The Tower Semi/Intel (TSEM/INTC) did not get approval from the Chinese regulators and the deal falling through is certainly disappointing. We had a thesis on it and it was a pretty good risk/reward setup for an arbitrage but it didn’t work out. The stock is down about $5 from where we sent the trade alert. But remember this was never a major position as we noted “Again, not making this a major position, but buying some today as the stock puts in new 52-week lows.” We trimmed about 20% of the position so far but are not rushing out of it. We will continue to sell over the next few days. TSEM is down 14% since we bought it, and semis as a whole (SMH) are down 9% from the peak. Not the best trade in the world, but not the worst either.
With that, here’s the transcript from today’s live Q&A chat. And don’t forget to follow us on X.com @TradingWithCody.
Q. I feel like the AI craze gave the markets a false sense of optimism and, as you predicted, we’re seeing the markets come down a bit. It seems like we’re 1 bank default away from a bigger whoosh down. What are your thoughts for the next 3-6 months?
A. Tough grind lower for the next 3-6 months for the broader markets, but some individual stocks will double and triple. I’m going to try to make sure we own some of the latter.
Q. It’s almost like the extreme bullishness in the chat from a few weeks ago was a big near-term warning sign. What do you see for the road ahead?
A. Two weeks ago in chat, when the markets were 5-10% higher and many stocks were 30-50% higher than they are right now, I wrote “Somewhat concerning that there’s quite a few questions about whether we should be buying and almost no fear in the Trading With Cody chat room today.” So, yes, I agree that it was a near-term warning sign. Let’s see what the vibe is today in the chat. As for the road ahead, I think you’re asking for a feet-to-fire guess on the market’s next moves and I would say I think there are some challenges on big rallies from here but that we might not whoosh down from here either. A lot of stocks are not coming back to their recent highs EVER though.
Q. Kind of a hard question, but when you say some stocks aren’t coming back to their prior levels, which groups are you thinking about primarily? Are you focusing more on some of the AI stocks that you were tempted to short before 3 weeks ago? Biotech has been in a malaise forever it seems….small caps generally?
A. I would say a lot of small-cap AI stocks like C3.ai (symbol is AI) and Soundhound (SOUN) (we have some puts on this one) and other small caps are never getting back to their recent highs. Not just AI-related small caps though. Lots of small caps that came public in the SPAC boom are doomed. From boom to doom is a normal cycle on Wall Street of course. So is from doom to boom though.
Q. 30 yr Treasury is up. Is high interest rate here to stay for at least a few years?
A. Yes, I think so as I’ve been saying for the last year or so. I think it’d be healthy and normal for people who risk lending their money to a government or a company should get paid a reasonable return for taking that risk/locking up their money for years.
Q. Another big question, but do you agree with this completely Phillips curve world the fed is really pushing where wage pressures are the most important thing? Or do you think that using the ’70s/80s playbook is naive and that we have had a lot of rate increases already and the effect of them are still really 12-18 months out and that the Fed ought to be at least stopping raising rates soon?
A. I have never been a big believer in the Phillips Curve: “The Phillips curve is an economic theory that inflation and unemployment have a stable and inverse relationship. Developed by William Phillips, it claims that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment.” Inflation and unemployment aren’t entirely uncorrelated but it’s complicated and the economy/universe/society aren’t easily confined to two-dimensional charts.
Q. What happens first/next in the coming years… Bitcoin (BTC) $15k (are the lows not yet in for this cycle?) or $70k (new highs)?
A. I’d guess that Bitcoin (BTC) isn’t going back to $15,000 maybe ever. $70,000 doesn’t seem too outrageous as a price target for the next few years.
Q. How likely is it that the US will go to a cashless society with digital currency? China is already doing this! If so how do we prepare?
A. I don’t think the US people will ever let the government force us to completely go digital currency. I hope not at least. Freedom!
Q. Any nibbles?
A. We nibbled on some Robinhood (HOOD), Bitcoin Strategy ETF (BITO), Solaredge (SEDG), sold a few of our Uber (UBER) put hedges.
Q. What are your top 5 positions right now? And top 5 favorites to buy now?
A. Top five positions in alphabetical order: Intel (INTC), Rocket Lab (RKLB), Rockwell Automation (ROK), Tesla (TSLA), Uber (UBER). Favorite buys in alphabetical order: Bitcoin Strategy ETF (BITO), Blade Air Mobility (BLDE), Robinhood (HOOD), Rockwell Automation (ROK), and Tesla (TSLA).
Q. Interesting that Intel (INTC) is in your top 5. I thought just last week you mentioned you were calming down some on them… not pounding the table as hard. Did I misunderstand?
A. You’re correct. We trimmed some Intel (INTC) a couple of weeks ago but haven’t sold it off aggressively. It’s not nearly as big a position right now as it was at one point when it was much lower.
Q. Rocket Lab (RKLB) is executing, but rocket launch start-up selling launches to (many) satellite/space start-ups seems reminiscent of tech start-ups selling primarily to tech start-ups – works great in a bull market but customers could evaporate in a bear market, no? made me think of it when you said you were selling Blacksky (BKSY) due to longevity concerns (decent sized RKLB customer). Curious to hear your thoughts if long-term demand continues to outstrip supply beyond Gov customers w infinite money?
A. I do think the market has been sleeping on the huge potential for Rocket Lab (RKLB) to continue to grow its launch business. BlackSky (BKSY) is not exactly a huge space company anyway and The Space Revolution will eventually include every major tech company having some space satellites and space-related infrastructure. Apple, Amazon, Google already have space plans being put into place and in five years each of those will be using space-related technologies at scale. In ten years, people and companies will be using space in ways that we haven’t even conceived of yet. Rocket Lab will probably be a division of some much larger company at that point, IMHO.
Q. Isn’t the RKLB/NASA news a huge deal? Is the market sleeping on RKLB? I know the email from last week has the nibble price at $5/share but aren’t there worse ideas than RKLB at $6/share given their execution? Thank you!
A. I can think of worse ideas than nibbling on some Rocket Lab (RKLB) below or near $6 here but I’m not doing it personally yet. Near $5, I’d buy some more in the hedge fund.
Q. Are you still interested in nibbling Tesla (TSLA) around $220?
A. Maybe I’d look to buy a few near-the-money calls dated our a month or so around here and maybe a small nibble of some common near $220 but mostly steady as she goes for now.
Q. Any interest in Rivian (RIVN) here after the selloff?
A. Below $20 we’ll probably nibble a little bit for the hedge fund. Not in a rush right now though, as we’d trimmed some higher after having loaded up on it at $12-14 a few months ago.
Q. Besides Rockwell Automation (ROK) -whats the best onshoring plays?
A. I don’t know. We did a little work on SYM recently and we’re still working on it.
Q. Why is Solaredge (SEDG) falling off a cliff?
A. The same reason I was short so many other solar stocks for the last few months — it’s much more expensive and harder to justify adding solar energy to your house or business when you have to borrow money at a reasonable interest rate rather than at a near 0% interest rate. Over time Solar Edge should be fine. Near-term it’s tough.
Q. When did you guys buy WBA?
A. On July 6, exactly the day and near the exact moment that the markets put in their most recent short-term bottom, we sent out a Trade Alert mentioning that we were covering quite a few shorts/selling some of our puts and that we were nibbling on quite a few names including Google (GOOG), Walgreens (WBA), Robinhood (HOOD), etc.
Q. If my recall is okay (could be wrong, lol) I believe you weren’t a fan of First Solar (FSLR) a while back. What’s your take on why it’s outperformed SEDG over the past couple of years-ish?
A. I like First Solar, but not terribly so. Its business model is quite different from Solar Edge (SEDG). Over the last five years, both stocks are up about 250%. Since Sept 2017 when we bought SEDG, it’s up about 1100% vs FSLR being up about 480%.
Q. Any thoughts on Disney (DIS) here? I’ve been eyeing it since it’s come down quite a bit. Disney + seems to be doing well, the writers’ strike should work itself out and they may shed some non-core entities like ESPN, etc. I also have faith in Iger.
A. We seem to look at Disney (DIS) about every six months when it sells off as I want to like the valuation and the stock here but every time we do the fundamental analysis we’re disappointed at how expensive the stock seems to be even looking out 3-5 years unless we model in near 10% revenue growth which seems unreasonable.
Q. Any thoughts on VinFast (VFN) the EV maker that went public recently?
A. Seems insane and would be a great short if we could borrow it at a reasonable rate or if we could buy puts on it (no options on it yet). Run for the hills, IMHO.
Q. Any thoughts on DigitalOcean (DOCN)?
A. I don’t know it but we will take a look. “DigitalOcean Holdings, Inc., through its subsidiaries, operates a cloud computing platform in North America, Europe, Asia, and internationally. Its platform provides on-demand infrastructure and platform tools for developers, start-ups, and small and medium-size businesses. The company offers infrastructure solutions across compute, storage, and networking, as well as enables developers to extend the native capabilities of its cloud with fully managed application, container, and database offerings. Its users include software engineers, researchers, data scientists, system administrators, students, and hobbyists. The company’s customers use its platform in various industry verticals and for a range of use cases, such as web and mobile applications, website hosting, e-commerce, media and gaming, personal web projects, managed services, and others. DigitalOcean Holdings, Inc. was incorporated in 2012 and is headquartered in New York, New York.” So many companies doing this, not sure what their competitive advantage might be. But I’ll take a look.
Also, in case you missed it, be sure to check out the recording of our weekly SKTLs Space Crypto call on the SKTLs YouTube channel.
That’s a wrap! I leave you with a shot of my oldest daughter Lyncoln who decided it was time to learn to ride a bike yesterday and was looking like a pro 30 minutes into it. Someday maybe Amaris will learn too.
