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Trade Idea: Headline Risk Says Don't Wait for the Media to Tell You

11/07/2018 12:49 pm EST

Focus: ETFS

Landon Whaley

Editor, Gravitational Edge

This week’s “Headline Risk” focuses on the risk of waiting on the media to tell you about critical financial market developments that could dramatically impact your portfolio, writes Landon Whaley Wednesday.

Headline risks are everywhere, much like closeted Laker fans who came out into the open after Lebron signed on the dotted line. As an investor you must keep your head on a swivel and human reactions in check so that you’re not drawn into well-written narratives that seem to unveil the mystery of financial markets.

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Bloomberg published an article last week entitled “Weaker China Adds to Risks of a Synchronized Global Slowdown.” The part of this headline that causes the greatest amount of risk is “adds to risks of.” Most people would interpret this phrase to mean that there is a possibility of a synchronized global slowdown.

Folks, this is the same thing as looking at the rain outside the window while your weather app is telling you there’s a 50% chance of precipitation. The synchronized global slowdown is in full effect and has been for most of this year.

You could quibble over the exact definition of “synchronized,” but as we have pointed out before, of the 43 economies we track globally, 27 have been slowing since January. Does more than half of the economies slowing count as “synchronized?”

If that doesn’t measure up, then how about the fact that in terms of economic weighting all the big boys have been participating in that 10-month slowdown: China, Germany, United Kingdom, France, India, Italy, Brazil, South Korea, Spain, Indonesia, to name just a few. Does the fact that the heaviest hitters, based on economic contribution to the global economy, have been slowing for 10 months count as synchronized?

Or is Bloomberg doing its best Ugly American interpretation and ignoring this growth-slowing reality until it hits the U.S.? In that case, welcome to the FG4 in Q4! Are we synchronized now, Bloomberg?

However, the part that ol’ Bloomberg got right was “Weaker China.” We’ve been talking about China slowing for over a year, and the recent stream of data is confirming China’s FG4 environment. Of special note is the October reading for the Official NBS Manufacturing PMI, which came in at the lowest level in two years and a toenail’s distance above outright contraction at 50.2.

We’ve been profitably trading the short side of Chinese equities since we activated our Slowing Dragon macro theme on March 12. In fact, we are batting 1.000 this year by shorting FXI, and we just re-initiated a new short position during last Thursday’s trading session.

In our email alert, we said, “Chinese economic data remains a bearish dumpster fire and now equities have bounced +8% in three days. Nothing has changed with our Slowing Dragon macro theme, the most likely direction for Chinese equities is lower from here.”

’Nuff said.

The headline risk bottom line is that the hardest thing for Wall Street and the media to do is contextualize economic and financial market data. Humbly, it’s our competency in this area that gets us paid more than anything else we do.

Waiting for the media to pick up on an economic or market development carries the same risk as being a long-tailed cat in a room full of rocking chairs. Anchor yourself to the Fundamental Gravity and you’ll never find yourself looking outside at the economic rain for months on end while media forecasts continually tell you there’s a 50% chance of precipitation.

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Watch Landon Whaley’s 3 Ideas for Investing and the meaning of coddiwomple in a short video here.
Recorded: MoneyShow Dallas Oct. 5, 2018.
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Landon Whaley: We have a generation of investors and asset managers who know only one market. The reality is markets and economies cycle and catch people off guard.
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Duration: 5:51.

Landon Whaley interviews Adrian Manz: How I approach stocks here.
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Landon Whaley interviews John Carter: How I started trading here.
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