$FEDFUNDS decreases in August, Repeat October 1987?

The 2 year yield is dropping fast and the FED is forced to follow. We have a 100% probability of a September rate cut.

$TLT $IEF $SPY $GLD $SLV $GDX $QQQ $IAU

Bình luận:

Remember that since we actually lowered rates, it marks the beginning of the end to recession according to history.

There are 5 steps to create a recession induced by FED actions:

1. Raise rates for at least 1 year continuously.
2. Hold rates steady (the squeeze) once the markets react so negatively that raising further would crush the markets. This is observed by a flat top in the Fed Funds rate.
3. Hold rates steady for at least 8 months.
4. The 2 year yield crosses back underneath the Fed Funds rate.
5. The FED has no choice but to capitulate to the disparity between its rate and the 2 year yield and lowers rates. This marks the beginning of the spiral into recession.

Bình luận:

Seasonality shows a sharp selloff following the 3rd quarter FED statement in September each year. This is a pretty reliable pattern with low standard deviation.

imgur.com/a/zZOJAos

Bình luận:

Combine all this knowledge with the fact that the 10-2 yield curve has already dipped into negative territory and plunged again, there isn't a lot to be positive about.

Bình luận:

Well October has come and gone. The NYSE accumulation/distribution line keeps moving to new all time highs.

94% chance of a rate cut today for the FOMC announcement. They have to follow the 2 year yield. Here we are at market all time highs with 70-90 billion in daily pre-market repo swaps.

Bình luận:

This situation can continue under only one condition, that the 2 Year yield goes negative. The 10-2 yield curve in the above idea has bounced off the negative zone, but is no where near the disparity requirement at the of 2003 or 2009 where the stock market ultimately bottomed.