Steel Revisited

Hey Influence Traders,

I’m out in the mountains shooting steel.

(I’ll give you the details on that another time — when they’re declassified.)

But that got me thinking again about the steel industry.

Infrastructure Needs Steel

Steel is a hot commodity.

We don’t know the final details of the Biden infrastructure plan — but spending on some level is going to occur.

And whether it’s traditional or green infrastructure, builders are going to need steel.

Global Shortage

With demand about to spike, there is a global shortage of steel.

The shortage is not just a U.S. problem, but a global one being driven by supply chain disruption and worldwide demand.

That is causing steel to hit record highs.

And the ripples of rising prices are colliding with Biden’s Buy America initiative.

Even Steel Can Ripple

I’m still a fan of Cleveland-Cliffs Inc. (Ticker: CLF).

CLF is an independent U.S. iron ore mining company and a supplier of iron ore pellets to the North American steel industry. It’s mines and processing facilities are located in Michigan and Minnesota.

CLF is American-owned and has been making strategic acquisitions to help solidify its competitive position and entrench it as a leader in steel production in parts of the U.S.

But if steel is in short supply perhaps recycling is the answer …

And that’s why I like Schnitzer Steel Industries Inc. (Ticker: SCHN), which is an Oregon-based manufacturer of recycled metal products 

SCHN is also a global leader in the collection, processing, and sale of steel. The company processes scrap metal and manufactures finished steel products from its own scrap.

It will also benefit from the global supply shortage of steel — and from the Buy American infrastructure bill. 

Expect SCHN to be added to the Power Moves Portfolio.

Cutting Through the Noise for You.

Frank Gregory

From Cold Storage to Electric Storage

Hey Influence Traders,

I hope that everyone had an amazing weekend.

I slipped in some quality family time, including watching my son play rugby – he’s a beast!

This week I’m out on a mission testing some top-secret military technology in the high desert of California — as DC and Wall Street Insiders do — so I’ll keep this short and sweet.

Electric Storage

Last week we looked at cold food storage.

This weekend, my network alerte me to a start-up called Solid Power, which is developing solid-state batteries as an alternative to lithium-ion batteries.

That got me thinking about how to make an early entrance into this new battery tech.

Solid Power is a start-up company that makes solid-state batteries.

Unlike lithium-ion batteries, which are the go-to for electric vehicles, solid-state batteries don’t use a liquid electrolyte.

That means that solid-state batteries are lighter and have greater energy density, which provides more range at a lower cost.

The tradeoff is that they are more costly than lithium-ion batteries — and the tech is still new.

Despite being a start-up, Solid Power is getting some high-profile attention.

Ford and BMW just lead a $130 million funding round for the company.

That investment comes on the heels of Ford announcing that it plans to put $22 billion into vehicle electrification through 2025.

While Solid Power is a start-up, QuantumScape (Ticker: QS) develops solid-state lithium-metal batteries for use in EVs and currently is trading on the NYSE.

QS went IPO in August 2020 and is headquartered in San Jose, Calif.

As regular readers know, given Biden’s Buy America focus, I lean towards U.S. companies that have a green energy tilt.

QS claims that the increased energy density of its solid-state lithium-metal cells will translate into a 50-80% range improvement over today’s leading electric vehicles. That’s HUGE!

While QS’s stock price has cooled recently, along with the rest of the EV sector, I’m adding this to my Starting Lineup watch list to see if we can get some interesting trades around it.

And if the infrastructure bill kicks in, QS should benefit.

Power Moves Portfolio Trade

Power Moves trader extraordinaire Andrew Giovinnazi is putting some meat in today’s piece.

He looked at my Power Moves weekend update, examined one of my ideas, crunched the market volatility around it and put a hot semiconductor trade in play.

From AG:

 

I like Frank’s idea for Taiwan Semiconductor Manufacturing (Ticker: TSM). As you can see below from the top chart, TSM has gotten the beatdown lately from the high $130s to its current price around $116.

 

TSM 2 year candlesticks top graph, TSM 2 YEAR 60 Day Implied Volatility (IV) in Yellow, bottom graph

 

Implied volatility is pretty low here which means the price of calls and puts are cheap. I am more interested in calls and a bounce back up to the $120’s as investors look for the stock with the best chance to bounce after all of Big Tech got sold after this earnings cycle. I want to buy some June calls and write — that means sell — some calls against it.

 

Think of this as a buy-write, but instead of buying stock I am buying a much less expensive TSM Jun18 120 call for around $3 …

If TSM rallies quickly, I will sell a call against it to bring in some premium dollars. I will buy four calls since I want to spend about $1,000 per trade.

 

Part 2 of the Thesis Is Weak Tech

 

Almost every Big Tech company, car company and electronics company that make gizmos needs chips.

 

There is a shortage of chips and that will hit the Invesco QQQ Trust Series 1 ETF (Ticker QQQ), with Apple (Ticker: AAPL) at the top of the list. See the chart below showing QQQ implied volatility is at a six-month low.

 

PowerShares QQQ ETF (QQQ) 30 day implied volatility is the red chart in the bottom half

 

QQQ got to $301 in early March and I don’t see much below that with $320 as a more recent low.  I can buy 1 QQQ Jun18 330/315 put spread for 3.54 or buy 2 put spreads for $700.  It is not easy to short this market but I don’t see how the chip shortage does not hurt with QQQ only 6 points off of the all-time highs.  I pick a put spread because it does give me a reduced cost overall.

 

Now put both ideas together.  I have a long trade in TSM and a short trade in QQQ.  One is a long direction trade and one is a short direction trade.  Together both are market neutral; if the broader market drops a lot I will do ok with the QQQ puts but if we get a run TSM should participate if our thesis is correct.  My plan is to make money on both.

 

My Current Trade

 

Andrew and I own the Palantir (Ticker: PLTR) May21 24 calls and 21.5 puts. After a rally to near $24, PLTR has faded. We wanted to generate a couple of dollars before earnings.

Andrew’s idea was:

      • Buy the PLTR May07 24/23 puts 1×2 for even money to bring in some cash. However, we never got close to being filledl, so …
      • With the drop in PLTR, Andrew bought the May07 23.5/22.5 1×2 put spreads for a .15 debit. We never saw a credit and this is a good play to pay for a good part of our strangle.
      • Andrew bought 1 put and sold 2 puts two times total to finance the strangle, so it should bring in about $80 per spread.

So that’s where we’re at for the moment. Questions about this, drop us a comment below.

In the meantime, I’m getting back to testing this top-secret military tech …

Cutting Through the Noise for You,

Frank

 

Weekly Roundup – One Company’s Loss is Another’s Gain

Hey Influence Traders,

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

ALERT: I’m adding a new feature — the Power Moves Portfolio Roundup — to highlight what Andrew and I have been doing for the week. Check it out further below.

The Highlights

        • Tax and spend, baby!
        • A record was set at the Kentucky Derby.
        • Crypto remains ON FIRE!
        • SpaceX successfully came back from … space.
        • The largest inheritance tax bill ever!
        • Chips are down but not out.

DC Action

The big news out of D.C. was President Biden’s address to the nation in which he outlined his plan to spend an additional $1.8 trillion on domestic policies and substantially raise taxes on what he describes are the “richest Americans.

The American Families Plan includes new spending on childcare, education, and paid leave. We’re talking about …

        • Universal preschool programs for 3- and 4-year-olds
        • Two years of free community college for all Americans (I can go back for my welding degree!)
        • More affordable childcare options
        • Increase federal funding for childcare providers
        • 12 weeks of paid leave for people needing to take care of children or other family members
        • Biden plans to raise taxes on wealthy Americans to pay for most of these initiatives. Here’s how:
        • Raise the top individual rate from the current 37% to 39.6% for incomes over $400,000 per year. 
        • Raise the top Capital Gains rate from 23.8% (20% + 3.8% Medicare levy) to the ordinary income rate (39.6%) for households making over $1 million (or 43.4% with the Medicare levy).
        • Eliminate stepped-up basis for inherited gains in excess of $1 million ($2.5 million per couple).
        • Eliminate the carried interest loophole so that private equity managers and hedge fund partners pay taxes at ordinary income rates instead.
        • Eliminate like-kind exchanges for real estate investors who defer taxation by exchanging property for another piece when the gains are greater than $500,000. 

Remember, the President’s proposal is just a starting point for what will be long and contentious negotiations.

The whispers on the Hill from some Democrat Senators are that the plan as outlined is likely dead on arrival in the Senate.

Does that mean spending won’t happen? NO! Does that mean taxes aren’t going up? NO!

It just means that the details are a long way off.

      • Wage Rage: President Biden signed an executive order raising the Federal minimum wage to $15/hour for all federal workers and contractors starting in 2022. Opponents immediately sounded the alarm for certain states that do not have the economy to support such wages, arguing that the order will make federal work less attractive for some companies in lower-wage areas.
      • The Race Is On: One of the reasons the Democrats are moving fast and furious to implement their agenda is because they know that the odds are against them holding majorities in both houses of Congress after the midterm elections next year.

The reason for that concern is on display in Texas where a runoff election for a House seat is being viewed as a bellwether event for the coming election cycle.

Susan Wright, the wife of the late Republican Rep. Ron Wright, advanced to a runoff election in Texas’s Sixth Congressional District.

There were 23 candidates originally on the ballot and the runoff will be between the two top candidates.

While Wright’s runoff opponent has yet to be determined, it looks likely that it will be against another Republican candidate who is leading the closest Democratic challenger.

Democrats were counting on flipping this seat in what is the country’s first competitive contest since Biden took office.

Power Moves Portfolio Roundup

I’ve been following the cybersecurity and big data company Palantir Technologies (Ticker: PLTR) for a few months. It’s a growth stock play on big data.

My Power Moves Portfolio Partner (and Option Pit Director of Education) Andrew Giovinazzi jumped on it this week and put on a trade that he wants to “ride” until just before earnings on May 11 and close the calls for money.”

        • We own the PLTR May21 24 calls and 21.5 puts.
        • We are looking at buying the PLTR May07 24/23 puts 1 x 2 for even money to bring in some cash. That way, if PLTR pins $23 next week, we can pick up $200 or so.
        • This acts like a put credit spread but breaks even down to $22. Note again: we already own the 21.5 puts; we expect to add the 1 x 2 put spread Monday.

Power Mover of the Week

      • Crypto: Ethereum (Ticker: ETH) hit a new high this past week, going over $2,956 per coin on a surge of positive news for cryptos that use ETH as their underlying technology.

The spike follows Tuesday’s announcement that the European Investment Bank will sell bonds on the Ethereum network and the Visa (Ticker: V) announcement that it will settle transactions using ETH. 

Big finance likes ETH, with the Visa CEO Alfred Kelly Jr. announcing that the financial services company is moving into crypto in a “very big way.”

I think that ETH will continue to move but I’m looking for a price dip into the $2,500 range to make a buy to maximize returns.

Meanwhile, Tether (Ticker: USDT), the stablecoin backed one-for-one by fiat currencies, surpassed $50 billion in circulation.

Tether is set to finally release a statement on its reserves to the New York Attorney General as part of a settlement with state regulators over whether it actually has the reserves.

There is no investment to be made with USDT, but watching the movement in/out will provide a good sense of the activities in Bitcoin (Ticker: BTC) and ETH since a large portion of those cryptos are bought with USDT.

      •  SpaceX: Last week these Musk-eteers won a contract to go to the moon. This week they successfully brought a shuttle with four astronauts from the International Space Station back to earth.

The four landed safely in the Gulf of Mexico in what NASA called SpaceX’s first “operational mission.”

      • Kentucky Derby: Medina Spirit (at 12-1) won the 147th Run for the Roses after holding off Mandaloun in the final stretch.

The win gave trainer Bob Baffert a record setting seventh Derby win and jockey John Velasquez a record-tying fourth win.

Let’s pause to reflect the first Derby was run in … 1875.

      • Kids (of All Ages): Disney (Ticker: DIS) reopened its two California theme parks, which had been closed for the pandemic since March 2020.

The reopening is restricted to California residents. (Which seems to be a dwindling number if Congressional seats tell the tale.)

Disney’s “Parks, Experiences and Consumer Products” division accounted for 37% of its $69.6B revenue in 2019, around $26.2B.

That shrank to $16.5B, or 25% of total revenue, in 2020.

Regardless, a greater focus on streaming helped DIS rise 75% last year.

Reopening should allow for further growth of this entertainment sector giant.

But my Power Mover of the Week is … The Economy and Inflation

The US economy grew by 1.6% in Q1 for a 6.4% annualized growth — which is the second-largest quarterly expansion over the past decade.

The rebound was driven in large part by an increase in consumer spending that was fueled by recent stimulus checks. (Or “stimmys,” if you must.)

Meanwhile, the Bureau of Labor Statistics reported that the Consumer Price Index (CPI), which measures the average change in the prices paid by U.S. shoppers for consumer goods, increased 0.6% in March, the largest rise since August 2012.

Rising costs are not just impacting the U.S. Great Britain saw inflation hit 0.7% in March.

With this combination, we can expect to see companies recalibrate their pricing to take inflation into account, which will drive up prices.

If the economy gets hot, expect inflation to get hotter.

For that reason, I recommend following Option Pit Head Income Trader Bill Griffo, who is locked in on all things inflation.

Power Loser of the Week

      • Samsung Family: The Samsung heirs said they’ll pay approximately “one Cave of Wonders” in inheritance tax following the death of Samsung chairman and family head Lee Kun-hee last year.

I was familiar with that unit of measurement, but it equals $10.8 billion, the largest inheritance tax ever. (And kudos to the PR team member who spun up that description.)

To help rejuvenate Kun-hee’s tarred image, the family will also donate 23,000 artworks and antiques to museums, including works by Dalí, Monet, Picasso, Park Soo-keun and Lee Jung-seob.

      • Gavin Newsom: A campaign to recall California Gov. Gavin Newsom has obtained enough poll signatures to put the issue on the ballot following the public relations disaster he created by attending a party at French Laundry while urging Californians to avoid public gatherings.

An election is likely in the fall and if Newsom survives the recall he will be up for re-election in 2022.

In a twist, former Olympics champion and transgender activist Caitlyn Jenner announced that she would run against Newsom.

Sometimes I feel like I’m writing for The Onion.

NASA: Apollo 11 Astronaut Michael Collins has died at 90. He piloted the command module while Neil Armstrong and Buzz Aldrin walked on the moon.

He famously remarked while going around the dark side of the moon that “If a count were taken, the score would be three billion plus two over on the other side of the moon, and one plus God only knows what on this side.”

      • India: The country now accounts for more than 40% of the world’s new COVID cases and the U.S. announced plans to halt travel for non-U.S. citizens from India.

But my Power Loser of the week is … The Global Microchip Market.

The global chip shortage is ballooning and automakers and tech giants are sounding the lost revenue alarm.

Apple (Ticker: AAPL) warned that lost sales of iPads and Macs from production cuts would cause a $3-$4 billion hit in Q3.

Ford Motor Co. (Ticker: F), Honda Motor Co. (Ticker: HMC) and BMW AG (Ticker: BWM) all announced production slowdown and reduced earnings forecasts as a result of the component shortage. 

From Drought Comes Opportunity

The issue is that chipmakers can’t manufacture chips fast enough to satisfy demand.

But while Intel (Ticker: INTC) has suffered from recent development and launch problems, Advanced Micro Devices (Ticker: AMD) has seen an uptick in demand for its CPUs because it wisely outsourced production of most of its chips to Taiwan Semiconductor Manufacturing (Ticker: TSM).

TSM is considered the world’s most advanced chip foundry, and it was able to keep its Taiwanese plants online during the pandemic and ramp production to meet demand.

TSM is running at 100% capacity and recently announced that it will invest $100 billion over the next three years to expand operations.

The semiconductor shortage shows no signs of abating, so TSM should continue to benefit from increasing demand for its products and I will be looking to trade it soon in the Power Moves Portfolio.

Cutting Through the Noise for You.

Frank

Cold Storage Is Heating Up!

Hey Influence Traders,

The Biden administration got aggressive last night!

Spending, spending and *checks note* more spending!

And a big tax bill to boot!

While nothing is set in stone … the direction this administration wants to go is clear.

Tax …

Income taxes are going up for folks making over $400k per year.

The top rate will go to 39.6% from 37%.

Capital gains taxes are also going up – almost doubling for those making over $1 million.

The top capital gains rate will go to 39.6% for those earning $1 million or more.

Some states will see combined federal and state capital gains taxes of more than 55%.

This will not only impact wealthy tax-payers on their yearly tax bills, but will cause them to owe significant amounts when they sell stocks or businesses.

The step-up basis benefit on inherited assets is also on the chopping block — and will impact the taxation of appreciated assets.

Repealing the step-up in basis provision would end a tax break that wipes away the capital gains on an asset when it is inherited. Currently, much of the appreciation on securities, properties and small businesses goes untaxed when the original owner dies.

Step-up in basis allows heirs to use the market value of assets at the time of inheritance rather than the actual purchase price as the cost basis for capital gains.

Spend …

The taxes will be used to pay for Biden’s “American Families Plan.”

The $1.8 trillion proposal will fund paid leave, childcare, and education programs.

The primary beneficiaries will be daycares, pre-k schools, and community colleges.

And the IRS will get an $80 billion bump in its enforcement budget to go after tax “cheats.”

The administration believes that this “investment” into the IRS will generate $700 billion in “revenue” over the next decade.

What Else?

Biden appealed for more people to get vaccinated.

He wants the entire country to get a shot in the arm.

But vaccinations have stalled.

Some folks are pushing back … they’re not buying it.

People ARE buying and storing food … which sparked an interesting trade thought.

Changing Behavior

From toilet paper to frozen meals, Americans became hoarders during the pandemic.

Freezers, in particular, became stocked with food staples (and ice cream, at least in my house).

People ate at home more — restaurants were largely closed, after all — and that required stocking additional supplies. And the increase in frozen product demand put stress on supply chains.

That trend does not seem to be slowing down even as the pandemic gets long in the tooth.

        • 57% of people in a recent survey said they are limiting the amount of time spent in stores.
        • 36% said they were still stockpiling groceries or household supplies.
        • 33% said they were buying more frozen goods than in past years.

Cold Storage

Getting enough frozen products to local store shelves and into homes requires regional cold storage facilities.

Those have been in short supply because they tend to be more expensive to build and run than traditional warehouses. (Just consider the mysteries of a mere refrigerator.)

But some companies are committing to the sector.

Americold Realty Trust (Ticker: COLD), a logistics company focused on the cold storage supply chain, is committed to growing in the cold storage space.

COLD grew its year-over-year revenue by 11.4% in 2020. 

They also acquired Agro Merchants Group for $1.74 billion — which added 46 facilities to their portfolio.

As for the stock, it has been heating up of late and closed yesterday at $38.85 up from it’s 2021 low of $33.90 in March.

COLD wants to meet the demand for cold storage at the last stage of distribution – where people live.

Building and running cold storage facilities is a specialized industry compared to conventional warehouse operations, which is why operators can charge premiums over non-refrigerated storage.

COLD is not without risk – building and running cold storage facilities is more expensive than traditional warehouses and rededicating them is inefficient. 

Moreover, in this fast paced world, sentiments can quickly shift. Will people go back to eating out or will the trend of in-home dining and hoarding continue?

The polls say the trend is growing and here to stay.

If you believe that, COLD is positioned to meet this growing trend.

Cutting Through the Noise for You,

Frank

Travel Movers!

Hey Influence Traders,

I had an amazing weekend.

Hope that you did too.

I pulled a #PowerMove and took my wife to Napa for her birthday … and with a new tool I’m rolling out, maybe I’ll see you there next time.

Winners/Losers

After our trip, airlines, rental car companies, restaurants and wineries are all winning.

My waistline and liver … losing!

Investors also took a hit this past week with Biden’s announcement that the capital gains tax rate is going to almost double.

We expect to see details this Wednesday.

We are going to dig deeply into Biden’s plan in the coming week.

The Power Moves Portfolio

Option Pit Director of Education Andrew Giovinazzi and I premiered our new Power Moves Portfolio at last week’s Option Pit Round Robin – we have combined forces to make you more money by connecting DC decision making and options trading.

Attendees at the mentoring event got the first peek. I’m partnering with Andrew to run a book of options trades based on the long-term spending trends that I identify in D.C.

I’ve identified a “Starting Lineup” of securities that Andrew will move into and take positions around.

Our first trade, Freeport-McMoRan Inc. (Ticker: FCX), is up 15% (Andrew bought 4 FCX Jun18 32 calls and sold 4 FCX May21 36 calls for a $3.20 debit).

Power Moves Portfolio has HUGE potential for you as the Biden infrastructure bill comes into focus.

Our first two trade ideas — and the “Starting Lineup” of names we’re monitoring — are available when you click here.

Travel is Taking Off

I traveled throughout COVID.

There is nothing good to say about COVID, except that airline tickets were cheap, planes were empty, and cars and hotel rooms were easy to get.

Well, as Dylan said – the Times They are A-Changin … or they are changing back.

On this trip, flights were premium priced, planes were packed, rental cars were hard to find, and hotels are back to pre-COVID prices.

While the outlook for the airline industry is taking off, the outlook for the cruise industry is sinking.

Planes

The airports were as packed as the planes themselves, and I had to pay a premium for my tickets.

That increase in demand is causing airlines to add more staff and flights.

And while passenger traffic is still down 40% over 2019, a number of airlines have even predicted that they expect to turn a profit this summer.

Southwest Airlines Co. (Ticker: LUV) managed to turn a small profit in Q1 of this year and is planning on recalling 2,700 flight attendants by the start of summer.

Other U.S. carriers, such as Delta Air Lines (Ticker: DAL) and United Airlines (Ticker: UAL) lost money in the first quarter, but they are also gearing up for a busy summer season and expect to offer as many seats this July as they sold in July 2019.

Obviously, there are still many variables. The direction of the pandemic seems to change on a weekly basis and many countries still have travel bans in place.

But a number of airlines are telegraphing a belief that restrictions will list enough to allow full flights to European destinations.

Even if international travel does not pick up as expected, pent-up demand for U.S. domestic travel, as well as travel in the Americas, can more than make up demand.

Boats

While planes and hotels are filling up, and vacation rentals and car rental companies can’t meet demand, the outlook for cruise lines is not as buoyant.

A number of important cruise destinations, from Alaska to the Caribbean, are rethinking if they want to invite the pre-COVID cruise crowds back to their ports.

At the same time, the U.S. Centers for Disease Control and Prevention (CDC) have successfully been keeping ships from sailing by claiming that COVID can’t be contained on ships.

Cruise ships have been docked for more than a year – losing close to $50 billion in economic activity.

The CDC has issued a set of guidelines that cruise lines can implement to sail again, but those rules have been described by the industry as being “so burdensome and ambiguous that no clear path forward or timetable can be discerned.”

As a result of the industry’s push-back on the guidelines, the CDC has been dragging its feet in response to the industry’s concerns.

Senators Rick Scott and Marco Rubio of Florida, along with Sen. Dan Sullivan of Alaska, have introduced the Cruise Act Bill, which would require the CDC. to issue guidance allowing U.S. flagged carriers to start sailing again.

If cruising does not restart — and soon –,the ports of Miami and Ft. Lauderdale have a lot to lose.

Some cruise lines, such as Carnival Corp (Ticker: CCL), are considering moving their operations to Europe where sailing is allowed, but many of the routes will require that all passengers and crew be vaccinated.

The airline industry is ready to get passengers to cruise ships. Let’s see if the cruise industry can catch up.

Cutting Through the Noise for You,

Frank

The Fed Mistake you Can’t Afford to Miss

Hey There Income Hunters,


Let me tell you, growing up with an Sicilian dad was not easy …


He didn’t give me an inch of wiggle room!


We would go to a wedding and he would watch me from the other side of the room. If someone came up to shake my hand and I didn’t look them in the eyes and give the vice grip, he would run over and smack me in the back of the head.


True story!


Or even worse, if he told me to do something and I said I would but didn’t follow through — that was a kick in the butt!


He drilled this into my brain: Your word is your BOND, Billy, don’t ever forget that!” 


Obviously, then, that became a strong belief of mine — and I also expected it of others.


For instance, when I first started working on Wall Street, as I studied the Federal Reserve, I took our central bank at its word …


My mistake!


It would crush me when officials would say one thing only to flip-flop and do the opposite. I would lose a small fortune — and I would actually want to go find them and deliver a kick in the rear.


Needless to say, I quickly learned never to trust them …


Today, I’ll show you how Fed Chairman Jerome “J-Pow” Powell assured the market on a policy stance only to completely change course.


I guarantee this will happen again at a critical moment before this year is over and you will need to be ready for it. It will be very similar to what he did in 2018.


The Powell Flip-Flop


Here’s the setup. Not so long ago …


  • The Fed had printed $4.7 trillion in quantitative easing (QE)

  • Unemployment was low 

  • Inflation was above the 2% target

  • The Feds raised the effective rate — the overnight rate that banks lend and borrow against — and with that overall borrowing costs rose to slow the economy …



The Timeline


In late 2017, Powell announced that the Fed would raise rates and also start reversing QE to shrink the balance sheet …


One of those actions probably would have been OK — but to do both at the same was overkill.


Sure enough, stocks tumbled almost 10%. The market then began grinding back-up and consensus was that the Fed would stop tightening at 2%.


In mid-2018, stocks started dropping and by October they were back down 10%. Powell was asked during an interview if he was comfortable with where rates were … 


For some reason he doubled down and said rates weren’t close to where he believed they should be …


WTF!?!


The market punished him for that with another 10% meltdown. This was right into the end of the year — and it ruined Christmas for many.


So literally the first week of 2019, as the market was still going down, Powell came out and said they are done raising rates.


Instead, he started up QE again and started cutting rates…


That simply showed his weakness.


People at the Fed are economists who know how to read models — but have zero clue about how the market works. 


No matter what he says, Powell will not make that mistake again …


No, their mistake this time will be to wait too long to raise rates. That will allow inflation to go higher and stay higher because they will error on the side of higher not lower inflation….


Be prepared!


PLBY: A Unique Opportunity


OK, I believe at $45 PLBY is a 7- or 8-bagger within three years and want to play it by buying long-term calls and then selling short-term calls to add Power Income


Check out volatility differences below …



This is a gift! In the scenario above, I’m buying a 97% vol call and selling a 156% vol call.


In this scenario, I can buy a 20-month 40 strike call for $26 and can sell a 1-month 55 strike call for $6 …


If I keep rolling the short call every month, I will own a free call in approximately 4 months!


That’s incredible — the vols can shift, but so what if they do?


Let’s say I only sell the 1-month call and it expires worthless… 


Now, I own a 40-strike PLBY call for $18… and for 19-months… on a stock that will be well over $150 by then… Not a bad trade…


Bring It Home


Options offer unlimited opportunities and allow you to be so creative.


This trade in PLBY just seems too easy — but it’s the real deal.


It all starts with the value of the underlying stock. I think “the Street” undervalued PLBY from the beginning. Check out my full analysis here …

I see many other opportunities coming up in May and look forward to sharing ideas next week…


In the meantime, have a great weekend and as always …


Live and Trade With Passion My Friends,


Griff

Weekly Roundup – Masters of Autonomous Trucks

Hey Influence Traders,

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

We’ve got big winners and losers … and a first to the public markets.

The Highlights

        • We have a new Masters champion – a first-timer from Japan.
        • Crypto is ON FIRE!
        • SpaceX is going to the moon.
        • Vaccine hiccups.
        • An auto-driving company has come to market.
        • DC Action

On the Washington front, President Biden made some key foreign policy moves, including:

        • Slapping sanctions on Russia in retaliation for alleged hacking and meddling in the U.S. election.
        • Announcing an American troop pullout from Afghanistan.

Power Mover of the Week

      • Crypto: Coinbase’s (Ticker: COIN) successful direct listing, with a final valuation of $86 billion, is an indication that the market is taking crypto assets seriously.

Coinbase now has a higher market valuation than the operators of the traditional stock and bond exchanges.

In addition, Coinbase and a few other firms announced the establishment of a new trade group with “a mission to unlock the transformational promise of crypto.”

The Crypto Council for Innovation hopes to influence policies that will be critical for expanding the use of cryptocurrencies in conjunction with traditional finance (and, by extension, the businesses of the group’s members).

Not everyone is as upbeat

        • Turkey’s central bank has banned the use of cryptocurrencies to pay for goods and services. Turks have embraced cryptos due to a lack of confidence in the Turkish lira. Crypto trading volume in Turkey reached 218 billion lira in February and March, up from just 7 billion lira during the same period a year ago. Today, just one Bitcoin could buy nearly half a million liras.
        • China previously banned Bitcoin trading in 2017.
        • India is preparing to impose one of the strictest bans on cryptocurrencies and fines on those trading and holding assets.
        • Nigeria has also indicated that it might impose restrictions on the use of BTC over fears that it is eroding the value of their local currency.

  • SpaceX – Elon Musk’s team beat out Jeff Bezos’s Blue Origin team to win a NASA contract for a lunar lander.

  • Japanese Golf: Congratulations to Masters Champion Hideki Matsuyama, who took home the green jacket and almost $2.1 million in prize money. He is the first person from Japan to win the tournament.

  • Pandemic Billionaires: It was announced that nearly 500 People became billionaires during this pandemic year. My name was mysteriously left off the list.

  • Cuba: Raúl Castro announced that he was ceding leadership of Cuba’s Communist Party, which means the island nation will not be led by a Castro for the first time in over 60 years.

The word on the street is that Cuba’s next generation of leaders will announce reforms to reorient the country toward a socialist system and away from the Communist model that has stalled the island since Fidel came to power in 1959.

But my Power Mover of the Week is – Domestic Green Energy

President Biden has begun his push to have his infrastructure bill, with its large green energy focus, passed through congress. He has been going on road shows and hosted a bipartisian coalition of legislators at the White House to pledge working together.

Solar will be a key component of Biden’s infrastructure plans.

One of the top areas for the production of solar panels in the world is Xinjiang, China. But companies around the world are under pressure to sever ties with Xinjiang after wide-spread reports of human rights abuses in that region.

Rare earth mining is also integral to solar and wind farm production. The largest producer of rare earths is China and some of the largest reserves are in Greenland.

But voters in Greenland just ousted a government that wanted to attract foreign companies eager to tap the island’s rare-earth metals.

The opposition Inuit Ataqatigiit (IA) won a majority of seats in parliament.

Environmental concerns were on the top of voters’ minds. The IA pledged to shelve plans to allow a mining project at Kuannersuit. About two-thirds of Greenlanders are against letting the mining project go ahead.

That pledge deals a blow to Chinese-backed Greenland Minerals.

Power Loser of the Week

      • Gary Player’s Son: Wayne Player, Gary Player’s son and caddie at the Masters, got himself kicked out of Augusta

Prior to the start, the tournament honored Lee Elder. During that ceremony, of which Jack Nicklaus and Gary Player were partaking, Wayne attempted to promote a brand of golf balls that his dad has an interest in. He held the sleeve up throughout most of the ceremony … and was rightfully booted.

Traditions, not sleeves of balls, are to be upheld, sir.

      • Teen Tea Drinkers: My teenage daughter loves boba tea (also known as bubble tea). But increasing overseas demand and supply chain issues for tapioca from Taiwan, the base of the black pearls used in tea, have caused short supply.

The boba shortage is another example of the snarled global supply chains.

      • Steve Cohen: Mr. Cohen, the Mets owner, dumped his Manhattan penthouse at a 74% discount.

Cohen bought the place in 2005 for $24 million. He put it on the market in 2013 for $115 million, but dropped the price a number of times over the years, with the last price set at $45 million. The final sale price won’t be known until the deal closes, but at $29.5 million, it’s a 74% discount.

But my Power Loser of the week is Euro Vaccines.

      • AstraZeneca and Johnson & Johnson: As a result of side effects, including blood clots, the E.U. announced that it was unlikely to buy new doses of those vaccines.

Self-Driving Trucks

Biden has started his push to get his infrastructure bill passed, including road shows and courting a bipartisan group of lawmakers in the oval office.

And while Biden has made clear, publicly and privately, that he wants Republican support, the White House is also preparing to go it alone, if necessary, to get the bill passed.

That could put the GOP in a difficult position as a majority of voters seem to support certain levels of infrastructure spending.

Biden has stated that a key to his infrastructure plans will be to upgrade overland transport.

And this week the transport industry got a boost when TuSimple Holdings Inc. (Ticker: TSP) became the first dedicated self-driving vehicle maker to go public.

TSP raised $1.35 billion at a $9 billion valuation and will use the money to develop a fully autonomous fleet, which the company aims to start producing in 2024 with partner Navistar.

While the development of self-driving taxis has seen a lot of press, self-driving trucks could move more quickly to acceptance given their routes are more predictable, they conserve fuel costs and long-haul truckers are in short supply.

While the company advertises that it is a San Diego based entity, there have been questions raised about the influence of Chinese ownership. It will be interesting to see how that plays out in TSP’s stock price.

Cutting Through the Noise for You.

Frank

Cypto Mania!

Hey Influence Traders,

We’ve had an active week so far …

The End of Infamy

The poster child for bad behavior on WallStreet, Bernie Madoff, has died at the age of 82 in Federal Prison.

Madoff infamously ran a $17.5 billion Ponzi scheme that bilked Florida retirees along with Steven Spielberg and Kevin Bacon, among other luminaries, out of billions of dollars.

But in 2008 his scheme came crashing down, like all Ponzi schemes do, and he was sentenced to 150-years in prison.

A buddy of mine bought some of his artwork and, allegedly, his toilet seat at an estate auction:

Yes, I took that picture!

That same friend famously said: “Ponzi schemes work great … until they don’t.”

Kind of reminds you of other institutions:

Coinbase Is Trading

Coinbase (Ticker: COIN) went live yesterday with a valuation of over $105 billion.

Not bad for a company that one year ago was valued at just $7 billion.

The leading cryptocurrency exchange in the U.S. went public through a direct company listing as opposed to a traditional IPO.

The buildup to this listing gave a boost to Bitcoin (Ticker: BTC) and other cryptos.

The DC Connection

What do Power Movers in Washington have to do with digital assets?

Everything!

The Biden Administration has built an experienced crypto team.

And this week the U.S. Senate voted 53-45 to approve President Biden’s nomination of Gary Gensler to chair the U.S. Securities and Exchange Commission (SEC).

The SEC now has a Democratic majority and will aggressively pursue policy related to climate disclosures and new financial technologies.

Gensler had previously served as the chair of the U.S. Commodity Futures Trading Commission (CFTC) during the Obama administration.

He oversaw the regulation of derivatives after the 2008 financial crisis. Since then, he has been a lecturer at MIT on blockchain.

As SEC Chair, he’ll get to shape regulations around the cryptocurrency industry –and he intends to do so. 

At his confirmation hearing, Gensler, “Bitcoin and other cryptocurrencies have brought new thinking to payments and financial inclusion, but they’ve also raised new issues of investor protection that we still need to attend to.”

China Syndrome

China recently announced its intent to launch a digital yuan, and the Biden administration has taken notice

While Chinese officials have publicly stated that the purpose of the digital yuan is to replace banknotes and coins, to reduce the incentive to use cryptocurrencies and to complement current private-sector run electronic payments system, China has indicated that its long-game is to topple the dollar as the world’s dominant reserve currency.

China’s currency currently makes up little more than 2% of global foreign exchange reserves compared with nearly 60% for the U.S. dollar.

Officials at the Treasury, State Department, Pentagon and National Security Council are all studying the implications. A recent report from the U.S. Director of National Intelligence said the extent of the threat of any foreign digital currency to the dollar’s centrality in the global financial system “will depend on the regulatory rules that are established.”

And members of Congress have asked Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen in hearings about issuing a digital U.S. dollar.

Powell has stated that the U.S. does not need to be the first to issue a digital currency, but that “we need to get it right” when we do, and that questions of whether adopting such a currency have a public benefit have not been answered.

Yellen has likewise signaled interest in researching the viability of a digital dollar, believing that a digital version of the dollar could help address hurdles to financial inclusion in the U.S. among low-income households.

The View From K Street

The prevailing theme in D.C. appears to be that BTC is an asset, not a currency, which would indicate that the U.S. will allow it to exist alongside the dollar.

Some in D.C. do not share Gensler’s enthusiasm. Fed chairman Powell has stated that crypto assets are more for speculation than for payments.

And Yellen has been critical of BTC, calling it a payment system for criminals.

But that view was recently contested by an unlikely source – a former acting director of the Central Intelligence Agency.

Michael Morell, a 33-year CIA veteran, published a study that concluded that:

        1. The broad generalizations about the use of bitcoin in illicit finance are significantly overstated.
        2. Blockchain analysis is a highly effective crime fighting and intelligence gathering tool.

Morell also cautioned Yellen and other politicians, writing that, “We need to make sure that the conventional wisdom that is wrong about the illicit use of Bitcoin doesn’t hold us back from pushing forward the technological changes that are going to allow us to keep pace with China.”

BTC Is Going Mainstream

BTC keeps hitting new highs and shows signs of continuing.

Its market value is now roughly $1.1 trillion, which exceeds the monetary base of the British Pound Sterling!

Some might argue that BTC is at a peak … but history disagrees.

When BTC peaks, holders historically start depositing BTC to exchanges to sell …

For example, inflows from addresses to exchanges hit all-time highs in January 2018. But this past week, inflows hit an all-time low, which indicates that people are holding onto, not selling, BTC.

And the growth in the asset class is attracting institutional attention:

 

        • Goldman Sachs restarted its digital currency trading desk.
        • Bank of New York Mellon announced it would offer cryptocurrency custody services to clients.
        • Tesla has gone all in.
        • Citigroup recently opined that BTC “may be optimally positioned to become the preferred currency for global trade.”
        • Morgan Stanley Wealth Management’s Chief Investment Officer reported that cryptocurrencies are reaching the threshold of becoming an investable asset class, similar to how gold markets emerged 45 years ago.

 

Even the IRS is taking notice, which means the taxman cometh. The IRS views cryptos as property, which means that cryptos are subject to capital gains taxes.

 

The IRS wants its piece of this massive market, and to help facilitate reporting the agency recently moved the “yes/no” question about whether a taxpayer has been involved in any digital currency transactions to Page 1 of Form 1040.

 

That question was previously buried in the tax form under Schedule 1, where it could be easily missed.

 

Moreover, BTC has a great risk reward profile compared to other assets:

The Blockchain and K Street are causing ripples.

BTC is not going away and will continue to become more mainstream. As that happens, the limited supply of available BTC will further drive value.

Cutting Through the Noise for You.

Frank

All Aboard the Tax Bandwagon

Hey Influence Traders,

Infrastructure spending is going up!

Social safety net spending is going up!

So …

Taxes are going up!

The Tax Bandwagon

Everyone (well, almost everyone) is joining the call for higher taxes.

From Joe Biden and Janet Yellen to Bernie Sanders and Liz Warren — it’s tax time, baby!

Heck, even the United Nations Secretary-General is calling for more taxes.

Of course, some aren’t on the tax train. (Including you, probably.)

Among other things, taxes will disrupt corporate earnings — which causes ripples.

But let’s look at who is askin’ for taxin’ …

Joe Biden

The President has made it clear that he is hiking corporate taxes to pay for his massive infrastructure plan.

He intends to raise the corporate tax rate from 21% to 28%, which he believes will bring the U.S. in line with other countries.

That reasoning is based on a conclusion by the Organization for Economic Cooperation and Development that the U.S. raises less corporate tax revenue as a share of GDP than most other first-world economies.

And, fair enough, corporate tax receipts today are at their lowest levels as a share of GDP since World War II.

Through the 1970s, many corporations paid half their profits in federal taxes. But that percentage has been declining and it is putting U.S. companies in the crosshairs.

According to the Institute on Taxation and Economic Policy, at least 55 big companies paid zero federal income taxes last year.

That does not sit well with many politicians.

Those leaders see the drop in corporate tax rates as a de facto decline in the tax rates on wealthy Americans because much of their holdings are in stocks.

That’s also not popular among pols.

Janet Yellen

Through an intricate web of deductions, exemptions and offshoring, many corporations pay well below the 21% tax rate.

To offset that, Biden wants to impose a 15% minimum tax on “book income.”

Book income is profits that firms report to investors — but they aren’t used to calculate tax liability.

As such, companies can be profitable and reward shareholders and executives — but pay nothing in taxes.

The administration would require companies with $2 billion-plus in annual income to pay a minimum 15% on book income.

The ITEP estimated that 45 corporations would have to pay under the proposal.

Meanwhile, Treasury Sec. Janet Yellen would like to double the global intangible low-taxed income (GILTI) to 21%.

GILTI is the income earned by foreign affiliates of U.S. companies from intangible assets such as patents, trademarks and copyrights, per the Urban-Brookings Tax Policy Center

Furthermore, Yellen’s proposal would close the gap between what companies pay on overseas profits and what they pay on income earned in the U.S. She has also proposed calculating the tax on a per-country basis, which would subject even more overseas income to taxation.

Bernie Sanders

Sen. Sanders has proposed an estate tax bill, known as the “For the 99.5% Act,” that would reduce the estate tax exemption to $3.5 million per individual (down from $11.7 million) and $7 million per couple (down from $23.4 million).

The bill also adds higher tax brackets for larger estates:

        • Current 40% tax rate would be raised to 45%
        • Estates greater than $10 million would be taxed at 50%
        • Amounts greater than $50 million at 55%
        • Amounts greater than $1 billion would be taxed at 65%.

The proposal would apply the same rates to gift taxes, with the base threshold lowered to $1 million.

Sander’s bill also attempts to raise the corporate tax to 35%, but that part of the bill will not fly given the contradiction with Biden’s plan.

On the flip side of the aisle, Sens. John Thune (R-S.D.) and John Kennedy, (R-La.), introduced legislation to repeal the estate tax.

That will be an interesting debate.

Liz Warren

Sen. Elizabeth Warren has proposed a 2% annual tax on wealth over $50 million, rising to 3% for wealth over $1 billion.

Her bill is called the “Ultra-Millionaire Tax Act” and she believes that it will close the wealth gap.

Other Players

Even the United Nations Secretary-General Antonio Guterres is calling for more taxes, recently urging countries to institute wealth taxes to help mitigate inequity.

During a recent address at the U.N., Guterres said that the rich had a $5 trillion surge in wealth during the pandemic while those at the bottom became more vulnerable.

He believes that government debt hurts the poor and that nations need to offset that impact through taxes on the wealthy.

Counterpoint

Not everyone likes the idea of higher taxes, particularly corporate taxes.

Republicans are generally opposed, with Senate Minority Leader Mitch McConnell vowing to fight the plan “every step of the way.”

The Congressional Budget Office (CBO) is also not on board.

A CBO study indicates that federal investment financed by an increase in taxes would lead to lower economic output and personal consumption.

The CBO concluded that tax hikes would outweigh the economic impact of $2 trillion-plus being spent on infrastructure.

Taxes decrease private spending and private spending has a greater economic impact than governmental spending.

The CBO concluded that federal investments deliver only half the economic returns as private sector investments.

Taxes are going up – to what extent we will have to wait and see.

Cutting Through the Noise for You.


Frank