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

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