Diary Entry for Monday, December 12, 2016
Dear Diary,
4:30 PM Sunday-the day before- Thought I?d check my Bloomberg to see how the Asian markets were opening. Yikes! Oil is up another 4%!
Looks like it is going to be a ?RISK ON? day for the umpteenth day in a row. Better fasten my seat belt, put on my hard hat, and get ready for a busy day taking calls from clients.
5:00 PM- Call from one of the top New York hedge funds. What?s going on with the market? How many days can it go up in a straight line?
The economy is presenting the most bullish picture in 8 years, yet he is getting hammered in the market.
Four weeks after the election and his traders are already worn out and gun shy from these gigantic, day-to-day triple digit swings. Worse, he is losing money. His longs are going up all right, but the shorts are rising even faster.
I told him that it is a brave new world out there now. You can take your old time worn investment assumptions and toss them in the trash. Boom and bust is back!
The market is discounting investment nirvana right now, and ?irrational exuberance? has returned with a vengeance. Giant tax cuts and the end of regulation? How could you NOT make money on that?
I also told him that the year end effects are amplified.
Why sell now when you can wait a few more weeks, owe lower capital gains taxes, and not have to pay them for 16 months?
Markets will settle down next year once the euphoria burns out and we return to normal bull market trading patterns.
But don?t kid yourself. With the bull market entering its eighth year, volatility will be higher this year than in the last. We aren?t trading the $600 handle in the S&P 500 (SPX) anymore.
He thanked me for my Nvidia tip (NVDA), which soared by 35% in a month and was key to him making his year. So, he invited me to a Trump licensed restaurant in Manhattan. I begged off, fearing a terrorist attack.
Instead, he could take me to a nice dinner at Masa in Time Warner Center on Columbus Circle when I come through town for my next New York Strategy Luncheon.
I don?t care if it costs $500 a person. High end Japanese sake is cheaper than the best Bordeauxs, because Chinese billionaires have bid up the prices so much.
Then he told me the real reason for his call. He knew I grew up near Hollywood, had dated several movie stars, and even appeared in a movie as an extra (Francis Ford Coppola?s Apocalypse Now).
Perhaps, I had some insights on the upcoming Academy Awards on February 26th? His firm had put up the money to make the film, Star Trek Beyond. What were my thoughts?
Yes, I confess to being a lifetime trekkie and took my kids to see it. It stuck to the formula. I had just finished rewatching the original 1966-1969 series, and it was fun to see the modern context. I swear to god, but I?m sure I saw Captain Kirk use an iPad on the bridge in 1968.
And yes, I already have my ticket for the next Star Wars installment, Rogue One, which premiers on Friday.
9:00 PM-Call from a friend at the People?s Bank of China in Beijing. Is Donald Trump really going to start a trade war with China?
I replied that he is certainly going to pretend to.
The anti-Chinese rhetoric during the election was so unrelenting that Trump has to make the gesture or risk losing his base.
My bet is that Trump will engage in some saber rattling, enforce some token punitive import duties like Obama did, but not much more. The US has gone too far down the globalization road to contemplate a reversal.
Is Trump really going to stop $400 billion in annual two-way trade with China. Will Wal-Mart have to raise prices by 35% overnight?
Better yet, what if the Chinese retaliate by dumping their trillion dollars worth of US Treasury bond holdings? The bond market says that?s already happening.
Will the additional trillion dollars of direct US investment in China become a hostage? Remember, General Motors (GM) sells more cars in the Middle Kingdom than the US.
The ten-year Treasury yield would be at 6% tomorrow, demolishing any Trump engineered economic growth.
By the way, was last week's restriction on cash withdrawals from Macau ATMs really aimed at the US casino industry? My friend remained inscrutable on that point.
Then he asked, did I, by any chance, recommend the film, Eye in the Sky, with Helen Mirren, the ultra high tech war movie? Everyone in the Politbureau was seeing it, taking notes on the next western weapons system they should procure.
?Absolutely,? I answered. Most people aren?t aware of how super sophisticated our military has become. Push a button in a Las Vegas suburb, and a terrorist safe house in Kenya disappears. Push Trump too far, and you could be next.
9:30 PM- Hit the rack and try to catch some shuteye before the next call.
2:00 AM-One of my former staff members at Morgan Stanley calls me from a Private Bank in Geneva to tell me that the Euro (FXE) is getting the stuffing knocked out of it this morning. Is it time to buy?
I told him ?Not in your wildest dreams!?
With massive government deficit spending headed our way, US interest rates are going to soar, taking the greenback with it. The Euro has been trying to break parity for two years now and it looks like its time has finally arrived.
Then he moved on to the real purpose of his call. He was planning to take his wife out this weekend. Should they go to see Manchester by the Sea with Casey Affleck, Ben?s younger brother, the family drama set in New England?
I said sure, if you want to watch a movie where something isn?t blowing up every five minutes or features super heroes, an increasing rarity. And you have to love those New England accents, which are slowly dying out.
I slammed the phone back on the hook and went back to sleep.
10:00 AM- I get a call from a leading money manager in London?s Mayfair district. Europe is closing. With gold down $150 in a month, is it time to buy?
I said ?Hold your horses?.
The barbarous relic does terrible in an environment of rapidly rising interest rates, as the opportunity cost increases dramatically.
There is a bull market in the yellow metal ah
ead of us somewhere, just not yet. You need to wait for inflation to make a big comeback first.
The next big bull market for gold won?t begin until the 2020s, when inflation returns for real. Then it should run to $3,000-$5,000. Not until then will gold bugs be able to afford clean shirts and new suits.
And go have a pint of Guiness for me at the Pig & Whistle next door, will you. Tell the owner, Nigel, to put it on my running tab. He owes me from my last Manchester United win.
He then raved about last summer?s Armageddon film, 10 Cloverfield Lane, a creepy murder mystery movie with John Goodman. Did I see it?
I did and loved it. Growing up during the Russian missile crisis, the prospect of hiding out in a bomb shelter is not such a distant memory. And there is a surprise ending that will blow you away. Is Goodman insane or not? I?m not telling you the ending.
1:15 PM-My friend, JR, a senior executive at an oil major, calls from Houston. What the hell was going on with the price of oil (USO)? Is the OPEC production capping agreement real and will it hold?
I said the price of oil now depends on US and Russian production. OPEC has become irrelevant. But the prospect of deregulation of the energy industry in the US could bring a flood of new supply. Oil could rise to $60 in 2017, but not much higher than that.
The outlier is that with former ExxonMobil CEO, Rex Tillerson, now a possible Secretary of State, the chances of a new US ground war in the Middle East have greatly increased. Now THAT would get the price of Texas tea back above $100 a barrel in a hurry.
One can only hope.
The last time that happened, Exxon stock rose 436%, making my friend, Rex, a billionaire and a major Republican Party donor. It?s amazing when you have an oil man as president.
He said thanks, and next time I was in town he would buy me a 24-ounce chicken fried steak at Billy Bob?s that spilled over both sides of the plate (2,500 calories). I can?t wait. I?ll let my doctor have the heart attack.
He then confided in me why he really called.
He knew I grew up on a western ranch. Had I seen Hell or High Water, the quirky alternative western with Jeff Bridges? Is it worth seeing? His buddies down on the ranch had just seen it on Netflix and liked it. Should he bother?
I said only for the guys. There's too much shooting for the wife to tolerate. But there is a truly original story line there, with everyone coming out a good guy. It says a lot about our post crash, pro gun society.
But The Good, The Bad, and The Ugly this is not.
2:00 PM-Still haven?t started on the letter yet. I have been answering dozens of email requests for information about the Trade Alert Service. This always happens whenever I have a hot performance streak on. The watchers want to become players.
With my six-year return approaching 218%, new subscribers are pouring in.
4:45 PM- Well, I got the letter done, but I?m too late. The web editor has gone to the DMV to register his new Prius, and the backup has gone to the yoga studio.
5:00 PM I put on a 60-pound pack and my heavy climbing boots and head out the back door on a ten-mile hike up Berkeley?s Grizzly Peak. I find the sections of the trail outside of cell phone reception most enjoyable.
Gotta stay boot camp ready! You never know when Uncle Sam is going to come calling again. Who cares if I?m 65? I can still hit a quarter on a tree at 50 yards with my Winchester Model 98 30-30.
I listen to a 60-hour audio book on my iPhone 6, the seven volume Truman, by David McCullough, about our 33rd president.
It is an amazing story. They don?t make them like him any more.
Considered by most to be an average man at best, he dropped the atomic bombs on Japan, negotiated with Stalin at Potsdam, created the CIA and the Defense Department, desegregated the Army, ordered the Berlin airlift, went forward with the hydrogen bomb project, stared down a megalomaniac Senator McCarthy, and fought the Korean war to a draw.
By the time I hit the trail, a layer of thick fog already blankets the city below me.
9:00 PM Back to my screens. The Euro has broken $1.01 again. Where was I last week when it rallied for a day? Asleep? I should have sold the daylights out of it. As they used to say in karate school in Japan, you can?t block all the punches.
Still, I am going to avoid the Euro for now. It has recently had such a sharp move down over the past month that the risk of a sudden, rip your face off, short covering rally is ever present.
I?d rather keep some dry powder and buy it a few cents lower. At this point, The World is short the Euro.
Maybe they read my letter?
?
10:00 PM-Time to call it a night and break out a bottle of Duckhorn Merlot. Geez louise, it seems people only wanted to talk about the movies today. Is the market really that impossible to trade?
The phone rings. Does anybody want my job?
