Chat transcript: Contrarianism is a way of life; the Fed is criminal; and updates of Apple, Sandisk, WFC; and much more

I met up with scores of subscribers to TradingWithCody.com yesterday in our chat room (open at http://tradingwithcody.com/chat Wednesdays at 2pm EST for one hour). They took me up on the offer of asking me just about anything, as you’ll see below in the transcript from yesterday’s chat.  The first section is full of economy/marketing/trading/strategy questions.  The second part is full of your questions and my answers about individual stocks.   See you next Wednesday!

Q: Many pundits like J. Cramer and Dan Niles saying to avoid tech stocks till later in the year. Your thoughts?
A: I can only tell you that I would prefer that EVERYBODY else you read and listen to tells you to AVOID every stock I am long and to BUY every stock I am short. Contrarianism is a way of life. Ha (sort of ha).

Q: I think a short term bottom has been put in place, what do you think?
A: I’m not willing to guess that a short-term bottom’s already in place. This kind of emotional volatility can feed upon itself for days or weeks. That’s why I use scales both up and down and buying and selling.

Q: What do you think about the FED rates? what do you think about their transparency?
A: I think the Fed and its 0% rate, forcing old people and responsible savers around the country to risk their money looking for return…is CRIMINAL. And that’s it’s blowing up more huge asset bubbles in front of our eyes.

Q: How bad in shape are these European banks?
A: The European banks and the TBTF US banks are probably all insolvent if they had to follow old accounting rules of say, five years ago. Almost all the big banks around the world have screwed themselves and their shareholders up big time.

Q: Cody, I understand that you will be adding to your investments, and everyone’s future earnings are different, but can you add your ‘cash’ position to your list of positions so we can gauge how relatively invested your are. Again I understand real estate holdings, 401k, etc, make everyone’s position is different.
A: See, your question answers itself. Everybody’s future earnings are different and I expect me to grow my own income faster than I can grow my portfolio in the next few years. Which means I have cash on the sidelines and future cash on the sidelines that I’ll selectively choose when to add to my portfolio…It’s not accurate just to say, “I’m in 20% cash right now.” or anything like that. I want to be more realistic about things than that.

Q: When you say, “I’m buying common” or “calls”. Are you also doing more sophisticated purchases (unwinds, spreads, etc.)? Also, do you believe in setting up exit brackets on your common shorts and longs?
A: I don’t typically unwinds and spreads, etc with my options trades. I do a lot of homework and expect that my directional bets will work out okay over time.

Q: Jim Cramer mentioned yesterday that we are going to get hit big time in the near future because of Europe and he suggests not buying until that happens. What are your thoughts?
A: I have no idea what the next catalyst will be but I expect that anything other than outright revolution and/or economic collapse are getting priced in near these levels right now. Too obvious, you know?

Q: A crash coming?
A: “A crash coming”? What do you call the last week’s crash?

Q: When you say I’m “buying a put”. Are you performing a “sell to open” transaction?
A: When I say I’m buying a put, I’m simply buying a put. Puts are bets that a stock will fall. So when you I buy a put, I’m betting a stock will fall by a certain date.

Q: Two weeks ago you thought of a possible recession, or was not within your strategy?
A: I still don’t think a recession’s on tap. But I could be wrong.

Q: In your opinion, what would make this market settle down?
A: The only thing that will settle this market down is time. This crazy volatility has to play itself out. And I will also complement your question in that it’s an interesting concept that there could be a “stabilizing catalyst”.

Q: Can the gov’t do anything to create jobs?
A: I would say that aggressive borrowing from our grandchildren to fund public works projects would probably create jobs for this current generation of workers. And simplifying and lowering taxes for EVERY person and company would also help. But that’s about the best we can ever “hope” for from any government, IMHO.

Q: I know sndk is your biggest holding are you going to keep scaling into that?
A: I’m not even sure if SNDK is still my biggest holding since I’d mostly bought out-of-the-money calls in it and it’s now fallen so much. I do plan on scaling into more SNDK in coming days and/or weeks depending on the price and timing and etc.

Q: Are you still very bullish on Sandisk? They have plenty of competition in ssds.
A: I’d sell SNDK immediately if I didn’t like it any more. Lots of competition, yes, but lots of patents that those competitors pay it for. And with a P/E that I can count on the toes of one of my niece’s one foot, I think the threat of competition is largely priced in. I could be wrong though.

Q: Do you have a stop on sndk?
A: The use of the OTM calls provide a natural stop loss and I’ll just eat them if the stock doesn’t get above (back above in some cases) their strikes.

Q: Since WFC has dropped off a good bit lately, is it still your favorite short for the banking industry?
A: I think LPS has been and still is my very favorite short in the banking industry if I can stretch the meaning of banking industry to include one of the country’s largest banking services company.

Q: Where would aapl need to drop to for you to get interested, you have written about it in some of your pieces but I don’t think you have bought any yet?
A: I don’t know off the top of my head when I last bought AAPL frankly, but I’m already interested in it. Just not rushing.

Q: Hi Cody, I have a question about CSCO. I have common and various jan 2013 calls going into result today for csco. Please let me know if I can buy more before results?
A: I’m as nervous as anybody about tonight’s CSCO earnings report. Regardless of the report, it’ll all come down to the guidance and CEO Chamber’s commentary — which EVERYBODY expects will be terrible too. Cisco’s one of my biggest positions and I’ve got lots of calls too dated a 6-18 months out.

Q: MRVL, SNDK, CY, AAPL, SMH outperforming–if things stabilize we will make money?
A: I would expect that you’re reading the tape “correctly” there, that the chips would outperform further if the markets put in a bottom here. If. If. If. Big if.

Q: Do you have any expectations for MRVL earnings coming up? Are you adding to positions here or waiting it out?
A: I’m confident that Marvel’s earnings won’t be as bad as the Street seems to be expecting they will be. Please search for MRVL here on TradingWithCody.com and read my repeatedly updated full analysis.

Q: I know you moved away from the short on gold. It looks like its trying to make a top while the s and p is looking for a bottom. Can this be a possible reversal on gold in the next couple of weeks?
A: Yeah, I see that potential topping in gold too. I’ve thought I’ve seen it numerous times over the last couple years though, only to be wrong. I’m too disciplined to rush back into the short that quickly. I’ll probably let gold break down completely before trying it again.

Q: What are your thoughts on the GLD and SLV short at this point
A: I think GLD acts like it’s gone wacky and silver can’t break out above $40.

Q: GLD, SLV, TLT — new bubbles??
A: YES, that’s what I’m saying! SLV, GLD and TLT are already in the kind of bubbles that stocks are heading to in coming years.

Q: Do you expect to be initiating a lot of new positions in the next few weeks or will you mostly be adding to existing positions (lowering basis), in other words, what do you think you will be pulling the trigger on?
A: I expect I’ll finally get up to full-sized positions in ADTN, CIEN, VC and some of the others that I’ve chosen not to build up much yet.

Q: How attractive is Netflix looking to you in the $230s?
A: I’m on record in interviews over the last few years saying that NFLX can get to $1000 at some point. But it could get ugly for a while first.

Q: GS seems to be bouncing along a bottom at 112 any thoughts on it?
A: I think GS is also inept, corrupt and insolvent as most of the other TBTF banks around the world. Avoid or short til they die, frankly.

Q: Any thoughts on DLB Dolby Laboratories – they have been getting hammered for some time. But I think they are part of the APP revolution.
A: DLB’s a great company. What’s the app angle?

Q: In most devices including handhelds, ipads, touchpads, smartphones, license DOLBY. I guess the more apps, the more devices…
A: I’d need to look at how smartphone/tablet licensing is likely to impact DLB. Might just be losing the revenue licensing streams from the MP3/stereo/car markets that smartphones/tablets are stealing share from.

Q: I haven’t shorted WFC, do you recommend I Short it even if its this late in the game. Also is the following still true after the crash we had – SNDK from the $40s on up, dated out in early 2012. 2.Marvell (early 2012 expirations with $15 strikes) and 3. Cisco calls (early 2012 expirations with $17.50 strikes) dated in 2012.
A: Anyway, I don’t know that I’d rush into WFC after it just crashed 30% — recall I’ve sold some puts recently to lock in these gains. I don’t know when we’ll get the next pitch to swing on WFC, but will tell you guys when and if I start swinging at it again. And yes, off the top of my head, those specific calls do look like ones that I also own.

Q: After the huge pullback in financials, how much of the WFC short have you covered? Thoughts on how much downside you still see?
A: Great question…that’s why I’ve sold more than half my WFC puts. Puts that I’d just bought less than ten trading sessions ago. You don’t catch many shorts, especially in a blue chip, that fall 30% in a week’s time. But we did that here. WFC’s in big trouble but I don’t know how quickly or how far it can fall from here in the near-term.

Q: Does it not scare you that Warren Buffet is in wfc?
A: It scares me that Buffett and a 94 year old grandfather of my girlfriend are long WFC. But Buffett’s WFC investment would have been completely wiped out if you hadn’t bailed him out and allowed his WFC bank management to use “mark to model” accounting, which used to be illegal and still should be. Buffett’s and WFC are on welfare.

Q: Are you going to add to lps on rallies?
A: I would LOVE LOVE LOVE to add to the LPS short on any rally. It hasn’t hardly upticked since the day I bought puts and shorted it back when it was above $30. I’ve been saying I want to build it up even as it was already and has been by far my biggest short (though WFC got up there last week when I bought puts on it).