Most of you are busy watching the FOOLSBALL game stuffing your fat faces with hot dogs. I can’t stop thinking about the looming rate cut and what it might mean for markets. This is mostly due to only being +12% YTD, which is partly due to the fact that during the May Fed meeting I got bagged for 5% in a single session whilst moving my daughter out of college in Boston, an awfully petty excuse for lacking but an excuse nonetheless.
And now with me about to re enter the field of money management, I am taking 5 to 6 calls per day and very much distracted and not “plugged in” like usual. But I can still make deductions and I have been wondering about this fucking rate cut, which is the first of its kind, literally.
We had one minor cut in 2019 and it bagged markets, but it was a one off event. The 2020 cut of 100bps in March was when the world was ending, so that doesn’t count. Prior to that we had the fucking cuts of 2007 to 2009 that sent rates to zero and before that we had some dot bomb era cuts circa 2001 to 2003 and before that was the Asian contagion/LTCM crisis of 1997 and before that was 1987. Do you see what I am saying here?
The only time in recent history the Fed cut rates during a good economy and without crisis was in 1971 and that eventually rolled into hell from 1973 to 1974.
Some are offering warnings about the yield curve “disinverting”, implying that it is a precursor to a special kind of doom. But the only two times, at least in recent history, of the yield curve disinverting was March of 2020 and then 2007. I do not believe this to be an apples to apple comparison.
So what is it? Why the fuck are we cutting rates now, after working so hard after so many years to get rates back to historically normal levels? Moreover, if the Fed comes in with 50bps will markets freak out, wondering if the Fed knows something markets don’t and if only 25bps, will the market whine and bitch about it not being enough?
In other words, this might be a sell the news type of event.
For your reference, I looked back at previous cuts and isolated which sectors did best. However, I must preface this with the same previous bias that this is not an apples to apples comparison. These rate cuts to come are unique and in a class of themselves.
Best performing sectors in 2020 cut:
Bitcoin, Biotech, Retail, Energy, Regional Banks, Gold
2019 cut:
Treasuries, Gold, Utilities
The bull case for an extended series of rate cuts points towards multiple expansion in numerous areas of the market, one of which might be biotech. This is an area of the market I like to consider a “black box” due to the meaningless nature of most of the constituencies, basic beggars in search of capital in order to concoct new mysteries in the medical space. Traditionally, the biotechs without revs or earnings do fantastic in cheap credit environs, since money is bountiful and easy to attain. It’s worth highlighting this area. of the market because it has been overlooked, with marked exception of and for the absolute fatties taking colon blocking drugs, FORCED CONSTIPATION because they don’t have it in them to exert a modicum of discipline in their fat and disgusting lives.
Bottom line: due to all of the uncertainty and my busy schedule, I might move to cash ahead of Le Fed, or perhaps just a very large cash position.
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