Tax cuts, Trillion dollar market caps, Nvidia earnings preview, Snap update

Here’s part 1 of 2 of the transcript to this week’s Live Trading With Cody Q&A Chat.

Cody: Hello everybody to this week’s Live Trading With Cody Q&A chat. You can watch me on The IAm Cody Willard App. You can also join tradingwithcody.com to ask me questions like this anytime and find out all of my trades. You get a trade alert every time I trade. Find out all of my positions. I rate all of them every few weeks, and update the analysis on each of them every few weeks. And, you can also check this particular livestream out on YouTube today. Welcome to my YouTube followers. This video will be livestreaming and it will be archived there on YouTube.

Let’s start with headlines, as usual. I just went over to marketwatch.com as I started talking here and here’s the headline, “Apple moves one step closer to a trillion dollar market cap.” The reason I laugh about that frankly is because I’m trying not to break my arm patting myself on the back for this, but you can see here in this article from the Los Angeles Times from years ago when the iPhone was coming out and I told people, look, Apple’s going to be the first trillion dollar market cap company.

Frankly, these days I wonder if Amazon isn’t going to sneak up there and beat Apple to being the first trillion dollar market cap company. As I’m talking, Apple has a nine hundred billion dollar market cap. When I bought the stock back in March 2003 it was a five billion dollar market cap; a nine hundred billion dollar market cap today. Point being you guys, look, that things been on a heck of a terror the last fourteen years. March 2003 to November 2017. Fourteen years, fourteen and a half years. The stocks up 180-fold. Eighteen thousand percent return on that investment since the bottom. Better to be lucky than good sometimes.

Anyways guys, I think Apple, Google, Amazon, maybe Facebook; these will be trillion dollar market caps and it won’t be that outrageous. I talked about this a few weeks ago on a live Q&A Trading With Cody livestream here like this. In five years, ten years, a little more bull market action and a trillion dollar market cap won’t be that outrageous. There are hundreds of companies who have market caps measured in the hundreds of billions of dollars. So, another few triples; couple of doubles gets them close. Apple needs to move up ten percent and it’s a trillion dollar market cap. Amazon needs to move up another forty percent and it’s at a trillion dollar market cap. Google Alphabet needs to move up another twenty-five percent to become a trillion dollar market cap. A lot of money, a lot of money.

One thing that’s interesting is when you step back and look at the stock market right now is just how much valuation of the actual overall stock market comes down to a handful of companies. In the NASDAQ 100 there’s not many other companies that are worth half a trillion dollars. And if you have ten companies that are worth fifty billion dollars, that’s equal to one Amazon or one Facebook; not even equal to one Apple. You need ninety ten billion dollar companies to equal one Apple. And you know, when Apple goes up three percent after earnings like it did last week, that’s three percent on an eight hundred billion dollar market cap. So, that’s a twenty-five billion dollar boost to the valuation of Apple in one day. That’s equal to two and a half ten billion dollar companies. A three percent move is not very much for a stock in a single day.

Let’s open it up to some questions. I’ll start with the app, or on the call. Anybody on the call wants to ask a question. If you’re on the app and you’re logged in, I just invited you guys to engage with me. I’ve got a few questions in the chat room. A few questions in email just like always.

Subscriber: Subject is NVDA, and we need an answer before COB tomorrow. Unless I missed something (and this is a generalization), you’ve indicated only that it’s loved (over-loved), possibly over-priced (forgetting the future), that of course it has a GREAT future . . . but that expectations are high and unless the ER exceeds these you could see a 10-15% (?) hit. I think that when asked what you think feet to fire, you may even literally have gulped! (Something like that.) All fine and dandy, but do you recommend any protective steps today/tomorrow before close? Take some profits? Put in a 10-15% stop loss on all or part of holdings (I know you don’t like these generally)? Stay where we are? I’m feeling kind of up-in-the-air on what you advise we do. (Trust me, of course I believe along with you in its long-term growth, but if there’s a short term way to preserve our gains…)

Cody: The question obviously guys is, long story short, what’s going to happen with Nvidia heading into earnings tomorrow? Now, this is a stock that’s up a thousand percent in the last five years. It’s up five hundred percent since we purchased it twenty months ago maybe. It’s up sixty; seventy; eighty percent this year for crying out loud. And guys, you have to take it and understand that yes, there’s risk if the company doesn’t blow Wall Street’s mind.

And looking at actual earnings estimates, growth estimates, the analyst estimates for Nvidia for next year and they are expecting 2017 thirty percent growth. In 2018 only ten percent growth on the top line. Now when a stock is up one thousand percent and it’s got this much momentum, loving weak handed hedge funders, retail investors, mutual fund managers, a lot of people are just chasing this thing because it’s got momentum, and it’s been on fire. Momentum cuts both ways and earnings estimates for next year, top line analyst estimates for next year have to go up or that stock is way overvalued.

Now, maybe that helps feed a bullish virtuous cycle for Nvidia’s stock for the near term. I do think Nvidia will grow more than ten percent next year. I wouldn’t own the stock at this valuation if I didn’t think it.

But if the analyst estimates are still at only ten percent, wall street, the traders like myself, analysts like myself, and investors in the company are looking past what the sell side analysts on Wall Street are expecting at ten percent. We’re ignoring that apparently. The market apparently is ignoring that. But maybe if those estimates have to rise, it adds yet more fuel to the Nvidia fire and can actually make the stock continue to rise.

All that said, look, I don’t think you should chase Nvidia. I just trimmed a little more recently. I’ve trimmed this thing three or four times since I bought it at thirty. I trim about five or ten percent when I trim and still holding the bulk of the position and it’s getting to be a pretty big position and I’m nervous about it. I’m always nervous about every one of my stocks though.

So this subscriber is asking about Nvidia into earnings. You should be nervous about it. It’s a very highly valued, momentum loving, over hyped, over loved, over bought over extended stock. That’s a recipe for a sell off.

Of course, fundamentally speaking, this is a company that’s creating platforms that will be driving some of the most important and biggest technological and market revolutions over the next five or ten years- AI, self driving cars, deep learning, graphics, artificial and virtual reality. Feet to fire, yes. I expect Nvidia will get hit after earnings. Who the hell knows though? If it’s a blowout quarter and their raising estimates for next year and the analysts go out tomorrow and raise all of the numbers and all high five each other; we’re in a bubble blowing bull market, so it could very easily pop ten percent in that scenario.

Don’t try to game it near term. If it does get hit fifteen, twenty percent, or ten percent tomorrow on earnings and you don’t own it or you did trim some, then maybe you buy a little. And if it runs up to two hundred and fifty tomorrow cause it’s up twenty percent and then it would be up seven hundred and fifty percent from where I bought it twenty months ago.

Well, you can’t own them all. I see stocks every day that go up. There’s a stock up two hundred and fifty percent today that I’ve never heard of, but of course I wished I owned it. But welcome to reality. Welcome to being a market person and being in the stock market. That being said, Trading With Cody, knock on wood, we have had a hell of an earnings season, a hell of a five years, but nothing is easy though.

Q: Cody, I’m wondering why this last Snapchat earnings would change your thesis? Perhaps it makes you wish you would have stayed away from the stock? You usually don’t freak out after short term moves. And as you trust your analysis, I think we would be grateful for the opportunity to add to a revolutionary stock at cheaper price. Can you elaborate? Thanks.

Cody: This question is about something I said last night, and I said, quote “Freaking Snapchat! Ugly quarter again. I should have stayed away from it.”

Let’s start by noting that every stock, and every situation and every trade set up and every investment is different. One of the most important things in investing and analyzing careers or life or anything is to always question your premises and to know that we should be flexible and different in every situation. Every company is different. Every earnings report is different. Every scenario is different and every outlook for a company is different.

So looking at Snapchat here, when I wrote that last night I was pissed. I own the stock. Even if it is a small position and I do want to buy a little more, I don’t want it to get hit fifteen percent on the earnings report. You know, maybe I wouldn’t mind paying up for the next tranche if the company was hitting on all cylinders.

After listening to the earnings report last night, analyzing the company, and even just thinking about the fact that they are going to be completely re-doing the Snapchat app and redesigning it according to the earnings report last night. And they said one of the biggest complaints they hear is the same thing anybody who talks about Snapchat hears is if you’re not 18 years old, if you’re not 16 — you can’t figure out how to use that app. It’s swipe left and up, down, over, why is it open on my camera looking at my feet; what?

Old folks use the Facebook, maybe instagram. You know, they know how to scroll. And Snap announced last night that they are finally going to completely redesign the Snapchat app. That might finally be something to help get the company growing. Much like Twitter going to two hundred and eighty characters today. The change might be something to get Twitter stock up sustainably. And, it’s not about the stock.

The stocsk for both Snapchat and Twitter are going to track user growth. I mean Facebook’s stock tracks user growth the the same way, but Facebook has had huge user growth. Instagram has had even bigger relative user growth, going up five times over the last three or four years in user base. WhatsApp was already a billion person user base when they bought it for twenty billion bucks and it’s continued to grow.

So these social network companies, like a lot of subscription or advertising based businesses are going to be driven mostly by the user growth. The valuations of the stocks will reflect the user growth, and Snapchat’s user growth is not exciting. That report last night is disappointing user growth and that was again is why I was frustrated last night. Can these guys not get people to use their app? Why is it that every high school kid I’m looking at is spending half their time on Snapchat? I’m looking over the smartphone of some of the kids that work for me; what are you looking at? Instagrams, Snapchat, never Facebook.

I had a kid who works for me do a poll of hundreds of high school students in rural New Mexico here and Instagram are one and two. Far below that are others. The user base is the point and these companies have to grow their user base. A wise venture capitalist once told me in regards to my IAm App company — he said, “Look man, I don’t even care about how you’re going to monetize. I don’t care about your revenue model. I just want to know do you have a sustainable user growth. Can you have hundreds of millions or hopefully billions of people on your platform? A monkey can figure out how to monetize a billion people using your platform every month. So get people on the platform and anyone can figure out how to monetize it.”

On that note though, Facebook has done a much better job of monetizing their user base in addition to growing their user base than Snapchat and Twitter.

So anyways guys, look, every opportunity is different and eventually yeah, I’ll probably end up buying some more Snapchat. But then again remember that I do own a lot of Facebook since I made it one of my biggest positions when it was at twenty dollars a share and I still own it. I’ve got a lot of exposure to social media via Facebook. A much smaller position in Twitter and a much smaller position in Snapchat.

Sometimes I think I’m overweight social media. Luckily my Facebook position is so much bigger than the others it’s been a great overweight the last five years. I hope that answered your question.

Q: “Cody, you’re the best. I don’t’ care what they say.”

Cody: I’m having trouble hearing your question. You’re breaking up. Maybe if I get better signal. Nope, you’ll have to send me your question in the chat room. I talk about this almost everytime I do these livestreams because the world is moving to streaming, whether it’s live streaming or on demand streaming. We are downloading, and more specifically uploading more live streaming content all the time. So there’s my subscriber there, who is asking me questions and whether it’s on my downstream as my phone’s trying to download from the cloud where this subscriber’s live stream on my live stream is coming from. We have to have more bandwidth. You listen to anybody live streaming and they get frustrated with their bandwidth. Watching Netflix is still a little bit frustrating. Bandwidth man! And I have the best play on 5G. The best play on the future of unlimited bandwidth is Verizon.

Q: Cody, what is going to be the effect of the slated tax cuts?

Cody: “Slated,” nice term. It is a continuation of the general trend that these giant corporations are not going to be paying much in taxes, and that they are going to get a lot of subsidies, and that if you don’t own these stocks then you’re not benefiting from that stuff unfortunately.

Before we jump into the slated tax cuts, discussion, let’s talk a minute about how little corporations pay in taxes already, despite all the headlines about how the US corporate tax rate is supposedly the highest in the world. Did you see the Appleby papers that a consortium of journalists released, which is a whole lot of documents from a white shoe accounting firm.

Appleby company specializes in helping the really really rich and giant corporations not pay taxes. And it’s legal because it’s legal technically to try to minimize your taxes anyway and though any means as long as you’re leaving some sort of trail.

So these guys help the powerful and rich go and leave one tax jurisdiction to another and one shell company to another, trading the assets and moving the money. Clients include even U2’s Bono. Google ‘Cody Willard Bono’ if you want to laugh. I know that my friend watching Matt, formerly the publisher of Rolling Stone Magazine and he used to defend Bono. We would be at some concert in L.A. and he’d be like, “Dude, you need to quit bashing Bono with his pleas to help the poorest countries.”

And I’m like, why? It’s often the most brutal and corrupt regimes in the poor country that get all the aid we send and I’ve always argued we should invest in these places rather than send aid to their governments. And, whether that is a good thing for that country or not, whether it’s a good thing for the United States or not is apparently is irrelevant to Bono, as he’s the one telling us how to run our tax system and how I should be paying taxes to send aid and then forgive debt from these corrupt regimes — when it turns out he’s spending millions to save even more in taxes. Several years ago, he moved his U2 limited from years ago from Ireland to the Netherlands where they pay zero percent taxes on the royalties every time we listen to a U2 song on any SiriusXM, any Alexa or in line at the grocery store.

The point of all of this going back to the question about the slated tax cuts is the corporate tax rate in this country might be said to be thirty-five percent, but it is clear when you dig into those numbers and you look at the Appleby documents and you look at the Panama papers and you find these methods upon which billion dollar corporations and billionaires avoid paying taxes — you see that the tax rates already very low. And the tax rates probably going to get lower for giant corporations and millionaires if any of these bills pass.

Even if they don’t pass there’s still unlimited ways for them to avoid paying much in taxes. Is that trend changing? I have long said this — the Republican/Democrat Regime isn’t even discussing the reality of how to reform taxes, much less simplify taxes. If you want to reform the tax code, the way to do it is defintely not by cutting the corporate tax rate to twenty percent while leaving every loop hole in a hundred and eighty thousand page tax code and adding more complexities to that tax code. That’s not fixing anything. That’s not. They’re not fixing anything. They’re just further enabling all of this mess.

I had lunch on Monday with a very hard working small business entrepreneur. He runs his own physical rehabilitation company here in small town New Mexico. And the whole reason he’s wanting to have lunch with me is because he’s trying to figure out whether he should be doing 401K’s for his employees and/or what other kinds of things he should be doing to take care of his company and his employees…and to minimize his taxes because he’s paying “through the teeth and taxes are killing” him. If you’re an entrepreneur you’re paying thirty to forty percent, maybe fifty percent, or forty-five percent of your income every year is going to taxes. And, that isn’t getting fixed with any of this tax re-jiggering stuff that the Republicans and Democrats are going to come together and do.

As I’ve said all along guys, the one thing that I think will be done in this tax code, the one “compromise” that will be done by Republicans and Democrats in power will be that the trillions of dollars that giant corporations have off shore will be allowed to move back to the U.S. essentially tax free. They’ll put it at five or ten percent and then they’ll have a bazillion loopholes for these corporations to move it around anyway, and a lot of that money will come back to the United States finally — almost tax free.

Now, is that great for the stock market? Probably. Is it great for the economy though? Not so sure. I mean, it’s going to further the divergence between the poor and the rich. The rich will continue to get richer. The middle class will continue to pay the most in taxes and the poor will continue to get poorer and suffer and be hungry and lack healthcare. If you were a socialist you would want a lot more taxes and a lot more stuff for the poor. If you’re a libertarian I would think you want a flat tax code that doesn’t favor anyone. But somehow we’re not having any of those discussions with any of this.

I’ll finish on this topic with this note. There was an interesting opinion piece in the Washington Post yesterday that started off with its typical with explaining why Trump is the worst and why Republicans are the worst and blah blah blah (the Washington Post is very democrat leaning or left leaning). But the article got interesting when it started bashing both parties and it talked about the two party system is busted and how the parties can’t save themselves. The two parties can’t save themselves and the best the democrats have to offer at this stage is identity politics and the best the republicans have to offer at this stage is low taxes with a tinge of racism or something. It’s an interesting article and whether the specifics of what they said, that the republicans versus democrats are offering now is accurate or not, the underlying concept that the two party system is busted and that there ain’t no fixing it is correct. None of this is going to change. This rich getting richer and corporations continuing to benefit and all of that stuff is endemic in this two party system.

And what does all that have to do with stock markets? It’s good for the stock market if companies get to keep more of their profits.

Since 2009, seven or eight years now, I’ve been saying we’re in a bubble blowing bull market and large part because of the tax policies; along with the Federal Reserve’s policies; central bank policies; subsidies throughout the world being thrown at giant corporations. And, unless there’s some catalyst to cause a crash or something, the bubble blowing bull market dynamic has remained in place and seems to be continuing to remain in place.

I love it when people don’t know whether I’m libertarian or liberal because by today’s left versus right definition, I’m on another planet.