Agriculture: Tom Vilsack was confirmed. He is a DC insider, having served as Agriculture secretary for eight years under Obama. Biden views him as instrumental to tackle the hunger and farm crises that have been exacerbated by the pandemic.

  • US Ambassador to the United Nations: Linda Thomas-Greenfield was confirmed. She is a 35 year foreign service veteran.

The nomination of Neera Tanden, Biden’s pick to lead the Office of Management and Budget, is in deep peril after Democratic Sen. Manchin and a slew of Republicans signaled they wouldn’t support her.

Contentious Upcoming Confirmation Hearings
Interior Secretary nominee Deb Haaland’s confirmation hearing is coming up this week, which will be contentious given her opposition to fossil fuels.

Department of Health and Human Services nominee Xavier Becerra’s confirmation is in jeopardy, given his support of Obamacare.

COVID Relief Bill
Some substance … a lot of pork!

The House Budget Committee unveiled the details of its $1.9 Trillion COVID relief bill, which includes:

  • $422b in direct payments: $1,400 per person, with the payments phasing out for those with higher incomes ($75,000 for a single person and couples making more than $150,000).

  • $246b in additional jobless assistance: the bill will extend jobless benefits until the end of August and boost the weekly amount received by workers through state unemployment programs by $400.

  • $120b in support for parents: parents of children under the age of 18 will get monthly benefits worth $250-$300, depending on age, for one year.

  • $70b for Covid-19 tests and vaccines.

  • $170b in school reopening funds.

  • $110b in business support, including grants for small businesses.

  • $55b for paid leave and health insurance.

The bill immediately drew fire for some questionable spending priorities unrelated to COVID relief:

  • $350b for local governments, which the Republicans immediately branded as a handout to primarily Democratic states.

  • $300 million for the Agriculture Department to “conduct monitoring and surveillance of susceptible animals for incidence of SARS–CoV–2.”

  • $135 million to the National Endowment for the Arts, $135 million to the National Endowment of the Humanities and $200 million to the Institute of Museum and Library Services

  • $750 million for “the Director of the Centers for Disease Control and Prevention to combat SARS–CoV– 2, COVID–19, and other emerging infectious disease threats globally.

  • $500 million “to support public health data surveillance and analytics infrastructure modernization initiatives at the Centers for Disease Control and Prevention.”

  • $15 billion to the airlines industry, which was controversially bailed out in the first stimulus.

One thing that did not make it into the bill was the raising of the minimum wage. A Senate arbiter ruled it must be removed from the COVID package for procedural reasons.

US Critical Supply Chains

President Biden signed an executive order requiring his administration to review critical supply chains with the aim of bolstering American manufacturing, including for semiconductors and critical rare earth.

Automakers have been forced to halt production because of a lack of computer chips.

Health care workers are short masks.

Pharmaceutical executives have voiced concerns that critical drugs could dry up because foreign countries are stockpiling key ingredients.

China has been vocal about using its rare earth dominance as an economic weapon against other nations.

Power Mover of the Week

My winner is Johnson & Johnson (Ticker: JNJ) because its COVID vaccine was greenlit by the FDA and distribution is expected within days.

It will be the third shot made available to the United States and the first vaccine to require just one dose instead of two.

JNJ’s stock price got a nice little after-hour’s pop on Friday.

Power Loser of the Week

The 18%+ drop in the price of BTC this week made it a contender, particularly since many people piled in over the past few weeks!

But my Power Loser(s) of the week are velocity day traders.

On Friday, SEC suspended trading in 15 securities because of questionable trading and social media activity”:

  • Bebida Beverage (Ticker: BBDA)

  • Blue Sphere (Ticker: BLSP)

  • Ehouse Global (Ticker: EHOS)

  • Eventure Interactive (Ticker: EVTI)

  • Eyes on the Go (Ticker: AXCG)

  • Green Energy Enterprises (Ticker: GYOG)

  • Helix Wind (Ticker: HLXW)

  • International Power Group (Ticker: IPWG)

  • Marani Brands (Ticker: MRIB)

  • MediaTechnics (Ticker: MEDT)

  • NetTalk.com (Ticker: NTLK)

  • Patten Energy Solutions Group (Ticker: PTTN)

  • PTA Holdings (Ticker: PTAH)

  • Universal Apparel & Textile (Ticker: DKGR)

  • Wisdom Homes of America (Ticker: WOFA)

The SEC has the power to suspend trading for up to 10 days in any security.

The agency said it did so as part of its continuing effort to respond to potential attempts to exploit investors during the recent market volatility.”

The SEC is trying to prevent the artificial inflation of stock prices through social media.

While the SEC and other regulators did not come down on the little guys who moved GameStop, they don’t have an appetite to see such #PowerMoves in the future.

Cutting Through the Noise for You.

Frank

Texas-Sized Spending

Hey Influence Traders,   In my latest Weekly Roundup, I named the Texas power grid as the inaugural Power Loser of the Week.   But as the old saying goes, “never let a good crisis go to waste” …   Green energy took a few licks down in Texas, but the Biden Administration is making a #PowerMove on the crisis.   Option Pit Pro Before we get into the Lonestar State, I want to discuss a #PowerMove that I’ve been making.   I know DC and how its #PowerMoves impact various sectors of the economy and therefore the markets.    I also understand what drives company performance and can connect the ripples created in DC to certain stocks.    Recently, though, I’ve been honing my options trading skills …   Fortunately, as a lawyer I’m pretty good at digging up secrets, which gave me enough dirt on    Mark Sebastian to get him to give me access to Option Pit Pro   I’m just kidding, of course, Mark is squeaky clean (well, maybe not during the Big Freeze of ‘21, but normally).  Nonetheless, I am utilizing Option Pit Pro up my game.   It is never too late to learn something new, and no matter how much you know, there’s always someone smarter than you.   With Option Pit Pro you get PROS — this room isn’t just about access to Mark, but access to a group of high level traders who collaborate on ideas, tactics and strategy.   Whether you’re a novice or an experienced trader, make a #PowerMove with Option Pit Pro and up your game.   Inflation-Inshmation … Let’s Spend Money   The Biden Administration is leveraging the events in Texas to push its climate agenda. This will take the form of a green infrastructure spending bill.   Even though such spending will stoke inflation fears, the Treasury and the Fed have vowed to let the economy run hot.   A Texas Smack Down   Texas took it on the chin last week.   A massive storm ravaged the state causing an equally large crisis.   The big story was power and water being knocked out for millions of residents.   Many on the right, as well as fossil fuel executives, blamed the green energy industry and immediately pointed out the error of the Biden Administration’s plan to cancel the Keystone XL pipeline.   Some believe these events put the Administration’s plans to bring forward a $3-4 trillion green infrastructure spending project on its heels …   Never Let A Good Crisis Go to Waste But the word on the street in DC is that the crisis has emboldened the administration.   The White House and its supporting cast immediately blamed climate change and the fossil fuel industry for every problem Texas has ever experienced.   They then aggressively laid the groundwork for the massive spending bill.   The narrative is set that Texas’s reliance on fossil fuels and power grid deregulation are at fault. So the administration is calling on green infrastructure spending and energy regulation to fix the state’s problems.   In an ironic move, the Administration argued that California’s massive regulations are proof that a highly regulated energy sector operates more efficiently …   Californians, meanwhile, were unable to hear those accolades, as they are in the midst of rolling blackouts.   Inflation-Inshmation No Worries Economists on the right and left have voiced concerns that all of the planned money that will be pumped into the economy will cause massive inflation.   They’ve already predicted that the signs are in place for a “super-charged” rebound when the effects of the pandemic lighten and the world opens up …  
  • Retail sales are already up
  • While unemployment is still high, new claims are way down
  • Business investment is up
  • People are sitting on trillions in cash
  This could line up to be the perfect storm of a hot economic bounceback.   In fact, Goldman is calling for the economy to grow by 6.8% this year and unemployment to drop to 4.1% by December.   Fed Inflation Response Despite the stage being set for inflation pressures, Fed Reserve Chairman Jerome Powell is not worried about inflation and has pledged to support a robust economy even in the face of inflation.   He is maintaining that the recovery is still uncertain and that “there is a long way to go.”   As such, the Fed plans on holding rates near zero to encourage lending and spending.   The Post Office is NOT On Board The United States Postal Service is apparently not on board with the move to green energy …   A key component of Biden’s green plan is to transition to electric commercial vehicles.   The USPS recently awarded a multi-billion dollar 10-year contract for its vehicle fleet.   In a blow to Biden’s green plan, the USPS chose Oshkosh Defense (TICKER: OSK), a military vehicle manufacturer, to build its next generation postal truck. (I’m picturing Mad Max delivering my mail).   It chose OSK over electric vehicle maker the Workhorse Group (TICKER: WKHS).   The market thought WKHS was a shoe-in, and rewarded it with an upswing over the past few months … But immediately after the announcement, WKHS’s stock price was cut in half.   The weather is causing DC to make ripples. Despite some setbacks, the Biden Administration is capitalizing on a crisis and making #PowerMoves.   Cutting Through the Noise for You.   Frank  

Travel and Leisure

Hey Influence Traders,

For the past few weeks I’ve been on the road, (safely) hanging on planes and in hotels, and eating out/ordering takeout.

It’s been great!

That got me thinking about travel and leisure … and when they might return on a broad scale.

Clearly, the industry has been ravaged.

In the past year, airline stocks were down an average of over 27%.

Likewise, the Dow Jones U.S. Hotel and Lodging REITs Index was down more than 28%.

Now, though, the stage is being set for the release of pent-up demand.

Falling COVID cases, the vaccine rollout, rillions in stimulus money, growing personal savings and desire to get out, could be the perfect storm.

In particular, consumer savings and a desire to break cabin fever could unleash a torrent of cash on hotels, restaurants and airlines

COVID Stats

About 70,000 COVID cases are being reported daily, down from 250,000 in mid-January.

Almost 44 million people have received at least one vaccine dose.

This bodes well for DC and local governments allowing more access to travel and leisure services.

The counterpoint is that vaccine rollout delays and new strains could dampen the desire to travel or cause DC to hold off giving an all-clear to do so.

Airlines

In the past month, I have been on eight packed flights. I took advantage of tickets being dirt cheap.

While good for me, that does not mean high revenue for the airlines.

After a bleak 2020, airlines stocks have been ticking up in 2021, with most up double digits.

Will that trend last?

Stuffed inside the $1.9 trillion stimulus proposal that House Democrats premiered last week was a substantial amount of relief unrelated to the pandemic (more on that in a future issue), including another $15 billion for the airline industry.

Remember, the airline industry had received a controversial bailout last year in the first COVID relief bill.

While travel is increasing to certain destinations, business travel that is vital to airline revenue because of higher prices is not. Meanwhile, new COVID strain fears are limiting international travel.

Some doubt that business travel will ever fully recover.

On top of that, Boeing just recommended grounding its 777 jets with certain engine models after a plane leaving Denver suffered a failure that sent debris throughout a neighborhood.

The Pratt & Whitney 4000 series engines are under the microscope.

Fortunately, no one in the air or on the ground was hurt.

United, which ran the plane out of Denver, announced on Sunday that it would ground its 777 jets.

Also, rising oil prices will hurt profits since airlines rely heavily on fuel arbitrage.

Overall, the stimulus money is going to give airlines the time they need to weather the storm, increase routes, increase price — and increase profits.

But in the end, it could depend on the carrier.

Option Pit CEO Mark Sebastian and I were recently discussing Delta (TICKER: DAL) …

We think it is a good play, although it will not be a quick one.

Delta CEO Ed Bastian recently said the past year, “the toughest year in Delta’s history.”

Makes sense … Delta reported a loss of more than $12 billion.

But Delta has handled this crisis differently from other carriers. Not only has it avoided layoffs, which make rebounding easier, but it turned down bailout money in favor of raising money through its loyalty program.

It is a well-run airline.

Hotels

The hotel industry is split into two main categories – C-Corp hotels such as Marriott International (TICKER: MAR) and Hilton Worldwide Holdings Inc. (TICKER: HLT), and hotel real estate investment trusts like Park Hotels & Resorts Inc. (TICKER: PK).

When tourism opens back up, this sector should do well, although it could see regionalized impact as explained below.

While the C-Corp hotels managed to weather the storm of 2020 and finish the year flat, REITs took a double-digit hit.

These companies focus on real estate and management and there are competing factors.

The commercial real estate market is depressed, which does not help.

But changes in the tax code, particularly raising the corporate rate, could make tax shelters like REITs more attractive.

Restaurants

The restaurant industry will be a tougher call.

New York City, for example, has seen more than 1500 restaurants permanently close.

A push for unionization and a $15 minimum wage will also put a hit on revenue.

Some prognosticators are arguing that tipping will come to an end, which will put the onus to meet wage demands squarely on employers’ shoulders.

Restaurant employees have typically been carved out of minimum wage laws, but this time could be different.

This bodes well for large retail chain stores and not so well for local establishments. (It also bodes poorly for my eating enjoyment.)

Broad vs. Local Recovery – A Tale of Two States

I tend to discuss the impact of federal policies on markets, but state policies are also impactful.

The Feds alone are not going to fix the economy. Local policy has had a tremendous impact on businesses and will need to assist in the recovery.

Some states are moving to help … others not so much.

Take the travel sector … People are longing to travel. They have savings to do so. Companies can capture market share — but they need to stay in business long enough to do so.

This is where local policy can have an impact.

Some governments have made it very difficult for hotels and restaurants to survive.

While Florida has declared itself “open for business,” New York City has a restaurant closure epidemic.

And with little fanfare, the 600-room Times Square Hilton recently — and permanently — shut its doors.

NYC hotels have asked Mayor Bill de Blasio to forgive the 18% interest they must pay when they are late on their property-tax bills, and why wouldn’t they …

Big Apple hotel rooms had a 36% occupancy rate in December 2020, down from 88% the previous year

Moreover, average room rates dropped from an average of $303 to just $130 a night.

The de Blasio administration hasn’t responded — but it did initiate a tax-funded program to bring back the arts through … street dancing. (Can’t make this up.)

It will be an uphill battle for NYC to forego tax revenue given the challenges in balancing NYC’s $92 billion budget.

The reduced inventory of hotels and restaurants will mean that demand for both will be high — and businesses that survive will charge a premium for that demand.

This will obviously abate as new providers arrive, but that will take time.

While federal policy and personal spending might align to promote travel, local policy could dictate how profitable that travel is to the hotel industry.

The Impact of Sports

Speaking of local impact, I saw a report that the NCAA will permit limited amounts of attendees to the NCAA men’s and women’s basketball tournaments.

I am a HUGE NCAA basketball fan – GO VILLANOVA and DUKE! (What? I’m a DC and Wall Street insider.)

That bodes well for the hotel and restaurant scenes in Indianapolis and San Antonio, the cities that will host every game of the tournaments.

It will also help the transportation industries, since people will travel from all over the country to attend those games.

Crowds of up to 25% capacity will be allowed to watch the 68-team men’s tournament, which begins on March 18, in person.

That means that as many as 17,500 fans could watch games at Lucas Oil Fieldhouse, a venue that normally seats 70,000.

The semifinals and championship of the 64-team women’s tournament will be played at San Antonio’s Alamodome, with 17% of its 31,900 capacity permitted.

Many are crying foul that large gatherings will be allowed just as pandemic numbers are dropping.

But the tournaments could be a test to see if vaccines are making a difference.

If they do not cause spreads, it could be the proof needed that more travel and events should be allowed.

It will be a slow recovery, but I’ve got high hopes for travel and tourism late into the year.

Cutting Through the Noise for You.

Frank


Weekly Roundup: From DC to Texas to … Mars

Hey Influence Traders,

It’s the weekend, which means it’s time for Power Moves Weekly Roundup.

Sorry it’s coming out a day late … with the good snow forecasts, I pulled a #PowerMove and took the family skiing in Colorado.

That was a blast, but I had Texas-esque internet infrastructure.

A quick programming note before we dive in: I’ve started a new Roundup feature identifying the Power Mover and Power Loser of the week … with plenty of competition for both titles on the first go-round.

DC Action

I typically start my weekly summaries talking about executive orders and cabinet confirmations, but there is little to report.

The only item of note is that President Biden’s nominee to lead the Office of Management and Budget, Neera Tanden, has an uphill battle to be confirmed by the Senate.

She was always considered a weak candidate – known more for her tweeting than her abilities.

Insiders are saying that her fate might be sealed since Democratic power broker Senator Joe Manchin announced that he will vote against her.

Weather

The weather was the headline story of the week for much of the U.S., but particularly in Texas.

Politically, the weather in Texas is as polarizing as an Arctic vortex!

Both sides of the aisle immediately took it as an opportunity to push agendas.

Who will win out?

Will it impact the Biden Administration’s climate agenda?

More on that in the Power Loser section …

Power Mover

The week saw a number of winners.

Bitcoin is on a run, up more than 20% for the week. Many people believe that we are just in another crypto bubble, but in a future issue I’m going to discuss why this time might be different.

Naomi Osaka of Japan beat Jennifer Brady to win the Australian Open, remaining undefeated in Grand Slam finals as she claimed her fourth major title.

She became the first woman to win her first four Grand Slam finals since Monica Seles did it in 1990 and 1991.

But the inaugural Power Mover of the Week is …

NASA

Our newest Martian, a robot named Perseverance, was sent 249 million miles from Earth to the Red Planet.

Despite hitting the Martian atmosphere at 12,000 miles an hour, the ingenuity of the scientists who built it managed to land it safely.

Its mission is to search for life beyond Earth.

The rover is the size of a small car and is equipped with sophisticated cameras and lasers to analyze the chemical makeup of Martian rocks, as well as ground-penetrating radar to identify the chemical signatures of fossilized life.

Later this month it will launch a drone, which will be the first vehicle to fly in another planet’s atmosphere.

Everything I just typed is absolutely incredible when you think about it.

Bravo, NASA!

Sometimes it’s nice to see a win for the home team.

Power Loser

Again, numerous contenders:

Robinhood's decision to restrict trading on GameStop stock put it squarely in the hot seat in front of the U.S. House Financial Services Committee.

But as my buddy Bill Griffo from Power Income opined, the Congressional GameStop Hearing was, “A big nothingburger.”

But Robinhood did have some fallout, as a California federal judge refused to toss out a proposed class action alleging that the app’s repeated service outages harmed retail stock traders.

And “Roaring Kitty” who, despite easy treatment on the Hill, did receive a class-action lawsuit of his own.

Keith Gill, known as Roaring Kitty on social media sites like the WallStreetBets Reddit forum, along with his brokerage MMI, was hit with a lawsuit accusing him of misrepresenting himself as an amateur investor and profiting by artificially inflating the price of the stock.

The suit alleges that Gill is a licensed securities professional who manipulated the market for his own profit.

It also says that, “He caused enormous losses not only to those who bought option contracts, but also to those who fell for Gill’s act and bought GameStop stock during the market frenzy at greatly inflated prices.”

The suit was filed on behalf of Christian Lovin who sold $200,000 worth of call options on GameStop shares when the stock was below $100. The stock quickly moved above $400 a share, forcing him to buy the calls back at elevated prices.

I read the 35-page complaint. While there are some damning accusations, it was brought as a class-action, which will be difficult to maintain with just one named plaintiff.

Power Loser of the Week

But my Power Loser of the week is the Texas Power grid, which failed on multiple levels.

Naturally, that failure was instantly politicized, with one side blaming renewable energy, and the other blaming climate changes, fossil fuels and old infrastructure.

Tuesday was the coldest day in North Texas in 72 years, and the Dallas-Fort Worth area reached a record low of -2 degrees. 

The cold temperatures along with freezing rain caused wind turbines to freeze to a halt, knocking out almost half of the state’s wind turbine energy.

Wind power is the fastest-growing source of energy in the Texas power grid and provides 23% of the state’s energy. Wind is also the state’s second-largest source of energy after natural gas.

Folks on the right immediately jumped at the opportunity to blame green energy programs for the grid failure.

But oil and natural gas did not fare too well either, with many pipes freezing up. This caused oil and natural gas futures to fall.

The left, meanwhile, took the opportunity to blame all of the issues in Texas on climate change.

The entire mess highlights the challenges the Biden administration will face in modernizing the electricity system to run entirely on wind turbines, solar panels,and batteries.

Many in the administration are now arguing that the federal government and energy businesses will have to spend trillions of dollars to harden electricity grids against the threat posed by climate change and to move away from fossil fuels. 

John Kerry, the White House’s special envoy on climate, doubled down on this position when he warned that the U.S. only has less than a decade left to avoid a climate catastrophe. He made that statement on Friday, the same day the U.S. formally reentered the Paris Climate Agreement.

The weather is causing DC to make ripples.)))

While there are two sides to this argument, the administration has a head of steam and is controlling the narrative. 

It will be hard to arrest those power moves. 

I anticipate a big infrastructure spending bill to be fast tracked and we’ll talk about what could mean for you in the weeks ahead.

Cutting Through the Noise for You.

Frank

Caution: Hot

Hey Influence Traders,

Happy Presidents Day … Week!

My kids are off from school, which means distractions at home (sometimes I do miss going to an office).

Speaking of presidents (or former presidents) and pandemonium, it looks like the side-show circus in D.C. might have finally come to an end …

Hey, I almost wrote that with a straight face!

Seriously, with Trump Impeachment Part Deux wrapped up, perhaps D.C. will now get down to business.

Time will tell if that is a good thing.

I’m from the Government and I’m Here to Help

As Ronald Reagan said, there are no more terrifying words in the English language.

It looks like the Biden administration is going to leverage its Hill majority to push through the $1.9 trillion spending package with or without Republican support.

This will be followed by $2-3 trillion in infrastructure spending — and the economy has already seen trillions in stimulus the past year.

All of this money pouring into the economy raises fears of it overheating and causing inflation.

Administration officials dismissed the notion, however, rationalizing that it is relief and not stimulus.

Stimulus vs. Inflation Concerns

Biden’s $1.9 trillion stimulus plan would be the second largest in U.S. history.

Only 2020’s CARES Act was bigger, but the impact was arguably less since it came at the start of the pandemic and in the depths of the recession.

But this round will go into an economy that’s already bounced much of the way back.

Biden, his advisors and Federal Reserve Chair Jerome Powell have brushed aside inflation concerns.

But the fiscal and monetary policies that have been implemented and are being discussed will almost certainly cause inflation to pick up.

It’s OK to Overheat A Little …

The Federal Reserve targets a 2% inflation rate but will allow that rate to go higher if it facilitates maximum employment.

Almost 10 million fewer Americans were working last month than in February 2020.

Janet Yellen wants to get unemployment down to 4% and is willing to use aggressive policy to do so.

The administration is calling this a goal of a “high-pressure economy” that pulls low-income workers back into employment.

But Overheating Too Much = Inflation

Even some on the left are voicing concerns. Lawrence Summers, a former Treasury secretary and top adviser in the Clinton and Obama administrations, stated that Biden’s plans could stir up a whirlwind of rising prices.

Inflation impacts the relative valuation of current and future profits and thus stock prices.

Inflation fears can cause changes in investment focus, such as sector rotations, and there are reasons to fear inflation.

Household Spending Will Rise

When spending increases, prices tend to follow.

Reopening the U.S. and world economies will permit spending.

Throughout the pandemic, many people have been saving money and U.S. household savings deposits are high – currently above $11.1 billion.

Source: Federal Reserve Bank of St. Louis

All of that savings will drive demand when the economy reopens.

Demand Squared

Massive stimulus packages will increase demand.

Some economists are worried that $1.9 trillion of stimulus will put cash in the hands of folks who don’t really need it and they will pour that money into financial markets.

It will take time for the manufacture and supply chain of goods to catch up with the increased demand.

Demand Cubed – Let It Run Hot

As I said, the Fed has committed to keeping interest rates low, even if inflation starts to appear.

Accommodative monetary policy suppresses the incentive to save and lowers the burden of having debt.

Larry Summers recently opined that extra spending combined with a successful vaccine rollout could result in “an economy that is literally on fire.”

Perfect Fourth – Infrastructure is on the Way

Following on the heels of the stimulus spending will be Biden’s $2-3 trillion infrastructure plan.

While that was lining up to be a mid-to-late 2021 initiative, the power outages across the U.S. from this week’s snow will be used to highlight the need for new infrastructure and energy policy.

Impact on Investments

Despite the Fed’s wish to be accommodating, at some point inflation will force it to act and begin to raise interest rates

Rate hikes generally impact the value of future profits.

Profits impact stock prices.

Monetary policy causes massive ripples. It’s time to start watching them.

That’s enough good news –enjoy the rest of your week!

Cutting Through the Noise for You,

Frank

Week in Review and Things to Watch

Hey Influence Traders,

Welcome to the (three-day) weekend!

All the snow in my yard is making me think of one thing – SKIING!

We didn’t see a lot coming out of DC this week that directly influences the markets, but there are some signals being sent that will cause ripples down the road.

Since I was away, and in a Mexican tequila haze, I missed a few things myself, so let me give some highlights and look at opportunities:

Impeachment

The House impeachment managers wrapped up their case against former president Trump.

Trump’s defense team presented its case.

You can expect a vote soon after they’re done.

Chance of conviction – nil.

Level of distraction – Mario Level 100

What this did accomplish was slowing down the confirmation of President Biden’s nominees and his agenda moving through congress.

But don’t worry, Biden made that up with executive orders!

Executive Orders

Biden continued his onslaught of executive orders – 52 so far.

·       15 addressing COVID

·       10 on immigration

·       7 dealing with “equity”

·       6 with the economy

·       5 with the environment

But he said it is nothing to worry about since “I’m not making new law; I’m eliminating bad policy.”

Psst – eliminating a law is … making new law.

One that I’m keeping an eye on is his order to elevate climate change to be an essential element of US foreign policy and national security.

Part of the order is the development of new emissions reduction targets, which will be announced by April 22. This could have a massive impact on US industry and lay the foundation for his upcoming green infrastructure spending program.

To telegraph this intent, on Wednesday, Biden also promised to use the government’s purchasing power to fund a federal clean-car fleet.

In light of these announcements, Bloomberg reported that clean-energy companies are raising record amounts of cash through stock offerings.

  • Shoals (Ticker: SHLS), a maker of solar-power components, raised $1.9 billion in an upsized initial public offering, pricing the shares above a marketed range.

  • Plug Power (Ticker: PLUG), which has seen its stock nearly quadruple since Election Day, announced Tuesday it was selling $1.5 billion in shares.

  • Gevo (Ticker: GEVO), a biofuel maker, sold $350 million in stock.

  • ReneSola Ltd. (Ticker: SOL), a solar developer, announced two offerings.

Biden also announced that he will soon issue an order addressing the short supply of semiconductors by undertaking a “comprehensive review of supply chains for critical goods.”

The review will look to improve production amid a global chip shortage, which hurts industries like the auto sector.

That was not a sector I was monitoring, but now I am.

Covid-19

The Biden Administration says that it has acquired enough vaccine doses to inoculate nearly all Americans.

Now – how to deliver them? I like Mark Sebastian’s plays on pharmacies.

Nominations

Biden nominated Julie Su to the No. 2 post at the Department of Labor under Marty Walsh. Why is this important?

She is an advocate for unions,so we anticipate power moves from the DOL to promote and enforce unionization efforts that could impact small and gig businesses.

Su currently serves as Secretary of the California Labor and Workforce Development Agency and oversees the enforcement of labor laws and employment programs.

Labor groups love her but she was criticized for the fraud in the state’s unemployment system that occurred under her watch.

Specifically, it was announced last month that hackers, identity thieves and overseas criminal rings stole more than $11 billion of the $114 billion that California paid in unemployment claims last year.

We’ve said that cybersecurity companies should do well under the Biden administration, and this is further evidence of that need.

Reddit

Government agencies, including the Department of Justice and the Commodity Futures Trading Commission are lining up to go after Robinhood and Reddit.

The DOJ’s fraud section and the San Francisco US attorney’s office have reportedly subpoenaed information from Robinhood.

And Reddit is under investigation by the CFTC for misconduct with traders at the subreddit r/WallStreetBets, who spurred the buying spree of GameStop along with other “meme” stocks. 

Finally, the Financial Industry Regulatory Authority warned broker-dealers to be wary of digital platforms with interactive and “game-like” features, as they could run afoul of the regulator’s “Communications With the Public” rule when using them.

Frenzie buying is not going away, but it will certainly be under the microscope.

The Economy

Despite warnings of overspending and inflation, Biden and the Hill are pushing forward with massive additional stimulus.

Many democratic lawmakers were pleased with data indicating that the economy did not heat up as much as anticipated and that the deficits came in lower than expected — which means that the checks can fly!

That has to be paid for, and Sen. Elizabeth Warren might be a key figure in that payment plan.

We know that taxes have to go up to pay for spending.

Warren is set to become a member of the Senate Finance Committee and plans to introduce legislation implementing a wealth tax on fortunes over $50 million.

“Wealth tax” legislation aims to impose a two-cent tax on every dollar of individual wealth over $50 million and an extra surtax on every dollar of wealth over $1 billion.

She has also hinted at a financial transaction tax.

LOOK OUT!

It’s time to “pay the piper”  and Bill Griffo from Power Income and I will be diving into that topic heavily.

(Speaking of Bill, grab his incredible new Trade the Fed ebook that was released this week! It will be very useful in the months ahead.)

It was a week of noise in DC … but some ripples are starting to form.

We’re going to keep an eye on how those ripples develop.

Cutting Through the Noise for You.

Frank


Possibly the Most Important Metal

Hey Influence Traders,

I’m back to the cold and snow of the Northeast.

Mexico was amazing – celebrated a friend’s birthday and drank my fair share of margaritas (and perhaps a few other’s fair shares too).

Lo siento mucho!

Pre-Covid
Mexico felt almost like pre-covid … at least where we were in Tulum.

Not a lot of mask wearing and a true tourist mentality.

We did have to get tested before returning to the US, which is a great business for in room testers at Mexican hotels.

Green Business
While green vehicles have not been embraced in Mexico, Tulum certainly focuses on keeping things clean and natural.

They like natural surroundings and maintain them with a low human and carbon footprint.

I’m going to miss the natural approach.

Back to Work
I definitely didn’t miss the snow.

And I can’t say that I missed seeing the start of the next round of DC circus performances.

The impeachment is in full swing – the markets don’t seem to care and they shouldn’t.

It’s just more noise and distraction.

What I did see when I got home were a lot of Tesla’s and a lot of talk about green energy/being carbon neutral.

And I saw an opportunity.

More batteries = more lithium = more digging out of the ground.

Lithium & Cobalt
Last go around, we discussed Cobalt.

Today, we’re digging in on its partner – Lithium.

The average electric vehicle (EV) battery weighs about 1,000 pounds and requires the excavation of more than 500,000 pounds of materials.

Fun fact: About 140 pounds of a Tesla Model S battery is lithium.

While EVs account for just 3% of the U.S. car market, demand here and abroad is rising, and the demand for lithium will rise with it. GM, for example, announced last month that it will move to all-electric production by 2035.

Many lithium stocks saw great gains in 2020, but there is currently no replacement for its use in generating, storing and using energy.

So, as demand rises, we will see supply issues … which will cause the price of the commodity to rise and make lithium a solid long-term investment.

I’m keeping my eye on a few of the big producers:

Albemarle (Ticker: ALB): ALB is Charlotte, N.C.-based company that is the world’s largest maker of lithium for EV car batteries. ALB’s stock price has been volatile over the years, but it is making smart moves. It just raised over $1.2 billion from a recent stock offering to increase production, and announced that it plans to double battery production in its Nevada plant by 2025. This plan should be helped by Biden’s Buy America program. ALB will release it’s 4Q results on Feb. 17  and is expected to beat estimates.

Tesla (Ticker: TSLA): You can’t discuss EV batteries and lithium without mentioning TSLA. Yes, the stock price has gone through the roof and is probably due for a correction, but TSLA continues to impress.

The EV car market is growing and TSLA is the undoubted leader in the space. While competitors are coming onliine, no company has the brand appeal of TSLA, which will allow it to remain a dominant supplier of EV cars.

Importantly, TSLA is making gains in the U.S., not just in market share but with a reputation for providing high-paying jobs. In short, while many EV car makers talk a big game, TSLA tends to deliver on its ideas.

In addition, the pandemic showed us the downside of not controlling critical supply chains, and TSLA is responding to that threat by dipping its toe into the lithium mining business. Expect that initiative to grow.

Lithium Americas (Ticker: LAC):  LAC is a development-stage lithium mining company. LAC owns and operates the Thacker Pass lithium project in Nevada. The mine is estimated to have enough lithium reserves for a 46 year mine life at full capacity. Phase one of the mine is expected to be commissioned in 2022.

LAC will require some belief in the future of EV car needs. LAC gained 295% in 2020 and moved another 57.1% in January on good news regarding the expected commercialization of the Thacker project. It might be fun to watch for dips.

Cutting Through the Noise for You,

Frank

These Pricy Metals Are Worth A Look

Hey Influence Traders,

Greetings from Mexico – I made a Power Move to escape the cold/snow and catch some rays!

Mucho gusto!

We’ve got a new Super Bowl champion (with an old captain at the helm).

That win kicked off the week with a bang and it does not look like it will slow down.

We’ve got a $1.9 trillion stimulus package on the horizon …

And the Fed is arguing for full employment next year …

Meanwhile, the circus continues in DC as Trump’s second impeachment trial kicks off “with a sense of urgency.”

The outcome might be pre-ordained, but it will be good theater either way.

Champa Bay!

Never count the old guy out – Brady led the Bucs to a win and claimed his seventh Super Bowl ring.

A lot of people said that Brady was too old to compete with the young guns. But don’t dismiss the old guard … particularly when they want it.

Experience counts – whether looking at quarterbacks and teams or trading stocks!

How Did I Do?

I picked the winner, lost the over and won the coin toss.

In the words of Michael Lee Aday (aka the recording artist Meatloaf), “Two out of three ain’t bad.”

By the way, I was one of the 23 million people who bet a total of $4.3 billion on the game.

Stimulus and The Fed

Many on both sides of the aisle are saying that President Biden’s planned $1.9 trillion recovery plan is excessive and will lead to inflation.

Treasury Secretary Yellen came to Biden’s defense this weekend and urged Congress to pass the bill, claiming that it will lead to full employment next year.

She argued on Sunday that there are 10 million Americans who are unemployed and another 4 million who’ve dropped out of the labor force, and that these people and small businesses need help to get back on their feet.

Yellen continued on, saying that while inflation is a concern, she has the experience to deal with it, and there is no reason in her mind to have a long, slow recovery when we can act fast.

Without the bill she believes that it will take until 2025 to get unemployment to the key 4% level.

Her views seem to be in the minority in both parties

In addition to the general dismissal of the inflation concern, there was no mention of the nature and quality of the jobs that she believes will be created.

We knew we were going to get an aggressive Treasury Secretary …

And to paraphrase a famous football coach rant, “She is who we thought she was!”

Old Guard

Alphabet, Amazon, Apple, Facebook and Microsoft saw combined revenue growth of $1.1 trillion over the past year and their combined market caps skyrocketed to $8 trillion

All that tech is going to need things dug out of the ground.

So don’t bury mining …

Lithium & Cobalt

Lithium demand is being driven by the battery market, particularly with the rise of electric vehicles. 

Big producers like Albemarle (Ticker: ALB), Tesla (Ticker: TSLA) and Lithium Americas (LAC) look strong for the long-term.

But there is another crucial element to battery production – cobalt.

Cobalt is a rare, hard, metallic element with broad applications, from magnets to chemical catalysts.

But more than half of all cobalt produced is used to make battery chemicals for EV batteries, along with production of superalloys used in aircraft engines.

Cobalt is expensive, which means that price swings can greatly impact revenue …

I’m keeping my eye on these two:

Glencore (Ticker: GLNCY): The world’s largest cobalt producer. Cobalt is a minor part of its business, but every $1 change in the price per pound of cobalt can impact Glencore’s earnings by $100 million.

Vale (Ticker: VALE): A Brazilian miner that recently struck a deal to sell 75% of its future cobalt production from its Voisey’s Bay mine in Canada to two companies: Cobalt 27 Capital and Wheaton Precious Metals. That move gave it the cash to increase development.

Adios for now …

Cutting Through the Noise for You,

Frank

Week in Review

Hey Influence Traders,

It was certainly an exciting week in the markets between the GameStop Saga of ‘21 and a sputtering #silversqueeze.

GameStop took off toward the moon and tried to drag a few other names and the silver market along with it.

That mostly fizzled out — but not before catching the attention of the Hill, regulators and the SEC.

It will be interesting to see how long that lasts.

Otherwise, it was a relatively quiet week in Washington from a ripple perspective.

Executive Order Count

Biden certainly slowed down this week from his initial executive order flurry.

According to the Washington Post, to date he has issued 29 new executive orders and revoked another 30 that were issued by former President Trump.

The majority of the recent orders have centered around immigration reform, with a smattering of national security actions.

Confirmation Calendar

The Senate has now confirmed six of Biden’s 23 cabinet picks … with no controversy.

For those keeping score, it’s (cue Chicago Bulls 90s intro music):

  • Janet Yellen – Treasury Secretary
  • Pete Buttigieg – Transportation Secretary
  • Alejandro Mayorkas – Homeland Security Secretary
  • Antony Blinken – Secretary of State
  • Llyod Austin – Secretary of Defense
  • Avril Haines – Director of National Intelligence

With the exception of Yellen, these picks are not too exciting and aren’t causing a lot of K-Street to Wall Street ripples.

The Next Batch

We do have a few upcoming hearings that will have a bigger impact on the markets, so I’m keeping a close eye on this quartet of women:

  • Jennifer Granholm – Secretary of Energy
  • Deb Haaland – Secretary of the Interior
  • Cecilia Rouse – Counsel of Economic Advisors Chair
  • Isabel Guzman – Small Business Administration Administrator

Biden has issued a number of executive orders around energy and climate policy, and Granholm and Haaland will each lead departments that will have significant influence over such policy direction.

Rouse and Guzman on the other hand will help lead the administration’s economic response to the pandemic, including getting government grant money into the hands of small businesses.

It’s important to remember that political appointees can often have more impact on the market than the elected officials who appointed them, because they’re responsible for how policy is implemented.

Next time I’ll review a few names that could be impacted by the policies of the four nominees above.

I’ll also focus on some smaller mining sectors that, while not as large as gold and lithium, should not be ignored.

The Super Bowl

Tampa Bay is a 3-point underdog. I think that they ill not only cover — but will win outright.

Yes, Mahomes is the future of the sport and the Chiefs are the defending champs … but this could be Brady’s last stand for another ring. I think that he’s going all-in for his (and Option Pit Chief Income Trader Bill Griffo’s) new home town.

Plus the Bucs have a solid pass defense.

Total points is 56 – I’ll take the over with the two QBs driving those buses. I’m shooting from the hip on this one, as I’m basing my decision purely on offense.

Coin toss – heads (just because).

Cutting Through the Noise for You,

Frank Gregory