How a Fed Cut will Send Rates Soaring Higher Instead

TIMECODES
0:00 Intro
0:41 What Rates the Fed Actually Controls
2:29 How Fed Funds Rate Affects the Market
4:59 Long-Term Bonds
7:28 The Yield Curve

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[elvispresley]

The Fed is already behind the curve. Asset prices are too high, extremely too high. So now they have both a cost of debt problem AND an inflated asset problem. Major asset prices will need to come down sharply, even deflate if you will, in order to come into balance with incomes.

[mikel]

FED cutting rates is like the airbag going off in a crash. Yeah, it might keep you from dying but you and your car are still screwed because the wreck has already started

[JM-gutx]

This is very important and few ever bother to have the wisdom that this guy has to explain this. Much obliged.

[larrydimon]

There is an equal market chance associated with each crash or collapse. I have seen people accumulate up to $1 million during a crisis, and even make it work in a strong economy if they are prepared and well-informed. Without a doubt, the bubble/correction is making someone wealthy.

[Barr]

It’s common sense. In order to cut Fed must increase money supply. That spikes inflation. Bond holders then require higher yield on long term bonds which will cause long term rates to go up, while the fed is dropping short term rates. The fed obviously knows economics and knows this. But, their purpose is to save a dying economy at the expense of higher long term rates, until the collapse happens - in other words the rate cuts are designed to “kick the can down the road” at the expense of a worse collapse. The final conclusion can only be that this is a controlled collapse, engineered as the great economic reset with the participants being the fed, Congress, Harris or Trump.

[stockey]

Usually when feds are cutting rates, market meltdown starts.

[Jeff__M]

This channel is unlike any other on the tube 👏 seriously. Not just junk quota content…actual value

[rustyscrapper]

Canada cut twice recently and now our yield curve is almost flat, and the 5 year or longer debt is almost touching 5% now.

So canada is uninverting and normalizing the yield curve right around 4% for short term and 4.5% to 5% for long term.

So canada is done cutting in one more cut likely and then the yield curve will be a sensibly straight line again.

[JorgiHutse]

Let's be very clear about one thing. The "market" has been massively wrong on what the Fed should do with the funds rate for at least 2.5 years now. In early 2022 before the Fed even started hiking, the market was already forecasting rate cuts to happen by end of 2022. The market at the start of 2024 had 7 rate cuts for 2024. Laughable to suggest the Fed is the one that has been getting this wrong. It has proven out that they were right to start hiking in early 2022, aggressively ramp up that funds rate, and then keep it at the terminal rate until now. Also, the Fed on numerous occasions has stated that a recession will likely occur as a result of this hiking cycle. The market consensus has been no or soft landing, which is another thing they will be massively wrong been engaged in active trading and managed to grow a nest egg of around 140k to a decent 539k....I'm especially grateful to Francine Duguay, whose deep expertise and traditional trading acumen have been invaluable in this challenging, ever-evolving financial landscape.

[KingOfFinance]

The Federal Reserve does not control mortgage rates or bank rates but the Fed Rate does affect those other rates. The Fed doesn’t control them but the rate they set affects those rates. - Great Video tho 👍 very well put together.

[lexiecrewther]

Japan holds huge amounts of US bonds. When they liquidate soon, bond prices will fall, thus bond yields will rise

[privatecitizen]

In the 80s mortgage rates were almost 20% and median house price was 2x yearly salary.

[agrivere]

I'm not trying to be contrarian, but some of this isn't really adding up. Maybe I'm missing something, but here's what I'm understanding.

Fed lowers rates, which incentivizes banks to move money out of the Fed, where it is non-productive, and into other investments where it is more productive. This effectively increases the money supply, which puts upward pressure on inflation, and since all lenders really care about is the real rate of return, an increase to inflation results in higher interest rates, especially for long term rates. That seems to be the core premise here.

Several things in this argument don't make sense, or at the least seem to be overly simplistic. Firstly, when banks move money out of the Fed and start writing more loans (chasing better returns), the increased supply of money will put downward pressure on interest rates, counteracting at least to some degree the upward pressure on interest rates due to inflation. Secondly, the fundamental reason increasing the money supply is inflationary is because we have more money chasing the same amount of goods and services. In this case, however, by definition we're moving money from a non-productive asset into a productive asset, which in turn increases the amount of available goods and services. So we don't have more money chasing the same amount of goods and services, we have more money chasing more goods and services, which isn't necessarily inflationary.

I generally agree with the conclusion that inflation is not "beaten", which will lead to higher interest rates as lenders maintain their real rate of return, but it seems to be this has much more to do with deficit spending than with market liquidity. Or maybe I'm missing something which someone can explain to me.

[AstaKristjan]

The Fed's talk of interest rate cut leaves me pondering what stocks to buy now and when do I sell? I'm unsure how to properly allocate my money to achieve an optimal portfolio in this present economy, my goal is $3m for retirement.

[Tatematt]

Given the ongoing global economic challenges, it's crucial for everyone to diversify their income sources, especially those not dependent on government support. Now is an ideal time to explore investments in assets like gold, silver, and digital currencies such as Bitcoin, Ethereum, and XRP. Thanks to Loraine Souvenir for her outstanding proficiency and guidance in these fields.

[jp]

such a misunderstanding of markets... when the FED cuts interest rates, that will also be coupled with QE. FED will buy long duration bonds onto its balance sheet to bring long duration yields down. im sorry but you're way off the mark here. the FED isnt going to cut fed funds rate and just allow the long end to not comply with their wishes.

For people who don't understand... What is the point of fed cutting rates to begin with? It's to prevent the economy from collapsing.

If long duration yields rise after the Fed cuts fed funds rate as this video suggests, what will actually happen? Real estate will collapse. Auto industry will collapse. Regional banks and even larger banks will collapse. Zombie companies will go bankrupt because they cannot refinance their debt.

Again. If the goal of fed cutting rates is to prevent the economy from collapsing, do you really think the fed is going to cut fed funds rate to bring down short duration yields, and just stand by and do nothing while the long end rises as this video says, and collapse the economy?

People need to use their brains for 1 second and understand that the fed will get into the debt markets with their "tools" and being long duration yields down. Whether you wanna call it QE or YCC or stealth QE by having some other institution do it for them, there is no point in the fed cutting rates if they are going to sit back and do nothing and allow long yields to spike as this video suggests.

[rvpcqp]

It really depends why they cut rates and what the other economic data say. If they cut because of disinflation in a healthy economy, long end rates are flat to up. If they cut because if slowing economy, long end drops.

[elvispresley]

Heresy, at the 9min mark give or take, you mention the long term debt cycle. I think it would be interesting to know the gap of income to cost of debt, asset prices etc. In other words, was there an extreme gap that first 40 yr cycle as opposed to where we are at know and headed towards? It seems to me that we are in a pretty wide gap now and if we gap moving ahead it seems that we will crash? Am I thinking clearly here?

[AutonomousDecentralisation]

I think it's time to agree that inflation goes beyond economics and money supply. Inflation is mostly a psychological trend in every society. Everything we see wants to grow being good or a bad thing. Money supply does affect inflation for sure but expectations and structural changes in society move prices.

[dakotadak]

This guy is ridiculously good at this!!