Howdy folks. Ask me anything.
Q. Hello Cody, I just finished reading “Buy Side”, a quite entertaining book. It is pretty clear that in the markets, odds are not on individual investors’ side: Legalized front running, games traders play with each other etc… As an individual investor, how can we win in this market? There is got to be an edge we can use, otherwise, we all might as well quit this game and put all the money in an index fund.
A. Great question! And my short answer is to constantly “Flip It” when it comes to whatever the conventional wisdom/mainstream media are saying and doing. Both are tools that the powers-that-be in the Buyside use to manipulate said individual investors. And don’t try to fight the battles you can’t win such as daytrading/flipping futures and ETFs and mega-cap stocks because you’ll always lose that battle. One of the biggest problems with our society as its set up is we have no choice but to bet our hard-earned capital on these controlled/corrupted markets somewhere and the more controlled/corrupted they become the harder it is to protect our capital. But there is nothing in the economy untouched by this control/corruption so it’s either this. Or buying Iraqi Dinars (NOT A GOOD IDEA to be sure).
Thanks! You really put things into perspective. I’m not going to buy Dinars for sure. Not even touching Yuan though that’s where I’m from.
When was the last time you were back in China and, regardless, what’s your take on the current setup/potential for a crash vs. another leg-up?
I was back in China 3 months ago. All the people who made it big (read: with high level connections) I know of are all busy sending their money out of the country. Not a good sign. People there use “slowly boiled frogs” to describe its market participants: increase the temperature slowly so the frogs won’t jump out of the pot from sudden shock. I think that’s how it’s going be most likely. Unless PBOC does something stupid to really stir the pot.
Q. When you said that everything in the economy is corrupt I thought of the Illuminati and the role the global elites play in every aspect of our lives. Thanks for mentioning Warren Buffett as a likely Illuminati member. One of the best books I’ve read on the global conspiracy is David Icke’s The Biggest Secret. Even physical gold isn’t safe from this brotherhood…especially once the second amendment is repealed here in the US. Your thoughts?
A. The powers-that-be/Illuminati/RepublicanDemocratRegime/TBTF banks/Federal Reserve/Treasury are all the same thing. Check some of my old Illuminati Alerts from my TV anchor days. And check out the site I built at illuminatiscrew.com. And read this about the possibility (or lack thereof, really) of another gold confiscation scheme like FDR did to bail out the banks back in his day. The short story is that they are already confiscating the people’s wealth in sneakier, stealthier and more destructive ways than they did back in 1933 in the midst of the Great Depression.
Q. Cody, in your opinion has the market misunderstood the feds words on QE? Is it over as the market is pricing in shortly? Or is data like today’s under 2% GDP a pretty clear sign QE has a long way to go? Your tech bubble refresh: is any of it dependant on further QE or self sustaining recovery?
A. I think the Fed’s already WAY too late to stop the coming damage/dislocations/disruptions that are coming from the recent many years of free-money policies. There are many asset bubbles, including stocks and Treasurys, that are already here and still blowing and some will likely get much bigger in a hurry right before each of them respectively and truly pops.
Q. So what FUELS the tech bubble if the FED has indeed gone too far? The already printed $$ sloshing around?
A. Did the Dot-Com bubble grow to its greatest heights when the Fed was in “tightening phase” or “easing phase” from 1996-1999? Most asset bubbles blow to their biggest heights while the Fed scrambles to reign in the wild imbalances its already created.
Q. Then if that’s the case its JUST begun as from 1998-2000 rates rose from what 3% to 6% on MM accounts.
Q. So I am the only one outside the USA on chat today…I am on the north coast of _____________. There is so much wind here and so much sun and not a windmill and very very little solar…
A. Domica! DR, that is.
Q. I am searching ..when will the paradigm shift and become energy self sufficient and bio- regional?
A. Another fantastic insight/question for our subscribers. Thank you for framing the question in such an enlightening way. I think we are indeed crossing a threshold in solar/wind/bio fuel becoming cheap enough to displace fossil fuel AS SOON AS THE GOVERNMENTS AROUND THE WORLD QUIT SENDING HUNDREDS OF BILLIONS OF DOLLARS IN WELFARE TO THE GIANT FOSSIL FUEL COMPANIES in tax credits/subsidies/loopholes/guarantees/insurance/etc EVERY YEAR. We’re already very near a tipping point in the cost of the technologies on a true apples-to-apples basis and the societal/PR pressures to go clean would make it happen even quicker. Sigh.
Q. So my question IS Cody do you have a garden that you eat out of in New Mexico…grow chile peppers?
A. Yes, I have a garden that my wife, father-in-law and I (most me, I’m serious!) have built right near where the converted barnhouse we live in is situated. We’ve got corn, peas, beans, squash, tomatoes, carrots, broccoli, cauliflower, sunflowers as well as bell peppers and jalapenos. But no New Mexico Green Chiles because its just not quite the right climate to grow ’em here at the 7300′ above sea level we live at very easily. In fact, it’s been so cold at night until about a month ago that we weren’t able to plant our seedlings in the garden til recently. And nothing is ready or even close to ready yet. Hopefully we’ll have some great veggies from our garden in a few weeks. I’m also planning to plant a mini-orchard in the draw at the bottom of part of the acreage that I lost in the forest fire that burned around my house last year. Man is the drought BAD right now though.
Thanks. This is so important. Here it is cool to have money to go buy food in the supermercado where gringos buy..not to have the garden. So I am putting in gardens for families!
Q. I have only one tomato plant — although it is doing well — so I’m counting on you for my food subsidy program, Cody. Don’t let me down.
A. I sure hope it doesn’t come to the point where we actually live off our garden. It could happen though and to think otherwise is the pinacle of hubris.
Q. Hi Cody, for your physical metal holdings, what’s the approximate ratio of gold vs. silver that you’re shooting for?
A. Depending on your personal net worth (the lower your net worth, the higher proportion of silver simply because it’s so much cheaper per oz than gold is), I’d look to have 30%-70% (big range is my whole point) in gold/silver ratio. Platinum is another precious metal I’m considering starting to rebuild my physical coins/bullion positions in.
Q. Cody: what will turn the 40% decline in gold? I was for now CLEARLY MISTAKEN. I was SURE the QE by feds worldwide was going to spike GOLD as a direct result. Instead for reasons unclear now they have done the mirror opposite. What will Get gold to see anywhere back to new hi’s and much less your expected $ way above gold’s old hi’s?
A. I’ve got two feet-to-fire guesses for what will catalyze the next spike in gold/silver – 1. The big banks like JPM who are custodians of the big precious metals ETFs need to build up their physical bullion for delivery and other inventories to continue their Ponzi-scheme-esque trading in paper. That would catalyze a steady up trend into year-end if that is indeed the case. 2. ANY major disruption to the financial markets and/or needless panic about such a potential disruption and/or any failure to deliver on physical gold promises between Central banks or Too Big Too Fail banks or any other institutions would cause a mad scramble, likely to the upside, in the physical precious metal markets.
Q. Hi Cody. Can you give us your quick take on LNN earnings? Seems like a tepid response to what seems to have been a nice beat and on an up day in the market.
A. “The irrigation and infrastructure provider said that it earned $26.1 million, or $2.01 a share, up from $18.8 million, or $1.47 a share, a year earlier. Revenue jumped 28% to $219.5 million.” And “The company said, “Record sales in our U.S. and international irrigation markets have led to record results through the first nine months of fiscal 2013. We expect a heavier mix of lower margin international sales in the fourth quarter as we continue to recognize revenue on the $39M order in Iraq, which entered backlog in the second quarter. Drivers for the Company’s markets of population growth, expanded food production and efficient water use provide a solid backdrop for long-term growth. In the near term, we have seen downward pressure on key agricultural commodity prices in anticipation of an improved harvest over last year’s drought conditions. However, recent reports cast doubt on the quality of the crop, raising concern over forecasted ending-stocks, particularly for corn. In addition, the environment for infrastructure sales remains difficult, although we are seeing indications for modest improvement from recent sales trends.” Upshot is that it was a great quarter quite frankly. But the company is seeing strength in their lower margin business for the near-term and that has capped the upside today. I’m a buyer of more LNN soon.
Q. What do you look for when considering a downside exit from a short term bankruptcy trade? Is lowering of volume an indicator? What else do you look for to tell you to either get out or that there is hope yet of a pop/squeeze?
A. The thing with the BK trade and the reason it’s so RISKY and the reason I always bet very small on these trades is this — the whole crux of the analysis is that there’s more shorts in the stock as it files bankruptcy than there are longs who care about the stock after it files for BK and that those shorts have to cover and that pops the stock in the near-term after the filing. The last few BK trades that we won have played out over 3-5 weeks’ time but this one hasn’t had an uptick since the day it filed. I’ll exit the trade, winning or losing, in the next 5-10 trading days.
Q. Good afternoon, Cody (morning here in PST): Two “do-anything-now?” questions with some current holdings –both up very nicely (thanks) because of you: 1. APOL shorts (nice move today after ER) — trimmed/took some money out of this a few months ago, and my current chunk is ahead by about 45%. Not a HUGE part of my overall nugget. Question: sit still? Trim some more? Or actually short some more based on their earnings call? 2. BKS (Barnes & Noble) — took a chance a few weeks ago on that rumored Microsoft purchase of a division not coming through (it didn’t), and bought January ’14 puts at $18. As of yesterday’s drop (underlying stock) and today’s slight recovery, my puts are ahead 67%. Again, not a huge amount of investment. Time to trim? Stay where I am? Buy more long-term puts? I’m willing to let both ride, but I’ve been burned by that before (small stock called Apple; you should look it up) — so I’m a little antsy. Whaddya say? Thanks. –Ed
A. Congrats on the big profits on those two shorts, especially in the midst of a huge bull market like we’ve been in. 1) Apollo’s earnings were fine for now but this is a company in a sector that has completed built itself up selling a crappy product (education) to poor people using other people’s money (grants and student loans). We nailed getting short APOL at the very top more than a year ago now and I do think it’s headed to bankruptcy at some point if/when the public funding finally gets pulled. I think instead of shorting more APOL and/or buying more puts in APOL, I’d look at shorting some of its “competitors” that haven’t crashed as badly (yet?) as APOL has. That includes the idea of building a basket of shorts in APOL (you have it already) and DV, CECO and COCO. I’m likely to do so myself in the next few weeks. 2. BKS is also doomed with too much debt and too much real estate and too many problems with its core business of selling books and too little know how in technology/tablets. I’d take profits on 1/3 of the position and hold the rest and hope the markets agree with our analysis before those options expire.
Thanks, Cody. Good advice.
Q. Cody, video on instagram was huge? What’s the best storage play to benefit from all this video data being used?
A. Instagram video will be HUGE, but not as HUGE as Twitter’s Vine. It’s in the top of the first inning in social/newsclip video Revolution. Off the top of my head, I’d go with Oracle as its database and server technologies are the Cadillac of the industry.
Q. Assuming the correction ends soon, what are the chances of a run-up in share price before GOOG has earnings in 3 weeks? Would options or buying shares of stock be best for this sort of trade?
A. A bet on GOOG over the next three weeks is a two-fold bet. 1- That the market’s broader correction ends soon. And 2- the stock’s own momentum returns on optimism heading into that coming report. Sometimes I’ll feel/see a set up such as you’re suggesting and I’ll go for it. Now is not one of those times for me. If you do want to make such a bet, then buying some slightly out of the money call options with a tiny bit of capital that you can afford to lose all of is probably the bet I’d look at.
Okay, folks, that’s a wrap. I’ve got to go water the garden! Just kidding, we only do that at night after dark so as to conserve our well water.