Another Rate Cut Coming?
Mar. 05, 2020 7:34 AM ETSPY, QQQ, TLT, VOO, DIA, IWM, TBT, TQQQ, IVV, SH, IEF, SHY, SDS, TZA, TNA, SQQQ, SSO, SPXL, USA, CRF, UPRO, SPXU, IEI, RSP, SPXS, EDV, VFINX, TMV, UDOW, PSQ, QLD, TMF, SCHX, QID, VGLT, GSY, SDOW, TBF, SHV, DOG, DDM, DXD, SPTL, BIL, ZTR, VV, VGSH, UWM, VGIT, RWM, TWM, URTY, ZROZ, TTT, EPS, VTWO, SCHO, GOVT, SRTY, TLH, PST, SCHR, QQQE, GOVI, QQEW, DTYS, SPTS, UBT, UST, SPSM, TYO, VUSTX, TYD, YPS, GBIL, FEX, SPTI, SPUU, SFY, DLBS, ILCB, TBX, EEH, SPLX, SPDN, EQL, SPXT, IWL, TAPR, RISE-OLD, DLBL-OLD, DTUS, QQXT, EGF, GSEW, PPLC, SPXE, DFVS, DMRL, TYBS, BIBL, DTUL, DTYL, HUSV, TBLL, EDOW, SFLA-OLD, CHGX, DFVL, FIBR, USMC, DUSA, SPXV, UDPIX, AWTM, FWDD, JHML, BBSA, HYDD, OTPIX, RWL, SPXN, USTB, EQWL, ESGL, OPER, SYE, RYARX, SCHQ, BAPR, SSPY, TUZ, BAUG, BJUL, BJUN, OMFS, PJUN, PMOM, SCAP, TYNS, BOCT, PAPR, PJAN, RWSL, RYRSX, SMLL, TRND, UOCT, BTYS, PAUG, QMJ, UAUG, UJAN12 Comments
Todd Sullivan
7.49K Followers
Summary
- The Fed follows the market, it does not lead it.
- The Fed cut the Fed Funds rate to a mid-point 1.12% on Tuesday, but T-Bills declined to 0.81% as of Wednesday morning. This leaves a window of ~0.3% below Tuesday's Fed Funds reset.
- We can expect another 0.25% adjustment lower shortly if the Fed follows past patterns.
Remember, folks... the Fed follows the market, it does not lead it.
The Fed cut the Fed Funds rate to a mid-point 1.12% on Tuesday, but T-Bills declined to 0.81% as of Wednesday morning. This leaves a window of ~0.3% below Tuesday's Fed Funds reset. The Fed follows market rates. We can expect another 0.25% adjustment lower shortly if the Fed follows past patterns. The T-Bill/10yr Treasury rate spread turned positive on yesterday's yield curve and is likely to expand going forward should market psychology improve. A positive signal to many algorithms for banks and industrials.
Lower rates in the US make the US 10yr Treasury less attractive as a global safety net. The US$ has already traded ~2% lower. Stopping the influx of foreign capital is beneficial for US industrials and historically correlated to higher commodity prices, including $WTI (West Texas Crude Oil Price).
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
This article was written by
7.49K Followers
Todd Sullivan is a Massachusetts-based value investor and Co-Founder and General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer supports his original thesis. His blog features his various ideas and general commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain's NY and others. He has also appeared on Fox Business News and is a RealMoney.com contributor. He has twice presented at Bill Ackman's Harbor investment Conference and is a regular presenter at the Manual of Ideas "Best Ideas" conferences. Visit his sites: ValuePlays (http://valueplays.net/) , Rand Strategic Partners (http://randstrategicpartners.com)
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Comments (12)
NV_GARY
06 Mar. 2020
Now- 10yr .692, down .233 ! 1/2 pt coming?
R
Robin Heiderscheit
05 Mar. 2020
As risk assets rise the odds of a cut in March fall but I think the futures are still at 80%
PapaDot
05 Mar. 2020
Good God no more rate cuts. That will be pouring gasoline on the fire. This is NOT a problem driven by (or fixable by) fiscal policy. The lean supply chain model is being tested on scale never before seen and caution should be exercised until a real handle can be gotten on the spread and scope of COVID-19.
PapaDot
05 Mar. 2020
Fair point. I still do not agree with increasing liquidity across the board. Targeted stimulus for industries most seriously impacted (airlines, hospitality, etc) are a better option.
T
TheHornet
05 Mar. 2020
Personally, I agree. This is an asymmetric real supply shock (which will soon be followed by a demand shock) and requires a response with a high degree of control over the policy transmission mechanism. Otherwise all your liquidity will end up propping up home refinancing portfolios.But, targeted stimulus as the one you advocate requires the executive branch actually willing to take ownership. It is politically much more convenient to huff and puff in the direction of the FED disparaging it as a somewhat foreign and adverse institution whenever the results of its policies don't please.
Lake OZ boater
05 Mar. 2020
"Look out dollar bulls"--Steph Pomboytwitter.com/...
d
Lake OZ boater
05 Mar. 2020
The virus is 'perfect cover' to lower interest rates and weaken the US dollar. As politicians always say, "never waste a good crisis." A weaker dollar is the only way out of the U.S. pattern of the declining economic growth conundrum and the threats from a high debt level.Core GDP = Real consumption + Private Investment1947-2007: 3.70% core growth.Last 10-years: 2.97% core growthLast 5-years: 2.65% core growthSource: EPB Research-US Federal debt-to-GDP is now around 107%-By the end of this decade it's projected to be close to 130%.tradingeconomics.com/...
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Orion Pax Roosevelt
05 Mar. 2020
Nothing says "we are in trouble" more than the Fed slashing rates in a panic. Buyer beware.
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