Howdy y’all. Let’s ride.
Q. Cody a lot of your analysis has been cautionary as of late, (yellow flags, large cash positions). Do you think that this bull market is about to peak in a few months and how would you trade it if it will?
A. I answered a somewhat related question recently saying that I just feel like we’ve been sticking around at the poker table for a long time with a lot of gains and that I’m thinking it’s time to be less aggressive to the upside. But that doesn’t necessarily mean that I’m expecting a newfound grumbling bear market. Feet to fire, I continue to expect that the corporate economy will be bailed out and pumped up and fueled at any expense by the Republican/Democrat Regime and that we’ve got probably another two years or less before they run out of ammunition and can’t kick the debt can down the road any further. Of course that means that the Republicans will be set up to claim that it was just Obama’s policies that created the crash at that point and that they can save the day. We’ll deal with that and how to trade/invest in that world when it gets here. For now, I think we keep a steady buying pace on crashes and a steady selling pace on rallies.
Q. What say you on the 8% decline in the S&P 1475 to 1365? Once again value, PE and the like matter little. Time to get SHORT and cash out into any sizeable bounce at this point?
A. No, I don’t think the cycle has turned bearish for corporate America and the stock market with the Fed and the Republican/Democrat Regime funneling every dollar, tax break and subsidy to these companies.
Q. It’s been educational to see how quick the market mood has turned. I am particularly interested in seeing how things get played during bearish periods such as these.
A. The market, the economy and the world continues to educate me every day. No rest for the wicked as my Grandpa Willard used to say. But even as I’ve been repeatedly aggressive on sell-offs like these over the last four years, I’m not about to buy every stock in half of hell and all of Georgia as my Grandpa also used to say too. Though not about stocks. Usually he was referencing his cattle in Kansas.
Q. Do you believe the decline we are seeing is JUST a correction Based on Fiscal cliff fears or punishing poor earnings? 2 months and counting?
A. Part of the decline is probably simply a part of the normal cycle of rallies and sell-offs that all stock markets go through whether bull or bear. Fiscal cliff seems to be way overhyped to me and is probably more than priced in at this point. The Endless Euro-Debt Crisis is really inflamed right now and that’s probably as big a part of the sell off as anything even though it’s not focused on as much. Hurricane Sandy and its traumatic after-effects are also weighing on sentiment and the markets right now too. And Israel really seems to be sabre-rattling about the Palestinian application to the UN. None of these things are bullish and all seem to be front and center right now. The time to buy is when the world seems peaceful and the markets and economy are booming right? What does that make this time?
Q. If you believe, as I do, that a resolution of some sort to the fiscal cliff will come before year end, wouldn’t that give the market confidence to shake off this slump?
A. That depends on whether or not the market’s actually caring about the fiscal cliff at all right now or if that’s just something the mainstream media and the Republican/Democrat Regime want us to focus on so they can continue to pretend that there’s some sort of difference in their policies enough such that there ever was a fiscal cliff to begin with. There’s no fiscal cliff, IMHO. The market knows that too, IMHO. Will take some consumer strength into the xMas iPad/iPhone iSeason to get the markets rocking again. That and some sort of new way of kicking the Euro-debt can down the road for at least a few quarters.
Q. Tactic/strategy question. Rather than buy MAR and APR AAPL CALLs, would it be less stressful and maybe just as profitable to go for LEAPS? Say AAPL JAN 2015 Calls? Thanks for any insight.
A. I’m not sure buying any sort of call option is ever “less stressful” than another set. It’ll cost you more for fewer options the further out you go, so there’s always a trade off. Just stick with common if the options stress ya’.
Q. I am wondering, what makes you so high on Apple today? I see a company that has lost its leadership in innovation. The 5g iphone was a let down to many and among college kids it’s starting to lose its coolness. (what happens with all those retail locations if they do lose their coolness?) Samsung Note 2 just came out with twice the display area of the iphone 4 and a galaxy 4 is due next year and HTC just released a new phone with a stunting display. Should I hold on through the holidays and then exit or keep it?
A. The only company of all those smartphone/tablet companies you just mentioned that has its own eco-system and ability to control its innovation and products from top to bottom is Apple. I think Samsung in 2012 is the equivalent of Nokia in 2008 — both had huge marketshare and market caps and both were betting that products built on someone’s operating system could drive long-term differentiation and brand affinity. I’m looking to short Samsung sometime in next few months. Apple has locked in billions of users and once you start using the Apple ecosystem and see how easy it truly is to use compared to the Android/Windows or any other eco-system that ties in your computers, your phones, your tablets and simplifies the whole process like it does, it’s not easy to leave. Apple’s just released a new iPhone, iPad, iPad Mini, and iComputers and margins likely bottomed last quarter into those rollouts. If, if, if the iPhone 5 and iPad Mini sell as strongly as I expect they will over the next couple months, Apple will rally back to $700 and we won’t be talking about how uncool Apple supposedly has become. Bottomline is that if Apple’s bottomline continues to grow as I continue to expect it will, the stock will either be at $1000 in 2014 or it will have $200 billion in net cash, will be yielding nearly 4% and will be trading at a 3.5x enterprise value to forward earnings ratio. That could happen. But I’m bullish on AAPL right here right now at $540 and betting that it will.
Q. Last week when AAPL was at $580, you were buying April calls at $660 to $700. Now that we are in the $540’s, should I be looking at the same calls, or perhaps a little different?
A. Yes, I’m looking at those very calls right now and am probably going to buy another tranche today.
Q. Hi cody, I have a question regarding DDD. I know we sold it. As we are thinking that it will go down, why not buy some 6 months out of the money puts or so? Do you think its a good idea to buy puts in DDD?
A. Two reasons – 1. Did you see my commentary and the chart from BVSN yesterday? Look at how that stock ran and ran despite no fundamental reason whatsoever, as I’d said all along. 2. I don’t necessarily think that DDD is going to crash, I just don’t like to mess around with any financials questions and when I have any kind of a doubt about a company’s reports, I get out.
Q. Hi Cody. During your original analysis of the 3D printing space you came up with DDD and SSYS as did I. As I’ve mentioned to you and the board, I have traded DDD since $14. Now with the concerns brought up regarding DDD accounting practices, are you considering the addition of SSYS to the Revolution Portfolio or are you taking a full time out on 3D printing?
A. I’m looking at SSYS hard right now.
Q. Regarding BIDU, any concerns about Chinese government interference/withdrawal of support?
A. Not specifically, but yes, I’m always worried about my investment in that Chinese company because I’m not in China and I don’t understand their system. Hell, I don’t even understand the US’s system either not that I think about it!
Q: In the article you posted today talking about BIDU, you said that you would wait to buy calls until it stabilizes, what do you mean stabilized? Lateral behavior, maybe the chart gives us a hint of support.
A: Yes, I think the chart/stock needs to turn lateral and/or even bounce before I start to buy the BIDU. That’s partly a “gut” thing for now.
Q: When you indicated that you were buying a tranche of BIDU, roughly what proportion of your total desired position is it? Also, OSG has filed for bankruptcy. Are we going to play this on the long side once trading resumes? Cheers,
A: I bought about 1/5 of my total desired long-term BIDU position, which makes it about half the size I’d like to be by then. OSG might very well be a Technical Bankruptcy Trade, but then again, I’m just no looking to expose much more risk to the markets just now.
Q. Speaking of sizeable bounce, your latest analysis seemed to insinuate that you thought FFIV might take some time for a rebound. Have you changed your mind on FFIV at all after Cisco earnings? I’m down 5% and wondering if this little bounce might be a good exit moment, or too soon? Do you think we are going to see a sell post on FFIV soon?
A. I’m worried about enterprise IT spending more than I am worried about carrier cap ex, which is why I was focused on Juniper recently until it just kept disappointing me with the fundamentals and not showing that it was benefitting from its new product roll out. FFIV’s products have to continue to drive huge cost benefits for it to continue growing like it has been, but I’ve known management there and have been in that stock and writing about it since it was in the teens and I’m not quite ready to give up on them yet. This SDN trend is something that FFIV will either help drive forward or will displace their technology over the next decade or so.
Q. Cody, what do you think of the potential antitrust case against Google? It does bring back the memory of MSFT case, and how MSFT performed after the defeat.
A. No doubt about the similarities to the MSFT anti-trust trial and what could happen to Google if they don’t handle this right. I think it’ll take a few years to play out anyway, and in the meantime, Google’s got to show that it can grow the topline at least 10% and the bottom line at least 15-20% over the next couple years if it’s to blow past $1000. The earnings growth would drive the stock until there’s some better sense of how bad the anti-trust case gets.
Q. Are FIO and SNDK going to fall more?
A. I have no crystal ball, but I think both FIO and SNDK are likely to be much higher in two years than the current quote. Whether they drop before they rally is even tougher to tell/guess.
Porky Pig – That’s All Folks! (1938 Original In Color!)
Thanks, Cody. Let’s hope for a great Christmas for AAPL, and also for us!