Fabulous Friday – Biden Throws Another $6Tn onto the Fire

It's not about the money…  It's about sending a message.

And the message is:  MORE FREE MONEY!!!  That's right, if you liked stimulus and even more stimulus, you're going to love even more than that stimulus with a $6Tn budget that will put us another $2.5Tn (10% of our GDP) in debt this year.  That allows the Biden Administration to continue to forecast 6% growth in GDP and it only costs them 10% of our GDP to buy it – what a bargain!

Sure a pessimist might say "But doesn't that mean our GDP is actually -4%?" but we don't invite those people to our maskless parties, do we?  No, we're looking at the positives as we kick off the summer so who cares if Biden has to buy himself an economy by increaing the National Debt by 10% in one year – that growth looks like real corporate profits and no one seems to care where they come from, so why should we? 

My daughter Madeline is an artist and she sells work on-line and I asked her why doesn't she turn some of her art into NFTs and she refused to do it because she's concered about the environmental impact.  And I don't mean in some vague, non-informed way – she was quoting me statistics about energy consumption, etc. and she simply doesn't want to make money harming the environment and I reminded her that Keynes said "In the long run – we're all dead" but that didn't go over well and I was thinking about the problem of explaining to people that there are right and wrong ways to make money – but that kind of gets lost in the shuffle when you need to make that money to feed your family, right?  

I think Biden is doing a lot of things right in his Budget (full details come out today) and we are actually investing in the future, not just giving money back to the top 1% as Trump did in his $4.7Tn budget last year.  Of course, Trump's budget included $1.5Tn in cuts to Medicaid and $845Bn in cuts to Medicare, so a lot of Biden's budget increase is simply to NOT cut off those programs that 10s of millions of Americans depend on every day.  Trump cut $207Bn in Student Loans and $220Bn in Food Stamps and another $100Bn (10%) from all non-Defense programs to pay for his tax cuts and his wall 

So undoing the damage Trump did is going to be expensive, especially if you count allowing a virus to ravage the population out of control for a year to be damage Trump did but, whether you blame the President or not – it still has to be fixed.  Biden is very much in the same place Obama was when he took over from Bush – an economy in shambles and years of economic neglect that needed to be reversed.  Obama spent big on 2009 and 2010 but he turned things around after that and I imagine Biden has the same plan but – holy crap – $6Tn?!?

President Biden’s first budget request will likely reflect many of the priorities he outlined on the campaign trail and in his two proposals to spend more than $4Tn on Infrastructure and Social Programs. The White House has said its proposal would increase spending on domestic programs, including education, scientific research and combating climate change. Officials said the goal is to make what they called long-overdue investments in core public services and agencies, such as the Centers for Disease Control and Prevention and to revitalize the Trump-gutted Environmental Protection Agency.

All this extra money sloshing around is, of course, inflationary and the Core PCE Index popped 0.7% in April, accelerating from 0.4% in March and that's despite Personal Income dropping 13.1% from March – as the stimulus checks wound down.  Consumers were still on a spending bings, 0.5% higher than March but much slower than March's 4.7% gain on February.  All the gains in PCE came from services:  Recreation, Food and Accomodations went up $112.6Bn in April while Consumer Goods spending dropped by $32.3Bn.  Keep that in mind when considering your investments.  

We added IMAX on Wednesday and that's a perfect stock for this environment and we'll see how the box office goes this weekend, which is traditionally a big one for Hollywood.  As I noted on Wednesday, Fast and Furious #9 is making blockbuster numbers overseas and that's a strong indication that people are going to be heading back to the movies.  We didn't get behind AMC because they are in precarious financial shape but that hasn't bothered traders, who have been piling into that stock this week:

Meanwhile, Viacom (VIAC), who own Paramount and Mirimax Studios as well as CBS, CW, Comedy Central, BET, Showtime, MTV, VHI, Nickelodeon… is down in the doldrums at $43.15 – a ridiculous bargain at that price.

It's a shame that we only have VIAC in our Long-Term Portfolio in a fairly aggressive spread that's already popping:

VIAC doesn't pay a great Dividend so no good for that portfolio and they move too much to be added to the Butterfly Portfolio and it's kind of a cheat to add them to the Earnings Portfolio, since this is a value play, not an earnings play.   It has nothing to do with long-term macros so it's not appropriate for our Future is Now Portfolio and it would be a stretch to put it into the Short-Term Portfolio and we only add new trades to the Money Talk Portfolio when we're on the show – so that's why it's only in the LTP.  

As a new trade, I'd go with:

• Sell 10 VIAC 2023 $40 puts for $8.40 ($8,400) 
• Buy 20 VIAC 2023 $35 calls for $13.75 ($27,500)
• Sell 20 VIAC 2023 $50 calls for $7.75 ($15,500) 

That's net $3,600 on the $30,000 spread that's $16,000 in the money to start.  The upside potential above $50 is $26,400 (733%) and the worst-case is owning 1,000 shares of VIAC at $40 (if you stop out the $35/50 spread at no less than $3,600, now $12,000), which is a small discount to where we are now. 

Have a great holiday weekend,

– Phil