Diary Entry for Wednesday, May 2, 2018
Dear Diary,
4:30 PM Tuesday-the day before: Thought I’d check my Bloomberg to see how the Asian markets were opening. Yikes! Oil is down 2%! Looks like it is going to be a ‘RISK OFF” day for the umpteenth day in a row. Ten market down days out of 12? Really? Better fasten my seat belt, put on my crash helmet, 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 long can he market go absolutely nowhere? All of his companies are delivering on earnings big time, yet he is getting hammered in the market. It’s only May 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 “safe” stocks are falling 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! We are looking at nothing less than a “Buy the rumor, sell the news market.” We’ve known about coming fantastic Q1 earnings for at least a year. Once the numbers are out the markets are instantly shifting from a glass half full to half empty. After all, we live in a “What have you done for me lately?” industry.
It’s quite a change from 2016-2017 when all you had to do was throw a dart at the NASDAQ page of the Wall Street Journal and it was only a question of whether the stock rose 200% or 400%. My bet is that with the earnings out the markets will be stuck in a trading range until the November midterm elections. After that, look out above. But don’t kid yourself. With the bull market well into its ninth year, volatility will be much higher this year than in the last. We aren’t trading the $600 handle in the (SPX) anymore.
He thanked me for my views and invited me to dinner at Le Bernardin when I was next in New York in June, the best French restaurant in the Big Apple.
I’ll be looking forward to a bottle of first growth Bordeaux. I haven’t had one in a while, since the Chinese have driven prices up to insane levels. 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 into the summer movie schedule? His firm had put up the money to make the film, Solo: A Star Wars Story. What were my thoughts?
Yes, I confessed to being a lifetime Trekkie and will be lining up to take my kids to see it. Disney (DIS) made a brilliant move buying Lucasfilm for $4 billion in 2012. By doubling the Star Wars output they have a license to print money. I had just finished re-watching the original 1966-69 series, and it was fun to see them in the modern context. I swear to God, but I’m sure I saw Captain Kirk use an Apple (AAPL) iPad on the bridge in 1968, and an iPhone as a communicator.
With Lieutenant Uhura
9:00 PM: Call from a friend at the People’s Bank of China in Beijing. Is Donald Trump really going to escalate his 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 deliver on his campaign promises or risk losing his base. He’s kind of painted himself into a corner, lambasting a major source of economic growth for the U.S.
My bet is that Trump will engage in some saber rattling; enforce some token punitive import duties as Obama did, but not much more, and then declare a “huge” victory. The US has gone too far down the globalization road to contemplate a reversal. The Chinese will laugh all the way to the bank. Is Trump really going to stop $1 trillion in annual two-way trade with China? Will Wal-Mart have to raise prices by 25% overnight?
Better yet, what if the Chinese retaliate by dumping their trillion dollars’ worth of U.S. Treasury bond holdings? The bond market says that’s already happening in slow motion. Will the additional trillion dollars of U.S. direct investment in China become a hostage? Remember, General Motors (GM) sells more cars in the Middle Kingdom than in the U.S., Apple is planning on Chinese iPhone sales as a big part of its future growth, and Starbucks (SBUX) wants to operate 10,000 coffee shops there. The 10-year Treasury yield would be at 6% tomorrow if that happened, demolishing any hope of economic growth during this administration.
Then he asked, did I, by any chance, recommend the new super hero film, Avengers: Infinity War? His kids were asking and pestering him about it. The latest Marvel film just posted the biggest opening weekend in movie history with a staggering $650 million in ticket sales, and it will open in Beijing this weekend.
“Unfortunately, yes,” I answered. If you don’t go, your kids will nag you to death. The movie was two hours of explosions, and I didn’t know who most of the characters were, while my kids knew all of them. There were so many super heroes, at least 25 of them, that I couldn’t follow the plot. I don’t know how it ended because I took off my 3D glasses and fell asleep during the second half.
9:30 PM: Hit the rack and try to catch some shut-eye 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, U.S. interest rates are going to soar, taking the greenback with it. The Euro has been enjoying a counter trend rally for the past two years and it looks like the reversal has finally arrived. A European GDP print of 0.4% didn’t help either.
Then he moved on to the real purpose of his call. He was looking for a quiet, sophisticated film to take his wife. What did I think of Phantom Thread, promised to be the last by Daniel Day Lewis?
I liked it, as it is one of the few top movies this year that isn’t about super heroes (although, I did think Wonder Woman was hot). I’m always a sucker for extremely accurate period films, as this one is set in the London haute couture world of the 1950s, which no longer exists. I remember it like it was yesterday. The dresses were outstanding, as is the shots of the English countryside. It’s been a while since me, ever the car buff, has seen a Bristol 405 with the triple headlights. Weird ending though, which may give your wife some unpleasant ideas.
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 dead unchanged in 2018, was it time to buy? I said, “Hold your horses.” The barbarous relic does terrible in an environment of rapidly rising interest rates and inflation, as the opportunity cost increases dramatically.
There is a bull market in the yellow metal ahead of us somewhere, just not yet. You need to wait for inflation to make a bigger comeback first. The next big bull market for gold won’t begin until the 2020s, when inflation returns for real. Then it should run from $3,000 to $5,000. Not until then will gold bugs be able to afford clean shirts and new suits once again.
And go have a pint of Guinness for me at the Pig & Whistle pub next door, will you? Tell the owner, Nigel, to put it on my running tab. He owes me for my bet on my last Manchester United win.
Then he asked my opinion of the fascinating new Spielberg film, Ready Player One? I thought it was amazing and was recommending it to all the readers of my Mad Hedge Technology Letter, although the special effects can trigger sensory overload. Spielberg is clearly experimenting with a new movie format here to draw in Millennial viewers. It is a double reality film where you have to follow multiple plot lines for both the actors and their avatars in a global online game. Old farts will have an advantage with the many references to 1980s cultural icons. However, the ending is highly predictable.
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?
“So far, so good,” I answered. Not only has the quota system been wildly successful this time, it has been expended into 2019. For the first time in five years the oil market is in balance. That’s means the next geopolitical shock would deliver an immediate $10 pop, which we seem to have an endless abundance of these days. The only threat to oil prices would be an extended U.S.-China trade war, which would put the kibosh on everything. The safest play here is high yield Master Limited Partnerships (AMLP), which can pay double digits.
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. They finally had gotten broadband and the kids were going crazy with Netflix (NFLX). Could I recommend any movies? I thought Black Panther would be a great family film. It is set in a fictional African kingdom which, thanks to aliens, are 2,000 years ahead of the rest of the world in technology. Wonderful costumes and great special effects. And the good guys win.
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 trailing one-year return at a vertigo inducing 56.34%, new subscribers are pouring in.
4:45 PM: Well, I got the letter done, but I’m too late. The senior editor has left to attend a wedding, 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 expedition boots and head out the back door on a 10-mile hike up Berkeley’s Grizzly Peak. I find the sections of the trail outside of cell phone reception most enjoyable. The fog and high winds come in early. Gotta stay boot camp ready! You never know when Uncle Sam is going to come calling again. Who cares if I’m 66? I can still hit a quarter on a tree at 50 yards with my Winchester Model 98 30-30.
9:00 PM: Back to my screens. The Euro has broken $1.14. 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. Jeez 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?
Gunslinger for Hire
Comments
Log in or sign up to join the conversation.