Lower Interest Rates, $260 Billion Injected Don’t Allow For Crash

We look at what the FED did with lower interest rates, market valuations, the economy and why it is hard to see a crash ahead, but the big one might be big.

Lower Interest Rates, $260 Billion Injected Don’t Allow For Crash

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Q3 2019 hedge fund letters, conferences and more

Transcript

Good day fellow investors. Welcome to the stock market news with a long term fundamental twist. So this week, the Fed lowered rates again. So it lowered the benchmark rate to 1.5 to one point 75. And we can see how the trend is clear. They said they will not lower rates anymore. But then they said also, they would raise them much higher a few years ago when they're starting where they started to raise them. So never trust the Fed. They don't even know what they will do. They said they'll stop now just to keep the system in place to keep confidence but that's something that never happens.

Additionally, they also said they will lower the balance sheet their balance sheet, but since the rapper liquidity issue, they increased their balance sheet by $260 billion. So they also said they were they were going to lower it but this is not lowering. From my perspective. This is a huge increase in a huge injection into the market and into the economy.

Balance sheet

So, they have tested higher rates, they have tested the lower balance sheet. And they have seen this they have seen that the economy has been slowing down, the economy has been weakening and what they can do not manufacturing, not development, not productivity, let's give money let's give free money to people lower interest rates, lower the payments so that they can consume more and the only thing keeping the US economy is personal consumption.

We see fixed investment very low net exports also low and you see only the black line is here strong. Also the average economic growth has slowed down in 2019. And immediately the Fed pushed on printing more and more money and lowering interest. Interest rates, also a very big issue, home prices have started to decline a little bit.

And then, of course, immediately lower interest rates, increase the availability of mortgages, increase the money in the system so that people buy more so that people take more debt. Also, another reason why they can't lower why they can't keep interest rates higher is that the deficit, America's deficit has almost reached 1 trillion in the latest fiscal year, which is something really, really crazy. And you can't finance this.

Lower interest rates help prevent depression?

You can't refinance this with higher interest rate. So it's practically impossible to see higher interest rates without significant inflation which is something we are not yet seeing because higher interest rates and no recession, the Fed doesn't allow for recession does nobody goes bankrupt does there is high competition does there are low prices, which inhibit inflation. So it's all correlated, and we will see how it will end. On the other hand, stocks just keep marching up the money that the Fed is pushing into the system.

The lower interest rates make stocks more attractive. We have the s&p 500 at all times high 21.5% up for this year, which is something insane. And then investment banks like JP Morgan are even bullish. JPMorgan says the s&p 500 could reach 3200 earlier than expected that's 3200 by the end of this year. So it could reach 3200 by the end of December. So what should I do? I should take all the margins all alongside good can and then put it simply in the s&p 500 20% up over the last year 52% up over the last five years. So I would be crazy to invest anywhere else to bother about anything else, I should just invest in the s&p 500.

And the reason for their prediction is not only the Fed, but combined with us, China trade war easing, there will be 20 free cuts in interest rates projected for central banks worldwide in the fourth quarter 23 interest rate cats globally. So everybody's stimulating the economy. And that's simply insane where in what kind of environment we are living in. But no matter that the environment is irrational, the markets can stay irrational much longer than we all can stay liquid.