“Headline risks” are everywhere, much like cowboy hats in Texas. As an investor you must keep your head on a swivel and human reactions in check so that you’re not drawn into narratives that promise to unveil the mystery of financial markets, says Landon Whaley Monday.
This week’s headline risk focuses on the central banker risk right here in the good ‘ol U.S. of A.
In an interview with CNBC, Federal Reserve Chairman Richard Clarida made some astonishing statements that are the very definition of “headline risk.”
Let’s begin our climb up the egregious ladder with “Going forward, you have to look at a lot of trends, including the global economy ... Some of it is slowing."
Shiver me timbers! Do these guys not have access to global economic data?
Of the 43 economies we track globally, 27 have been slowing since January including China, the eurozone (Germany, France, Italy, Spain) and Japan. And as we sit here half way through Q4, we now have 38 of the 43 economies confirmed in growth-slowing regimes.
Maybe Mr. Clarida considers 88% to be “some.” I’m no math major, just a guy who spends his days traversing global markets, but I consider 88% to be “the majority.”
The next wrung up brings us to: “…with the economy doing well it’s appropriate to sort of shift the emphasis toward being more data dependent.” And, “at least from my perspective, we're at a point now where we need to be especially data-dependent.”
Holy crap Rich, how have you guys been making decisions up until now? Horoscopes? Tarot cards? Scientology?
Our mantra around here is to always remain data dependent, process driven and risk conscious. From my perspective, there is no other way to make investing decisions. Being data dependent ensures you’re on the right side of the trade more often than not. How can the people in charge of monetary policy for 25% of the world’s economy (the U.S.), not be in the habit of eating, sleeping and drinking data in order to make the very best policy decisions?
We’ve now arrived at the top of the egregious ladder where Rich says, “there is no clear signal from the markets about the direction of the economy.” I damn near fell out of my chair hearing that one!
The signal being sent by markets since Q4 began speaks for itself: tech (-9.7%), semiconductors (-10.1%), consumer discretionary (-8.6%), industrials (-9.0%), basic materials (-6.5%), crude oil (-23.7%), and the broad-based commodity index (-12.5%).
And on the bullish side, utilities (+3.0%), consumer staples (+3.8%) and REITs (+0.0%) are also confirming this FG4 reality.
I’m not sure what Rich considers to be a “clear signal” but from my perspective, markets have been crystal clear about the fact the U.S. is in a Fundamental Gravity #4 environment and that raising rates now carries the same risk as driving at night while blindfolded.
The headline risk bottom line is that in addition to death and taxes, the other certainty in life is that central bankers will screw the pooch. The Fed will raise rates in December because they won’t have enough data to convince them otherwise (not that they’re even looking at the data apparently).
However, after December’s hike, I’d be shocked the Fed raised rates even once next year. Channeling my inner Miss Cleo, my prediction is that the Fed turns dovish in March, catching most investors, and their portfolios, off guard. By the time that happens, we’ll already be long, strong, and bullish in Treasuries and…gold.
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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.
