MAY 27 T3

1) INFLATION - Over 2% again!
2) IMPLIED VOLATILITY - Premiums return
3) GOLD - Lower highs

Episode Transcript

Speaker 1 (00:00):
Now here's your chair for my Wealth Guide Chris Klin.
Good morning, and welcome to another edition of our Top
three Things, the most important things that we're seeing within
the macro cycle of markets today. So what do we got.
We've got inflation, implied volatility, and gold. Interestingly enough so
on the inflation front, when looking at a more real

(00:21):
time perspective of inflation, we can see that it's above
two percent. Again, how do we know that? Go to
trueflation dot com and just check out some of their tools.
They've got well over a million inputs into their inflation
data and it's real time. It's updated on an ongoing basis,
which is well just much better than the government's one
month lag on CPI. The inflation metric that Trueflation is

(00:45):
putting out has experienced an increase of zero point eight
eight percentage points in just fifty days. It's pretty fast.
So it's clear we've got a reacceleration of inflation. But
what's important about this is that it's consistent with this
part of the economic cycle, and as investors, we don't
need to be afraid of it. Growth and inflation accelerating
at the same time tends to be good for risk assets.

(01:07):
So just ignore the noise, ignore the fear mongering that's
going on in market space today, and just relax. It'll
be okay, all right. Next one, implied volatility. So implied
volatility gives you a very small glimpse into the degree
of protection that's being bought in markets. When implied volatility
is trading at a premium compared to its thirty day

(01:29):
realized volatility, investors are hedging. In other words, they're most
likely buying put options as their protective feature. A put
option is just simply an asset whose value goes up
as the underlying asset or index that it covers, whatever
it is, goes down. When implied volatility is trading at
a discount, it just shows that there's complacency by investors,

(01:51):
and that is where you tend to see either soft
to declining stock prices. And if we think about how
that's worked over the last week, we've seen some very
very deep discounts for implied volatility, suggesting no real hedging
at all. And during this time, the SMP five hundred
was down a little over two percent. Now, is that
the only reason it happened? No, But you look for
headwinds and tailwinds and implied volatility can give you an

(02:13):
indication of that. This morning, those implied volatility discounts have
flipped to premiums, and so far the SMPA five five
hundred is up about one point four percent. So the
crowd's buying protection into tomorrow's Navidia earnings announcement, which is
just like the crowd. Somebody always knows something they want
to buy protection on the retail side, but then all

(02:36):
of a sudden, something like Navidia beats earnings. I have
no idea, We'll see how it goes. But these ivall premiums,
these implied volatility premiums are a tailwind for markets. So
this is a good thing that we've seen them flip
from discounts to premiums. How about gold, So Goldman Sachs
is out there and announcing or expecting ongoing really strong

(02:59):
demand from central banks buying gold, especially those from emerging markets,
and they're anticipating that it would boost gold prices through
the rest of this year. Central bank purchases of gold
have risen like fivefold since twenty twenty two, which is
clearly a lot and all this may be true, but
what's also true is that gold has an inverse correlation

(03:22):
to the US dollar, and the dollar is now bullish
on a short term like less than a month basis,
but bearish over a longer term trending basis. Now, why
does that matter, Because in the world of macro there's
really nothing more important than the US dollar. You get
the dollar right, and you get so many other things
right in terms of movements of macro markets. The dollar

(03:43):
index could see one oh one fifty before testing trend,
and that would be a headwind for gold. In other words,
dollar up, gold down, because there's an inverse correlation with
gold and the dollar, But it would be a tailwind
for the SMP five hundred because it has a positive
correlation with the US dollar. At least so far. Gold
is also putting in a lower high with its signal

(04:05):
this morning. Remember the signal is nothing more than the
rate of change of price volume and volatility. A lower
higher after a big run like gold has had is
that's just not what bulls want to see. Now, does
it mean an imminent breakdown for the price at gold. No,
we could just see this sideway's digestion of the gold price.
That could happen trend for gold remains all the way

(04:27):
down at thirty one to fifty, which was successfully tested
on May the fifteenth, So it's going to be really
really important to see how gold acts around that thirty
one seventy five down to thirty one to fifty area.
That thirty one seventy five number was its most recent low.
Will it hold that or will it put in a
lower low. If gold puts in a lower low along

(04:48):
with the fact that the signal is giving a lower high,
well that's not great news for people who are bullish gold,
at least not in the immediate to intermediate term. So
we'll keep you updated and let you know how that goes.
But that's the end of it. Those are the three
things that are on my mind today, and we'll see
what happens with Navidia earnings tomorrow, and we'll see how
the market responds on an ongoing basis. But remember, macro wise,

(05:12):
growth and inflation accelerating together tends to be good for
risk assets. So that being the case, the macro cycle
is definitely on the side of a bullsh resolution if
you will, through the process of Navidia earnings and things
like that. So we'll see what we get as always,
all right, thanks so much for joining me. I hope

(05:33):
you have an amazing, wonderfully blessed day and we'll see
you soon.