Buy the mall, Alexa and Rolling Stones; Sell Bitcoin, Pandora and AMD

Here’s Part 2 of this week’s Trading With Cody Live Q&A Chat transcript. Part 3 will hit later this morning.

Q: Cody, with all the mounting gloom and doom in the mall sector. Is there mall or REIT ETF that you recommend for shorting? Many of the retail ETFs had some relatively okay companies in them, like Walmart, and many of the REITs have relatively strong non-mall positions like AMT (American Tower)?

A. I don’t have any mall or REIT ETF’s that I would want to play personally. I haven’t done much research on them for one and number two, I am not interested in finding REITs on an ETF level. I like your final thought there of mentioning, AMT as a REIT though. One of my influences over the years was a friend of mine, Noah Blackstein. He used to run Dynamic Mutual Funds in Canada. I haven’t spoken to him in a few years, so I am not actually sure what he is up to these days. But the reason I am bring him up is that about 10 years ago, when I was running a hedge fund, I was talking to him about buying a semi-conductor ETF or something along those lines, and he said “Look Cody, the ETF is the lazy man’s way of investing in trading. Do your homework and find the best or worst companies of each of those sectors.” I liked that idea, but with that being said I haven’t looked at AMT recently, but it is a phenomenal company.

I’ll tell you a quick story, I was short AMT back in, about the time I was buying Apple for the first time, March 2003 or so. AMT had almost gone bankrupt. They had so much debt, so many of their customers had gone bankrupt and so many potential customers were going bankrupt as the telecom sector had collapsed in 2002.

AMT, as I recall, maybe rallied from $4 to $6 and I thought it looked like it was probably going to head for bankruptcy because of all of that debt and the collapsing customer base. So I shorted AMT and covered it about 60 or 90 days later at 8 for a loss because they reported a really good quarter and mentioned in that conference call that they were expecting the 4, maybe 5 or 6 at the time, primary wireless telecom companies to stabilize and actually ramp up some of the spending on wireless. So I covered the short. And AMT is now at $130! I should have bought it when I covered it, darn it. But that is another lesson that when you’re shorting a company for fundamental reasons and the company outperforms your expectations, you cover that short. So that is what I did with Hubspot and American Tower, 14 years ago.

To finish this question, I almost feel like the mall bearishness is at peak levels. I can’t listen to CNBC, Fox Business, news, etc. on SiriusXM without the mall business coming up, because the malls are collapsing and everybody talks about it. Go back twelve years ago and the discussions were similar because Amazon was disrupting the mall business and there was a secular change in the mall business, it was in secular decline. Now, twelve years later, Amazon has gone from a $40 billion dollar company to a $400 billion dollar company capturing a lot of that value and the mall industry has gone from, $100 billions total market cap to 30% of that. 70% or 80% of the public valuation of malls has been wiped out. A lot of those malls and mall operators are talking about bankruptcy and a lot have gone bankrupt already and that’s got people trying to call yet more bankruptcies. I heard one of those talking heads just the other day talking that Macy’s a potential bankruptcy.

Now’s not the time to go bearish/short the mall. Twelve years ago was the time to panic about malls. I would actually not short the mall industry right now. The time to short it was twelve years ago or even twelve months ago. If anything, I think you might be at peak mall bearishness and putting a bottom into the sector. You’re going to get a bounce at sometime, for a year or two, six months maybe in the mall industry and that feels like it is closer now than later. So for what it’s worth, I would be more inclined to be bullish about the mall industry at this particular moment in June 2017, than I would be bearish about the mall industry.

I would short Walmart before I would short most mall related companies or mall related ETF right now. Again, twelve years ago I remember people saying “Walmart has finally fixed their online problem. They are going to be able to take on Amazon!” And I’m hearing the same exact thing about Walmart these days too. I don’t see it that way. It’s like people are desperate for an non-Amazon success story in retail.

Q: Cody, I am a new subscriber and I can’t wait to hear your new picks. I do have question for today. Bitcoin; buy, sell, or hold at these levels?

A. Thank you for subscribing, Steve! As long-time subscribers of Trading With Cody know, I’ve been generally Bitcoin bullish for five years or more by now. In fact, I have been accepting Bitcoin payments for Trading With Cody for a while. At one point, it cost 1 Bitcoin per month for the $99 per month payment for Trading With Cody. Bitcoin as we speak is at $2,703, which would buy you more than two years worth of Trading With Cody now. I still own a few Bitcoins that I had accepted as payments. I didn’t go out and buy Bitcoins with my own money, but didn’t convert them into real dollars either. So I do own Bitcoins and probably should sell some.

So there you go — Buy, sell, or hold Bitcoin right now? Sell Bitcoin right now. Ten years from now, Bitcoin will still be valuable. Whether it is at these levels or $20,000 or $500, I am less certain. As I have said for 5 years, Bitcoin became the de facto standard for cryptocurrency and it will take something really disruptive, a new type of disruptive cryptocurrency, not based on block chain or something, to ever disrupt Bitcoin from that cryptocurrency ruler status. With that being said, look at a 2 year or even 2 month chart on Bitcoin and it feels as Mark Cuban said yesterday, bubbly. I wouldn’t buy bitcoin at this particular moment, I would rather sell it, though I probably am not going to sell any of mine.

Q: Pandora. You mentioned it earlier. It hit a new 52 weeks low this morning and I just wondered how much lower you think we are going to go before it’s going to be time to cash out?

A. You know, I mentioned debt earlier, in regards to companies I have shorted in the past and was wrong about. One of the reasons and one of the things I have learned over the years is, debt is often the driver for a great short. For example, Valeant still has 10 and 20s of billion dollars debt on their balance sheet. This being part of the reason I remain short on that one, with a 90 plus percent gain on that short as we’ve ridden down from $160 to $12. The same thing with Pandora, we’ve shorted Pandora originally in the high teens, maybe even added to it in the 20s 2 or 3 years ago and I am still short the vast majority of it. I think I covered a little bit of my position last time it was at $8. Shorted more at $15 maybe eight months to a year ago and still short all of that presently. So that is the history with me and Pandora. The reason I bring up the debt again is because Pandora’s got too much debt and I don’t think someone is going to buy them anyway. The reason it popped from $8 to $14 and we got the opportunity to short it again is because there were rumors someone like Sirius or Liberty was going to buy Pandora. We shorted more of it because I didn’t think that would happen and part of the reason why I didn’t think that would happen is because of the debt that you would have to take on to buy it.

So I think that is still the case, and I think that Pandora is struggling. I don’t think their new streaming offers are going to be able to compete effectively against Apple, Google, Amazon, Microsoft which are the dominate distribution outlets for music that Pandora is competing against. So I think Pandora could be a zero, frankly. The long term debt of pandora is 350 million dollars of debt as of the most recent quarter. With that, the company is not going to have access to more capital and the market cap on this thing is at 2 billion. They’re not profitable and there is no clear pathway to profitability. So final point to answer your question, I think it could go lower. We probably should cover 10 or 20% of our short right here, like we did the last time it was around this level. I’ll send out a Trade Alert if I do that. Now that you brought it up, I think it’s probably not a bad idea.

Q: AMD is having a strong short squeeze going on. What do you expect further?

A. This stock keeps coming up. It is almost like people are desperate to find an artificial intelligence/exciting technology company that isn’t priced at triple digits. AMD does have billion dollars of debt and AMD is not positioned themselves as a platform for artificial intelligence in the same way as Nvidia. As I’ve been saying now for 4-5 months, NVidia, I think a great paired trade, has been and will continue to be, own, be long Nvidia, be short AMD. Sell AMD, buy Nvidia. I have no faith in the management at AMD, balance sheet, ability to compete against Nvidia, and intel, etc. Again, I feel like people are desperate for an exciting AI related name that’s not triple digits. So, I’m not a fan.

Q: Cody, do you like any of the cyber security stuff?

A. I am long PANW. I will include it in the latest positions update in our portfolio, long and shorts with new ratings and analysis like I do every month. I am finishing it up today so it will probably come out tomorrow. PANW had a blow out quarter and it is an 800 pound gorilla in the cyber security industry. I like PANW and the cyber security industry in general because it is truly in a revolutionary phase right now, but the reason I don’t own more, (as I mentioned 2 or 3 weeks ago when I talked about clouds and I own enough cloud plays right now, including Nvidia, Google, Facebook, etc. I just don’t need more cyber security exposure. I think we have the best play on it and I am just going to stick with it for now. Do you have any specific names you want me to look at?

Q: No, I only own PANW too. I just wanted to know if there were any others you were interested in.

A. You know, I am always interested in them but I am not interested in pulling the trigger on any other ones now simply because as I mentioned, I have enough cloud exposure. As a portfolio maintenance thing, I think it makes sense to not load up on any more clouds. Cody speaks to his Amazon Echo: “Alexa! Play ‘Get Off Of My Cloud.'” [Rolling Stone’s song starts to play.]

Side note: The new Home Pod from Apple came out yesterday is a competitor for Alexa and the Google Home. It’s got stereo. Siri sucks compared to Alexa in the spoken interface right now and it’s not going to get better soon. I hope Apple invests a lot of money smartly and figures out how to make Siri somehow close to Alexa.

The Apple Home Pod itself is going to have better electronics and better stereo sounding system. While my Amazon Alexa box is fine for music, music does sound a lot better on The Amazon Alexa Dot which I have for a stereo where plug it in there. I don’t even know how important having a great sounding device truly will be over the long term, but I do think the Home Pod looks pretty cool. I am struggling not to buy it for Father’s Day. Hint, hint Lori! Never mind, it’s not even out until December. I guess I’ll get it for Christmas. Hint, hint Lori!