In a second emergency meeting in as little as two weeks, the Federal Reserve has met, and decided to cut interest rates by 100bps. This now takes the Federal Funds Rate down to a range of 0.0 – 0.25%. The last time rates were this low was during the depths of the Great Financial Crisis in 2008. Recall, it was just a couple of weeks ago that the Fed cut rates by 50bps during that emergency meeting. So in very short order, the Fed has cut rates by 150bps! The next leg down, by definition would take us into negative territory on a nominal basis. On a real basis, the US has been in negative territory for quite awhile.
On the back of this information, we believed their were only two outcomes for how markets would respond. First, this decision could be seen as a panic move because the FOMC was scheduled to meet this week and announce their decision on Wednesday. However, they instead held this meeting this weekend and announced their decision this afternoon. So, the question becomes, why couldn’t the Fed wait another 48-72 hours to announce their decision – panic perhaps? Or option two would be, the crack addicts got their fix from their dealer a few days earlier, thus setting the stage for stocks to rally. Well, it appears the former. At least for now as the US futures market has hit limit down once again – the 5th time in the last six sessions, which means the circuit breakers have kicked in because stock futures have fallen by 5% and thus trading has been halted. Despite the massive rally on Friday – should the futures market hold, then half of Friday’s gains will be eliminated if not more. But not much surprises us anymore.
On the COVID19 front as well as economic front, country after country is making the decision to close their borders and/or make stricter guidelines surrounding travel in and out of their respective countries. This is in effect a global quarantine. The economic shock from both the supply side and demand side cannot be remedied by monetary or fiscal stimulus. These efforts to be undertaken by monetary and governmental authorities will serve only as mere attempts at looking like they are in charge – as if there is some kind of leadership. After a decade of deranged and fraudulent monetary policies, coupled with asinine fiscal measures, out of control corporate debt, and over levered consumers, the debt and credit chickens are coming home to roost. What COVID19 did was that is served as the pin that pricked the out of control global debt bubble. On top of this, don’t forget about the oil price war and all of the other economic data that has been pointing to a global slowdown prior to both COVID19 and the oil price wars.
We are only witnessing the tip of the iceberg, which is why central authorities are panicking. We have yet to see any cascading effect with respect to bankruptcies, let alone any bankruptcy of a major corporation. This outcome is unfortunately likely because of the size and duration of this supply and demand shock, coupled with the massive amounts of debt. This is a double, triple, maybe even a quadruple whammy across various sectors the world over. This massive unraveling will not end well nor will it end quickly. People must understand the root cause of this if we are ever to put into place a solid foundation on which to build a lasting economy and society. Otherwise, we’ll continue with the same old antics, on the same old foundation of sand. We can and must do better. Stay diversified, stay vigilant, and stay with The Kapital News. #Economy #Recession #COVID19 #EndTheFed #Truth #Justice #Peace #Politics #USA #Coronavirus