This week I’d like to coddiwomple through making mistakes and staying data-dependent to gain an edge over other market participants, writes Landon Whaley Tuesday. What’s occurring in markets has nothing to do with Trump, Xi, trade wars or midterm election results.

“Coddiwomple” is not a word many people are familiar; it means to travel in a purposeful manner towards a vague destination. I can’t think of a single word that better describes investing in financial markets. Markets are headed toward vague destinations, we don’t know where they’re headed. Despite this reality, if we want to be successful investors, you and I must remain purposeful in the way we approach markets as they move towards their vague destination.

Philosopher and physicist Niels Bohr said, “An expert is a person who has made all the mistakes that can be made in a very narrow field.” By that definition I am most certainly an expert investor because in almost two decades of professionally managing money, I’ve made damn near every mistake that you can!

My mistake-riddled past has led to the development of the Gravitational Framework, and to the other parts of my process that routinely and consistently put us on the right side of market moves that most investors never see coming, before they occur. It’s also my mistake-laden path that allows me to see investor behavior with a clarity that informs me when there is an opportunity to pounce--and when there is not.

This clarity is why we profitably shorted Chinese equities and U.S. semiconductors during last Monday’s trading while everyone else was in a frenzy over the Xi-Trump dinner. Am I Nostradamus? Miss Cleo? No, I’m not an oracle, and I certainly don’t have a crystal ball or my own 900 number, but I’ve got something just as good: the data.

Despite what Wall Street and the media would have you believe, what’s occurring in markets has nothing to do with Trump, Xi, trade wars or midterm election results; instead, it has everything to do with the damn data!

So, while a huge number of investors were loading up their stockings on Monday morning with S&P 500 (SPX) futures contracts and Chinese A-shares, we were taking the other side of those trades because the data that rolled in Sunday night and Monday morning was absolutely abysmal. It confirmed the FG4-in-Q4 world we are living in:

  • South Korea's manufacturing PMI fell to a contractionary level of 48.6 in October.
  • South Korean new export orders fell the most in over five years, and new orders declined by the most in over two years.
  • South Korea’s export growth slowed to +5.7% in November from October’s +26% pace.
  • China’s manufacturing PMI hit a 30-month low in October and is sitting right at the contraction threshold of 50.0.
  • The eurozone’s manufacturing PMI hit a 27-month low in November.
  • Germany’s manufacturing PMI hit a 31-month low.
  • Italy’s manufacturing PMI hit a 47-month low.

Folks, this is just a day’s worth of data reports! And the data isn’t just deteriorating internationally; right here in the good ol’ U.S. of A. we had our own swath of Fundamental Gravity #4-inspired data released last week:

  • U.S. manufacturing PMI slowed in November for the fifth month of the last seven.
  • U.S. services PMI slowed in November for the fifth month out of the last six.
  • The ISM manufacturing PMI did manage a slight, one-month (not trending) acceleration, but the ISM Prices Paid fell off a cliff in November.

This last point can’t be emphasized enough, because it means that cyclical companies are losing their pricing power. Couple this economic reality with late cycle wage growth and you’ve got the perfect cocktail for profit margin compression. What do you think that margin squeeze is going to do for equity prices going forward?

What blows my mind is that Wall Street and the media still don’t see this FG4 reality even though it’s slapping them in the face. In fact, last week I read JPMorgan’s “U.S. Year Ahead 2019: Stocks for Every Strategy” report and was struck by their bottom line for how investors should be positioned heading into next year: “Our current sector tilt remains partial to U.S. reflation dynamics, declining regulatory burden and continued growth (Industrials, Energy, Technology, Financials) and Under Weight interest rate-sensitive bond proxies (Utilities, REITs).”

Holy crap?! Do these guys not have access to any economic or financial market data?! This sector recommendation is literally the exact opposite of the playbook you should be using in an FG4 environment. That advice would have had your portfolio’s face ripped off here in Q4.

I will happily continue to take the other side of J.P. Morgan’s recommendation and continue trading international markets based on the playbook for FG3/4 environments until the damn data tells me otherwise.

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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.
Duration: 6:42.

Watch Landon Whaley discuss When Markets Cycle  in a short video here.
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.
Recorded: MoneyShow Dallas Oct. 5, 2018.
Duration: 5:51.

Landon Whaley interviews Adrian Manz: How I approach stocks here.
Recorded: MoneyShow Dallas Oct. 5, 2018.
Duration: 7:48.

Landon Whaley interviews trader Jackie Ann Patterson: How I got started trading and how I approach it with my Truth about ETF Rotation here.
Recorded: MoneyShow Dallas Oct. 5, 2018.
Duration: 6:14.

Landon Whaley interviews John Carter: How I started trading here.
Recorded: MoneyShow Dallas Oct. 5, 2018.
Duration: 5:37.