Retail Sales are Up 10%.
Isn't that exciting? 9.8% actually but close enough. In a typical month, Retail Sales average $550Bn so up 10% is $55Bn and we only had to distribute $300Bn worth of Stimulus Checks to get it (not to mention March has 10% more days than February, but who's counting?). Aren't economics fun? You can manipulate the data to get any result you want if you plan ahead!
It's my job to cut through all the BS and tell you what is really happening. You have to look behind the data, like the price of gasoline rising 10% in February and Gasoline Sales contributed $10Bn (20%) of the $50Bn bump. Restaurant Sales were up 13.4% as restaurants re-opened and clothing stores jumped 18.3% as people went to malls for the first time in a year.
This is, generally, good news but to get all excited about a report that, in effect, shows that 20% of the stimulus checks were spent by the people who got them – is not really a solid premise for forecasting future growth. Nonetheless, the Dow is making new highs and the S&P is near them as it's a good headline to start the day with in the markets.
Earnings have been good so far and continue this morning. Delta was a big miss, losing $1.85/share – 50% more than expected and we'll see if they get a pass at $48, which is only $30Bn in valuation and DAL, in a good year, makes about $4Bn but last year they lost $12.4Bn and this year a good $2Bn will fly out the window so it's hard to get excited about paying $30Bn for a stock that's made net $0 in the past 5 years.
You know I prefer to play based on Macro News and we're not sure how travel will pan out in 2021 but we do know that the housing market is 4M homes short of demand – almost 3/4 of annual sales and that means we need to look at the builders and find some to add to our portfolio. Our favorite builder, Hovnanian (HOV) has gone to the moon since we played them last and they'll probably justify $100 – but it's hard to spend that when we last bought them at $20.
PulteGroup (PHM), on the other hand is still under-recognized at $53.50 as that is just $14Bn in market cap and PHM made $1.4Bn last year and should grow a good 10-15% for the next couple of years so it's very hard to imaging they can fail $50 and $40 should definitely hold. That means, in our Long-Term Portfolio (LTP), we can promise to buy them for $40 and consider the money we get paid to make that promise to be Free Money – as it's not costing us anything since we REALLY would like to buy PHM for $40:
- Sell 10 PHM 2023 $40 puts for $4.50 ($4,500)
- Buy 20 PHM 2023 $40 calls for $17.50 ($35,000)
- Sell 20 PHM 2023 $55 calls for $10 ($20,000)
That's net $10,500 on the $30,000 spread that's almost all in the money to start so all PHM has to do is not go lower and we will make up to $19,500 (185%) in 18 months – a 10% monthly return on our cash. The margin for selling the short puts is just $2,558.80 so it's an efficient play but of course that can increase if PHM goes down but, since we're very happy to pay $40,000 for 1,000 shares of the stock and we have allocated for it – it's really just a smart way to put our sidelined cash to work.
I'll be reviewing our Member Portfolios in our Live Member Chat Room today and tommorrow.
