txaggie_08 said:

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One week later:

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aunuwyn08 said:

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Correction starts when fed cuts rates, buy the rumor sell the news.

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permabull said:

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I used today's late rally to exit my positions.. can the great market timers please let me know when the bottom is in so I can get back in?

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Heineken-Ashi said:

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Sims said:

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aunuwyn08 said:

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Correction starts when fed cuts rates, buy the rumor sell the news.

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I'd say the opposite is true.

In the 2020 stock market correction/fall/crash, S&P declined about 35%. The Fed stepped in to the tune of about $100B per month in spending in the market - Treasuries, Corporate Bonds, Agency Bonds, direct corporate lending, rate easing...the list goes on (below, actually).



5 months later, the S&P was back to an all time high. That's a turnaround that has usually been protracted over the course of years in prior corrections. Or in Japan's case, decades.

The point is people tend to see the US Equity markets as invincible. For the Fed to cut here in the face inflation that has appeared to bottom and trend back up, they'd look awfully preferential toward the market and not toward sound money ("haha", I know).

It's one of the reasons gold hasn't gone higher..where it probably should go. People know there's a willing buyer (the fed) to jump into a market correction to stop it. I think the correction would show up if the Fed raised rates which is a scenario that is gaining steam. A lot rests on UE. If the Fed has to cut rates because UE spikes, maybe that is positive for equities...but maybe not. If the Fed raises rates, I don't see equities responding well.

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You have recency bias.



Red&white - 10yr yields
Orange - Fedfunds rate
blue - SPX

The 10 year started falling in 2018. Like it always does, the Fed FOLLOWS bond yields 3-12 months later. This time was 9 months later. In February 2020 the SPX started selling off. The FED funds rate was at 1.5%, down nearly 75BP from July of 2018 and was cut to nearly 0 in Jan/Feb 2020. The market lost 32% bottoming in March. Yes, it rebounded quickly and fierce manner. Why? Because of free money injected into the system and the value of the dollar decreasing. But then 2022 happened. The FED started raising rates and the S&P fell. Except the S&P was already down 500 by the time it did so. Why? Because the 10yr was starting a steady climb well before the FED stopped lying about transitory inflation and effects of inflation from the free money were starting to kick in.



In Jan 2021 the 10 year was at 1.5%, Fed funds was still near 0% and SPX was at nearly 4800. Today, the 10 year is at 4.5%, Fed funds is at 5.5%, and SPX is at 5300. Explain that one. I thought higher rates killed the market? Not helped it?

Go back to 2007, Fed fund was flat for 2 years at 5.25% while the 10yr dipped from 5.3%, down to 4.25%, recovered back to 5.3% and then sold off through Dec 2008 to 2%. Fed funds, after being flat, dropped from 5.25% in June 2007 bottoming at 0.25% in Dec 2008. SPX started selling off October 2007 bottoming in February 2009. Everytime it dipped lower, the FED cut rates and the market sold off more. It wasn't until rates were at 0% with NO LOWER LEFT TO GO that the market bottomed and started to recover, not getting back to even until March of 2013 with the fed funds rate UNCHANGED from 0.25% UNTIL 2015.

2020 was a fierce and quick reocvery because of the SCALE that the FED purchased assets. And we know how inflationary it was.. two years before all hell broke loose with inflation.

What you are failing to understand is that the FED currently has a MASSIVE balance sheet because the ONLY WAY they could prevent an absolute market crash (yes, harder and lower than what 2008 got to) was that in 2008, for the first time in history, the FED completely intervened in the bond market and became the majority buyer of all assets. But thats not all they did. The money supply grew even more than that would have done because they forced the banks to loan them their deposits (YOUR DEPOSITS IN YOUR BANK), which they turned around and loaned back 10X using the 10% reserve requirement. The banks then kept 10% reserve and loaned 100x the money that was taken from them. This doubled the money supply over a 10 year period. This rising money supply from deflating the currency, not directly, but by literally stealing it from depositers and loaning it back 100fold, is what led to the market going back up. While this was stimulus for the economy, and yes, THEY DOUBLED THEIR ASSETS again in 2020 in another attempt to stave off economic calamity, we are now having to pay for the interest on those assets by ISSUING CONTINUALLY MORE ASSETS from the treasury at TODAYS RATES.

Why did the FED not buy assets during the 2023 banking crisis? BECAUSE IT COULDN'T. It can't afford to add any more to the balance sheet. No, this time, they had to get extremely creative for the third time in 13 years, opening up the BTFP which borrowed assets from banks and PAID BANKS HIGHER INTEREST THAN THEY WERE PAYING THE FED FOR THE SAME ASSETS. Quite literally, they bailed the banks out with free money. It was their only option.

What do you think happens if the FED starts buying assets again, at a time where we are already above WW2 levels of debt to GDP? You think they can just drop rates to 2.5% and pay all the interest with no repercushions? We are adding $1T to the debt every 100 days. We are issuing exponentially more treasuries each year that passes SIMPLY TO BE ABLE TO AFFORD THE INTEREST ON THE ASSETS WE ALREADY CANT AFFORD TO EVER PAY BACK. Thats not even mentioning the social security, medicare, defense, and other mandatory budget items THAT ARE GROWING IN SIZE AS WELL.

Our interest payments on the debt are currently $1T per year and growing. Lowering rates doesn't change that, as the rate we are paying for the treasuries already on the books is set it stone. And even if we drop rates, we would be doubling or tripling the assets on the balance sheet, AGAIN. So add the new interest owed, even at cheaper rates, on top of the existing interest owed. And we saw what happened after 2008, when Bernanke told us that holding these assets was a short term fix and that we would divest them. We never did. We added to them. AND WE CAN NEVER PAY THEM BACK.

So adding more treasuries only makes the interest payment go up.. an interest payment that is already greater than the national defense budget which we also have to finance to be able to afford. The FED doesn't have the ability to add treasuries. The economic calamity that would ensue in the future from the unfunded liabilities would be 10fold what it is now, which is already catastrophic. And if the FED doesn't lower rates and buy assets, that leaves the private market, foreign governments, and world central banks (alltogether the secondary market) as the sole purchaser of the assets we will continue to have to issue FOREVER into the future. You think the secondary market is going to continue buying an exponentially rising amount of treasuries without demanding a higher return? And if the FED tried to dump its assets into the market, what do you think would happen? You think the market would scoop them up, along with the new treasuries being issued, at todays rates? Or lower rates? I have beachfront property in Montana to sell you.

And back to the original point.. the FED follows the market. Whether market rates start to come down or not this year or next means nothing long term, because there is nowhere to go but up. If the FED lowers and buys treasuries, it will be the last mistake they ever make before defaulting completely. Because the rise in rates that would follow the next wave of inflation would make the 1970's inflation jealous.

And I'm not sure if you've been living under a rock. But gold is absolutely going somewhere, as is silver, copper, and Bitcoin. Central banks around the world are buying them like crazy because THEY KNOW THE US IS TRAPPED AND THEY ARE DOING EVERYTHING IN THEIR POWER TO MOVE AS MUCH OF THEIR BALANCE SHEET AS POSSIBLE TO RELIABLE STORES OF VALUE.

When we have a correction, it hits everyone who holds our debt and everyone who transacts in our dollars 10x harder than it hits us. We essentially outsource our pain. So when the world starts moving their balance sheets to gold, silver, and Bitcoin, they are telling us that they are trying to limit the severity of the hit that THEY KNOW IS COMING.

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Tex117 said:

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Heineken-Ashi said:

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Sims said:

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aunuwyn08 said:

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Correction starts when fed cuts rates, buy the rumor sell the news.

---

I'd say the opposite is true.

In the 2020 stock market correction/fall/crash, S&P declined about 35%. The Fed stepped in to the tune of about $100B per month in spending in the market - Treasuries, Corporate Bonds, Agency Bonds, direct corporate lending, rate easing...the list goes on (below, actually).



5 months later, the S&P was back to an all time high. That's a turnaround that has usually been protracted over the course of years in prior corrections. Or in Japan's case, decades.

The point is people tend to see the US Equity markets as invincible. For the Fed to cut here in the face inflation that has appeared to bottom and trend back up, they'd look awfully preferential toward the market and not toward sound money ("haha", I know).

It's one of the reasons gold hasn't gone higher..where it probably should go. People know there's a willing buyer (the fed) to jump into a market correction to stop it. I think the correction would show up if the Fed raised rates which is a scenario that is gaining steam. A lot rests on UE. If the Fed has to cut rates because UE spikes, maybe that is positive for equities...but maybe not. If the Fed raises rates, I don't see equities responding well.

---

You have recency bias.



Red&white - 10yr yields
Orange - Fedfunds rate
blue - SPX

The 10 year started falling in 2018. Like it always does, the Fed FOLLOWS bond yields 3-12 months later. This time was 9 months later. In February 2020 the SPX started selling off. The FED funds rate was at 1.5%, down nearly 75BP from July of 2018 and was cut to nearly 0 in Jan/Feb 2020. The market lost 32% bottoming in March. Yes, it rebounded quickly and fierce manner. Why? Because of free money injected into the system and the value of the dollar decreasing. But then 2022 happened. The FED started raising rates and the S&P fell. Except the S&P was already down 500 by the time it did so. Why? Because the 10yr was starting a steady climb well before the FED stopped lying about transitory inflation and effects of inflation from the free money were starting to kick in.



In Jan 2021 the 10 year was at 1.5%, Fed funds was still near 0% and SPX was at nearly 4800. Today, the 10 year is at 4.5%, Fed funds is at 5.5%, and SPX is at 5300. Explain that one. I thought higher rates killed the market? Not helped it?

Go back to 2007, Fed fund was flat for 2 years at 5.25% while the 10yr dipped from 5.3%, down to 4.25%, recovered back to 5.3% and then sold off through Dec 2008 to 2%. Fed funds, after being flat, dropped from 5.25% in June 2007 bottoming at 0.25% in Dec 2008. SPX started selling off October 2007 bottoming in February 2009. Everytime it dipped lower, the FED cut rates and the market sold off more. It wasn't until rates were at 0% with NO LOWER LEFT TO GO that the market bottomed and started to recover, not getting back to even until March of 2013 with the fed funds rate UNCHANGED from 0.25% UNTIL 2015.

2020 was a fierce and quick reocvery because of the SCALE that the FED purchased assets. And we know how inflationary it was.. two years before all hell broke loose with inflation.

What you are failing to understand is that the FED currently has a MASSIVE balance sheet because the ONLY WAY they could prevent an absolute market crash (yes, harder and lower than what 2008 got to) was that in 2008, for the first time in history, the FED completely intervened in the bond market and became the majority buyer of all assets. But thats not all they did. The money supply grew even more than that would have done because they forced the banks to loan them their deposits (YOUR DEPOSITS IN YOUR BANK), which they turned around and loaned back 10X using the 10% reserve requirement. The banks then kept 10% reserve and loaned 100x the money that was taken from them. This doubled the money supply over a 10 year period. This rising money supply from deflating the currency, not directly, but by literally stealing it from depositers and loaning it back 100fold, is what led to the market going back up. While this was stimulus for the economy, and yes, THEY DOUBLED THEIR ASSETS again in 2020 in another attempt to stave off economic calamity, we are now having to pay for the interest on those assets by ISSUING CONTINUALLY MORE ASSETS from the treasury at TODAYS RATES.

Why did the FED not buy assets during the 2023 banking crisis? BECAUSE IT COULDN'T. It can't afford to add any more to the balance sheet. No, this time, they had to get extremely creative for the third time in 13 years, opening up the BTFP which borrowed assets from banks and PAID BANKS HIGHER INTEREST THAN THEY WERE PAYING THE FED FOR THE SAME ASSETS. Quite literally, they bailed the banks out with free money. It was their only option.

What do you think happens if the FED starts buying assets again, at a time where we are already above WW2 levels of debt to GDP? You think they can just drop rates to 2.5% and pay all the interest with no repercushions? We are adding $1T to the debt every 100 days. We are issuing exponentially more treasuries each year that passes SIMPLY TO BE ABLE TO AFFORD THE INTEREST ON THE ASSETS WE ALREADY CANT AFFORD TO EVER PAY BACK. Thats not even mentioning the social security, medicare, defense, and other mandatory budget items THAT ARE GROWING IN SIZE AS WELL.

Our interest payments on the debt are currently $1T per year and growing. Lowering rates doesn't change that, as the rate we are paying for the treasuries already on the books is set it stone. And even if we drop rates, we would be doubling or tripling the assets on the balance sheet, AGAIN. So add the new interest owed, even at cheaper rates, on top of the existing interest owed. And we saw what happened after 2008, when Bernanke told us that holding these assets was a short term fix and that we would divest them. We never did. We added to them. AND WE CAN NEVER PAY THEM BACK.

So adding more treasuries only makes the interest payment go up.. an interest payment that is already greater than the national defense budget which we also have to finance to be able to afford. The FED doesn't have the ability to add treasuries. The economic calamity that would ensue in the future from the unfunded liabilities would be 10fold what it is now, which is already catastrophic. And if the FED doesn't lower rates and buy assets, that leaves the private market, foreign governments, and world central banks (alltogether the secondary market) as the sole purchaser of the assets we will continue to have to issue FOREVER into the future. You think the secondary market is going to continue buying an exponentially rising amount of treasuries without demanding a higher return? And if the FED tried to dump its assets into the market, what do you think would happen? You think the market would scoop them up, along with the new treasuries being issued, at todays rates? Or lower rates? I have beachfront property in Montana to sell you.

And back to the original point.. the FED follows the market. Whether market rates start to come down or not this year or next means nothing long term, because there is nowhere to go but up. If the FED lowers and buys treasuries, it will be the last mistake they ever make before defaulting completely. Because the rise in rates that would follow the next wave of inflation would make the 1970's inflation jealous.

And I'm not sure if you've been living under a rock. But gold is absolutely going somewhere, as is silver, copper, and Bitcoin. Central banks around the world are buying them like crazy because THEY KNOW THE US IS TRAPPED AND THEY ARE DOING EVERYTHING IN THEIR POWER TO MOVE AS MUCH OF THEIR BALANCE SHEET AS POSSIBLE TO RELIABLE STORES OF VALUE.

When we have a correction, it hits everyone who holds our debt and everyone who transacts in our dollars 10x harder than it hits us. We essentially outsource our pain. So when the world starts moving their balance sheets to gold, silver, and Bitcoin, they are telling us that they are trying to limit the severity of the hit that THEY KNOW IS COMING.

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Absolutely outstanding post.

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