I am writing this to you from the Historic El Minza Hotel in Tangiers, Morocco. I am overlooking the ancient medina from my top floor suite, which was once occupied by Sir Winston Churchill. When I first arrived, I thought the swirl of his cigar smoke still lingered in the air.

There is a brisk wind crossing the Straights, thankfully cooling my room, and in the distant mists, the Rock of Gibraltar looms.

When a butterfly flaps its wings in the Brazilian rainforest, a tsunami
pounds Japan. That is one of a potentially infinite numbers of outcomes predicted by Chaos Theory.

The upshot for our rapidly interconnecting economic and financial world is a runaway bull market in unintended consequences. Only this time, the proverbial butterfly has been working overtime in the Chinese equity markets.

The Chinese GDP growth rate peaked at 13% in 2011, and has been falling ever since, most recently down to the 7% level. The Shanghai stock market followed by giving up its growth premium, the index falling from 5,000 to 1,800. It then spent years bouncing around just over the 2,000 level.

About a year ago, Hong Kong based taipan friends of mine started enthusiastically predicting the onset of another great Chinese bull market. The government, it was said, would be stoking the fires to distract the public from an assortment of scandals besetting the central government.

They were wildly successful.

In November, they added fuel to the fire by permitting unrestricted foreign purchases of Chinese shares for the first time.

In less than a year, the Shanghai Index rocketed from 2,000 to 5,000, becoming the world?s top performing stock market. A frenzy ensued.

To get some local color on the trading there, I called no further than my son John, soon to be 30. By day he teaches English at a government university in Hangzhou. By night, he trades global assets in his own personal hedge fund.

Remember, this is the family where the kids used to discuss risk control, implied volatilities, and options pricing models over the dinner table (to the eternal puzzlement of Mom). My children learned their alphas, betas, and deltas right after their A, B, C?s.

John told me months ago that the bubble had nothing to do with investment, that it was all pure gambling, and that Shanghai had turned into a giant casino. Brokerages were besieged by massive crowds, transfixed by the blinking lights of stock tickers, betting their life savings.

Millions of punters had abandoned day jobs to play the stock market full time. Some shares rose 10% every day for two months! It could only end in tears.

And so it did, big time.

I have been through many crashes during my long and tortured life. But I have to say that this year?s Shanghai one has really impressed me. The index gave up 40% in less than a month, wiping out $3.25 trillion in paper wealth. Some individuals lost more than $100 billion in weeks. No typo here.

The problem is that this instant evaporation of wealth is not just China?s, but ours, as well.

For a start, the Chinese were selling gold (GLD) on the way up to finance new stock purchases. On the way down, they are selling what gold they have left to meet margin calls.

Thus, the barbarous relic has suffered an awful year, during conditions of closing banks and failing brokers that are normally ideal for it.

It turns out that individuals have been posting a lot of other things to collateralize leveraged stock holding, like bars of copper (CU). Because of the lack of a consumer lending system, Chinese buy copper bars and use them to backstop a whole host of purchases.

When stocks crashed, copper did so as well, as brokers dumped their collateral. That led to the biggest one-day drop in the red metal in nearly a decade, nearly 10%.

That dive spilled over into other base metals like nickel, zinc, and palladium (PALL). The Australian dollar (FXA) took it on the nose in turn, as it is a major exporter of these metals.

This would normally be taken as a leading indicator of a global recession. No more. Don?t get yourself confused, misreading the meaning of price moves like these. The global economy is, in fact, expanding, thanks to the Greek and Iranian nukes deals.

That is bad news for economic prognosticators like me, but great news for the world?s largest consumers of palladium, the US car industry.

There were also consequences from the Shanghai stock collapse to be faced in US capital markets. Whenever margin clerks see trouble anywhere in the world, they tend to tighten up their own books.

Call it the ?whistling past the graveyard? effect. That means tighter terms and higher interest rates for margin debt for you and me. Wonder why you, as an individual, can?t short naked puts in size? This is why.

There is also a concomitant rise in US Treasury bond (TLT) prices, and fall in yields, which we have already seen.

I could go on and on with permutations of the interconnection of asset classes around the world. It really is a kind of game for me, which I have been playing for nearly a half century (the Polish Zloty? The price of camels in Morocco?).

It all goes to prove a point that I never fail to make in my many strategy luncheons and speaking engagements.

We are all global diversified investors, whether we realize it or not.

Your Newsletter Will Be With You Shortly

 

I am sitting in the transit lounge of Mohammed V airport in Casablanca, Morocco.

Women in brightly colored, flowing burkas, reflecting disparate Berber tribes, sit impatiently, waiting flights to the remote corners of the kingdom. Their hyperactive children are running around aimlessly, their screams eloquently bouncing off the cavernous ceiling.

My flight is seven hours late, and I am the only westerner in the airport. Ah, the joys of travel.

When I was three years old, in 1955, my parents took me to the opening day of Disneyland in Anaheim, California. Tickets were impossible to get, and on the first day, more than 10,000 tried to get into the fabled theme park, more than double the capacity.

However, my dad knew Walt?s brother, Roy Disney, and managed to gain us entry.

Right there on Main Street was Walt himself, greeting each guest as they strolled down an avenue from yesteryear. We lined up to shake his hand, and when my turn came, I pulled out my cowboy cap gun and shot Walt at point blank range.

He smiled, and to my delight, he feigned an agonizing death. My embarrassed mother hurriedly hustled me aside.

I never forgot that incident. Walt Disney was ever the entertainer, although later I learned he was a real bastard to work for, a screamer of the first order.

Some 60 years later, and 49 years after his passing from lung cancer in 1966 (he was an inveterate chain smoker), Walt Disney Corp. (DIS) is still going strong.

It survived the financial crisis in fine fettle. It went on an aggressive round of acquisitions, cherry picking the entertainment industry of its crown jewels. It is now poised to see its earnings go ballistic as the global demand for quality content explodes.

If there was ever a company that had pixie dust sprinkled upon it, this is it.

You would not think that Disney would be piquing my interest here, with the failure of the just released Tomorrowland, and the disastrous Lone Ranger two years ago.

But without anyone noticing, Disney has in recent years turned into a monster global conglomerate.

It bought Steve Jobs? Pixar in 2006, locking up the best programming in animation (Toy Story, Finding Nemo, and the present runaway hit, Inside Out). It picked up Marvel Entertainment in 2009 (Iron Man, Spiderman, the Incredible Hulk, and Captain America). It paid $4 billion to my friend George for Lucas Entertainment in 2012 (the Star Wars monopoly).

Bet you didn?t know Disney owned the sports money machine ESPN, which alone promises to kick in a staggering $4.5 billion in EBITDA this year, accounting for 28% of group earnings.

As a result, Disney has created an entire ecosystem of products, not unlike Apple?s (AAPL). Watch a film, and you end up buying the toys, games, clothes, TV show, and eventually taking your kids on the ride and the cruises.

This massive content upgrade has enabled them to become the top box office draw of 2015. Incredibly, Avengers: Age of Ultron, a story about a monster who lives inside the Internet and wants to destroy the earth, promises to become one of the top five grossing films of all time.

Apparently, wiping out the planet sells well these days.

This is happening globally!

Nobody has assembled a portfolio of assets with the breadth and depth that Disney has.

What?s more, the tried and true sequel rollout is about to jump to warp speed over the next two years. Through 2017, we will see new iterations of Star Wars, The Jungle Book, Finding Nemo, Toy Story, The Avengers, and Pirates of the Caribbean.

Ring that cash register!

The Star Wars relaunch is particularly interesting, as it means the company is about to capture the lion?s share of the $107 billion a year entertainment based toy and merchandise business. They are already handily beating out competitors Viacom (VIA), Time Warner (TWX), and DreamWorks Animation SKG (DWA).

Plastic, made-in-China Wookies, R2D2?s, Darth Vaders, and Millennium Falcons made George Lucas a staggering $27 billion in sales, compared to the $8 billion he took in from films, because the original movie producers considered the rights to such tchotchke worthless.

Indeed, Disney is already dominant in the business, with 300 stores worldwide. Any dad with kids who passed near one of these franchises was always easy prey for a $50 hoodie or princess doll.

A synchronized revival of the global economy means the marquee park business is going from strength to strength. A new one near Shanghai is about to open and become the biggest ever.

It seems that opening a Disneyland near a city of 25 million upwardly mobile consumers is always a good idea. The second a new middle class Chinese consumer joins the western economy, they want to buy a set of mouse ears.

Even the perennial loser, Disney Paris, the only park that serves wine, is turning around, thanks to the European Central Bank?s new, aggressive program of quantitative easing. Ironically, Disney bonds are among the hundreds of private issues that the ECB is hovering up.

Walt was always fascinated with technology. His first animated cartoon, Steamboat Willie, which introduced Mickey Mouse to the world in 1928, was state of the art. He blew audiences away with Fantasia in 1939, inventing new three-dimensional glass plate cameras to do so.

Disney became the first customer of two struggling engineers working out of a Palo Alto garage, who went on the form Hewlett Packard (HPQ). Their homemade oscilloscopes provided sound for the movie.

From a trading and investment perspective the story here gets better. (DIS) shares are trading at 18 times 2016 projected earnings of $18 a share. That compares to other competitors trading at higher multiples with lower earnings growth.

It is a rare instance of the best quality growth selling at a discount. This means that the stock could easily rise another 50% over the next two years based on what Disney already has in place.

All of this makes (DIS) stock fodder for a low risk, in-the-money, vertical call spread, even a long dated one. It seems to be the stock that perpetually goes up, ideal for long-term portfolios as well.

Of course, I always add the proviso to buy on a pullback. Good luck finding one of those. The shares have only seen a single 15% decline in the past year (in October).

However, the second I see one, I?ll be knocking out a Trade Alert as fast as I can write it.

Mickey?s Mandarin is Improving, Goofy, Not So Much