On July 3, we boarded the Cumberland Queen for the 45-minute ride to Cumberland Island. Cumberland is the last barrier island in Georgia. Jekyll Island is to the north. And to the south, if you cross over where the St. Marys River ends its run from the Okefenokee Swamp, you’re on Amelia Island.
Cumberland Island is now a National Seashore, at the behest of the descendants of Andrew Carnegie’s brother, Thomas. Thomas bought land there in the 1880s and started building a Scottish-styled mansion named Dungeness. A park ranger once told me the Carnegies would send a ship to the Arctic every summer to tow an iceberg or two down to Georgia so they could have ice for their cocktails.
Dungeness, as it looked in 1954
So, unlike the heavy development on most of the barrier islands that protect the shores of the southeast, Cumberland is very much in its natural state. Dungeness burned in the 1970s, I think it was. Wild horses now hang out on the front lawn.
When my stepdad was younger and still had a motorboat, we’d take that over to the island. One time we were stopped by the Coast Guard, who were clearing the channel as one of the nuclear subs based in nearby Kings Bay was returning from a six-week run. He finally got sick of that boat breaking down all the time, and the last few times I’ve been on Cumberland has been via the Cumberland Queen ferry.
Sadly, I just read this morning that the Cumberland Queen is now sitting on the bottom of the harbor in St. Marys, Georgia, sunk by Irma’s storm surge.
The Cumberland Queen is just a drop in the $50 billion damage bucket. But that’s much better than the initial estimates of well over $100 billion.
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The Market Loves a Surprise Party
As you might expect, the market loved the surprise that the storm wasn’t as bad as initially feared. And after what I can only call a surprise from Harvey, it’s definitely a relief.
Please understand I do not mean to minimize the impact these storms are having on people’s lives. There are many far worse tragedies than a sunken ferry…
I’m sticking to the script: market, stocks, and economy.
The S&P 500 hit a new all-time high on Monday. And it did it again yesterday. It’s pretty remarkable given where we are in this recovery cycle. It’s been eight years since the market bottomed. And there is still upside. Sure, there’s upside because the recovery has been pretty weak. But, so what? It is what it is, and maybe a long, slow recovery is better than a quickie.
And remember, the market is looking ahead, maybe six months. And it is telling us that it sees a pretty good environment for corporate earnings. And I will add that an apparently re-energized Trump administration is about to go on a full court press for tax reform. This is potentially very significant, as a lower corporate tax rate can add close to 10% to S&P 500 earnings.
I also want to add this important disclaimer: Just because the market is looking ahead to continued earnings growth doesn’t mean the risks have just disappeared. If the crazy NORK wants to lob another missile over Japan, we will get some downside. If the Fed gets more aggressive with rate hikes, stock prices will adjust lower.
The big money knows all this, but there’s no really efficient way to discount that into the market. It’s about odds.
Yes, bad things happen. Always have, always will. There is always a chance your oceanfront home will get devastated by a storm. But people will continue to buy them, because, what the hell, life’s short, and the beach is awesome. You buy insurance and board things up when it starts looking dicey.
Make Hay
And so it is that we try to make hay when the sun shines. Or make money when we can. And that gets me to the Wealth Daily piece I wrote for Monday, September 11…
I wrote:
As I write, there are two Dow stocks in the red: Caterpillar (NYSE: CAT) and Home Depot (NYSE: HD). I will readily admit I have no idea why Home Depot is in the red. You’d think this company would stand to benefit as homeowners take insurance money and repair damage to their homes. After all, 8% of Home Depot’s stores are in Florida, and 9% are in Texas.
I suppose you could assume that Home Depot is weak because Irma may not be as bad as initially expected. And if that’s the case, the stock is very likely to reverse this weakness and make a nice 3–5% move higher. Some October Home Depot call options at the $160 strike might be a good idea. They are trading around $1.
You might also keep an eye on Ross Stores (NASDAQ: ROST). I can’t speak to what kind of damage its stores have undergone, but 27% of Ross Stores are in Texas and Florida. That is a huge percentage, and so we can say that Ross has an oversized exposure to both hurricanes. That will certainly be a negative impact on sales right away. But it’s just as likely to lead to a nice surge down the line.
Ross is trading around $58 right now. But the 52-week high is up around $70. Some October 62.50 calls at $0.35 apiece could work out really nicely.
I recommended that exact same Ross Stores trade to my Real Income Trader subscribers. Our official entry point was $0.45. And yesterday, we sold those calls for $1.00. $0.45 to $1.00 is a very nice 122% gain overnight. Pretty much nailed it.
And those Home Depot calls did even better. From $1.00 on Monday, they hit $4.00 today.
Now, the Wealth Daily distribution list numbers around 400,000 people. So, I don’t send out trades like these often. For one, my paid subscribers get irritated when I give too much away. And two, you have to have a pretty high degree of confidence to send an options trade out to 400,000 people. That’s a lot of angry people if you’re wrong…
Confidence is not a problem for me. I’m pretty good at this. So, if you wanna make some hay while the sun is shining, or, even better, if you wanna make some loot on what I see coming, here’s how you do it.
Until next time,
Briton Ryle
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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.
