IKN

Every why hath a wherefore

That surprise rate cut

This from the introduction section of IKN562, entitled “Fear is a Forward-Looking Statement” and published Sunday evening, as we dissected the negative week and predicted the response of this week
“The
cash from equities went to money market or to bonds, the US Dollar rose
sharply, then as the selling accelerated, the dollar dropped as the wider
business world realized what would happen next because the central planning
reaction to a sudden drop in economic activity is not difficult to call. Jerome
Powell was the first to bring the subject up on Friday afternoon and once he’d
finished his variation on “We’ll do what it takes” the Dow rallied 630 points
in the last 15 minutes of play.

As
for “what it takes”, look no further than the euphemistic “printing press”
(these days no extra ink is spilled, the result is the same). Markets now price
in a 100% chance of a rate cut by April FOMC, plus a 75% chance of an emergency
rate before the April FOMC meeting (that I think should be also be priced at
100% because it will happen soon). The Fed is going to drop rates, get cheap
credit moving and drown our sorrows in adult-level liquidity and it’s going to
happen very soon, which is why the whole market rallied the way it did on
Friday afternoon.”
Then later on in the same intro section, this:
“What
we have before us in 2020 is a type of “2008 Light”; the market is not in
systemic risk nor is Covid-19 an existential threat to humanity, but the sudden
collapse of economic activity due to fear spreading around the globe requires
action from the financial powers and we are sure to get that. The Fed will drop
rates and stimulate the economy because that is what it does. And gold will now
go higher because that is what it does when the US Dollar is deliberately
weakened.”
Surprise rate cut, eh…

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