Fed Cut Rates. Good or Bad?

Happy Market Update! 

I know it’s been a couple of weeks…sorry, things have been crazy here, but we are back.

How crazy? How about this…2 weeks ago I watched a cowboy tame a wild horse on stage in under 35 mins with…in church. That is not a typo. There was a wild horse that refused to allow a human to ride it inside my church. The cowboy had never seen the horse before and rather than try to break it, like I’ve always understood was the process, he used scripture, love, and compassion. And yes, he climbed on this horse, bareback, in about a half hour. It was one of the most moving things I have ever seen. Todd Pierce was the cowboy, and the company is Riding High Ministries. If this is interesting to you, here is his website: https://www.ridinghighministries.org/ This is not the church, but it is my kind of day (don’t click on play it won’t work): you can feel this picture.

Anyway, it was amazing. He would tell a story from the New Testament (for my heathens out there, that’s the 2nd “half” of the bible), in a very calming voice, in front of the horse and how the story related to what he was trying to do…help make the horse understand he could be trusted. It told us what the horse was thinking by the way it moved its ears and head…towards him or back towards the audience. There were a lot of people in church that morning. It was quite moving…and I was surprised just how much I was moved. I know most of you think I am dead inside with my newsletters and hey, so do I sometimes. But this was enough to make me want to listen to him preach and give money. And you know what? There are two services…so he did it again an hour later with a completely different horse he had never seen. I mean, literally WTF?! What a wonderful way to live a life, in my opinion. Now before you all start worrying that I’m heading there to work in Idaho, I would not be a good friend and leader if I did not stick with this newsletter…plus, I can’t really ride a horse. So training one would be difficult at best. But…you know, maybe I should go. You should check out his site though.

For now, we have a lot going on over the past couple of weeks. And that, for now, will be our struggle together to get through. The below will not be in any great order. For that reason, I will start with the most obvious event…the Fed.

Last week, the Federal Reserve did lower their Fed Funds Rate. They did not drop rates, as a lot of media likes to express. That is not a good explanation. For proof, the long term interest rates actually went up. You read that right. The Fed lowered their rate, and the 10yr yield (at the bottom of this newsletter as usual) went up. Why? My belief is that we had enough built in already. So what does this help? Great question!

It helps PRIME. From Investopedia below. Prime goes down because the Fed Funds Rate went down. A lot of your revolving debt is based on this…home equity lines of credit and credit cards for two very large examples. So yes, that debt will get “cheaper”.

This is good news for those people who are contributing to the record high credit car debt. You’ve seen this before, I know. But just a reminder that we are still way overspending on credit cards. The good news is that the rate on those cards will go down (assuming you didn’t miss a payment). My concern is that high debt with the record low savings. How does this not break at some point?

Here is the huge increase in the interest rates for credit cards. Ouch.

Well, it might be breaking now. Here is a chart I stole from our good friend NOD, @nod008 on X. This is a chart of the consumer confidence levels. That move down, is pretty significant from the beginning of 2024…but hold on. They just had the largest drop this past month in 3 years. We were still dealing w covid stuff back then. Well, unless my hay fever is the new pandemic, then it’s not a disease causing this one. When consumers don’t feel good…they don’t buy.

The fed did lower rates by 50 basis points. A lot of economists thought they should…but for the life of me, I cannot read why they think so. In fact, CPI, which came out a week back, shows prices rising again…which is why I thought they might only go 25. But the Fed assures us that the economy is strong. I watched JaPow speak after the move and I lost count on how many times he said it was strong. 50 basis implies something else.

And hey, they are not done this year, yet. This chart is the CME showing us the possibility of another cut…and how large by the Nov 7th meeting. There is an almost 60%, as of today, that the Fed moves another 50. That would be 100 in just 45 days. I mean, I’ll take it…but this normally happens where there is concern about jobs or stagflation/deflation. In fact, there is a 32% chance of a total of 100 more (this one and 50 in Dec). That’s moving quickly.

And what about jobs? Are we seeing a tick up or down in unemployment? Whatever we find out late next week for September, just note that we see a decrease in housing with an increase in unemployment, according to Apollo. 

This is important for overall housing. This chart, also from Apollo, shows that inventory is still low based on history. 

And continues to remain low for existing housing (not new builds). Well, the majority of the country has a rate below 4%. Would you want to give that up?

And where would money come from if we have more of this sidewaysness? How about 401ks? Again, we have spoken about this in the past…but now the conversation is getting more attention on the X platform. For example, Uncle Milty here talks about hardship withdrawals are dramatic. I think the “like nothing I’ve ever seen” part about the amount and size of withdrawals screams volumes. 

10yr: We are in a pronounced downtrend since April…and the most recent lower level move since late July. Yes, rates have moved up since mid week (when the Fed lowered their rate), but maybe we are rolling over? We are closing today at the horizontal level that was support before…and is now resistance. We shall see with the rest of the week.

MBS: Uptrend is still intact…even if we are down the past few days. Reminder: up here means lower rates. That blue line, the 25 day moving average, is showing as support in the recent past, so there is no reason to think it will break until it does. So maybe we get a good rate day?

As usual, this is a lot. I know…but it’s important for us to use the gift of discernment to see through the crap. I think the economy has been more resilient than most thought (especially me)…but at what cost? At max credit card debt? Penny pinching for food? And what if people start to lose more jobs? Will there be a severe increase in bankruptcies with the credit card debt? I think this is a real possibility. And I think it sucks, pardon my French, if this is what DC expects to happen…and are just letting happen to some. We need some leaders who can tell us the hard stuff even if we don’t want to hear it because we need to hear it. When I was in school, we had to do so many sit-ups, pullups, and pushups, among other things, to pass a healthy Presidential fitness test. What happened to that? Why would we allow that to be removed? Because DC doesn’t want us healthy…and they don’t want us wealthy. Remember, that’s for them, not us. Well F-that. If I have to stand on this mountain alone, at least I can scream. I am screaming for you and will continue to do so…until the guys with badges come to get me. Meanwhile, put down the video games and go outside. Looks around. It’s scary…and we need to do something about it. Maybe this November?

What does not kill you makes you stronger.

Tim