MAY 29 T3

1.) DATA - Momentum is taking hold!
2.) RATES - Downgrade shmowngrade?
3.) FLOWS - Systematics have a lot of room to buy

Episode Transcript

Speaker 1 (00:00):
Now here's your care for my wealth guy, Chris Klein.
Good morning, and welcome to today's three Things. What's today Thursday,
May the twenty ninth. What do we got? Number one,
we've got some data. Two interest rates, and three market flows.
Those things are important. If you think of the data,
some people will consider it as data mining. But you know,

(00:21):
markets are interesting. They don't necessarily repeat, but they rhyme,
and they rhyme because people tend to make financial decisions
with respect to investing the same over and over and
over again. It's a relationship of fear and greed that
constantly has played out every day for people to see.
So you can do some historical data structuring based on

(00:43):
other instances and markets when it took place. And so
last month, the SMP five hundred was down a little
more than eighteen percent below it's all time high. This
past Monday, the SMP five hundred was within three percent
of its all time high. And what we found is
that those quick recoveries are signs of very strong momentum

(01:04):
and they tend to be very bullish for stocks over
the next three to twelve months. There have been including
this May nineteenth data set, seven of these instances that
have taken place where the SMP five hundred rallied from
eighteen percent below its fifty two week high or all
time high two within fifty days, within three percent of

(01:28):
its of its all time high within fifty days. So
what did we find. Well, we found that the average
over one week was up a percent, The average when
we start pushing it out a little bit more over
three months was up about four point eight percent, the
average over six months was up about ten and a
half percent, and the average over a year was over

(01:51):
twenty point four percent. And it was positive one hundred
percent of the time in all seven instances. And those
seven instances were made twelfth of seventy five, September fifteenth
of eighty two, October thirteenth of eighty eight, November nineteenth
of ninety eight, June sixteenth of two thousand and three,
October five of two thousand and nine, and then here

(02:14):
most recently, May nineteenth of twenty twenty five. So that
data gives us some perspective that the momentum that we're
seeing in markets is continuing to follow through from the
Zweig breadth thrust that you heard me talk about a
little over a month ago, and those are very powerful
because they're very rare. I think we've seen that only

(02:35):
five instances going all the way back into the early fifties.
So important stuff there, interest rates, So there's lots of
stuff out there and a lot of noise with regards
to the SMP downgrade. Do you remember what happened when
the SMP downgraded the debt cycle in twenty twelve. Yeah,
bonds rallied for weeks. You know what we viewed as

(02:57):
the biggest costanza of all time. And I know Moody's
down graded this time. I misspoke there a moment ago,
but the last time it was downgraded in twenty twelve
was SMP. Now, look, I don't know what's gonna happen
in this cycle. I just follow the flows in the signals.
Interest rates should go up, but they might not. Tenure
notes are already at four point five percent, and they're

(03:17):
down a little bit today. If they get out to
five percent, there's gonna be some squealing because mortgage rates
are going to be tapping that eight percent level. If
the tenure Treasury gets out towards six percent, the United
States is effectively bankrupt. Now, they're not gonna let that happen.
They'll peg the yield curve. If you don't know what
that means from a practical standpoint, it just simply means

(03:37):
the Fed will print an unlimited amount of money to
buy bonds in order to peg them at a specific
interest rate. Think of it as quantitative easing twice over
on steroids, whatever you want to call it. Now. Yesterday
I talked about the money supply via M two. If
you're on my newsletter list every morning, you would have

(03:59):
got that and it would have included a visual for you,
a chart that I think is well kind of important.
But in that chart that I sent yesterday of M
two money supply, it suggested that we're in fact seeing
money printing right now, as this particular metric is back
to an all time high. The US money supply grew
four point four percent over the last year, and that's
the biggest year over year increase since July of twenty two.

(04:22):
Of course, money printing is a problem, and unfortunately it
doesn't seem that anybody really wants to tackle it head on.
So how do you save capitalism? Well, spoiler, you can't.
People have to experiment with these ideas and they're either
going to learn or they won't. Think of Argentina. Argentina
got to the point of maximum pain. Look, the United

(04:45):
States is nowhere near the point of maximum pain. Will
we get some sort of fiscal religion, if you will,
if interest rates and inflation are I don't know, ten percent,
how about twenty percent? Look, let's hope we don't ever
have to see or experience any pain anything anywhere near that.

(05:07):
But for right now, I'm not sure what stops this train.
Bigger deficits, worse remedies those are That's what we deal
with with this with government in general. Right now, the
US recession risk is getting priced out of markets, and
that's clearly being shown by the bullish trade and trend
signals coming out of all yields, ten, twenty thirty, you
name it right, Okay, how about the flows? Well again,

(05:31):
if you would be on my newsletter list, you'd get
a visual here that would be helpful for you to see.
And it's a picture of systematic positioning. It's a systematic
positioning index, and it gives you an indication of what
systematic funds are doing and how they're positioning themselves. And again,
a systematic fund is just an investment fund that uses
strict preset rules and computer driven models to make trading

(05:52):
decisions rather than relying on any human judgment or intuition.
It's been reported fairly recently that seventy five percent of
all trading these days is algorithm driven. Can you imagine?
So in the picture, what you see if you were
to look at it is that there is a lot
of upside buying opportunity and potential for systematic funds in

(06:14):
terms of buying US equities as US growth and inflation
continues to re accelerate. And the picture would show that
current systematic fund structure is set up at levels that
we saw in the bottom of the market of twenty eighteen,
the bottom of the market in twenty twenty, twenty twenty
two when we had a very difficult bear market, and

(06:35):
now of course today. And so what that does is
it creates an environment where computers will likely move forward
to push buying as these systematic funds take place. So
that's that those are the important things for today. If
you have any questions or comments, or you'd like to
chat about this in more detail or how it might

(06:56):
affect you and your portfolio, let me know. You can
reach me info at carefromiwealth dot com, info at care
formywealth dot com, or you can call me eight six
six five nine six ninety eight eighty six. Thanks so
much for listening, appreciate your time. God bless and have
a beautiful day