Chat Transcript for May 9, 2012: NUAN, FIO, LVLT, Greece and 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.

All right, let’s rock. You bring the roll.

Q. Hi Cody, what’s your updated thought on NUAN ? Not for earnings but looking strategically…..are they somehow involved in SIRI/ EVY, etc.? Or, is NUAN knowhow getting less unique than before?
A.Yes, it does appear that Nuance is partly powering SIRI, but I do remain concerned that Apple’s got other voice recognition resources that they continue to research and develop. That said, a subscriber forwarded me an email he got from e*Trade just this week: “New E*TRADE Mobile with Voice Recognition”. Our back and forth was: Him: “Voice activated etrade? This strikes me as ripe for a financial disaster!” Me: Voice recognition/activation is going to be a much bigger part of every facet of our social/financial/technology lives in five and ten years — we’ll get used to trading by voice activation too. Nuance is powering it for e*Trade too by the way — I don’t think anybody can touch Nuance’s turnkey solutions right now though there are plenty of upstarts and older tech companies including Microsoft desperately trying to catch and bypass Nuance. I’m keeping a core common position for now.

Q. Do you think that European mess and lack of near solutions could be catalyst to another 5-10% market pullback in May rather than June?
A. Do you recognize that you’re asking me that question by giving me two alternative scenarios — and both scenarios involve an additional 5-10% pullback? I sure wasn’t getting questions like this back just a month ago when we were headed into earnings and I started to trim down the longs because I thought we might head into a 5-10% pullback, just as are now in the midst of. I’m not sure there’s any reason to expect an additional 5-10% pullback from these levels though if we do get one, you can expect to see me start to get more aggressive on the long side in the midst of it. The fact that so many traders are now looking for a 5-10% pullback after we’ve already gotten it, makes me bullish in the same way that yesterday’s “Who’s more scared, the bulls or the bears” poll being at over 90% Bulls right now does too.

Q. I’m curious about FIO. I bought an opening position on yesterday’s decline. I feel the company has excellent prospects for the future but I worry about other competitors in an ever changing technology. FIO seems to have the current edge and have been received strong press from the DEMO conference. Any thoughts? Are you a buyer here or at all?
A. As I’d noted in the Trade Alert post I’d sent out earlier this week, I nibbled some more FIO common recently. I’ve been dead right about this stock being a wildly volatile stock, but the mid $20s bottom I thought it’d stick near has been fallen by already. I’ve explained before that we need to consider ourselves as venture capitalist investors in this one because it’s such a new company that’s not yet trying to focus on profits but rather trying to establish itself as the leader in a multi-billion dollar industry that hardly exists at this point. As the price per bit for Flash continues to fall past that of the price per bit for hard drives over the next couple years, the business opportunity for FIO to displace the HPs and Dells in the server world is huge. But the company has to execute a highly competitive and cut-throat industry and we are very, very early investors in it, so it will continue to be wildly volatile as it also can’t be valued at on any kind of P/E or normal public-company valuation metric.

Q. Hi Cody, can you give any thoughts on ALU please? Near 52 week lows but is it as great a buying opportunity as I hope it is?
A. Oh, the Lucent. Do you remember when Lucent was first spun out of AT&T and it was so powerful that there were conspiracy theorists who thought that Lucent was something derived from “Lucifer”? Or when Lucent was vendor-financing tens of billions of dollars of theirs and other equipment for their customers back in 2000 at the top of the telecom bubble? Or when Lucent invested hundreds of millions of dollars in real-hard cash in a free space optics company (what was that company called…Tel-Air, I think?) and then eighteen months later with their stock down 90% Lucent had to issue a death-spiral convertible that is still haunting their shareholders today? Lucent survived because it had a government-forced monopoly for decades that gave it legacy products to service and a giant customer base to sell to, but they are a classic stock that became a great short opportunity as the government-enforced advantages they’d enjoyed for so long went away as the Internet displaced traditional telecom and competition with wireless and VoIP hit hard. They are to telecom what Apollo will likely be to education in five years from now. And no, I have no idea in buying a lottery ticket-priced share of stock in ALU at under $2 a share today in the hopes that they somehow fix their finances and their company. I’d rather own ZNGA with my lottery ticket-priced money.

Q. Cody do you know of any near term catalysts that might affect the markets one way or another?
A. “Real Economic” or “Real Fundamental” catalysts as opposed to the standard psychological/self-perpetuating cycles that usually drive the markets for the near-term? I suppose that the Greece/Spain/EU crises that won’t be stopped until they finally prosecute the banks who have been fraudulently holding their economies hostage for the last five years and that at any time, there’s a possibility that the stock markets actually do freak out about that. If I had to try to find a potential Black Swan (something NOBODY’s expecting) catalyst, I’d look at the mortgage industrial complex and how it continues to melt down on top of itself as the TBTF banks and their servicers continues to blatantly robosign and throw other outright fraudulent documents on the courts. The Republican/Democrat Regime and its puppet Administration and the puppet Attorney Generals that you people elected to bring you justice are doing everything they can to pretend this crisis is over before it’s truly hit, but I’m so scared about the destruction of ownership rights for anybody who’s got a mortgage at any bank that’s ever securitized any mortgage that I’ve avoided getting a bank mortgage for any of the property I’ve bought or the house I’ve just built. Not sure when the title/proof-of-ownership real estate crisis will hit, but I think it’s going to be a total nightmare and it’s definitely on my “Black Swan” radar (which by definition means it’s not really a Black Swan if it’s on a radar, but you know what I mean).

Q. What’s your advise on PCLN as you know they report after market today?
A. I’ve told readers before that PCLN is blacklisted on my own trading screens. I’ve never gotten that stock right when I’ve traded it and I basically hate myself when I see a stock quote for that thing and I know that I haven’t been a part of its success. Ugh. Good luck, but I can’t help you on Priceline. Side note — the only person I’ve ever been to intimidated/didn’t-want-to-pop-the-bubble to meet in my life was William Shatner when he came by the Fox Business studios in the green room while I was getting make up. I hid. I literally couldn’t bring myself to meet Captain Kirk in real life because in my mind, that guy in the Priceline commercials and who does hilarious rock n roll covers and stars on a CBS sit com isn’t really Captain Kirk. I love me some Star Trek to this day and I make no apologies for that. Live long and prosper.

Q. Cody – do you have any gauge of what a bottom level on AAPL might be on this pullback? I’ve been gradually adding as it’s been dropping. Also, it looks like short term call options have picked up on STX. Any thoughts?
A. I had this discussion with an old friend who was one of the earlier employees at Google on Gchat yesterday: “David: man is it time to buy some aapl? me thinks yes. there’s a sale going on. even dougie kass is bullish. Me: uh oh i think u and i have discussed what a great contrarian indicator kass’s bullishness can be. I’d rather he be puking too. how long ago did he get bullish? 5% ago? That might be enough! Too easy to just load up on aapl here David: what does that last statement mean? 12:22 PM me: i woudn’t do more than add maybe 1/3 to my existing position now i got a bad feeling aapl stuck between 550 and 600 for the next several months David: got it me: how u? David: i may do nothing 12:23 PM I like what I got”. All that said, Trying to guess where and when a bottom for any individual stock that’s being traded by millions of people around the world every day is a fool’s game to the poor house. I’ll add to AAPL gently if and when it falls and I’ll likely trim some if and when it spikes. Same playbook I’ve been using for AAPL for nine years now.

Q. Euro Circus – what’s your latest view on market pull back Cody? IMO Greece default will happen in the next few months (or sooner). When it does, even though it is priced in, I imagine there will be a sudden pull back. Maybe 10% off the DOW?
A You notice that yours is the second question in today’s chat that’s almost assuming that a 5-10% decline in addition to the 5-10% decline we’re already in the midst of is a foregone conclusion? With Greece’s default already in the headlines and traders like you and me and everybody else already talking about a Greece default, isn’t it possible that it’s already priced into the market right now? Further, as a someone who believes that capitalism and rule of law will lead to much more and much more sustainable prosperity for the citizens of Greece/Spain/EU and therefore for the companies I invest in here in the US, I’d argue that any Greek default could catalyze higher stock prices rather than lower ones — maybe we’re not the only ones who have finally figured out that endless bailouts and legalized accounting fraud at the TBTF banks while pushing austerity for social services for the masses is a bad thing for the economy and for our stocks in the long run. No easy answers and I’m not really arguing that logic, I’m simply trying to help us all think completely outside of the mainstream box we’re being fed every day.

Q. Is ZNGA a good play at this price? Will Facebook add any value to ZNGA stock?
A. I like ZNGA here for a trade, not sure I’m convinced about the long-term prospects for ZNGA although I’m warming up to them more as I research the company further. I like the platform that ZNGA is building for games and I like the fact that some of the major video game console software companies are moving to the ZNGA platform. Read this for more on the importance of “Platform”:

Q. Hey Cody, I know there’s major Greek fatigue, however, after last Sunday’s election, the two ruling parties no longer get majority to rule. This is a major change that has just happed for the first time since the 70s. How will austerity be enforced when Greek’s voted out the parties out of office? You’re not worried this will explode in the next few months?
A. Why would we think the social services austerity while continuing to provide trillions in subsidies and 0% loans to corrupt banks who own the politicians that just got voted out is a bad thing for the markets? Any and all ends to any and all welfare loans and subsidies for corrupt banks who are funding corrupt political parties is a GOOD THING for the long-run, that much I guarantee. Whether the stock markets here freak out about it again or not will simply determine how aggressive I’ll be able to get because I’ll definitely take the other side of just about each and every so-called EU-crisis when said EU-crisis simply means that banks are getting less welfare while at the same time they’re cutting social services.

Q. Your opinion on LVLT please.
A Nothing’s changed with our LVLT investment either. It’s a long-term play on the idea that the company’s finally going to grow sales and margins as they’ve consolidated the Internet backbone industry.

Q. Cody, you’ve explained many times why it’s not possible to provide a hard number for your the percentage of cash in your portfolio, and that’s fine. But it would really help if you could provide some kind of indicator of relative amounts, such as LOW, MEDIUM, HIGH. Not so much so we can assess your specific actions, but so we can get a sense of our own situation in comparison. If I had a low cash percentage, for example, it would help me to know if you were more or less the same, or a polar opposite.
A. Hmm, the problem would remain the same — a “Medium” amount of cash for me changes as my income grows. I’m not running a fund and I’m not raising other people’s money which means my “cash” percentage is almost meaningless given the fact that I can just send in more money and then send in more money after that. To truly drive the point home, let’s make up some numbers. Let’s say I’ve got 10 subscribers paying me $99 a month which would mean that I’d be making $12,000 a year. Let’s say I’ve got equity in some private companies that might or might not be worth $10,000 to $100,000 each. Let’s say my real estate holdings are worth $50,000. Let’s say I’ve got $10,000 in my stock account right now, of which $8000 is invested and $2000 is in a money market account. Let’s say I’ve got $5,000 in my checking account and another $10,000 in my business checking account. Let’s say I just got ten new subscribers who signed up for the $999/year annual subscription for this week. You tell me, what’s my percentage cash right now?

Q. Well Cody, we’re just curious % for long/short/cash in your trading account(s)?
A. So your answer to the question above would simply be: “20% in cash right now”?

Q. Speaking for myself, I’m just curious as to the cash percentage in your trading account at the moment?
A. I think that’s a meaningless number and therefore is confusing rather than helpful to subscribers.

Q. It seems like a straightforward & legitimate question to ask about whether you are currently in a position of having “raised” more or less cash, ie are you 100% all-in invested or maybe for example you are 80% invested and keeping some cash for additional buys. As an example, in Cramer’s portfolio he will always show whether he is keeping more or less cash available depending on his read of general market conditions
A. Guys, I tell you when I’m raising cash and I tell you when I’m deploying cash and I tell you when I send in more cash and I tell you when I’m getting out and out aggressive and I tell you when I’m out and out worried. That’s the best way I know how to do this. Thanks for the suggestions and we’ll keep trying to improve the product.

Q. Cody, do you think we’ve been in a depression these past few years?
A. Four years ago when the bailout movement kicked the concept of corporate welfare into overdrive in this country, I wrote about how we should expect the corporate economy to boom while the main street economy would suffer. Turns out that if you cut social services for the masses while trashing the value of everybody’s hard earned dollars by printing trillions for corrupt bankers while enabling GE, Google, Apple, Monsanto, Pfizer and so on to avoid paying taxes and even profiteer of taxpayer spending…well, the corporate economy can boom for a while as the main street economy suffers. At some point, we either get back to some sense of rule of law and prosecuting fraud at giant corporations and we start equally applying all laws blindly, including all tax laws applied to all citizens and companies equally, and we prosper again. More likely, the Republican/Democrat Regime that you people keep putting into power will take these welfare-for-corporations and elite powermongering to its end game and we truly enter a DEPRESSION. My best guess — somewhere in the early 2020s, is when the Depression finally comes.

Okay guys, that’s it. 90 minutes of Live Q&A about these deep topics leaves my brain cramped. Ever seen this video, by the way: Sian Welch & Wendy Ingraham – The Crawl – 1997 Go out there and get past the finish line, folks.