The Biggest Threat to the U.S. Economy

The markets last week were fairly flat despite a flood of earnings reports and economic news. We were down on the week, but by less than 1%. That seems almost unusually quiet for a week in the year 2020. 

Earnings have been relatively tepid, although we did see a disastrous quarter from Intel (INTC) that has people a little concerned about the long-term direction of the company. 

Traders are trigger-happy on any news involving Pelosi and Mnuchin’s discussions of a stimulus deal. I do not understand that focus at all. I am aware we need a new stimulus package, but in case you have not noticed, Mitch McConnell is telling us it will not pass the Senate.

But enough of all the political guff for now. As always, I’d rather provide guidance on a few timely developments found elsewhere in the market…

You’ve Probably Been a Victim Of This

The coronavirus pandemic has made one thing clear: The world is more reliant on the internet than ever before.

This change has created fertile ground for online scammers and hackers. 

According to cybersecurity firm Crowdstrike, there were more cyberattacks in the first six months of this year than in all of 2019. You’ve perhaps even been a victim, sometimes without even knowing it. 

Even JP Morgan’s CEO, Jamie Dimon, stated that “the threat of cyber security may very well be the biggest threat to the U.S. financial system.”

If a mildly intoxicated businessman were to give a modern-day Benjamin Braddock a single word of advice today, it wouldn’t be “plastics,” it would be “cybersecurity”.

So it caught my eye this week that cybersecurity giant McAfee (MCFE) has found its way back onto the market. 

Working from home, the explosion in e-commerce, fintech, and a host of other digital developments are going to drive the need for cybersecurity products for decades. 

Cybercrooks are going to be a rash that will not go away for the connected world forever. In some cases, the rash can be fatal.

McAfee did an IPO last week at $20 and the stock has already fallen below $19. 

I am not running to buy this one yet, but I will keep an eye on the stock. 

McAfee is one of the oldest and largest cybersecurity firms in the world. If we can get the stock at a bargain price at some point, I will be an enthusiastic buyer.

Your SPAC of the Week

I’ve spoken at length about ways to game the trendy Special Purpose Acquisition Companies (SPAC) market and today, it appears another opportunity lies ahead of us.

Last week, there was another SPAC led by Tilman Fertitta and Jefferies Financial Group. You may know Tilman Fertitta as the owner of Landry’s and The Houston Rockets basketball team. 

Landcadia Holdings III (Nasdaq: LCYAU) is the third SPAC from Fertitta and Jefferies with the goal to acquire an entertainment company.

The first, Landcadia Holdings, acquired Waitr Holdings (WTRH) in 2019. The stock got to about $14 before collapsing. Investors using any trailing stop method (the only time you will ever hear of me using a trailing stop or any kind of stop order) on an announcement pop would have gotten you out with a decent gain. 

The second SPAC, Landcadia Holdings II (LCAHU), went public in June 2020 is in the process of acquiring Fertitta’s casino business, Golden Nugget Online Gaming. The stock got as high as $19 before drifting back to $12. Again, the trailing stop would have gotten investors out for a hefty gain in the mid teens. 

Lancadia III – their most recent SPAC – will focus on the consumer, dining, hospitality, entertainment, and gaming industries, including technology companies operating in these industries.

Right now, the shares are only available as a unit consisting of one share of Class A common stock and one-third of one redeemable warrant to purchase one share of the Class A common stock at a price of $11.50 per share.

As soon as the warrants can be separated, do so. 

The warrant redemption level is $18, so if the common trades above that level, sell your warrants.

The shares are currently trading at $9.96, so at a small discount from the IPO price.

As always, if the stock pops on a deal announcement, sell it, or put a tight stop in place.

If it doesn’t pop, exercise the redemption options and get your money back with a small profit.

Play the Cards You’re Dealt

It is no secret I am less than excited about chasing stocks in this market. 

The fact that the wonderful collection of thoughtful, unselfish, and caring people that make up the United States Congress and a virus currently controls the economy gives us enough reasons to tread carefully. 

Fed Chair Jerome Powell and Governor Lael Brainard have recently said that the Fed’s monetary stimulus is not enough. We cannot have a real recovery without additional fiscal stimulus from Congress. 

Elections and COVID-19 case counts will likely capture the markets attention for the next few weeks. 

In the meantime, the world will be handing investors a lot of cards.

It’s up to us on how to play them.

– Tim