Diary Entry for Monday, January 25, 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! China is down big again. Looks like it is going to be a “RISK OFF” day. Better fasten my seat belt, put on my hard hat, and get ready for a rough day. No rest for the wicked. At least for the first 15 minutes of the trading day.

5:00 PM – Call from one of the top New York hedge funds. What’s going on with the market? The economy is presenting the best macro picture in 16 years, yet we had the worst start to the stock market in history. Bonds have had their best start since 1999. Good news is bad news, and bad news good. After three weeks, his traders are already worn out and gun shy from these gigantic, day-to-day triple digit swings. Worse, he is losing money.

I told him that a lot of this springs from year end effects. A ton of new money was allocated to equities this year, but has yet to be put to work. However, those with big gains in single names delayed their selling into January so they wouldn’t have to pay capital gains for 16 months, not until April 15, 2016. That’s why Apple (AAPL) has taken such a pasting.

What is confusing people is that while the pain caused by the oil price crash is immediate, the gains are long term. Net net, it is a huge plus for the 90% of the economy that doesn’t produce oil.

Markets will settle down soon and return to a normal trading pattern, and volatility (VIX) will back off its hefty $30 handle. But don’t kid yourself. With the bull market entering its seventh year, volatility will be higher this year than in the last. We aren’t trading the $600 handle in the (SPX) anymore.

I said he owed me a nice dinner at Masa at Time Warner Center on Columbus Circle, and we’ll meet up at my June New York Strategy Luncheon. I don’t care if it costs $500 a person. High end Japanese sake is cheaper than the best Bordeaux’s, 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 28?  His firm had put up the money to make the film, The Revenant with Leonardo DiCaprio. Is it worth seeing?  

I said only for the guys. I saw the film on the day it came out to gain insights on what my ancestors went through. Even on a good day, 1823 was disgusting, as it starts out with mountain men butchering animals. Then 20 men are massacred by Indians in the first five minutes. It goes downhill from there.

But as a film, The Revenant is a sure thing for a win for best picture, best actor, and best director. The black and white hues of the Rocky Mountains in winter are stunning. It is a must see for film junkies. And Leonardo finally learned how to act.

9:00 PM – Call from a friend at the People’s Bank of China in Beijing. Why are American hedge funds selling short his country’s stock markets?

While domestic investors obey dictates from Beijing, foreigners don’t. It has made managing the Middle Kingdom’s economy very difficult.

I said it’s very simple. No one believes your economic data releases for a nanosecond. Did you really just announce a 6.9% GDP growth for 2015, instead of the real number of 4.5%?