Buckaroo Banzai, Higher For Longer Rates, Small Cap Troubles, Solar Stocks, And Much More

Here’s the transcript from today’s live Q&A chat. And be sure to follow us on X.com (fka Twitter) @TradingWithCody.

Q. What do you think the market will do if other Arab nations enter the war against Israel?

A. Stocks tend to do surprisingly well during war times. I do think there’s risk of some softness in the markets but not just because of war potentially widening in the Middle East.

Q. With rates staying elevated for the near-term future here, are tech stocks (a majority of our holdings) overvalued? Doesn’t it feel like we’re due for some kind of pullback (especially in mega-tech)?

A. Higher rates for longer will indeed put some pressure on the discounted cash flow analysis of any stock out there, including tech stocks, and will likely mean that the markets should trade at a slightly lower valuation than previously. I do think there’s a good chance of a 10% pullback in the markets and we’re already part of the way through that. Semiconductors are another place that I think people are hiding and could be in trouble for a while.

Q. It seems being long in this market is the wrong side. I know there are a lot of bulls and bears out there, so arguments can be made on both sides. With inflation being persistent and higher rates for longer along with conflict in the Middle East, an ongoing war in Ukraine, massive consumer debt, housing being unaffordable, etc. why not be more bearish? What is the catalyst for being more bullish? It seems grim out there to me, but I am FrustratedBull after all…

A. Sometimes the markets discount the good/bad stuff we see all around us and the risks get priced in during sell-offs. I notice that the chat here today is awfully bearish and that’s probably partly because the markets are so bad today and have been tough for a few weeks now overall. The least expected outcome for the economy would be for it to reaccelerate even as rates stay high. Inflation could be a problem though. It can cost you a lot of money to overthink the economic impact on individual stocks though.

Q. Wouldn’t a good move be to have some shorter duration US treasury bills? Clip your 5%+ and be nimble/flexible. If there’s a sell-off or pullback in the market, you’ll have USTs maturing that you can put to work in select names.

A. Sure, I can think of worse ideas than parking some money nearly risk-free and getting 5%. A lot of money market funds also pay near 5% right now.

Q. Thoughts on buying more calls on iShares 20 Plus Year Treasury Bond ETF (TLT)?

A. Since late last year I’ve been saying that I think rates will stay around 5-6% for this year and that’s how it’s played out. We bought some TLT calls a couple weeks ago when the consensus about being short Treasuries was at its peak and that trade worked for a bit. Having taken some profits on much of that trade, I’m not keen on replaying it now. Rates could stay higher for longer here and the TLT might not bounce much for a while.

Q. What are your top 5 positions and top 5 buys today?

A. My five largest positions in the hedge fund are, in alphabetical order: Robinhood (HOOD), Intel (INTC), Google (GOOG), Tesla (TSLA), Uber (UBER). My top 5 buys right now, in alphabetical order are: Instacart (CART), Robinhood (HOOD), Cloudflare (NET), Netflix (NFLX), Tesla (TSLA).

Q. Blade Air Mobility (BLDE) has been a huge underperformer since we started our position in it. Can you please give us a refresher on your thoughts on this company? Are the growth prospects still there long term?

A. The company has been executing and last quarter was quite impressive. The market dislikes unprofitable small caps, especially those that came public via SPACs and as that describes Blade, it’s been included. It will be interesting to see how the last 90 days of business went and if they are still executing as well as they have been. I put some limit orders in to buy a little more BLDE if the stock gets slammed today but I haven’t been filled on those (yet?). Easy does it.

Q. Similarly, but not to the extent of BLDE, Robinhood Markets (HOOD) has been an underperformer as well. Can you please give us your thoughts on this one? I remember you being very bullish on this name longer term. Is this a buying opportunity or let it play out?

A. RobinHood is one of my favorite companies right now as their entire business model seems to be one of empowering their customers and charging reasonable fees. We got filled on a limit order to nibble a little more HOOD here today. I’d buy more aggressively near $8.

Q. Additionally, I think you said you/Bryce were working on a Rocket Lab (RKLB) piece. When will that be sent?

A. He’s reworking our spreadsheet but we want to hear how this quarterly report goes and what the company talks about when they’ll get launches going at a higher clip before we can really get the updated numbers completed.

Q. Lastly, slightly contradicting my point on tech stocks being overvalued, Rivian Automotive (RIVN) has been hit hard since the summer. Currently trading at ~ $18/share. Do you see this as a good buying opportunity in RIVN? Thank you for all the hard work!

A. I’m worried that Tesla’s Cybertruck could impact or at least appear to impact Rivian’s truck demand, as I’ve been saying for a few weeks now. We have our RIVN position pretty hedged as I’ve also discussed. I’d probably start unwinding most of the RIVN hedges we have if the stock gets back near $15 or $16.

Q. Thoughts on NuScale Energy (SMR)? Looks like we were a little early like Rocket Lab (RKLB) has been, should I add on both and average down? It has been painful to watch!!! AND Cody, still letting SMR ride? I’ve bought and sold some on the way down, but down a total of about 35% on the position now…

A. I believe that nuclear energy is going to play a large part in powering our society for the next few decades and small nuclear reactors from NuScale could be a large part of that. I had a limit order filled to buy a little more SMR today. I’d buy more aggressively near $4. Notice the pattern here today? Lots of worry about small caps and I’ve been nibbling on most of our small caps today.

Q. Can you give the reason you exited Walgreens Boot Alliance (WBA)? Thanks.

A. It’s not exactly a Revolutionary company and I have other places I’d rather put that money to work.

Q. Good call on getting rid of Roku (ROKU). Wish I took your advice but I love the product. Own a device for my home TV’s, rental house and one to take with me on vacation. I’ll never use another product because I love the interface so much. Anyways, stock has been destroyed just in the last 3 months. Yes, I’m guessing Ad revenue might get hit but users keep growing at impressive pace. You like them at a certain price or no desire to ever own again?

A. I’ve just not done much work on Roku (ROKU) in a while here. The bull case is that it’s the Switzerland of streaming platforms. The bear case is that you can do the same thing for free on a Samsung and most other modern SmartTVs anyway.

Q. What do you think of AES Corp (AES), as a renewable power provider to companies like GOOG, MSFT and AMZN. With the current decline in utilities, the shares are yielding more than 5%. The company does not have debt maturing until 2025. It benefits from more inventory and availability of solar panels and equipment (faster installations and lower cost to them), Doesn’t it seem like the market is overreacting?

A. I can think of worse ideas but it’s not for me.

Q. Thoughts on solar mayyyybe putting in a bottom here (finally)?

A. Solar stocks are closer to a bottom and are not in a bubble anymore which is why I’d been so bearish on them last year and throughout this year. That said, Tesla just reported some not-so-great solar revenues and I’m still cautious on most solar stocks because of the problem they have making solar affordable at higher rates.

Q. With the SEC reviewing several bitcoin (BTC) ETF applications, should there be more of an urgency for an investor wanting to build a larger BTC position?

A. I’ve owned bitcoin for more than ten years and it’s been a wild ride and it still is. I’m not sure the SEC approval for a bitcoin ETF wouldn’t create a sell-the-news type of reaction in bitcoin. I mentioned buying more of it last week for the hedge fund. Steady as she goes is usually better than fear-of-missing-out FOMO.

Q. Any new stocks you’re thinking about buying or shorting now? Anything you can give us a sneak peak on?

A. We have a book about semiconductors coming out soon. All TradingWithCody subscribers will get a free digital copy of it. We’re always working on new ideas for longs and shorts so please stay tuned!

Q. Can we please do a live session occasionally – much better communication than this chat? AND I agree on the occasional Zoom.

A. Yes, let’s do a video version of our Live Q&A Chat next week on YouTube.

Thanks all, that’s a wrap! I leave you all with a picture of me hand-feeding our miniature bull, Buckaroo Banzai. Him’s my buddy.