This week’s “Headline Risk” focuses on a common mantra we hear from the Old Institution and on a market call sure to help investors secure far more loss than profit, writes Landon Whaley Thursday.He's presenting at MoneyShow Orlando Feb. 9.

Headline risks are everywhere, much like Old Institution forecasts (that are sure to go wrong) for next year telling you precisely what’s going to happen and how to profit from it. 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 promise to unveil the mystery of financial markets.

One of the firms that is an entrenched member of the Old Institution is Oppenheimer, and on December 17 its Chief Investment Strategist, John Stoltzfus, released the latest edition of “Market Strategy Radar Screen.”

Mr. Stoltzfus is making a classic Old Institution mistake that has historically led many unsuspecting investors to the slaughter.

On page three, John poses the question: “Foreign Stocks on Sale?”

And he answers: “In our view, the current pricing presents American investors the opportunity to buy foreign stocks while they’re ‘on sale’ with a strong U.S. dollar. While we can’t predict with any certainty that the U.S. dollar is near a high-water point (or a low point for foreign stocks priced in dollars), it nonetheless feels like an opportunistic time to buy.”

This is classic Old Institution thinking when markets get the woodshed treatment. They say that it’s time to buy because the stocks are now “cheap” or “on sale.” I mean, if you liked the Shanghai composite at its January peak of 3586, don’t you want to bring it home to momma and marry it after it crashed -30.4% into last Friday’s close of 2493?

What John and other Old Institution cronies fail to recognize is that there’s a reason “foreign markets are on sale,” and it’s not “their vulnerability to a protracted trade war.”

These markets are “on sale” because they’ve been mired in a Fundamental Gravity #3 (or 4) environment for the better part of twelve months:

  • Mexico has toggled between an FG3 and an FG4 environment since Q2 2017, and Mexican equities crashed -29.4% at one point during 2018.
  • Brazil started the year in an FG4 environment and spent the last two quarters in a Fundamental Gravity #3. Brazilian equities experienced a crash-tastic -34.0% drawdown at one point this year.
  • South Korea has been doing the FG3/4 tango since Q4 2017. South Korean equities did their own 2018 cliff dive, experiencing an intra-year drawdown of -28.1%.

These are just a few examples from the list of “cheap” markets ol’ John believes are now offering a buying opportunity. They may be cheap, but it’s important to be aware of the financial market reality that asset classes can stay on “sale” for very long periods of time, especially when their cheapness is being driven by the Fundamental Gravity of the economy where they trade.

The other reality of markets being “on sale” for Fundamental Gravity reasons is that they typically get a lot “cheaper” than most folks, like John, can envision.

The headline risk bottom line is that despite the Old Institution believing the crashing markets represent a flea market bargain, you don’t want to be in the business of catching falling knives, especially when those knives are falling for Fundamental Gravity-based reasons.

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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.