Intel CEO's Salary Outrage: 1,711 Times More Than Average Workers!

Table of Contents

1. Introduction
2. Market Update
   • Market Indices
   • S&P 500 Heat Map
   • Sector Performance
3. Credit Suisse's Perspective on Federal Reserve's Interest Rate Hikes
   • Projected Rate Hikes and Inflation
   • Taylor Rule Comparison
   • Potential Economic Consequences
4. CEO Pay Disparity at Intel
   • Pat Gelsinger's Earnings
   • Comparison to Bob Swann and Tim Cook
   • Institutional Shareholder Services' Pushback
   • Intel's Investments and Struggles
5. Options Trade Example: Lockheed Martin
   • Trade Structure and Rationale
   • Profit and Loss Potential
6. Conclusion

📈 Market Update

In today's market, all three major indices closed in the red. The Dow Jones Industrial Average was down 0.19%, the Nasdaq Composite decreased by 1.21%, and the S&P 500 finished 0.63% lower. Looking at the S&P 500 Heat Map, we can see that most sectors, including energy, utilities, and basic materials, experienced losses. Some notable losers of the day were Adobe, Amazon, Home Depot, Nvidia, and Qualcomm.

📊 Credit Suisse's Perspective on Federal Reserve's Interest Rate Hikes

According to Credit Suisse, the projected interest rate hikes by the Federal Reserve may not be sufficient in tackling rising inflation. US equity strategist and head of quantitative research, Jonathan Golub, believes that even after the completion of the Fed's planned rate hikes, interest rates will remain lower than the expected inflation rate. Golub refers to the Taylor Rule, a formula that determines the appropriate interest rate based on economic conditions, which suggests a target rate of 9.8%. In contrast, the current rate stands between 0.25% and 0.5%, projected to reach 2.8% by the end of next year. Golub argues that the discrepancy between the projected rate hikes and inflation levels indicates a persistently high inflationary environment, with the annual headline US inflation reaching its highest point since 1982.

While some officials, including Fed Chairman Jerome Powell, propose larger-than-normal half-point rate increments to combat inflationary pressures, Golub believes that even such increases would leave interest rates significantly below the desired level. The concern raised is whether the Federal Reserve's cautious approach might inadvertently add stimulus to the economy. Overall, the question remains: what level of interest rates is needed to provide stability without impeding economic growth?

💼 CEO Pay Disparity at Intel

Intel's CEO, Pat Gelsinger, earned 1,711 times more than the average company worker in 2021, marking a significant increase compared to the previous CEO, Bob Swann, who earned 217 times more in 2020. The majority of Gelsinger's compensation came from stock options and shares, accounting for nearly 80% of his total earnings, which was 698% higher than Swann's pay in 2020. A similar pattern can be observed at Apple, where CEO Tim Cook earned 1,447 times more than the average employee.

However, institutional shareholder services, such as Apple, raised concerns about the pay Package at Intel, prompting a shareholder vote in favor of the executive compensation package. Gelsinger took the reins at Intel in 2021 with the aim of revitalizing the company, which has faced challenges in recent years. Intel plans to invest $88 billion across the European Union, primarily in Germany, signaling its commitment to innovation and growth. Gelsinger's compensation package included significant new higher equity awards valued at $110 million.

The substantial disparity in CEO pay raises questions about whether such excessive compensation aligns with the contributions of the average worker and whether there should be limits or caps on executive salaries. The discussion surrounding this issue remains ongoing.

📈💰 Options Trade Example: Lockheed Martin

In today's options trade example, let's consider Lockheed Martin, which saw a 2% increase in its stock price, closing at $445.98. To express a bullish view on Lockheed Martin, we can set up a broken-wing butterfly using call options. This trade has a 51-day duration, expiring on May 20th.

The structure of the trade involves purchasing the 455 call option, selling two 475 call options, and buying the 490 call option. The net debit for this trade is $365, representing the maximum potential loss. The maximum profit of $1,635 can be achieved if Lockheed Martin closes exactly at $475 on May 20th. The probability of profit at expiration is approximately 39%, and the breakeven level is approximately 2.8% above the current closing price.

Please note that this trade is based on a bullish outlook for Lockheed Martin, and it is important to consider individual investment goals and risk tolerance before executing any trade.

🔎 Conclusion

In today's edition of "WORD on the Street," we discussed Credit Suisse's perspective on the Federal Reserve's interest rate hikes, highlighting concerns about the projected rate hikes' adequacy in dealing with rising inflation. We also explored the significant compensation disparity between CEOs and the average employee, focusing on Intel's CEO, Pat Gelsinger. Additionally, we provided an options trade example involving Lockheed Martin, reflecting a bullish view. Remember, it is crucial to conduct thorough research and analyze individual circumstances before making any investment decisions.

Highlights

• Market indices closed in the red, with notable losses in sectors such as energy, utilities, and basic materials.
• Credit Suisse warns that projected interest rate hikes by the Federal Reserve may not be sufficient to address rising inflation.
• CEO Pat Gelsinger earned 1,711 times more than the average worker in 2021 at Intel, reflecting a significant increase compared to the previous CEO's pay.
• Institutional Shareholder Services raised concerns about Intel's CEO pay package, prompting a shareholder vote.
• Lockheed Martin's options trade example showcases a bullish view, with a broken-wing butterfly strategy using call options.

FAQ

Q: What is the Taylor Rule Mentioned in the article? A: The Taylor Rule is a formula used to determine the appropriate interest rate based on economic conditions. It compares the ideal interest rate to the current rate set by the Federal Reserve.

Q: How does Intel plan to invest in the European Union? A: Intel intends to invest $88 billion across the European Union, primarily in Germany, as part of its commitment to innovation and growth.

Q: What is the potential profit in the Lockheed Martin options trade example? A: The maximum profit in the Lockheed Martin options trade example is $1,635, which can be achieved if the stock closes at $475 on the expiration date.

Q: Should there be limits on CEO pay? A: The issue of CEO pay limits is a topic of ongoing debate. Some argue that excessive CEO compensation may be disproportionate to the contributions of the average worker.