'Buy Everything!' Says Wall Street As Fed Signals 3 Rate Cuts Are Coming | Axel Merk
Dec 14, 2023
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In this podcast, Adam Taggart talks with finance and investing expert Axel Merk about the recent announcement by the Federal Reserve and its implications on the market. They discuss the lack of clear strategy from the Fed, the risks of cheap capital, and the uncertainties surrounding the job market. They also delve into the investment outlook for precious metals, the possibility of higher yields, and the importance of investing with caution and independent financial preparation.
The current decision-making approach by the Fed committee has shown negative implications in the past, emphasizing the need for a clear strategy and framework.
The lower rates and potential rate cuts signaled by the Fed increase the value of gold, while silver's performance may depend on global economic conditions and industrial use.
Investors should diversify their portfolios beyond stocks and bonds, consider various scenarios, and focus on longer-term indicators to formulate an investment outlook.
Deep dives
The Fed's policy may lead to a hard landing
The speaker believes that the economy is slowing down and unless the Fed is ready to ease aggressively, a hard landing is likely.
The importance of having a clear Fed strategy
The speaker emphasizes the need for the Fed to have a clear strategy and framework, as the current decision-making by committee approach has shown to have negative implications in the past.
The impact of Fed's actions on gold and silver
The speaker highlights that the lower rates and the Fed's signaling of potential rate cuts increase the value of gold. Silver's performance may depend on global economic conditions and potential industrial use.
The Fed's Control and Budget Deficits
The podcast discusses how the Fed's control and budget deficits have ripple effects on bonds in the US. The speaker emphasizes that budget deficits do not have a significant correlation with most market instruments, but unsustainable deficits can raise concerns. The delay in implementing economic stimulus during this recession and the massive stimulus in place are also highlighted. The Fed's ability to ease financial conditions is acknowledged, but it is noted that they do not have complete control over the economy.
The Fed's Independence and Influences
The podcast examines the Fed's independence in relation to politics, particularly the upcoming presidential election. While the Fed claims political independence, there is a possibility of a reluctance to move rates just before an election. However, the impact of the presidential election on the Fed's actions is considered to be more relevant when Powell's term ends in 2026. The discussion also touches on the disconnect between economists' positive outlook on the economy and the struggles faced by households. The impact of factors like college loan repayments and increasing debt interest rates on the economy is explored.
Investing Considerations and Outlook
The podcast offers insights for investors, advising them to think about the risks they can afford to take and diversify their portfolios beyond stocks and bonds. The importance of considering various scenarios and being prepared for contingencies is emphasized. The potential impact of stackflation and the need to assess personal goals is mentioned, as well as the need to be cautious in investing based on future predictions. Additionally, the relevance of focusing on longer-term indicators, such as real interest rates and perceptions of Fed policy, is highlighted as a way to formulate an investment outlook.
Yesterday the Federal Reserve Market Committee announced it has chosen to keep the Federal Funds Rate steady for now, but when that changes, a rate cut is much more likely than a rate hike. In fact, the FOMC now expects it's probable it will cut rates three times in 2024.
Following the release of this announcement, Fed Chair Jerome Powell held a press conference where he clarified the Fed's thinking. Powell projected a largely positive vibe, pleased that inflation is declining, economic growth is slowing from the frothy levels seen in Q3, and that the labor market is "coming back into balance". He no longer expects a recession in 2024.
Stocks, bonds, commodities and nearly ever other financial asset shot higher on the news.
So, is this this "all clear"? Is it time for the bulls to run?
Or may history repeat itself, as most recessions follow the first rate cuts made after a hiking regime?
To find out, we talk with experienced Fed-watcher Axel Merk of Merk Investments, and take live audience Q&A.
Follow Axel on X/Twitter at @AxelMerk
SUBSCRIBE to Adam's new Substack at https://adamtaggart.substack.com/
#federalreserve #inflation #interestrates
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