APR 28 TTTs

APRIL 28: Things on my mind that are important to consider if you're an investor in global capial markets,
1.) RATES
2.) MAGAZINE COVERS
3.) VOLATILTY

Episode Transcript

Speaker 1 (00:00):
Now here's your care for my wealth guy, Chris Kline. Okay,
welcome back. This is Capstone Wealth Management. I am your host,
Chris Klin, and today's going to be super brief. I
just want to give you three things that are on
my mind this morning, which is Monday, April the twenty eighth,
start to a new week, almost the end of the month.

(00:20):
But what am I looking at right now? I'm looking
at interest rates, not just necessarily short term interest rates,
but all rates. But in this particular instance, I'm specifically
going to point out what I see in long term
interest rate. Short term interest rates are still telling me
the same thing bears trade and trend. They continue to
fail every time they tap that trend level, which for

(00:41):
the two year treasury kind of that Fed proxy, if
you will. The two year treasury tends to give us
an indication of what the Federal Reserve is probably doing
or probably going to do, and the level that would
be a trend level, if you will, for the two
year treasuries three point eighty eight percent. Failing there. It's
failed at this particular level a number of times over

(01:04):
just the last month. But more specifically, I want to
talk about the ten twenty and thirty year treasure yields,
and they're telling us something a little bit different. They're
telling us that we probably are not headed towards recession.
Why am I saying that? Because they're not collapsing long
term interest rates, ten, twenty and thirty year treasuries have
all broken out above a fairly short term like since

(01:27):
the beginning of the year down trend, and the ten
and twenty and thirty year broke out on April eighth
and ninth, and since then they've kind of pittered around
and went up and down in sort of a downward fashion,
but have now tested that particular down trend line twice
and it just happens to coincide with the trend level

(01:48):
for the ten year, the twenty year, and the thirty year,
and they're holding above those levels. So the levels that
I'm paying super close attention to for the ten year
treasury are at four point twenty six percent, the twenty
year treasury super close attention to the four point seven
to one percent, and the thirty year treasury paying very

(02:10):
close attention to the four point six to seven percent level.
And right now, those particular interest rates, those yields are
trading above those levels, and as long as they're trading
above those levels, that means they are not in a
bearish trend. That's telling me something different. I would probably
call it more neutral than anything. It's not giving me

(02:31):
an uber bullish indication that rates are going to rip
higher from here, but the indication is that they would
prefer to move higher than lower, at least in here
in the near term. There's much more upside in the
daily range. And when I say range, I'm talking about
a rate of change of both price volume and volatility

(02:51):
for that particular segment. So the ten year, twenty year,
and thirty year they have much more upside in their
yield potential than they do downside. That's another important indication.
And the downside calculations are all sitting right here at
these trend levels that I just mentioned a moment ago.
So if you're an investor thinking that interest rates are
just going to collapse from here because the massive negativity

(03:14):
that's being rolled out amongst various media outlets and news
covers and things of that nature, that pessimistic nature, I
don't know that that's going to play out, And frankly,
I would probably take the contrary and viewpoint of that.
So that's what I'm seeing in interest rates. And since
I just brought up magazine covers, let's talk about that
real quick. Most of the time, in the context of

(03:35):
the stock market, every time someone hears mag they think
of MAGA seven, right, the magnificent seven stocks that everybody
seems to be positioned into. And that's fine, you know,
that's whatever, No big deal is what it is, just
recognize it. But if you take a look at the
Economist as an example, and this isn't an indictment against

(03:58):
the Economist, it's not a political statement either. I don't
have an opinion on the Economist. I really don't care
less about them. I don't have positive or negative viewpoints.
I'm just pointing out what is and what is our
massively negative, derogatory magazine covers towards the United States of

(04:19):
America and in particular Trump. Just in this month of loan,
the month of April, we've seen the Economist print to
cover with a bandaged up eagle that and the headline
was only thirteen hundred and sixty one days to go,
clearly a reference to Trump's current presidency. Another magazine cover

(04:41):
from the Economist on April the nineteenth said at the
headline was how a dollar crisis would unfold? Okay, and
then on the twelfth we got the Age of Chaos.
That was the headline. On April fifth, the headline for
The Economist was Ruination Day, and it was a picture
of President Trump standing up the United States and sawing

(05:03):
the outline of the United States of America attempt to
point out isolationism. Maybe I don't know. So the bottom
line is that this particular magazine cover in other major
publications too, Forbes, business Week, et cetera. Doesn't matter. These
covers tend to give us a good country and perspective.
And it seems to me that the economists might be

(05:24):
attempting to count down the days until President Trump's term ends,
as if there's this massive ruin that's just on the
way because of him. I mean, they're talking about a
dollar crisis that started in December, a lot of chaos
and ruination talk. Look, all that pessimism just tells me
that the recent squeeze higher that we started to see

(05:45):
last week in stock prices, well it just wouldn't surprise
me if we continued to see that a move to
the upside. And interestingly, we've got a recent example of
the exact opposite of this phenomenon too. Six months ago
October twenty twenty four. If you went and looked at
the Economist cover, the writers at the Economys start talking
about the United States and its economy as the quote

(06:08):
envy of the world. That was the headline. That was
the headline in the October edition of The Economist. So
what happened after that cover release, Well, you're to date
through Friday. That is, the US Dollar Index DXY is
down eight point two percent and the S and P
five hundred reached a correction low of over thirteen percent
on April seventh, which was underperforming the rest of the

(06:29):
world by a pretty large margin. So much for that envy. Huh. Look,
the contrary and setup right now is about more than
just the Economist and its magazine covers. We're seeing some
extremes across the board. In our sentiment indicators. The Conference
Board found that almost half of consumers expect stock prices
to fall. The University of Michigan Consumer Sentiment Index hit

(06:50):
its fourth lowest level on record, and that data goes
all the way back into the fifties consumer expectations fell
to forty seven point three in April from fifty two
point six in March. That's down thirty two percent since
January alone. Look, when economists, journalists, and the surveys are
all this sad, as investors, we need to start looking

(07:13):
the other direction. So if you're massively bearish on the
US stock market right now, I think we need to
take and reconsider that perspective. Not the least of which
last week the US stock market, the SMP five hundred,
triggered something called a Zweig bread thrust. I'm not going
to get into that today. You can go look it up.

(07:34):
Zweig breadth brea d thch thrust. It's only happened seventeen times.
It's a fairly rare sentiment indicator. But over the next
six and twelve months, over those past seventeen times, it's
never failed to produce a positive market result, and in
most cases a pretty powerful positive market result too. So

(07:57):
we have to consider that, and we have to con
what the rates are telling us. We have to consider
what the dollar is telling us. We have to consider
a whole number of things. And lastly, I'm going to
touch real briefly on volatility. As most of you know
who follow my daily newsletters, my emails that we write
out to all of our clients that were blessed to

(08:19):
work for I talk about volatility a lot now. Right
now there's a there's a story being told in everything,
of course, but there's a potential complexity that's being built
inside VIX right now. If we think of implied volatility,
we want to look at whether there are premiums or discounts.
Premiums in implied volatility, for volatility tend to give us

(08:43):
an indication that there's lots of hedging going on. And
when there's a lot of hedging going on, it tends
to give us a floor into markets, or at least
the old mantra would be that markets don't tend to
boil over when there's a lot of hedging. That's the
kind of thing. If there's a discount, it gives us
an indication that traders and investors are a bit complacent,
that they're not worried about a lot of downside. And

(09:05):
right now, the S and P five hundred has an
implied volatility discount of a minus forty three percent when
compared against its thirty day realized volatility. All right, So
that in itself can give us a little bit of
consternation to think, all right, nobody's hedging. You know. Does
that cause us to think that, well, maybe markets could
pull back here. Yeah, maybe, but it's not necessarily giving

(09:26):
us the indication that markets could collapse either. Why well,
if we take a look at the daily range of
the vix VIIx and when I say daily range again,
I'm talking about volatility of volatility in rate of change
terms for price volume and volatility itself. I know that's
a mouthful. I know that sounds complex. It's just it's
just calculus. It's just the rate of change of volatility itself.

(09:50):
And one of the things that really stands out to
me right now is that the top end of the
VIX range has dropped all the way from sixty three
point one two on April the ninth, Yes, April the ninth,
to what is at just thirty point seventy nine today. Now,
that's a massive drop and a fairly short period of time.

(10:11):
The other thing that stands out to me is that
top end of the VIX range is now below its
trend level, and its trend level sits at thirty five
point one eight. That's also important. The low end of
the range is all the way down to fifteen point
four to six. So what's it mean. It means there's
as much of a probability that VIX could tap thirty
point seven as it could to fifteen point four. But

(10:34):
the important thing is that the top end keeps coming down.
It's now down below trend, and the low end has
continued to tick lower at the same time. These are important,
These are important developments. These are things that I think
help to contextualize and maybe to some extent, confirm that
bread thrust that I spoke about just a moment ago.
And if you'd like to read more about that, just

(10:56):
shoot us an email info at care formiwealth dot com,
info at care for my wealth dot com, and I'll
make sure and send you our information, data and details
on the Zweeg breadth thrust that has been registered in
what that could mean for the US stock market. But
for now, let's just set back and think about rates,
Let's think about magazine covers, and let's think about volatility

(11:19):
and how we as investors can use this data to
be better. If you have any questions, just give me
a shout out. You can reach me at info at
carefromiwealth dot com. That's info at care formwealth dot com
or if you want to chat eight six six five
nine six ninety eight eighty six. Thanks so much for
your time and attention. I hope you have an amazing,
blessed day. Bye bye