Chat Transcript for June 6, 2012: Scenarios for Europe, Facebook’s platform/operating system and much more…

Here’s the transcript of today’s chat. See you next week at 2pm EST at for more Q&A where you can ask me anything.

Hi guys, sorry I’m late. Let’s rock.

Q. What percentage of your portfolio is long what percentage of it is short? Also you often say EU problems won’t affect this or that companies sales or longer term growth. However short term stocks are just symbols and they have been crushed in general in the past 2 months 20-40%. How can it not matter that there is a global slowdown or Europe’s finances are hurting companies sales? They surely affect stock prices and earnings in the near and longer term the longer it continues. Yet your take is that it wont affect a companies sales. Please clarify. Thank you.
A. Of the main trading portfolio, I’m probably now about 80-90% net long. That is, I’ve got about four or fives times as much exposure to longs that I do shorts. I also have more cash on the sidelines and am willing and able to send in much more cash to the portfolios if the markets were to truly crash and if I would want to be an aggressive buyer into that crash or if I see the need to do so for some other reason.
If Europe’s economy completely tanks and they undergo a revolution, then yes, it would definitely affect sales for most corporations in the US too and that would even include Apple and its suppliers and other revolutionary companies. But if Europe were to stop shifting trillions of dollars from its working class and savers to the corporate/banking welfare system that both the “Left” and the “Right” say must continue, the economies both here and in the EU would immediately improve after a big, but short-lived sell-off in asset prices. If the EU were to dismantle and sovereign states were able to issue their own currencies instead of paying into a banking/corporate welfare system that no longer resembles capitalism in any way then the economies both here and there would immediately improve after a big, but short-lived sell-off in asset prices. The stock market was up for 30 years in a row and topped exactly at the same time the EU came into existence. The US GDP and economy had been on a steady long-term growth rate and earnings in this country grew steadily for thirty years before the EU came into existence. In the fourteen years since the EU and Euro currency were introduced, the US stock market is down. The Nasdaq is down big from where it was when the EU was started. History and economic theory and just common sense would say that the US would be much better off if the EU and the Euro were to end tomorrow. Let the Euro die and the bull market resume.
Finally, regardless of all of that analysis, I am very confident that Apple will sell hundreds of millions of iPhones and a hundred million iPads over the next five years no matter what happens in Europe (unless a true revolution were to happen as noted earlier).

Q. Which scenario are you most looking forward to?
A. I prefer prosperity and peace and freedom and free-will and private property and taxation laws that apply equally to all people and all companies and all organizations. Therefore, I’d much prefer to see the EU and the Euro collapse and go away and a complete washout of the corporations and banks that are nothing but frauds and welfare leaches (not that all corporations are frauds and welfare leaches, but any that avoid paying the same amount of taxes that my companies have to pay certainly are leaches…and all banks are on welfare using taxpayer capital at this point, so let them all collapse and recapitalize with private money as it was intended) and to let individuals or companies or not-for-profits choose to issue or use any currency they want, private-based or government-based or hard-commodity-based or whatever they choose. A justice system that is blind but which enforces individual and collective rights begets prosperity. Prosperity begets earnings. Earnings beget a bull market.

Q. That scenario if we stay invested sounds like it will WIPE out most of your subscribers if such a crash happens unexpectedly in the very near future. You do realize that.
A. I’m not sure what your point is. If people are net long when a stock market crashes that they’d lose money. How does that WIPE anybody out? I certainly hope that I’ve taught people that you have to be prepared for a crash at any time. I don’t understand what you’re saying at all.

Q. The CRASH you depict seems historic in nature. Armageddon is what it sounded like to me, unless I didn’t understand you either.
A. If the markets crash because they stupidly don’t understand that an end to the bank welfare/bailout system that dominates both the US and EU political systems then it would be the greatest buying opportunity of our lifetimes, as I’ve often noted. I would expect that in the long-run you’d make a lot more money being long after that crash even if you were long into that crash, than you would by freaking out and trying to game the markets before that crash. Certainly, if a market crashes and we’re long when it crashes, it would hurt, but it certainly shouldn’t wipe anybody out if they’re taking the balanced and steady approach that they’re learning here on

Q. We are learning to buy this Strong 20-40% pullback in most stocks. If a Crash just happens without warning after this already strong decline and are invested further for buying as it faded then yes, that PANIC and fear could wipe many years of gains or big chunks of our portfolios.
A. Yes, all true. Nothing is easy, there’s always risk to investing in anything, stocks can crash even when you think they should rally and there’s always the possibility for a black swan or a blue swan or a purple goose. You can’t be in the stock market expecting that your portfolio won’t ever have some declines and you have to know that you’re not likely to be short/in cash everytime the markets crash — and they will and do crash. That said, I am confident in my economy and markets analysis and I called the crash back in 2008 in print and on TV. And I sure don’t see anything to panic about for now, as you can see I certainly did panic back then. The markets crashed 40% after I screamed in this clip about how scared I was and why I thought the markets were going to crash: Fox Happy Hour Cody’s Big 3: Sell, Scared, Lost Faith.

Q. The wipe out comes when the market crashes and you are leveraged net long. I like selling puts, which can be a killer in a crash, but the time premium works for you in a flat or rising market.
A. From Victor Neiderhoffer to James Altucher, I’ve learned from many great traders the ups and downs of shorting puts. It works great when it works, but I’ve seen Victor wipe out years’ worth of gains by shorting puts when a bull market turned bear.

Q. Cody, I haven’t shorted any stocks so far. I know what I am doing, I just haven’t shorted any stocks from your picks. If you had to pick one, which would you recommend and at what prices and dates. Thanks Cody!
A. I’ve got some new short ideas that we’re working on right now. I still want to be short the financial-related plays I already am like PNC, MBI and LPS (I’m wondering if LPS is finally ready to crack again) and Apollo’s business model truly seems doomed, though the stock’s already crashed and has been in a straight line down meaning it might get a dead cat bounce sometime. No shame in never shorting and I know plenty of successful investors and traders who stick with the long side only.

Q. It’s scary exciting. I’m expecting my $99 per month to keep me informed of when to jump – out – or is it off !
A. I’ll certainly do my best to nail the next market top and to nail the next market bottom, as I’ve done successfully for readers several times over the years. But you know I don’t have any crystal ball and I do make mistakes.

Q. Do you really believe that Facebook could be the operating system for app/cloud and who would be there competitors?
A. I think Facebook already is a platform/operating system for the app/cloud. Everytime you watch a video, upload a picture, chat with a friend, “Like” something — that’s all being done on the Facebook platform/operating system. Marketwatch and USAToday and so on all use Facebook’s comment system for commenting on the blogs they publish — that means they’ve integrated their websites into the Facebook operating system/platform already. And I think that platform has hit critical mass and likely to continue to grow in importance as an eco-system in its own right. And yes, there will be and already are competitors. Any eco-system is a competitor for Facebook in that sense — Twitter, Google, Apple, Netflix, Sony, Microsoft, Nintendo, etc are all already competing with the Facebook eco-system for dominance and I’d expect that there will be less than five mega-platforms/operating systems that win 80-90% of all business in five-ten years. Apple and Google and Microsoft will still be there. I expect Facebook will be one of those top 5 platforms too.

Q. How do you figure FB raised the 16billion in cash for the company? Did it come from treasury stock? Or did someone just try to sell more of their holdings?
A. I come up with about $16 billion raised because we know that’s how much the public paid for their shares when the IPO hit, and I know that the company was the biggest seller — I read some analysis that laid out how much to a penny the company put in its coffers off the IPO, but now I can’t find them — since you asked, of course. Anyway, the company’s generating more than a billion in cash already and they already had $3 or 4 billion on the balance sheet even before the IPO.

Q. When do you think its time to buy Facebook?
A. I wrote three articles in the last two days about how I think buying right now is a good time to be buying FB. I really do think it’s a good time to buy FB, partly because nobody can actually believe that I do think now is a good time to buy FB, as your question implies!

Q. Hi Cody, i know is a new company FIO, but reading the short life evolution of their Income statement, plus the the reviews/forecast from analysts (from 40 PLUS per share i read last year that were expecting a billion $ of revenue for this year, now to 24 $/share (Stern Agee). The FY ends in June and if m reading right they increased revenues, increased other costs and are losing money (net margin) in the last 2 quarters. In the CCall they said they expect same Revenue as Q3 for Q4 (July) so i assume they will lose money again or break even. On top of the insiders are selling non stop. Question: Besides all the potential you well mentioned in many weekly chats, what makes you think Revenues (and margins) will explode or grow to justify higher valuations from here ?, this one stock that lost 55% from the Top. — Thanks!
A. FIO’s two biggest customers are Facebook and Apple, both of whom are scrambling to become the de facto standards of content distribution meaning they’re ramping up spending on server capacity which FIO sells them. I very much think FIO can go much, much higher over the next three to five years.

Q. Cody are we near the bottom with financials and what would you have to see from them to spark your interest?
A. The entire banking system is fully funded and fully dependent upon taxpayer welfare largesse and pretty much every single TBTF bank is totally insolvent if they admitted the value of their second-lien mortgages and their derivative exposure should all be marked down to near 0 cents on the dollar because only the taxpayer will ever make money good on those derivative bets if and when they are supposed to be paid out. 0% interest rates from the same government you then lend that same money back to at 2-3% rates in the name of “Stimulating the economy” is bad enough not to mention the trillions in other stealth welfare that the Federal Reserve and the Republican/Democrat Regime gives to the banks every single year for the last four years now. What more could possibly go right for the financials? I mean, they’ve had so many targeted subsidies, so much accounting freedom, so few laws that they have to follow….it’s as good as it can get for the financials from any kind of an historical perspective. I sell when things are as good as they can get. The only thing that would ever tempt me to get long a financial for anything other than a momentum short-term trade, would be a complete washing out of the existing shareholders and executives and management and regulatory regime, a return to market-based rates (which will never, ever be anywhere close to 0% cost for capital) and some ability for banks to actually innovate again. None of that will happen anytime in the next five to ten years, so there’s probably nothing that will tempt me to buy a financial for the next decade at least.

Q. Hi Cody, my first time in the live chat. what is your view on PCLN?
A. Welcome to the Q&A! I’ve written many times when asked about PCLN about how it’s a stock that’s banned from my screens. Everytime I ever traded it when I was managing money, I got it wrong and I’ve learned from many a smart mentor that it’s okay to just ban certain stocks that you can’t ever seem to get right. So I do.

Q. Good Afternoon Cody, I noticed that you haven’t touched upon CY for awhile. I recall when you stated that they have the potential to become the next apple/big stock. Right now they seem to be floating between low 13s to 12.50. There dividend is nice but is the dividend slowing down CY to expand at a higher rate? Is CY a long term stock? Should I wait until they drop to 12 or should I leave them be?
A. Here’s what I wrote for subscribers of about Cypress when I sold it: “and I’m closing another names as well, Cypress, but for different reasons. Something is just wrong with this name. The Dow is up 5% this year and Cypress is down ~15%. They should be firing on all cylinders, everything should be easy right now. But instead they are cutting estimates and sales targets. Since then the shares have come down from $16 to $14. The stock is up 28% since I added it to the Revolution Investing portfolio, even as it’s down here near 52 week lows. The company reports earnings next week and I just don’t have the confidence in the management to stick with it for now. If you’ve lost confidence in company’s management, you have to be willing to walk away even when you’ve missed the highs as I have”

Okay guys, that’s it. I’ve been running around behind the 8-ball all day and I need to get some lunch finally. See you later! Thanks for the great dialogue.