Finance U: Beware The Rate Cuts!

Originally published at: https://peakprosperity.com/finance-u-beware-the-rate-cuts/

This week Paul Kiker and I discuss the historical fact that it’s only after the Fed starts cutting rates that the equity markets take a tumble. As they say, It ain’t over until the Fed funds sink!

Also, more and more oil-savvy people are beginning to note that the oil markets seem to be under some form of manipulation designed to drive prices lower. Why? Probably for political reasons.

Or, possibly, oil is weak because there’s a rip-roaring recession on the way that will dent demand. Either way, oil is not at a constructive price to deliver future supplies.

Who can we thank for that? A toothless array of regulators who encourages massive amounts of electronic buying and selling activity by speculators who have zero ties to the actual underlying physical product.

So the signal is swamped by the noise. In the end, this is not good for producers or consumers. Both suffer. But it makes boatloads of money so it is allowed and encouraged.

Finally, we also discuss the fact that rate cuts aren’t really rate cuts in the old sense of the term. Once it meant more cash being put into the system. Now it means the Fed turning down the dial on how much it pays to banks for their excess reserves parked at the Fed.

Which means now it is a sloppier transmission mechanism with even less coupling to the actual economy. After all, how many marginal business or consumer decisions are waiting on a 25 or even 50 bp lower rate?

So the prediction is any interest rate cuts will have a very temporary boosting effect for the equity markets that will quickly fade. It is only when the Fed returns to QE will the dynamic change.

For that to occur, we think the Fed needs a reason. Or sets of reasons. Better yet, an emergency! When the QE begins again, then it’s time to go all into risk assets and all out of dollars themselves because inflation will return with a 1970s-style vengeance. Heck, only might happen anyway if we get an energy shock.

 


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@cmartenson if you are getting this guy Mitch (https://tribe.peakprosperity.com/t/property-tax-fraud-in-texas-and-likely-across-usa-and-canada/41995) on your show can you try and get him to explain his idioms.

I think I got the gist of what he was saying but his colourful turn of phrases obscured what was happening legally.

Also please ask questions about how the current process of setting the property value is supposed to work. Most of you Muricans probably know the process but I think people on peaks would like to know how to tell if their property value was elevated. Maybe some process diagrams?

I believe that he has a tiger by the tail and he’s doing amazing work but I think with you interviewing him you can elevate his work to something that can profit the American Peaks members.

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Good news, bad news, good news.

The good news is I’ve already interviewed him. The bad news is I didn’t read your excellent suggestion until afterward. The good news is I did my usual job of asking questions to surface the topic.

I think I did okay…but there’s room for follow-up. It’s a very complicated subject.

And, you are correct. He’s got two tigers by the tail! It’s a huge thing…we should do what we can to help publicize it.

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Another good discussion amongst 2 guys.
You measured, balanced view of where we are ( rock and hard place) and where we are going (can you spell SHTF) is enjoyable as i try to keep growing and processing clean veggies and harvesting my non gmo no corn or soy feed chicken eggs.

An interesting topic for a future discussion would be simplifying the financial and tax complications for us over 70 types that want simpler risk appropriate financial strategy.

Especially as we have invested in our plan to reduce urban setting/violence risk, solar, water, food but still need to be prepared to pay taxes and insurances and medical etc

For us and many other prepper type i know we have sunk a fair bit in getting out of dodge and being safe vs vacation homes/workd traveling.
Rick

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I think his handle on what’s happening is excellent and I’m amazed how they think they can goal seek the amount that local government charges into the house valuations.

On the YOLO topic, another name for it is Financial Nihilism.

I haven’t read this particular article, but it seems to describe the idea well with a quick skimming of the article.

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Hopefully you have the same guy rebel capitalist recently had on.

Doesn’t surprise me, kinda seems like the grift to me as a millennial. Oh we’ll just keep saying your home value goes up to tax you more. Luckily (for some) some states exempt you through veteran status.

The fraud goes all the way down, and if the fed doesn’t break the large machine, these cities and states will break all the small and medium machines that assist the large machine.

I want to point out, regarding the BoJ raising rates, and a more or less quote: “We know what happens when you raise rates, the market goes down”. Well, looking at the US markets, the market’s been going up up up even during a hiking cycle and higher-for-longer. And while my media diet is way more Austrian econ than otherwise, it does feel like there’s a general and growing consensus that cutting rates (per the beginning of the podcast) will be associated with the markets dropping.

We’re pretty well educated people. We’ve learned about the Yen carry trade, arbitrage between BoJ and the Fed, the yield curve and the Fed/Treasury coordination for stealth yield curve control (long term buybacks via Treasury, Fed rates at the short end). And the best we can do is create a story that makes sense with what we see happening in front of us now. I’m sure that JPow & Co are pretty well educated on this stuff too, and the best that they’re able to do is make a story with the official data they’ve been given. They’ll use the Phillips curve or chicken entrails or whatever it takes to make a believable story.

Which is to say, I don’t think JPow has a master plan. He’s a competent bureaucrat trying to save face a year at a time. Everyone KNEW that raising rates stopped inflation, so that’s what he did, slowly. Inflation per CPI (don’t laugh, please) stalled out around 3%, so he held steady, which is what everyone kind of expected. Because everyone KNEW, two years ago that raising rates lowered the market and cutting rates raised the market, and that the next Fed cut was JUST AROUND THE CORNER, the market was about to boom again. So it never stopped booming.

Just because everyone KNOWS a lot of stuff that isn’t true or is speculative at best, doesn’t mean you can’t manage expectations with that. I’m a big believer that we’re going through MOPE, Management of Perception Economics. No grand plan, just spin things as positive for as long as possible a year at a time.

There’s that line that a recession is when your neighbor loses his job, and a depression is when you lose yours. That’s where MOPE is breaking down, too many people just can’t afford to believe the story anymore.

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Well, WRT things feeling “toppy”, we won’t really be on the downside until we get to the point where feeding truckload after truckload of printed money into the financial system no longer has the “up and to the right” effect that it has reliably had so far. But I would be so bold as to point out, things right now are feeling spiritually “toppy” as well as financially.

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Isn’t it interesting that Trump is getting sentenced the same day that the Fed is to announce a decision regarding policy?

Reminds me of investment advice I received many decades ago: a third for inflation, a third for deflation, and a third for disaster.

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New Carbon capture system created!


Completely Solar powered.

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