The Gravitational 15 has not only weathered the FG4-in-Q4 environment, it’s thrived. Despite the fact that very few markets in the world have gained ground since October 1, the G15 is up +1.74%, writes Landon Whaley Friday.

This Q4 return pushes our year-to-date gains to +12.99% and our trailing 12-month return to +17.35%. Our performance over the last two months has been helped by a streak of eight winning trades in a row and twelve winners out of the last thirteen trades we initiated. We’ve crushed it for eleven months, but as always the game is played in front of us, and we’ll keep on playing through the final (year-end) whistle.

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If you’ve ever been deep sea scuba diving, you know that once you breach 75 feet, it’s easy to get disoriented and confused as to which direction is up. The solution to this disorientation is to watch the direction of the bubbles because they always rise toward the surface. In a similar way, we know it’s easy to get disoriented and confused in our 24-7-365 news and social media cycle world with stock market tipsters at every cocktail party.

We liken our research to the “bubbles” telling you which way is up and safely guiding you back to the surface. Each week in Gravitational Edge, we distill the most critical economic and financial market developments and then provide you with clearly articulated game plan for the week ahead, we call this section “The Playbook.”

He said, he said

The Jerome Powell-induced price action last Wednesday was a reminder that most investors jump from headline to headline and sound bite to sound bite without an articulated and time-tested process to ardently follow.

(I’m not complaining about that, because those market participants reacting to nothing-burger events continue to provide us with high probability trades with the odds of success skewed in our favor. Case in point: We shorted Micron Technology (MU) on Wednesday afternoon and closed it Friday morning for a +3.9% gain. Thank you very much, Mr. Market.)

Everyone got hot and bothered last week because Powell changed his description of rates from “far from neutral” to rates “remain just below the broad range of estimates of the level that would be neutral for the economy.”

People perceived this as a change to Powell’s forward guidance, when in reality it’s a simple factual observation. Absolutely nothing has changed, as the Fed remains firmly on track to raise rates in December, and it will most likely do so again in March unless the economic data deteriorates meaningfully in Q1 2019.

Far more important than Powell’s choice of words last week is the central bank reality that these guys don’t understand the Fundamental Gravity concept, and the way they evaluate data inevitably leads to policy mistakes.

Look no further than when Powell said: "My FOMC colleagues and I, as well as many private-sector economists, are forecasting continued solid growth, low unemployment, and inflation near 2 percent," and that "There is a great deal to like about this outlook."

Holy crap, Jerome, do yourself and the Fed a favor and get a four-week free trial to our research offering!

What Powell and central bankers of his ilk don’t understand is that it’s not about “solid growth” or “inflation near 2%”, because these statements deal exclusively with the levels of economic data.

If you want to be a consistently successful investor (or central banker) you must remember that what matters most in economic and financial market data isn’t the “levels” but rather the rate of change (ROC), or the slope of the data.

Rate of change

Rate of change is how we called the crashes in Chinese, Brazilian and South Korean equities. The ROC is how we called the almost crashworthy -18% correction in eurozone equities. It’s also how we sidestepped the dangers lurking in the emerging market space all year, despite firms like Goldman Sachs continually doubling down on long EM as their number-one trade idea because “it’s cheap.”

Rate of change is also why in the Gravitational Edge Playbook on September 24, I made my initial call for an FG4-in-Q4 environment and told you it was going to catch most investors off guard. I also said that in addition to an increase in volatility across all asset classes (check), that “You can also expect an exponential increase in storytelling as the crowded U.S. trades that have been working for two years cease their run, and people spin narratives to explain why” (double check).

It’s not easy to measure and map the slopes and extremes across 27 economies and more than 200 markets globally. It’s also not easy to contextualize all that data and generate a playbook that consistently positions you correctly before the moves happen, which is why our framework consistently has us on the right side of market moves.

Speaking of ROC, you’ll see in today’s macro theme updates that evidence is piling up and clearly signaling that both U.S. growth and inflation are in slowdown mode, and that Powell and the rest of the unelected Fed officials are completely oblivious to it.

The Bottom Line

The fact that the Fed is blind or willfully ignoring the current ROC of U.S. economic data and the FG4-in-Q4 reality means they are a rate hike away from pulling that future recession closer to today.

Rather than navel gazing at every word uttered in prepared remarks, do yourself and your portfolio a favor: Keep your eyes squarely on the rate of change of both economic and financial market data. This ROC focus is how you consistently sidestep dangers most investors (and central bankers) don’t see coming and position yourself for opportunities that most investors miss.

Please click here and sign up if you’d like to receive the latest edition our research reports as well as to participate in a four-week free trial of our research offering, which consists of three weekly reports: Gravitational Edge, The 358 and The Weekender.

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.