Episode Transcript
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Speaker 1 (00:00):
Now here's your care for my wealth guy, Chris Klin,
Good morning, and welcome to another edition of What's on
My Mind. So we're going to talk today quickly about
the US dollar, interest rates or yields, and then volatility,
and I think these three elements are going to give
us some perspective into the forward movement of the market
(00:23):
cycle itself. So if you think about the US dollar,
it's one of the most important elements in macro. And
the US Dollar Index, which is simple DXY, is really
at this point, at an inflection point, it's still the
most important currency in the world. We sometimes seem to
take our eye off that everyone has been pushed into
(00:43):
the belief that the US dollar has just been completely
obliterated because of inflation, and while the purchasing power of
the US dollar has significantly been cut over the years,
that's true. We have to think about how DXY the
Dollar index functions from a macro perspective. Let's think about
smart money. Smart money hated the US dollar coming into
the year, and the dollar got completely walloped, but now
(01:06):
things look to be shifting a little bit. The Dollar Index,
again simple DXY at one hundred, is super important. It's
an important level that we want to pay attention to.
If the dollar holds that level and moves higher, markets
get to tailwind. If not, then markets get a headwind.
The dollars down this morning, but it's still signaling a
higher low versus its most recent closing price, and that's
(01:31):
super super valuable. That's very important. The movement of the
dollar is also important to gold. I know there's a
lot of gold bugs out there after the most recent
run up that we've seen, but gold has an immediate
term trade inverse correlation of zero point nine to one
versus the US dollar. That's almost one to one. What
does it mean If the dollar is changing its character
(01:52):
here and it starts moving higher, gold would suffer. So
dollar down is creating gold up this morning. But gold
is also exhibiting some topping signals with trade momentum slipping
below trend for the first time since last November. And again,
remember when you hear me use the words trade and trend,
those are a functional rate of change calculus that are
(02:17):
function based on a certain time series. So trade is
the rate of change of price volume in volatility over
a period of time of less than a month. It's
momentum it's what the machine chases trend is that the
rate of change of price, volume and volatility together for
a time series greater than three months. Right, Those are
your investments kind of things to think about. When you
(02:41):
get one of these things moving down below the other,
especially the shorter time series trade dropping below the longer
time series trend, that's an important indication that we have
to pay attention to, especially since it hasn't happened for
some time. That could turn into a true top, or
it could turn into just a digestion that would push
(03:02):
gold sideways for a while. We have to let the
signals develop. But the lower high and the lower low
that's being signaled in gold is not a great sign
for gold bulls, and we have to think about and
pay attention to what the signals are saying. And again
those signals are functionally calculated moment by moment as markets develop.
But the current one here that we're looking at right
(03:23):
before this market is ready to open, is simply the
rate of change of price, volume and volatility of gold
looked at prior to the open. Soon as it opens,
it's going to shift, right. It moves second by second,
but it's not like it moves, you know, in an
order of magnitude that's just beyond comprehension. It moves small.
Bottom line is that when you get a lower high
(03:44):
lower low signal, it's suggesting that prices want to come down.
So let's pay attention to that. Interest rates and yields.
First of all, let's get this out of the way.
The Moody's US debt downgrade is noise. Ignore it. Moody's
is just following what the other two rating agencies have
already done, and after the Great Financial Crisis, in my opinion,
(04:06):
none of these agencies carry any credibility at all anymore,
so ignore them. The market's reaction to pass downgrades also
suggests that this is noise and not a signal, just
like what we saw in twenty eleven and twenty three.
You can go back and look at how stocks did
after previous debt downgrades. It's not hard to find on
the internet. In longer term, you'd find it was a
(04:27):
great time to buy, not sell. US treasury bond yields
have been breaking out to the upside for the past
three weeks. We've been talking about it, and it's a
function of expectations for an imminent US procession getting priced
out of the market alongside sequentially accelerating US economic growth.
That's important. Growth with inflation accelerating at the same time
(04:49):
has historically been really good for risk assets, but not
great for bonds. So we'll have to see how yields
function here over the next several days. But right now,
their signal they want to move up higher highs, higher lows. Yeah,
sure we're going to get a pullback and yields and
that might occur even today, but until it breaks that
(05:10):
most recent higher low, well that would tell me that
these interest rates want to keep moving. So we'll see
how it goes. And that's in line with what we're
seeing with a reacceleration of inflation too. By the way,
and you can look at trueflation dot com. That's a
real time inflation measure, not the one month lag that
we get out of CPI from the government. And if
you looked at trueflation dot com, you could see at
(05:31):
the bottom right portion of that chart that the inflation
level has been reaccelerating and the bottom market's just been
telling everybody that it's been well, it's been foretelling it, right.
How about volatility VIX, the flows so Friday was option
expiration op X. Does that mean that the S and
(05:51):
P five hundred is going to sell off hard again
just like it did after the February March op X?
Not necessarily, but after option expiration is when you get
gamma exposure levels collapsing and resetting. Gamma is just a
function of the options market that tells us that when
in negative gamma, dealers tend to chase the downside, they
(06:13):
sell when selling is happening, and so volatility is higher.
That basically is how it works. Positive gamma is the opposite.
They will chase to the upside, but they do it
with much less vigor, so volatility tends to be less
with a positive gamma environment. Negative gamma can work both ways, right,
Markets move hard in both directions in a negative gamma environment,
(06:34):
and markets move both ways in a much more muted
way when in a positive gamma type of environment. And
that's a very very surface level explanation. Enough of that.
The depth of what goes on inside the options market
is enough to make a math major at MIT lose
their mind. So be very careful about some of these
(06:55):
things that are being given at a very surface level.
But that's all I want to just talk about it
at this moment is the surface level of what happens
when option expiration is complete and then the market what
we call unclenches, right, So we got to see how
these flows adjust throughout the day. The daily trade range
for VIX, and again, remember what I say when you
(07:17):
hear me say trade, it's the rate of change of price,
volume and volatility. Yes, volatility has its own volatility, but
the trade range for VIX remains pretty wide. This morning
before they open, It's at fifteen point seven to two
to twenty one point sixty four. Again just meaning that
there's volatility in volatility, and I know that that might
(07:38):
be a difficult concept to grasp, but increased volatility of
volatility tends to push the VIX higher until it taps
the top of its trade range, which is that twenty
one point sixty four. When it does that, it tends
to reverse and move lower, pushing stock prices higher. Growth
and inflation data can push volatility around as traders buy
(07:59):
an unwind protect action. But when we zoom out some
we can see that the VIX is still in a
down trend, with immediate term trade resistance at twenty seven
point eighty three. Could it hit that? Sure? Do I
currently expect that? No? No, I don't. Does the market
care what I think? Nope, We're just going to follow
(08:21):
the signals and adjust according to our algorithms. On Friday,
we cut our S and P five hundred exposure down
to just fifteen percent, and for some of our more
aggressive portfolios, took a twenty one point five percent short
position on the SMP five hundred, and again, a short
position is just a way to hedge against a market drop.
But as we can see with futures this morning, the
(08:42):
SMP five hundred is going to open down, and when
that happens, we're going to take profit on that short
and then wait for our algorithms to resignal going into
today's close, and then we'll just kind of restart the
engine all over again. All Right, that's it for today.
I hope it's been helpful. If you have any questions,
reach out to me Chris at carefremiwealth dot com, or
(09:03):
you can pick up the phone and talk me to
the old fashioned way eight six six five nine six
ninety eight eighty six. Thanks so much for your time
and attention. God bless you and I hope you have
an amazing day.
Now here's your care for my wealth guy, Chris Klin,
Good morning, and welcome to another edition of What's on
My Mind. So we're going to talk today quickly about
the US dollar, interest rates or yields, and then volatility,
and I think these three elements are going to give
us some perspective into the forward movement of the market
(00:23):
cycle itself. So if you think about the US dollar,
it's one of the most important elements in macro. And
the US Dollar Index, which is simple DXY, is really
at this point, at an inflection point, it's still the
most important currency in the world. We sometimes seem to
take our eye off that everyone has been pushed into
(00:43):
the belief that the US dollar has just been completely
obliterated because of inflation, and while the purchasing power of
the US dollar has significantly been cut over the years,
that's true. We have to think about how DXY the
Dollar index functions from a macro perspective. Let's think about
smart money. Smart money hated the US dollar coming into
the year, and the dollar got completely walloped, but now
(01:06):
things look to be shifting a little bit. The Dollar Index,
again simple DXY at one hundred, is super important. It's
an important level that we want to pay attention to.
If the dollar holds that level and moves higher, markets
get to tailwind. If not, then markets get a headwind.
The dollars down this morning, but it's still signaling a
higher low versus its most recent closing price, and that's
(01:31):
super super valuable. That's very important. The movement of the
dollar is also important to gold. I know there's a
lot of gold bugs out there after the most recent
run up that we've seen, but gold has an immediate
term trade inverse correlation of zero point nine to one
versus the US dollar. That's almost one to one. What
does it mean If the dollar is changing its character
(01:52):
here and it starts moving higher, gold would suffer. So
dollar down is creating gold up this morning. But gold
is also exhibiting some topping signals with trade momentum slipping
below trend for the first time since last November. And again,
remember when you hear me use the words trade and trend,
those are a functional rate of change calculus that are
(02:17):
function based on a certain time series. So trade is
the rate of change of price volume in volatility over
a period of time of less than a month. It's
momentum it's what the machine chases trend is that the
rate of change of price, volume and volatility together for
a time series greater than three months. Right, Those are
your investments kind of things to think about. When you
(02:41):
get one of these things moving down below the other,
especially the shorter time series trade dropping below the longer
time series trend, that's an important indication that we have
to pay attention to, especially since it hasn't happened for
some time. That could turn into a true top, or
it could turn into just a digestion that would push
(03:02):
gold sideways for a while. We have to let the
signals develop. But the lower high and the lower low
that's being signaled in gold is not a great sign
for gold bulls, and we have to think about and
pay attention to what the signals are saying. And again
those signals are functionally calculated moment by moment as markets develop.
But the current one here that we're looking at right
(03:23):
before this market is ready to open, is simply the
rate of change of price, volume and volatility of gold
looked at prior to the open. Soon as it opens,
it's going to shift, right. It moves second by second,
but it's not like it moves, you know, in an
order of magnitude that's just beyond comprehension. It moves small.
Bottom line is that when you get a lower high
(03:44):
lower low signal, it's suggesting that prices want to come down.
So let's pay attention to that. Interest rates and yields.
First of all, let's get this out of the way.
The Moody's US debt downgrade is noise. Ignore it. Moody's
is just following what the other two rating agencies have
already done, and after the Great Financial Crisis, in my opinion,
(04:06):
none of these agencies carry any credibility at all anymore,
so ignore them. The market's reaction to pass downgrades also
suggests that this is noise and not a signal, just
like what we saw in twenty eleven and twenty three.
You can go back and look at how stocks did
after previous debt downgrades. It's not hard to find on
the internet. In longer term, you'd find it was a
(04:27):
great time to buy, not sell. US treasury bond yields
have been breaking out to the upside for the past
three weeks. We've been talking about it, and it's a
function of expectations for an imminent US procession getting priced
out of the market alongside sequentially accelerating US economic growth.
That's important. Growth with inflation accelerating at the same time
(04:49):
has historically been really good for risk assets, but not
great for bonds. So we'll have to see how yields
function here over the next several days. But right now,
their signal they want to move up higher highs, higher lows. Yeah,
sure we're going to get a pullback and yields and
that might occur even today, but until it breaks that
(05:10):
most recent higher low, well that would tell me that
these interest rates want to keep moving. So we'll see
how it goes. And that's in line with what we're
seeing with a reacceleration of inflation too. By the way,
and you can look at trueflation dot com. That's a
real time inflation measure, not the one month lag that
we get out of CPI from the government. And if
you looked at trueflation dot com, you could see at
(05:31):
the bottom right portion of that chart that the inflation
level has been reaccelerating and the bottom market's just been
telling everybody that it's been well, it's been foretelling it, right.
How about volatility VIX, the flows so Friday was option
expiration op X. Does that mean that the S and
(05:51):
P five hundred is going to sell off hard again
just like it did after the February March op X?
Not necessarily, but after option expiration is when you get
gamma exposure levels collapsing and resetting. Gamma is just a
function of the options market that tells us that when
in negative gamma, dealers tend to chase the downside, they
(06:13):
sell when selling is happening, and so volatility is higher.
That basically is how it works. Positive gamma is the opposite.
They will chase to the upside, but they do it
with much less vigor, so volatility tends to be less
with a positive gamma environment. Negative gamma can work both ways, right,
Markets move hard in both directions in a negative gamma environment,
(06:34):
and markets move both ways in a much more muted
way when in a positive gamma type of environment. And
that's a very very surface level explanation. Enough of that.
The depth of what goes on inside the options market
is enough to make a math major at MIT lose
their mind. So be very careful about some of these
(06:55):
things that are being given at a very surface level.
But that's all I want to just talk about it
at this moment is the surface level of what happens
when option expiration is complete and then the market what
we call unclenches, right, So we got to see how
these flows adjust throughout the day. The daily trade range
for VIX, and again, remember what I say when you
(07:17):
hear me say trade, it's the rate of change of price,
volume and volatility. Yes, volatility has its own volatility, but
the trade range for VIX remains pretty wide. This morning
before they open, It's at fifteen point seven to two
to twenty one point sixty four. Again just meaning that
there's volatility in volatility, and I know that that might
(07:38):
be a difficult concept to grasp, but increased volatility of
volatility tends to push the VIX higher until it taps
the top of its trade range, which is that twenty
one point sixty four. When it does that, it tends
to reverse and move lower, pushing stock prices higher. Growth
and inflation data can push volatility around as traders buy
(07:59):
an unwind protect action. But when we zoom out some
we can see that the VIX is still in a
down trend, with immediate term trade resistance at twenty seven
point eighty three. Could it hit that? Sure? Do I
currently expect that? No? No, I don't. Does the market
care what I think? Nope, We're just going to follow
(08:21):
the signals and adjust according to our algorithms. On Friday,
we cut our S and P five hundred exposure down
to just fifteen percent, and for some of our more
aggressive portfolios, took a twenty one point five percent short
position on the SMP five hundred, and again, a short
position is just a way to hedge against a market drop.
But as we can see with futures this morning, the
(08:42):
SMP five hundred is going to open down, and when
that happens, we're going to take profit on that short
and then wait for our algorithms to resignal going into
today's close, and then we'll just kind of restart the
engine all over again. All Right, that's it for today.
I hope it's been helpful. If you have any questions,
reach out to me Chris at carefremiwealth dot com, or
(09:03):
you can pick up the phone and talk me to
the old fashioned way eight six six five nine six
ninety eight eighty six. Thanks so much for your time
and attention. God bless you and I hope you have
an amazing day.
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