Why Bearishness Is Bullish, 50 Years Of DJIA Gains, Space Competition Vs Bureaucracy, Intel Info, Much More
Here’s the transcript from this week’s Trading With Cody Live Q&A chat.
Q. Good Morning Cody. I’ve heard institutional money bought 3 times more puts than the did in 2008. Not sure if this is true or not, but what say you sir?
A. It’s pretty much true by the way they measure it, but remember that the total market cap of the stock market is 3x larger than it was back in 2008, so if you adjust for that, it’s not a record amount of puts. That said, I would think that a lot of those puts are expiring today and that’s probably helping put some upward pressure on the markets this morning. Next week could be another week where the path of least resistance is downward again, at least initially. Guessing short-term market actions based on put buying or anything else isn’t much more than guessing though.
Q. Does adding more Puts mean the Market is predicted to go down? Should we sell our positions to get profit and cash for the next downturn? Your message today was amazing Cody, but I’m a bit confused about whether to sell now and repurchase for the rally you predicted earlier.
A. First off, I’d say — let’s slow down. We aren’t trying to catch every move up and down in the markets. Secondly, to answer your first question, if lots of people have already bought puts then that would probably be BULLISH, not bearish and it would probably put some UPWARD pressure on the markets, not downward. That’s because when everybody gets positioned one way (ie, lots of puts have been bought), then the trade is crowded and nobody’s left to take the other side so the markets go opposite how everybody got positioned.
Q. I have heard many institutions are short more than 2008 and liquidity is drying up. Not sure about any of this. How does one navigate this? Do you expect a 2008 leg down?
A. As I noted earlier, it’s probably BULLISH that so many institutions are leaning on puts (and/or shorts). Those bets against the markets can end up being fuel for the upside, at least short-term. I don’t know what the markets are going to do, but I do think we are in for some declining volatility and a path of least resistance that is probably lower overall for the broader markets. Who knows though!
Q. Cody, Silly question! Do you think the Dow Industrial Average will hit 100,000 in your lifetime?
A. Yes, but I plan to live another 50 years or so. In my first 50 years on this planet (I turned half a century old last week), the DJIA went from 1000 to 36,000, or up 36x. To get to 100,000 from 30,000ish today would require only a 3x increase over the same time frame.
Q. What are your favorite companies to add to right now in the portfolio?
A. Hmm, I’m not adding to anything right now since I was nibbling during the recent panicky action. My favorite names right now are probably: INTC, TSLA, META, ROK, GOOG — but again, I’d rather buy again during another sell-off and I’m not adding to any of them today.
Q. Probably preaching to the choir here, but doesn’t it feel like the Fed is going to overshoot their rate hikes? Prices are already starting to come down and there are signs inflation is starting to abate.
A. The Fed is foolish if they think they are doing anything but chasing the market’s own reset to higher interest rates. The Fed is foolish, but maybe not that foolish. They’ll raise rates until the markets stop raising rates and then they’ll try to declare victory over inflation (they have to hope inflation does head way back down to 2-3% from the 5-9% levels it is currently running at). And IIIIIFFFFF inflation is actually back at 3% or lower, they’ll cut rates at some point and try to create a new stock market bubble. But it’s not as clear a path to get to a point where they can stop raising rates (or cut rates again) as it was every other time the FED has raised rates over the last thirty years.
Q. Morning! Housing is all over the headlines lately. Do you see it continuing to correct over the next 6-12 months? How do you see interest rates over the next 1-2 years? Thanks so much in advance – been following as a sub on and off for 10+ years!
A. Yes, I’ve been saying for the last year or so that I thought real estate in most areas of the country is in trouble and it’s playing out that way. Probably still early in the downturn of real estate prices. I’d look for volume (number of homes sold) to bottom before prices. Interest rates are likely to be a bit range bound in the US for the next 1-2 years, feet-to-fire.
Q. You seem to be very high on ROK. I don’t think we’ve seen a write up on this one. Can you please share the short version on why you’re so bullish on this company?
A. It’s basically the purest play on The Redomestication Of The Supply Chain Revolution. It’s the leading maker of robots and software to run highly automated factories for everything from underwear to semiconductors.
Q. Cody, why are the big tech companies, AAPL, MSFT, GOOG and AMZN acting so poorly? Is it higher interest rates? They have loads of cash. Are valuations too high? Are people selling them to raise cash? Everyone owns them. Could it be China? Thank you for your thoughts.
A. Yes. For all of those reasons.
Q. I see you are pounding the table on INTC, kind of like you were for TSLA a couple years ago. Is it time to back up the truck on INTC?
A. I do feel as alone and as foolish in my bullishness about INTC right now as I did about my TSLA bullishness back the first few months after I bought it and it vastly underperformed the markets for a while before completely blowing away the markets over the subsequent two years. But they are very different set ups and each company is/was at a bet-the-company crossroads.
Q. At what point might you consider buying long dated calls on INTC?
A. I own some long-dated calls on INTC in the hedge fund and I might go ahead and nibble a few for my personal account soon too. I’d be looking at expiration dates out into and past next June and would look at buying them 30% or so out of the money. Totally speculative though, because realize that those factories Intel is building will take til late 2024 at the earliest before they start cranking out chips.
Q. About INTC, you said “I’d be looking at expiration dates out into and past next June and would look at buying them 30% or so out of the money.” To clarify, are you looking at strikes around $40?
A. Yea, or even a bit higher. Options are risky!
Q. Is INTC still a good buy hovering around $32 or we should wait for next week?
A. Hmm, it was at like $30 and now it’s at like $31.50 and I’ve been buying it since nearly $55. I did buy some more in the hedge fund as planned and noted repeatedly as it hit $30. I’ve no idea how it will trade near-term from here.
Q. Cody, how would you rank TSM now, I feel that at the current quote it’s pricing a number of risks, but the reality is a double digit growth, low p/e, cash flow machine, trading at book value, dividend payer and long term play on most relevant trends. I’m a race where are 2 horses, wouldn’t it make sense to bet on the 2 horses, one for the west and one for the east (INTC & TSM)?
A. Yes, I got myself and Trading With Cody subscribers into TSM a few years ago when the stock was in the $30s and I still hold most of those shares today. Here’s what I wrote at the time in the initial TSM Trade Alert in 2019: “Meanwhile, TSM, is by far the most dominant and advanced semiconductor foundry. Trading at 15x next year’s earnings, the stock will pay us a 4.3% dividend if we hold it the whole year. But more importantly, there’s a big trend of companies designing their own custom chips and outsourcing their making to TSM — as evidenced by Google’s and Amazon’s new data center chips and Tesla’s new in-house-developed Full Self Driving chip. If TSM were based in the US, it would probably be one of my top 3 favorite stocks here to own for the next 30 years. Because it’s based in Taiwan, I can’t say it’s a top 3 favorite, but I do think at these valuations it’s good risk/reward scenario for the long-term anyway.”
Q. NASA is a big expensive fail. Elon is a huge success in the space industry. It looks the same for RKLB. Will overall economy problems slow this or is it a launch?
A. Space is hard. SpaceX and RocketLab need NASA to succeed as often as possible, but every time that $40 billion SLS built by Northrop Grumman, Boeing and “SLS is America’s rocket with more than 1,100 companies from across the U.S. and at every NASA center supporting the development of the world’s most powerful rocket. The SLS Program, managed by Marshall, works closely with the Orion Program, managed by NASA’s Johnson Space Center, and the Exploration Ground Systems Program, managed at Kennedy. All three programs are managed by the Exploration Systems Development Division within the Exploration Systems Development Mission Directorate at NASA Headquarters in Washington, D.C.” it underscores how valuable SpaceX (and to a lesser extent) Rocket Lab should be as they successfully pull off mission after mission for NASA and other clients.
Q. Regarding BTC, would you recommend scaling in when prices dip under 20k?
A. If you don’t own any, I might look to nibble near there. But I’d rather wait for $15,000ish before I personally will be looking to start adding. Remember that I’ve owned and talked about why I like bitcoin since 2013 when it was at $100.
Q. Cody, any thoughts on the proposed Helium & Solana merge? Are you looking to buy more HNT? Thanks.
A. Ethereum is too expensive on its gas fees, it’s too slow for some applications. I’m still short a small amount of ETH futures in my hedge fund against a small BTC futures long position. I’m going to hold (hodl?) my HNT but I’m not looking to add to it. I’d rather own SKTL Space Crypto (reminder that I’m a volunteer founder of SKTL but there were no founder tokens) https://sktls.com.
Q. Cody, I think ETH will have lesser gas fees after the merge since we don’t have to pay the miners. Which way do you think ETC (Ethereum Classic) will go?
A. We’ll see if they actually do the merge as planned and it works out. I think both ETH and ETC could trade down hard lower in coming weeks and years.
Q. Curious on your ROKU thoughts- we’re down to COVID lows. There’s obviously some advertising headwinds for the foreseeable future, but do you think the narrative is broken or just taking its lumps with the rest of the ad-based revolution companies currently?
A. It’s a good company and I think the stock is probably more of a buy than a sell now when it’s in the $60s, but I’m looking for some NEW Revolutions like Space, Biotech and The Onshoring Revolution.
Q. Cody, what are your thoughts on the private company Stripe?
A. Not many thoughts on it, really. Seems to be a great company though.
Q. Cody, I want to shoot you a note on the last two articles/emails sent out. I love the detailed analysis both on Intel and the broader market in general and comparisons to previous time periods. Please keep these coming!
A. Thank you so much for the kind words, it’s great to get feedback on what people like to receive. Frankly, this the fourth bit of praise I’ve received for the last two articles. Duly noted.
Q. Good morning Cody. In today’s post you wrote: “I think sentiment and the oversold status of the stock markets are likely to help the markets put in a bit of a short-term bottom here and that we could get a pretty big rally early next year.” There is a lot of time between “here” and early next year. You seem to be hinting that you think the “short term rally” will end and the selloff will resume between now and year end. Please elaborate.
A. You’re quoting me quoting myself from December 2018. I probably should have put “Cody back in real-time, September 2022” at the end of the quoted article inside of yesterday’s article. Make sense now?
Q. It does make more sense. It can be very difficult for others (only me?) to follow when you are frequently shifting from current writing and quoting yourself. You might try some form of indenting to make your quotes of previous writings clearer.
A. Sorry about that and yes, I’ll do that from now on. I just don’t like the way indented quotes look in emails, but I’ll start doing them.
That’s a wrap, thanks for all the great questions!
I leave you with this picture of the new obsession at our house, as kids and adults alike love the PickleBall court I painted onto a concrete slab outside our house last weekend. Dig the (mostly) straight lines! See you next week.
