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Call Transcript: Bubbles, balance, Black Swans and more



This article is published in collaboration with Scutify, where you can find real-time markets and stock commentary from Robert Marcin, Cody Willard and others. Download the Scutify iOS App, the Scutify Android App or visit

Click here to listen to a podcast version of this week's Trading With Cody Q&A Conference Call or read on for the full transcript.

Cody: Welcome to the Trading With Cody Q&A Conference Call #2. Let's start with an overview of the markets. What's in the headlines? What's everyone freaking out about? What is the crises du jour or the celebration du jour.

Talk about a "Teflon market"? You saw that on Thursday/Friday as the American Healthcare Act from the Republican side of the Republican-Democrat Regime pretended it was going to make a whole bunch of big changes to the overall system itself. Which really on the fringe was going to take a lot of options and protections away from people on the lower end and allow the giant corporate healthcare companies and biotech companies and pharma companies and everyone selling into the tax-payer funded healthcare system to keep making just as much money and making 99% gross margins, etc. The market, at least the talking heads out there, wanted everyone to freak out about it on Thursday and Friday. Monday morning, we come in and the futures are down 1%. I was listening to either Fox Business or CNBC on my drive in that morning and everyone was breathlessly saying "I thought it would be down even more than this after the vote failed on Friday for the American Healthcare Act."

By the end of the day, the market was down pretty ugly but they were off their bottoms. Tuesday, Wednesday and Thursday and here we are almost with the DOW back to 21,000 and the NASDAQ trying to pick up near all-time highs again, if it is not already there today. NASDAQ 6000 coming soon?

Guys, I've been talking about this concept of the Republican-Democrat Regime and their very corporate profit focus, and not just corporate profits, but even the stock market focus. From allowing you to invest your 401Ks and your IRAs in mutual funds and stock market-related vehicles and making it much harder to invest in other assets, or starting your own business, to the Federal Reserve having interest rates basically still at 0%. These are all things that create the Bubble Blowing Bull Market I've been so vocal about for the last seven years.

We are talking about de-regulating the banks right now. Don't forget that every single emergency measure from the financial crisis in 2008 when we were staving these banks off from bankruptcy, just so we could supposedly get back to a state of normalcy...every single one of those emergency measures is still in place in 2017. It is part of the reason I have been so bullish overall on the general markets, the stock market, on tech, on what I have been calling now for seven years the "bubble-blowing-bull-market". And we continue to live through it here.

Someday, these Bubble things will come back to bite. Bubbles are not healthy over the long run. There is a lot of mal-investment going on and the banks still have a higher rate of profit relative to GDP than they ever have in the last 200 years. Those things allow people to fly around in private jets and do all the giant wonderful things that the top 0.1% of people get to do as they use the system in many ways to not pay their 30% of taxes that small businesses are. All that stuff, guys, goes into this thing that I keep talking about, "the bubble-blowing-bull-market". Apple is sitting there borrowing money at negative interest rates, which means people are paying them to borrow money from them. Then, Apple goes out and buys tens of billions of dollars of their stock and then they route as many revenues as you can through other countries that don't make you pay any income taxes on it, or near zero income tax on it, and you end up with a near 0% overall income tax. Not to mention benefiting from the 0% interest rates from the Federal Reserve in the first place, which is what enables the negative interest rates that Apple borrows at. Guess what? Apple is now a three-quarters of a trillion-dollar company.

We have ridden Apple for 12-13 years and I complained about their ability to avoid taxes every step of the way, of course, because I want a level playing field. I want small businesses like my own, The IAm App, that is competing against Apple and Google and Facebook out there, to have to pay 30% if they are not paying 30% like we are.

As long as Apple is the most profitable companies on the planet and they are barely paying taxes, their stock is probably going to keep going up.

We need to be, like I talked about last week, paranoid and worried about that next Black Swan event, but we don't want to just scared for no reason right now. The bears and the perma-bears out there have been scared for the last seven years and they have missed a lot of wealth creation that we have been able to benefit from.

Any questions from those who have called in?

Q. I have had $AAPL for the last 12-13 years. It is a large portion of my portfolio. I am afraid to let it go and I have been holding on to it because it seems like it is still going well. The only guideline that I have developed for myself, if it is any help to anybody, is to look at the weekly unemployment number. As long as that stays strong it is okay, but if it starts to go the other way, then I feel there can be too many negative cascading events. Then, I'd start selling.

A. So, are you going to sell 1/3 of your $AAPL? ½ of your $AAPL? Or, all of your $AAPL? If and when you decide that turn has come?

Subscriber response: No, overall I am still at the same level.

A. Have you been reading me since I owned $AAPL 12-13 years also?

Subscriber response: Yes, and I have been a subscriber of Trading With Cody for about 8 years.

A. Thanks so much. I think I've owned $AAPL since March-April 2003. I am at a fourteen-year anniversary with my $AAPL and I've continued to pare it down on occassions too. I'll sell 5-10% on occasion. I'll nibble some more when it has been crushed. I might by some call options every once in while. Again, with $AAPL, it is a three-quarters of a trillion-dollar company, but I do think it still has a lot more upside. I think it will be a trillion-dollar company. Obviously, as it is still one of my three largest positions.

I don't know that the employment rate, going back to that part of the comment, I don't know that will be the thing that will tell for me per say. I don't watch the macro economic reports in the same way that most economists do. And I am an economy major from college and I have been doing this now for twenty years on Wall Street. I think a lot of that stuff is rearview looking. In 2010, if you were looking at the unemployment numbers you would have been panicked and you would have missed the bottom. Sometimes, economic number are the counter tell.

One of the things that I think we do need keep paying attention to is the Federal Reserve as they continue to raise rates. I think a rising rate environment is very bullish. Which is exactly the opposite of what most every pundit out there will tell you about the Federal Reserve raising rates. Over the last twenty to thirty years, every time the Federal Reserve has been in a raising rate environment, the markets have been going through the roof. The Federal Reserve almost looks like it is chasing the stock market trying to tamper that bubble whenever it is raising rates. Eventually, the Fed catches up to the bubble, or there is a turn or a Black Swan event or the capital dries up like it did in the dot-com bubble. And then, all of sudden, the Federal Reserve starts cutting rates and/or otherwise easing. And cutting and cutting. We saw that in 2000 to 2002 and in 2007 to 2008. And what was happening to the stock markets when the Federal Reserve was in those major easing cycles? The markets were crashing. So while we're still net/net betting on the Bubble-Blowing Bull Market, we want to see that Fed continue to, at least at some point, pull back some of those emergency measures, raise rates to something a little more sustainable, a little more natural and the stock market will likely continue bubbling as they do that.

At some point, there will be a crisis, or a black swan or they will end up with capital drying up anyway and they will chase the crash back down by this easing cycle. The Federal Reserve is a complete and total tool of the giant banks and the corporations that we are investing in this giant bubble-blowing-bull-market and don't ever forget that.

Emailed Q. If you had "feet to fire" and had to put all of your money into one (or two) "great ideas" today, what would it be?? (i.e. the next "Facebook", or the next "big short"... whatever you consider most opportune now, after 8 year tired bull market, etc. etc.???)

A. Cash? LOL. I've talked before about a book that Jim Cramer gave me when I was launching my hedge fund back in 2002 by Andrew Beyer called The Winning Horseplayer. It is about gambling at the race track. The reason Cramer gave it to me is because beyond the idea that it is about gambling at the racetrack, Beyer is all about maximizing his upside exposure when he is really confident that he has an edge and there's huge upside potential returns; cutting back when he is less confident and/or the returns have less upside relative to the risk;, and getting the heck out entirely and not trying to bet when he feels like he does not have any edge and/or there's little upside potential.

As that relates to the stock market, I am at that spot right now that I don't feel like the upside potential is high enough to be aggressive right now. There are not a whole lot of excellent values out there. The market has not crashed like it had the last time I got aggressively long. It's not like it was in 2010 when I was aggressively long and buying call options, buying stocks, getting aggressive and more than 100% long.

Then again, it's not like it was in October 2007 when I sold out of my hedge fund and took the job at Fox because I just really didn't like the setup of investing in technology. I didn't have enough confidence in my own short-selling skills to try and bet against the market, so I just got out and went to TV. Where we are right now in that cycle is that I am not widly bullish. I don't think we have a huge edge like we did in being able to buy $FB at $20 when everybody hated it and nobody thought the mobile App Revolution was going to be billions, trillions of dollars in size like it has become. That's when we were buying these things. Now everybody does believe in FB and the App Revolution. $FB has gone from $20 to $140.

The flip side though is that I am not out there shorting everything either. It's not like I think it's October 2007 and there is some whole real estate collapse going on around the world that is going to cause a financial disruption. Patience is the best trade right now.

I continue to think we have a Bubble-Blowing Bull Market right now. I want to continue to own some of our best Revolution Investing stocks. I'll buy some of them when they get hit next time I expect.

I have got my ear to the ground and I am making sure there is no Black Swan about to crash the thing either. If I thought there was I would probably be looking at a great short opportunity. I think you just be patient. We own a lot of great revolution stocks. We should keep with them, sometimes taking some profits, trimming back a little. But I'm not ready to get net short yet.

Me telling you to be patient is why people do stick around with Trading With Cody over time because I am not forcing ideas on you. I am not forcing the next trade because you guys need an idea. I think there is a lot of value you in me reminding you to just be patient sometimes.

Q. If we take a look at an average Trading With Cody subscriber portfolio they've ended up with huge positions in Apple, Facebook, Google and Amazon. Those stocks really take up a large portion of many of our portfoliso, even though the number of shares we hold may be small relative to the rest. How do we keep a balanced portfolio in a situation like that?

A. That is part of what our earlier discussion about $AAPL was about and after owning it for 12-13 years it becomes an out-sized part of your portfolio, no matter how often you trim it. Stocks can go up 10000% like Apple has since I've owned it, or $AMZN like you are talking about which I haven't owned for the 10,000% gain, but I have owned for several 100% several times over the years. You look at my own Trading With Cody largest positions/latest positions, and it is dominated with $FB, $AMZN, $AAPL, and $GOOGL just like your portfolio. I have owned them and I have had huge gains with them and I already had big positions in them. When I recently started a position in $GIMO, well, even a full-sized position in $GIMO isn't going to be anywhere near what my position in $AAPL, $FB, $AMZN, $GOOGL are at this point.

There is no science to this. One of my very good friends, a hedge fund manager, never allows a position to grow larger than 5% of his hedge fund. But that means that if he had bought $AAPL (which he didn't), for example, and it went up 10000% and he bought $FB $20 and it went up 500%, he's going to end up selling, selling, selling and missing out on a lot of those gains because he wouldn't allow the big position to continue to rise. The flipside of that is we have had subscribers before who have talked before in these Q&As that they have been following me for 12-13 years and owned $AAPL with me that whole time and others with huge gains that made 30% of their personal portfolio in $AAPL. That is too much. We can try to have our cake and eat it too. We can trim some when these stocks with gains in our portfolios rip to all-time highs (like you've seen me do over the years) and the stocks have gone through the roof. We have to have the discipline to nibble a little bit back when they get crushed and everyone is freaking out over Brexit or a Greek financial crisis or whatever it is. We have to try to balance it.

The simplest way to tell if you need to rebalance your portfolio is if you are worried about it at night. That applies to your overall portfolio and it applies to an individual position. If you are so long in your portfolio that you are losing sleep, sell a little bit and catch your breath. If you own 30% in $Amazon, well, that's too much and it should be keeping you up at night. If you own 20% in $AAPL but it is not keeping you up at night because you bought it at $2 and it is at $140 and have trimmed some along the way, you might ride it a little bit. You have the gains to cushion you a little bit...but maybe sell 5%. Point being, if you are up at night you are too long in either a stock or your portfolio.

Subscriber comment: I agree with you totally.

Did you know as we are talking that we are about to pass 20 trillion dollars in debt? It's all good when interest rates are near zero, huh?

Emailed Q. I just read an old article by you titled "Where to invest your money when you don't trust the markets". This article was of interest to me because I don't trust the markets. Any of them. There is just way too much manipulation, corruption, and fraud that goes on in all of them. So, my question to you is, if one feels this way then where is the best place for my money? And just to let you know, I've worked on finance for a number of years as a portfolio manager but left the industry because of I got fed up with all the BS and lack of accountability. And this is from all sides; from the companies, themselves, to the regulators, and the governments. I also trade (options, etfs, bonds, and futures) and have developed several systems to manage the risk and uncertainty. Yet despite all of this and having a positive expectancy with minimum draw downs on my portfolio (<5%) I am just so sick and tired of the whole game. So I'm wondering where I can place my money where it won't be manipulated with for someone's else's gain or benefit because it seems to me this is the only way that companies can earn a profit (manipulation, fraud, lying, robbing, cheating, stealing, needing subsidies, bail outs, bail ins, having their taxes cut to 0%, etc....).

A. The simplest answer to this question is invest in yourself. Start a business. Place the vast majority of your own money, time, and energy in to betting on yourself and something that you are creating. That's what I do. I certainly own stocks. I own some hard gold. I own real estate. I own other assets. But even a lot of those markets I don't trust. I don't trust the real estate market. Mortgage interest deduction..that is ridiculous. People who are rich enough to own a house don't have to pay as much taxes as people who rent a house. That is another one of those things that creates bubbles. The Federal Reserve and the Republican-Democrat Regime's policies are forcing money into places that it would not naturally go without tax incentives. Real estate is manipulated on many levels in the tax code and other policies. You all know that I don't trust gold ETFs or any ETF market out there that is supposed to have some hard-based asset backing it. I don't trust the oil markets. Stocks, as I mentioned in my opening, are far from being a pure market, what with all your different incentives from 401k's to IRAs to 0% interest rates to tax tricks for giant global corporations. I don't trust any of it.

But we live in this world and I am not going to stuff all of my money under my mattress either. I am going to do my best to be objective, to be thinking free, to look at the world, to look at the economy, to look at these markets and try to understand the dynamics between them and to profit off of those things before they happen. To have a bigger picture than most of those guys that you are out there listening to on CNBC. We have to be objective and open to the ways these markets are manipulated, but that doesn't again necessarily mean that we are scared of being in them. It means we should be paranoid about it, but it doesn't keep us entirely out of them. If you want to avoid every market out there, you are going to have to either buy gold or you are going to need, more to the point, just invest in yourself. Invest in your own business. Invest in your own ideas.

Q. What smaller companies do you see with the most potential to become the next $AAPL, $FB, $AMZN or $GOOGL that are in an early place for growth, where $AAPL was say twelve years ago?

A. It's a great question, but I don't have a great answer for it. That is what I spend all day, every day, trying to find. My own companies, I do think have a whole lot of potential. The IAm App could become the next $FB. We've owned $AAPL, $FB and $GOOGL for many years, and we have owned $AMZN off and on for many years. I was being interviewed a couple of months ago on the radio in New York and the guy asked me some of my holdings. I threw out $NVDA that I had a good year with last year and I mentioned my $FIT losses. And he said what are some of your other winners? I said "I've had $AAPL since March 2003 at $1 and I bought options and I bought $FB at $25 and all the way down $18. I tell him all the stories that you all that have been subscribing with me here at Trading With Cody have hear. That we bought $AAPL, $AMZN, $FB and $GOOGL and I was calling them the "Four Horsemen of Tech" ten years ago in some of those cases and 5 years ago in $FB's case. And the guy was like "What? that's all of them, $AAPL, $AMZN, $FB, $GOOGL and last year $NVDA! That's incredible." I said "Don't get me wrong, I've had some losses, too." As you all know not all of my picks have been $AAPL, $AMZN, $FB, $GOOGL and $NVDA, but that is the point. We own and have owned 4 or 5 of the biggest winners in the stock market out of the last ten years. $AAPL, $AMZN, $FB and $GOOGL are the most valuable companies on the planet. They are worth 400 billion dollars for $AMZN and $FB and $550-600 for $GOOGL and $750 billion for $AAPL. And we bought them when they were small caps, mid caps. I am not trying to just brag here or avoid the question. My point is that it's hard. All I do every day is try to find the next $AAPL, $AMZN, $FB or $GOOGL. I promise you, if I had the ones with the most potential that aren't already in the portfolio, I would tell you. I think $PANW could be a five or ten-fold return. $AMBA, if they deliver, but it is so volatile and such a binary outcome and a lot more risk than $AAPL, $AMZN, $FB or $GOOGL, frankly. Haha, of course, in regards to the "risk in Apple, Amazon, Facebook and Google" years ago, well, hindsight is 20/20.

Q. What about some of these drone stocks? What ones are unique and sets them apart from the rest?

A. You guys remember when I wrote a report about 10 Stocks for the Drone Revolution. I need to go back and look at some of those stocks. Drones are not as big as smartphones and the App Revolution and they are not going to be any time soon. Robots and wearables, for example, are probably more exciting for the next few years.

Subscriber comment: They have the biggest potential.

A. I don't think so. Drones, themselves any time soon, aren't going to be that kind of thing. I think wearables are probably a bigger market near term. I think robotics, themselves, and artificial intelligence, too. Drones, maybe 10-20 years from now it will be a better tectonic plate of the world of technology in the world. I think we are too early in the cycle for it to be a trillion-dollar market.

Q. What about Uber or Lyft?

A. If they come public, we will take a look at them as always. It depends on the valuation and the actual fundamentals. It depends on the business models. I sure don't like the management at Uber except for the fact that they have taken over the world and I use their service every time I travel. I've never used Lyft frankly. We will find out when they come public.

Subscriber response: They like Lyft out here in Las Vegas better than Uber.

A. The whole thing for me is that when I want a car service, I want as many options as possible and Uber has a bigger critical mass of drivers. That is the totality of the reason I use Uber. Like most things in app world, it is a winner takes all kind of business. Maybe Lyft is sort of like Yahoo with Uber being Google.

Q. With a little more time and activity and others' commentary under our belt, any new reflections on $SNAP?

A. Snapchat. You saw the article I wrote, which I think I called Six Differences Between Facebook and Snapchat When They Came Public. I really do put a lot of weight in the IPO itself and the price action immediately after. As you guys know, just like the Federal Reserve commentary we did earlier, this is exactly opposite of what everybody else I've ever read or heard talk about IPOs believes. This is my own free thinking here.

But my theory is that you want to get as much as possible on your balance sheet, in your checking account, when you go public. The reason you are going public is to raise money to compete to build your business to grow. If you are going public and leaving a 50% pop from where you sold the shares to where the people who bought the shares then get to sell it in the market, when the stock market opens and trading in your stock, that is 50% money that you could have had.

Facebook, again, being the best example of doing it the right way. They got every dollar they could have. They upped the price, they upped the price, they upped the shares, they upped the shares. Then, they sold as many shares as they ever possibly could at as high of price as they possibly could. The market couldn't bear it near term and the stock crashed from $35 to $18. Who cares?

Facebook got as much money as possible for the battle for the wars for the next ten years. They put tens of billions of dollars on their balance sheet that they wouldn't have had if they had allowed the stock to pop 50% the first day, which is what $TWTR, $GPRO, $SNAP and so many companies do. The IPO pop, in and of itself, is a huge red flag against $SNAP's management and for the company. They have to compete against $FB, $GOOGL, $AMZN and $AAPL. $SNAP has to compete against those companies for the next 10-20 years. $SNAP put 3 billion dollars on their balance sheet to do that battle with when they could have put 4.5 or 5 billion dollars on their balance sheet to do battle with. That's a billion dollars that they don't have now to invest, to research to hire, to poach talent from Google and Facebook. It is a big mistake. A big mistake.

It truly makes me feel like I am on another planet that nobody else in the world sees it this way. You never hear anything good about the Facebook IPO to this day. Well, despite the so-called "disastrous" Facebook IPO, the stock has done great ever since. Despite the so-called "brilliant" IPO at Twitter, the stock has been crap ever since. It was a crappy IPO at Twitter. It was a brilliant IPO at Facebook. I don't know why the world doesn't see it that way. It seems pretty straight forward to me. You are raising money. That is why you went public. Raise as much money as you can. Zuckerberg is one step ahead.

Q. Speaking of Amazon, if you do not own shares what is a good entry point? Wait for the long awaited broad market breathercorrection before taking a position?

A. Amazon is a juggernaut and has so much potential upside still with so many high growth businesses. I'm not even going to talk about Amazon's dominance in retail or the huge growth and profits in Amazon Web Services. Those are reasons enough to own Amazon for the next 5-10 years, but it is Alexa that has me excited. Game-chaning is the artificial intelligence, the deep learning of Alexa, the ease of use of Alexa. I will not talk to my Siri. It never works. It never hears me or if it does, it doesn't hear me correctly. Watch this: [Demonstration of Alexa playing Spotify, turning volume up, stopping]. That technology is going to be worth hundreds of billions of dollars in the next 10 years. It is not just cool, but the fact that it is also from Amazon and creates the halo for the Amazon eco-system. Alexa also has sold tons of units. Alexa is also going to be in cars next year. If Amazon is doing what I think they are doing, they are right now creating an Alexa-centric Android smartphone. And an Alexa Smartphone is going drive the next phase of the smartphone wars and the App Revolution. I've sometimes thought that maybe I should cover my short in $EWY/Samsung until Alexa comes out with their new phone. When Amazon comes out with their Alexa smartphone, it is ends of days for the Samsung dominance and the Android hardware.

[At this comment from Cody, Alexa starts reading headlines about Samsung's Galaxy 8]. Haha, Incredible. Alexa is getting better all the time. It didn't do that three months ago. That is what I am talking about with the deep learning and the artificial intelligence. They are investing billions in making Alexa what Watson was supposed to be.

Emailed Q. Cody, I think you should take a look at $FEYE again. They seem to have implemented their turnaround plans and with the new CEO, Mandia, in place, I think there is a lot of upside in this name. Just because you are in $PANW doesn't preclude you from looking at a competitor, right? I'd love to get your thoughts on $FEYE here at mid-12s with everything they've done to streamline business and cut bloat. Many thanks!

A. With a company like $FEYE, it is small company, a start-up. It is not like they are established in the market place nearly as much as $PANW, which is also not established in the market in the way $CSCO is. $FEYE with the crises they ended up having when the stock was $60-80 and now it is down to $12 and they have taken guidance down over the last few years, there would have to be some serious proof in the pudding before I would want to get back in there. I would rather pay $15 or $18 for the company after the turn has been proven out rather than hope and pray that new CEO actually does get it turned without much proof. There you have it for $FEYE.

This article was written by Cody Willard for on .

This article published in collaboration with Scutify, the best app for traders and investors. Download the Scutify iOS App, the Scutify Android App or visit

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