What Do Rate Cuts Mean For Your Portfolio

Good Morning Investor.

Today I'm unleashing a new format of unfiltered commentary which I trust will resonate with those seeking truth in a world increasingly detached from reality. These will be my raw, unvarnished thoughts on the twisted perversions infecting our financial markets, economic systems, and geopolitical landscape. I'll be delivering these missives at a weekly cadence to begin with to measure the demand. If you're tired of the soft, sanitized drivel masquerading as analysis, hit that upgrade button to access the full post and all future posts.

Today’s Topics

Now then, today we’ve got a lot to discuss. This week saw the release of inflation figures - those carefully manipulated numbers designed to placate the masses - along with both the UK and US central banks’ interest rate decisions. We'll be tearing away the veil to expose the historical impact of rate cuts on financial markets, revealing the strings being pulled behind the scenes. We'll also be dissecting the cryptocurrency markets, comparing them to previous cycles and exposing the hidden agendas at play. Additionally, we'll be updating you on a recent development with one of our stock picks that offers a glimmer of hope in this landscape of mediocrity and manipulation. Brace yourselves, for we're about to dive deep into the abyss.

The Illusion of Easy Money

Interest rate cuts are lauded as economic salvation, a panacea for all our financial woes. We're told they make borrowing cheaper, increase spending, and magically boost the velocity of money. On the surface, it's a siren song of cheaper loans, lower mortgage rates, and a flood of capital. For equity markets, it's painted as a golden age of bolstered earnings, a robust IPO market, and a startup community awash in venture capital.

But the true nature of interest rate cuts lies in how they warp our perception of risk. Up until now, investors could park their wealth in government-backed treasury bills, offering a so-called "risk-free rate" of 5% (3.74% for a 10-year treasury at the time of writing). As this artificial construct of safety begins to crumble following rate cuts, it forces investors and funds to seek out increasingly risky investments, all in pursuit of that elusive higher return. This is the trap set for equities, a game rigged from the start.

Fed’s Dual Mandate

The Federal Reserve hides behind its "dual mandate" - a smokescreen of maintaining price stability and pursuing maximum employment. Now that inflation has been massaged down to within spitting distance of their arbitrary 2% target, they've turned their attention to the labor market, which appears to be softening like overripe fruit.

Unemployment has risen from 3.8% in March to 4.2% today, but even this number is a carefully crafted illusion. Unemployment is a lagging indicator, a rearview mirror showing us what's already happened. The true carnage won't be visible for months, long after the Fed's rate cuts have set their machinations in motion. It's this delayed destruction that likely spurred their decision to slash rates by 50 basis points instead of a mere 25, a desperate attempt to outrun the consequences of their own actions.

The "R" Word: Recession or Ruse?

When attempting to divine the future of the stock market, the so-called experts trot out their historical data like sacred relics:

• The Fed has cut rates with stocks near all-time highs 20 times. The S&P 500 was higher a year later 20 times. The Fed cut rates this week with the S&P 500 at an all-time high.

But don't be fooled by these cherry-picked statistics and carefully curated charts. They're nothing more than smoke and mirrors designed to lull you into a false sense of security. No, the real harbinger of doom for the stock market is the specter of recession looming on the horizon. However, a recession isn’t always a certainty after rates have been cut, with rates cuts that aren’t followed by a recession known as “normalization cuts”. These took place in '84, '89, '95, and '19. All in all, stocks performed quite well in the following 12 months.

It becomes painfully obvious that the recession dance - whether it materializes or not in the 12 months following an initial rate cut - is the key indicator we're meant to watch out for. Fortunately, there are several economic indicators that we can use to build our level of panic or complacency. These metrics will shape the destiny of financial markets and the crypto circus in the years to come. So it's imperative we develop a clear understanding and conviction behind our investments using the data currently at our disposal.

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