Biden Stocks

Which stocks will benefit from a Biden presidency?

stocks up under biden

Tonight’s first Presidential debate may have a lot of people thinking about their stock portfolio. Should I sell everything? Should I buy everything? Or is there a way I can position myself to be in better shape if the incumbent loses the White House. Like you, I have no idea who is going to win but have some ideas on what stocks will benefit from a Biden presidency based on the policy changes that would occur. Let’s take a look at some losers and then winners of a Biden presidency.

Losers

Let’s start with the stocks that will be at higher risk with a Biden presidency. Trump has always advocated de-regulation and privatization of public lands for profit. This largely benefits energy companies operating in the US in the fossil fuel industry. Extracting oil and natural gas would become less profitable under a Biden presidency, so you could consider investing AGAINST Exxon Mobil (NYSE:XOM), EOG Resources (NYSE:EOG), Marathon Oil (NYSE:MRO). Buying put option spreads with expiration a few months into a Biden presidency would make sense.

Strategy

I would not naked short a dividend paying stocks because it means you have to pay the dividends to who you short the shares from, through your broker. Buying a put spread means you benefit from a declining price, but limit the price you pay to buy the put option since you are also selling a put option at a lower strike price.

Winners

Now lets take a look at some companies that will probably benefit from Biden. Biden’s policy website has it’s own page for clean energy plans, and it specifically emphasizes solar and wind technologies. I am a big fan of Vestas (OTC:VWDRY), a Danish company with operations in the United States holding the title as largest wind company in the world. I own shares of this company and it’s my preferred “green energy” stock. Another benefit of Vestas over another company involved in wind such as General Electric (NYSE: GE) is that it’s not as diversified. GE is in the business of fossil fuel power plants and a variety of different sectors which will diminish the gains experienced by green energy by the company. For that reason I do not favor buying GE at this juncture.

Tesla (NASDAQ: TSLA) will benefit from a push to move from gas/diesel automobiles to EV’s, as states like California push for EV mandates for personal and commercial vehicles. A Democratic presidency or series or presidencies would give the EPA more power to regulate and push consumers towards electric vehicles. Gasoline prices would be higher all things being equal with higher regulations on drilling and the business of oil and gas industries. Chinese competitor Nio (NYSE: NIO) will most likely rise alongside Tesla.

I own both Tesla shares and NIO shares.

Strategy

I hold VWDRY, TSLA, and NIO as long positions. Option strategies include buying call option spreads for these stocks with expiration after the election, or selling PUT options for a stike price near the money after the election.

One Percentage Point Cut in Benchmark Rate, Now at 0% – 0.25%

What Happened?

Today the Federal Reserve announced it will cut the benchmark rate to between 0% and 0.25%. On top of this, the Federal Reserve has said it will proceed with $700 billion in asset purchases (quantitative easing)

This is an important milestone in that the only additional tools the Federal Reserve now has to curb further depression in the stock market and slowing of the economy due to Coronavirus is to either:

  1. Push the benchmark rate into negative territory
  2. Introduce additional quantitative easing

Focusing in on this change only, and not the other stimulus the Federal government is pursuing, indicates that there is a large amount of fear about the economy.

What should you do now based on these changes?

Refinance

If you have an existing home loan chances are very high at this point you will be able to refinance your loan for a lower interest rate (more than 1% of your current rate) which would make it financially worth the closing costs.

Figure out to do with your cash

0% benchmark rates and increased government spending through stimulus measures means your cash is at risk of devaluation.

Commodities

Consider investing in alternative forms of wealth including gold, silver, platinum, palladium, rhodium, and consider diversifying with some cryptocurrencies such as bitcoin or etherium. Last time quantitative easing was introduced and implemented gold prices more than doubled from $800/oz in 2009 to over $1800/oz in 2011. Today gold stands at $1544/oz. Gold isn’t so much a way to make huge returns rather a way to store value, but a tool nonetheless. Silver went from $10/oz to over $45/oz in 2011. Same concept applies except silver is more volatile, less expensive, and more abundant. Also silver oxidizes, unlike gold.

Equities

Consider investing in companies that can weather a Coronavirus instigated economic adjustment that are on discount after our stock market rout of the past few weeks. Don’t dump all your cash into the market immediately, but start moving money over time and pick up some bargains. Anyone who used this strategy in 2009 would be looking good today. Be careful of companies in high risk industries in the current environment. Casinos, resorts, cruise, and travel companies come to mind as high risk investments. Secondary companies that could share some of that risk include airplane manufacturers, and restaurant franchises that aren’t tuned for home delivery, and theater companies.

The no-brainer at this point is the refinance. Others are optional, and carry risk.

How To Get Out

The bull market that has basically defined the past six years seems to have stalled. After recording no gains for December or January it remains to be seen whether or not the market is experiencing a temporary lull or has reached a summit. With the Federal Reserve expected to raise interest rates in June, one can only expect that the market will push down further in the medium-term.

What should you do if you’re currently holding stocks but want to get out? First of all, don’t panic – you should assess your situation and deal with it accordingly. This article is catered for strategies of liquidating stock holdings so if that is not your plan then please read one of my other articles!

Scenario 1: Holding lots of short term stocks

Answer 1: If you’re holding a lot of short term stocks and want to get out, you should first determine if you have any capital gains on those stocks. If you are selling at a loss, then go ahead and sell these stocks now and make sure to record your losses in order to benefit from capital loss carry-overs in the future. If you’ve made a lot of money off of these stocks and are in a high tax bracket you can sell with the knowledge that you will be paying high tax on these gains or buy put options for these stocks that expire when you can sell these stocks as long term gains.This really only works when that date is in the near future, since put options’ price is largely influenced by a factor of time. If you have to wait six more months before selling it usually does not make sense to buy put options since the cost of those options may trade at around 20% of the stock’s price. In the case of Apple, which has gone up 20% in the past six months – it’s $115 put options trade at around $11 dollars per share, which upon purchase would cut a 20% profit into only a 10% profit, which would only benefit those who are paying more than 50% short term capital gains tax (I’d hate to live in an area where my combined federal/state/local tax is that high!).

Scenario 2: Holding lots of long term stocks

Answer 2: Sell them! You’re going to have the pay the long term capital gains someday anyway and might as well sell when you think they’re most profitable!

Scenario 3: Have no brokerage accounts, but instead have lots of money in a 401k primarily invested in stocks

Answer 3: You should be able to reallocate your money into bonds or fixed income assets. Bonds have higher returns but more risk than fixed income. Unfortunately most 401ks do not allow individual choosing of bonds, instead offer a choice of bond funds. Bond funds will fare differently dependant on the length these bonds are held for. Long term bonds will fare poorly if the Federal Reserve increases the prime interest rates since the bonds themselves are locked into a lower interest rate.

 

How To Avoid Pump and Dump Schemes

On September 11, 2014, 8 traders were indicted on duping almost $300 million out of mom and pop investors [1]. How do you avoid this trickery and avoid buying stocks for companies that are “shells”?

The answer is simple- look at the company’s market capitalisation. These fraudster’s companies usually have a very small amount of market capitalization if any reported and shown, such as less than two million dollars. Any major fraud involving the stock price of a multi billion dollar company is rare and will get news coverage equivalent to what Enron or MCI Worldcom received in the 90’s and early 2000’s. My rule of thumb is to never invest in companies with less than 300 million in market capitalisation. Looking at the integrity of the company’s website is not a sure way of knowing if you are dealing with a legitimate company. After market capitalisation, you should avoid buying shares ‘Over The Market’ – instead stick with companies listed on the Dow Jones or Nasdaq.

One of the websites they channelled their spam through was called ‘pennypic.com’, and of course now the website is offline. In order to research what type of stocks these fraudsters had I used the WayBackMachine on web.archive.org.

Take a look at XUII, it was the symbol blaring on their unbecoming website as their “Monster Pick”, it now trades at $0.0003 per share on the over the counter market (a.k.a. bankrupt) – take a look at it’s price history starting on June 13th when they were advertised.

Scammers inflate the price to draw more people in along with sending spam, then they dump the stock.

Scammers inflate the price to draw more people in along with sending spam, then they dump the stock.

As you can see the price was 23 cents on June 13th, and inflated to almost 68 cents when the scammers started selling – pushing the stock down to 6 cents in just two months.

 

[1] Rosenburg, Rebecca. “8 Traders Indicted in $300M Pump and Dump.” New York Post. New York Post, 11 Sept. 2014. Web. 11 Sept. 2014.

Call Options for Dummies

What is a call option, and why should you know about them? A call option is a investment tool used to in essence bet on the price of a stock in the future – read some more details about this type of transaction here. People buy and sell these because they can get a huge return for a small investment or receive small payouts for holding shares of a company with the risk of having to sell the stock at a certain price.

Simple example below for buying a call option using real prices as of today.

You buy a call option for Google that expires the middle of next month (October 19th, 2013). The strike price for which you buy the option is $900 and you pay $14.60 per share for the option (options are bundled into stacks of 100 shares so you will pay $1,460 total). The person who sold the option to you immediately receives around $1460 for their holding of 100 shares currently valued at $860 per share or $86,000. This means they immediately get almost 1.7% of their entire holding of the stock in cash.

Why would anyone pay $1460 for this option? See the three example outcomes below:

Google goes up to $950 by October 19th – the buyer of the call option will receive $50 per share for his option ($950 – $900). That means he will have made $5,000 minus what he paid for it ($1,460) for a total of $3,540 in profit. That equates to more than 340% returns on investment, a hefty profit indeed. The seller of the option will be forced to sell the stock at $900 per share, so he is losing out on $5,000 but still has to consider what he made from writing the option ($1,460) which puts him at losing the potential $3,540. Luckily, he is still making money since the stock has risen above $860 so he makes $40 per share plus the price he wrote the call option for totaling $5460.

Google remains at $860 by October 19th – the buyer of the call option loses everything, since the option did not reach the strike price. The writer of the option keeps what he made from writing the call option ($1,460). The writer also does not need to sell his stocks.

Google plunges to $500 per share – the buyer of the call option is only out what he put in ($1,460). The writer of the call option did not sell his shares since he has a option on his holdings and doing so before he buys back his call option puts him at infinite risk. He gains $1,460 more than if he had held the shares and not wrote the option, but has lost $36,000. His total losses are $34,540.

Now, consider the optimal situation for the writer of the call option – The stock climbs to $949 per share before expiration, a dollar short of the strike price. If this happens the seller can go ahead and write another call option for the same shares for the next month!

The optimal situation for the buyer of the call option is for the stock to skyrocket of course, so he can make profits on his investment.

The lose-lose situation is if the stock plummets, although you may argue that the writer of the call option still comes out better than if he didn’t write the call option if he was going to retain the stock either way.