Emergency Rate Cut Expected
I detailed how the market is pricing in a cut tomorrow morning herehttps://t.co/EKFSfHFBWf
— Jim Bianco (@biancoresearch) March 2, 2020
Please consider the Market is Expecting The Fed to Cut 50 Basis Points Tomorrow Morning
Since January 2001, all inter-meeting Fed moves come between 60 to 30 minutes before the NYSE open. So the market is expecting it tomorrow morning.
Why is the market expecting a 50 bps cut tomorrow? It will be starting a rate-cutting campaign that will take the funds rate under 50 bps by the end of the year (see December 2020 futures above).
Our guess is this market is expecting thousands of positive infection cases in the US over the next month, leading to huge disruptions. Think tens of millions idled from work, school kids home for weeks, if not the rest of the school year.
So, it is penciling in a plunge in Q2 GDP to well into negative territory. It is also possible that March inflections and disruption push Q1 GDP negatively as well.
This market action says it believes a recession is about to begin.
Australia Too
I should also add that the RBA (CB of Australia) is also expected to cut tomorrow.
So …
Fed announcement Friday
BoJ announcement and action tonight.
RBA expected to cut
Fed expect to cutWaiting for Madam Lagarde’s alarm to go off in Frankfort so she can also join the party.
— Jim Bianco (@biancoresearch) March 2, 2020
Every other time they cut it was to reverse a policy, or “man made”
They cannot do anything about this. Just recognize what is coming (mkts think they know, see yld plunge and stocks last week).
Bigger risk in acting too slow, then too fast (can take it back if needed). https://t.co/dHtgf85J9d
— Jim Bianco (@biancoresearch) March 2, 2020
2001 Flashback
Jan 3, 2001. We entered the new year with a 50bps inter-meeting cut. Then they followed it up with a 50bps cut on Jan 31, 2001. A 100 bps in a month.
Give Greenspan credit, the recession started in Mar 01. He saw it coming. But even a 100bps in a month could not stop it. https://t.co/IW2LBZW2Rz
— Jim Bianco (@biancoresearch) March 2, 2020
Fed minutes show that Greenspan saw it way too late. His fear in 2000 was of overheating.
Important Note
Remember, I’m arguing what they WILL do, not what they SHOULD do , or if it will work.
Will address those issues later, if I’m right and they move as I believe the markets are expecting. https://t.co/EdpQmrBKcl
— Jim Bianco (@biancoresearch) March 2, 2020
Bianco’s call is on what the market expects, not what he expects or would do.
I agree with Bianco’s recession observation and the coronavirus disruptions.
We find out Monday morning about emergency cuts but two weeks won’t make much of a difference.
A recession is baked in the cake.
Mike “Mish” Shedlock
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Biggest EVER! The hamburders and viagra will flow at the White House tonight, BAYBEE!
Well, equities closed 5.1% (over 1,295 points on the Dow) higher today so clearly they do not need a rate cut to find cash just laying around on the side looking for a home. Most of the recent downturn is just a temper tantrum at not getting a larger mountain of cash thrown at them by the Fed and so this has been little more than blackmailing the Fed for lower rates. So much for the theory that when the Dow drops three thousand or so points XYZ trillions are wiped out of existence. If that was the case then where did the $1.5 trillion cash for today’s rally come from?
I thought I posted a shorter version of this last night, but it doesn’t seem to be here, so I’ll post it again, and make it a little longer this time. Back in the twenties and thirties, they tried lowering interest rates, but it did no good because primary demand wasn’t there. That begat the saying “you can’t push on a string”. This situation is similar.
Coronavirus is impacting the economy in several key ways. First, right now there is a surge in demand as people stock up. Soon they will stop going out. Restaurants, entertainment, travel, etc will all get hurt, but so will other merchandise, like clothes, appliances, home improvement, etc. If people aren’t in stores, they won’t make any impulse purchases, and will only buy what they absolutely need (which is way less than they usually buy). Second, if businesses have no raw materials, or they have no demand (see, e.g. restaurants above) they will lay off employees, who will further reduce spending. The whole thing can easily cascade into a series of contractions.
Of course, if Cornonavirus takes the summer off, and we have a vaccine by fall, the above cascade wont happen, and we’ll all get back to business. The companies that sold extra as people stocked up will sell less for awhile, but mostly things will revert to normal. In that case, there will be a minor hit, perhaps a small recession, but nothing major, and we’ll grow right out of it.
But, what if cornavirus doesn’t take the summer off, or, what if there is no vaccine in the fall? Can interest rate reductions stimulate the economy? This is where we come to the “push on a string” problem. Primary demand for many things would dry up. Do you really need furniture if you have no job? Do you need a new car if you are not going out? Even if you cut interest rates on car loans and furniture loans to 0%, if you boost demand 50%, 150% of 0 is still zero (and 150% of a very small number is still small). You can’t push on a string. If there is no demand there to push, you can’t create it with lower interest rates.
Yeah well use a different formula to measure inflation, like I do, and the U.S. economy has been contracting for years and as such the economy has been in a true recession for a years. Low interest rates and cheap money have only served to make the recession less severe than it really is. Piling on debt to keep the economy from collapsing only works for so long. At some point you have to pay the piper.
I have said the same thing for years now, even if you allow that they are right about prices of some things in the general economy being either stable or slowly rising at 1-3% they are certainly NOT counting the cost of my housing or fuel or food. And those things have risen at least double digits and in the csae of housing triple digits. So the cost of a new yatch or opera tickets or a tin of caviar is meaningless to me. The things I do have to spend on are so much higher that my actual purchasing power is down no less than 40% from 2009/10 even with the laughable CPI COLA increases. I am thinking I will have to go back to work doing something for a little extra cash this year or I will be in poverty aftre the mortgage payment is made each month. Of course, I can only make about $1,000 per month, at that point added to my $13,000 SS I would hit 25K and then all of that would be taxable where the SS now is exempt. Meaning if I hit 25K I will then HAVE to make another 3 or 4 thousand just to pay the taxes.
The problem with a faux CPI that does not measure or address real inflation or the cost of living is that sure it allows for a policy by the Fed and Federal Government to make the rich vastly wealthier, but they are killing the rest of us as they do it. If they were ignorant of this then that would be one thing, we could disabuse them of the ideas that we are rolling in dough. But in fact they know and seem willing to push the policy to the limit whereby the masses rise up.
Maybe it is time to have a Sanders presidency, the only problem with that is he would destroy the economy that gives us what little we do have, everyone would have to rely upon government just to survive, and that comes with a lot of strings that are so fundamentally coersive we might as well be slaves.
Not surprising… trump has filled his cabinet with Goldman Sachs people. The trumplings have been conned so badly, most of them will never have the stones to admit it… they’ll just continue raging over the cliff with the rest of the angry lemmings.
Things could be worse, one could live in Russia.
Do I need a calendar? Or a watch? To time duration of bounce?
Does anyone else remember that one of the things President Trump was known for in the real estate business was getting his lenders so deep into a project that, if the project did not pay out as expected, then the lenders had to negotiate a deal with Trump to keep the assets from going into liquidation? I just realized that he might be trying the same maneuver with the Fed. I can imagine him thinking years ago, “If only I was big enough to get whatever interest rate and lending terms I want from whomever I want.” Today, he might be that big. Holy cow.
What a joke. They better work on sending everyone a monthly deposit because if have places turning into Wuhan we’re finished. Like the debt really matters now anyway lol.
“We find out Monday morning about emergency cuts but two weeks won’t make much of a difference.”
It takes several months for a rate cut to filter through the economy. It was 9 months from Greenspan’s emergency rate cut in January 2001, until the mild recession ended. The stock market continued to decline for another year, until October 2002.
In the inbox this morning from a general contractor…..”We have been hearing of some potential construction material supply shortages from China, and other countries which have been greatly impacted by the Coronavirus. Please check with your material suppliers to see if there is any impact on the availability of your materials.”
This was the first weekend where it got in the face of many Americans. The next few weeks will be as bad as the nature of the illness and the longer-tern issues make it to the forefront of the brain.
Spring break transmission, political rally transmission, the blender of American society churns on.
If they cut rates now, today, what is there in two weeks?
The risk of recession within the next 6 months is 100%. There’s no way to avoid it. We may get a temporary bounce from people hording, but it will be followed by a 5%+ drop in GDP.
Chinese will not go back to work. No one believes the BS numbers from the party. The containment data in China makes no logical sense. Similar to the voting pattern in the 2016 elections and Russian interference. In the US, what are two parent households going to do when the kids have to stay home? All the child care centers will be shut down. I can work from home since I’m a programmer, but most can’t. How many small businesses can go 6 months with no customers?
The Chinese data makes perfect sense. Whether or not it is true is another question. It is certainly believable that if they shut down all businesses and schools, and locked people in their homes, the spread of the virus would slow dramatically. Did they really shut down everything? If so, how long will it stay shut down? What will happen if they re-open? Of those questions, the one I can answer is that when they do re-open, it will start to spread again.
I can tell you also that the rest of the world can’t do similar things. Containment is good now because it pushes the curve to the right, allowing more time to develop a vaccine, and it allows the medical system to prepare for an onslaught of cases. At some point, though, it becomes futile. By the middle of March I think most or all countries will give up.
Futures in the USA for Monday and also Asian and EU market are green right now…dead cat bounce.
Here another site that’s good on the prediction market for recession (about 50%): link to marginalrevolution.com
I’d like to know what Mish is doing or has done professionally to protect his clients but I’m sure that’s against in-house and SEC rules, even though a lot of people blog after the fact on what they’ve done.
If the USA dodges the coronavirus bullet it’s an instant win for Trump come November, if not, not.
Small quibble repeated on the link: last week’s drop of 10% is historic only if you measure the drop from the all time high. For example, in September 2008 the stock market dropped just as fast (for a month too) but the all time relative high had been reached the year before, in fall 2007, not just before the drop. At this point the 10% drop is just a correction, nothing more. Markets still overvalued IMO.
Overvalued RayLopez? I have a degree in Finance and NASDQ licensed broker and I can tell you after a lifetime of watching the markets that a fair price for equities right now would be nothing over 13,000, and 12k would be a lot more like it. Everything above that is pure bubble.
Futures are up, Nikkei and Hang Seng are up, looks like markets may be pricing this in already.
An emergency 50 bps cut looks bad but not many would complain, especially from Trump’s camp. Trump will say they should have done this sooner like he asked.
….but the economy is sooo ‘very very strong’, never been so strong under no other president…
Dow futures are down. The rate cut may do more harm than good. Nothing says panic like a surprise 50bp rate cut.
The fact that $1.5 TRILLION flooded into the markets today only proves they did not need that rate cut. They want a rate cut they are going to have to knock the equity markets down by at LEAST 25% and not have an up day till they get it. At least if I were on the BoG of the Fed that would be my position. And I would also refuse to vote for a rate cut till I had some proof that Wall Street and banksters were going to pass at least some of that on to retail lending. Moertgage rates are now 250 basis points above the 10 year treasury and the normal, tradition motgage is 100 BP over the 10 year. What that tells me is that banks are betting on a massive downturn and charging a gigantic premium for loans. And how many hundreds of billions have flooded into bank liquidity over the last couple of months, like sewage down a rat hole with exactly ZERO benefit to the economy.