Transcript from today’s chat…
I have your car towed all the way to your house and all you’ve got for me is *lite* beer? – Biff Tannen
Here’s the transcript of today’s chat. We broke the questions and answers down into two sections as usual — Economy/markets/trading/strategy and Stocks. See you next week at 2pm EST at http://tradingwithcody.com/chat for more Q&A where you can ask me anything.
Economy/markets/trading/
strategyQ: Why do you buy common stock at times and other times you buy calls? What factors go into you decision?
A: There are lot of factors that go down into deciding between common and calls. Some factors include: 1. How expensive are the traders pricing the calls? If the calls let me get long-term upside leverage cheap, I’ll usually put in a little bit of capital there, even if I also own the common. 2. Do I expect near-term catalysts? If I do, such as we have done with the Cisco, Google and Sandisk call buying before their earnings reports, which I expected to be catalysts, then I’ll get more aggressive in the calls, even if I have to pay up on the premiums. 3. How much common do I have in the name and how long have I held it? That is a nuanced factor, but one that seems to play into my decision-making on common-vs-calls often. Great question.
Q: What is your view of the financial sector medium term? I have started scaling into FAS looking for some recovery by YE.
A: I’m short the financial sector and looking to get shorter in it in the medium term if there is any strength in these insolvent-but-for-fraudulent-accounting-and-welfare banks into year-end.
Q: What are you seeing that makes you think we will see a Bubble forming and stocks rising ala ADSK :”for the next 10 years” vs a bear market forming and double dip recession?
A: That’s a HUGE question and not one easily answered in a Q&A chat like this (reminds me of trying to debate anything meaningful in TV soundbites!). But long story short — the Fed’s 0% rates and the trillions in additional explicit and implicit quantitative easing is likely fomenting asset bubbles as we type. The “forced trade” from the ultra-low interest rates from the central planners of the Republican/Democrat Regime is indeed going to force people into risking their capital and creating new asset bubbles. Including in smartphones/cloud/tablets.
Q: Huge question- Ok but stocks act terribly to earnings and for now it FEELS like the only bubble they will see is if they chew lots of gum. I get the 0% rates to force people to grow assets in the only game left to grow them in that being stocks, but from 2008-9 great recession, 2010 flash crash and this years crash has most likely left people not just 2nd guessing but 3rd and 4th guessing the stock market and its casino like gamble like roller coaster not resembling anything trustworthy for money to grow over time.
Q: In our last chat I was talking about the Head and shoulder pattern that everybody was talking about. Seems it played out badly for everybody. Now everybody is talking about a double dip. Whereas you are in for an App Bubble. What are your views on this ?
A: Yes, the head and shoulder pattern did play itself out. I’m still going to answer the question about how I feel to be alone in my views rather than with the crowd — great. Much preferred. Contrarianism is a way of life. Still. Even when I’m wrong as a contrarian, which I was recently and will be again soon.
Q: If one is bearish on Financials it would seem that the market would have a hard time advancing without this sector. I will be keen to see when your stance on Financials changes.
A: Think about my stance this way — if the financials finally get their commeupance and crash, perhaps the rest of the stock market will too. But I don’t think they’d be crushed as bad as the financials would anyway. Meanwhile, if the markets bubble and the government allows the banks to survive in tact despite being fraudulent and insolvent, then I think my stocks will far outperform on the upside too.
Q: What do you expect of the market in general if the House blocks anything Obama wants to do? I truly believe at this point that the Republicans will do anything to keep the unemployment high so the Obama-leftist experiment is a one time deal in American history. I was amazed that Michelle Bachmann got first in Iowa … this is the feeling of many in the Midwest…
A: Obama is a leftist? I think he’s incredibly far on the right. Let’s see…$14 trillion in bailouts from Bush and Obama in the last three years. Is that left or right? $1 trillion for Obamacare over the next ten years that seems to benefit the health-care lobby much more than it does the general public. Is that left of right? Expanding our wars in the Arab world. Is that left or right? Expanding Medicare and Medicaid budgets…oh wait Bush and Reagan expanded Medicare and Medicaid. Were they left or right again? The upshot — don’t let this ongoing fake Right-Left debate in Congress distract you from the trillions and 0% rates that are really what are more likely to drive our economy.
Q: Maybe I just follow his rhetoric about rich and poor, and about increasing taxes and just giving speeches like Chavez or the Argentinian president. So if he is far on the Right, what are the tea party and the right republicans? And why do they want to get him out?
A: Increase taxes on the rich? How about we just stop bailing out the rich? The banks and their shareholders and the lenders are on welfare and we’re talking about increasing taxes on them? Okay, no more of this topic. I’ve made my points and you’ve made yours. This isn’t helpful to our trading now.
Q: I know your always talking about how the government has spent trillions in dollars in welfare to the banks and the wealthy. How have they done this? I know tarp bailed a lot of them out from bankruptcy. How else as far as direct and indirect means has the government been spending our tax payer money on helping the “banksters”? Does 0% interest rates and quantitative easing somehow cost the tax payer?
A: The banks are borrowing money from the government at 0% interest rates and then lending that same money back to that same government at 3%. That costs the taxpayers hundreds of billions if not trillions in free money for the banks every year that we allow it go on. The banks have trillions of dollars of mortgage securities that are worth twenty cents or so on the dollar. But they are allowed to say that those assets are worth trillions. So the banks are able to go on trading, securitizing, gambling and defrauding at will and then base their bonuses and shareholder dividends on those fake gains in their fake portfolios. The government also bought trillions of dollars in these 80% off mortgage securities for 100 cents on the dollar in the name of QE1 and QE2 and other names in the last three years. Fannie Mae and Freddie Mac were bailed out for $6 trillion which also goes into the pockets of their lenders/customers/partners — you guessed it, the banks. That’s just off the top of my head.
Q: What is your favorite short right now? Seems like you’re waiting on LPS to get a bump before jumping in more.
A: I don’t quite have a favorite short right now. Matter of fact, as I think about it now, I think I’m likely feeling like most shorts do right now — our shorts just made us huge money and now we don’t know what to do with them. They’ve hardly bounced, but they act like they could pop more before crashing again. Ah, the psychology of a trader’s mind. Or should that be the psychosis of a trader’s mind.
Q: Do you think we’re gonna revisit or go lower than August lows and why?
A: I think the longer we stay above the August lows, the more likely we are to steadily rally away from them. But until this market stops doing these 2% plus intraday dislocations, I’m leery about the near-term action and keeping cash ready to deploy in case we do crash not just to but even below those August lows.
Q: Sometimes you are very specific when buying calls or puts(which is great), but then like today you said with ADSK you where buying calls expiring in the next couple months… the average investor(like me)would probably prefer the specifics if possible…
A: That is a great point and I will do my best to just outline each call option trade even more specifically. My mom was an English teacher for years and she always told me that her main job was just to get those kids to learn to communicate better. I’ll communicate better.
Q: Is AAPL at all threatened by Google’s move? Do you like AAPL as much as before?
A: I think Apple is definitely having some “holy cow this changes everything” meetings in Cupertino CA this week. But Apple will be fine, IMHO.
Q: Have you ever looked at Constant Contact CTCT, they have 0 debt opening new offices and my company uses it all the time. They provide a great and cheap way to market your business during times when money is an issue. They are near their 52 wk low. Your thoughts? Have you ever came across it in your research?
A: I just looked CTCT over a bit, and they don’t have any debt, but they don’t have much cash either. They are pretty cheap and growing according to the analysts, but the fact that the only headlines are BS press releases from the company throws up some big red flags. Got a feeling this company is a lot of hype and little substance. I’m not going to dig further on it and maybe that’s my bad.
Q: Ok, thanks for looking into it Cody!! I really appreciate it.
Q: Do you like Google more, less, or the same after the Motorola purchase? I’m reading mixed things about it but it seems like $530 is a very good entry point.
A: I think the biggest untold story with the Goog-ola (Google for Motorola deal) is the set-top box business. Google TV and Android Apps are going to try to gain de facto standardization in the living room…Google’s going after Microsoft’s XBOX platform every bit as much as they’re going after the iPhone with this purchase. I like Google more now than
before.
Q: If I wanted to buy some LPS puts what would you suggest??
A: I want to buy some LPS puts too! I’ll let you know as soon as I see the markets throw us a new pitch for LPS with what looks to me like good timing and pricing.
Q: I am holding LPS Sept put at the 25 strike as I know you are as well. As we get closer to Sept what are your plans for these puts? Since you believe as I do it still has downside are you going to roll into the Dec puts and if so at what strike?
A: Oh man, I don’t know what I’m gonna do with these LPS puts. This stock has driven me mad even as it’s been one of the most profitable short bets of my career. I plan on staying short this thing and would love to get shorter on sustained rallies in the name, but sheesh, it just fades lower and lower and never upticks to give me a chance go build it. I’ll detail my strategy as I execute it…after I’ve figured it out.
Q: What is your strategy, if any, moving forward with RVBD?
A: I’d gotten rather lucky with the Riverbed trade as we’d sold most of our common and calls when it was near its highs and I’d explained this strategy in detail as I was doing it. The calls I own are now far out of the money but they still have a few months on them, so I’m holding them steady for now. I do plan on buying my full Riverbed common and call positions back in coming days or weeks but am in no rush.
Q: MRVL reports tomorrow I take it?
A: Yes, Marvell reports tomorrow after the close. And oh my, I am ready for it. Let’s get it done and see what the results look like already.
Q: MRVL is going to report tomorrow. What are your views on this? I already own some Jan 2012 calls which I bought when it was around 12 last week and have some gains in it too. Should we hold? The reason I am asking this is , unlike in someof the last successful earnings plays like CSCO, SNDK, GOOG more people are bullish on MRVL on marketwatch.com (getting this from reading articles and analyst estimates). What do your sources say about it. Are they more bearish than bullish?
A: I think the analysts are mostly looking for an ugly report and have been taking their estimates lower in recent weeks. That’s because RIMM’s a big customer of Marvell. I think that concern is more than priced in and that the company might even surprise to the upside tomorrow night.
Q: I think you are right. I did see the analyst estimates going down in the last 15-20 days. And RIMM. That seems to be a priced in too by the recent moves. Thanks. I was skeptical to hold or not to hold. But since I own long dates calls I wont worry now.
A: One lesson I’ve learned over the years about EVERY SINGLE POSITION ALWAYS is this: Worry. You should always worry. Complacency is the enemy. (I’m not saying you’re being complacent, I’m just saying — I ALWAYS WORRY.)
Q: I have the MRVL common and heavy calls I bought and already some of them are 10% up. Wondering is that good to keep or sell them. For ADSK also, I have calls. Can I buy more calls for ADSK expiring in Aug in two days?
A: I can’t tell you what to do with your positions, but I can tell you that I’m buying a little bit of ADSK calls today and a little common too. And I’m holding my Marvell calls steady for now, as I’ve been a buyer of them in recent weeks, as detailed in real-time here on the site.
Q: ADSK reports tomorrow; large call activity on August 15 4x normal; buy before E?
A: I don’t look much at the “call action” before a report — I look more at the stock chart itself and mostly at the analyst reports heading into the report. The analysts aren’t universally bearish on ADSK, but they are pretty bummed about it and talking it down. Such near-term analysis and trading into earnings isn’t science — it’s art. So I’m using a water color brush instead of oils. (I took that analogy too far, didn’t I?)
Q: I have noticed your exceptional calls, prior to earnings — CSCO, GOOG, SNDK come to mind — so stick with the water color.
Q: Can you comment on GOOG (the comments about MSFT outbidding them) and if they will still be at 2000$ in the future, and about the SELL from S&P? RIVERBED –from 44.8 to 24 and falling, closer to your cost more than a year ago than to even the average of the year. MARVELL — Lost 50% ADTN — Also dropped like a rock CIENA– a non stop punishment – it lost 75% from the 52 week high. Shouldn’t you include in your trading strategy to short the stock this companies (at the same time of buying long dated out of the money calls, in case they are bought out) when they get to unsustainable prices like riverbed at 40?.
A: I’ve talked about Riverbed a lot as it’s fallen and just detailed my latest thoughts on it above. Marvell’s only down about 10-15% since I added it, not 50%. Adtran and Ciena were two of my very smallest positions and we only owned some common in them and never got around to building them up much. Still haven’t. I hate owning any stock that drops like some of ours have. But I’ll be wrong sometimes on these picks. I’ll be wrong sometimes on the timing of these picks. Regardless, I’ll continue working my butt off every day and every year for the rest of my life to minimize those times I’m wrong. And just as importantly, I’ll continue to strategically and tactically trade and invest to minimize how those times I’m wrong hurt my performance.
Q: What are you hearing about advance orders for the next gen iPhone and iPad?
A: I’ve not heard much about pre-orders for either — I think the iPad 3 is pushed out for a few months for lack of components to build masses of it. iPhone 5 is coming in a few weeks probably and it will be huge, of course, IMHO.
Okay guys, that’s a wrap. Great questions and thanks for coming! Please continue to spread the word about TradingWithCody.com.
