The Bond Market Is Telling Us That The Fed Is Going To Lower Interest Rates – Mike Swanson (05/28/2019)

The giveaway book deal for Strategic Stock Trading sold out over the weekend. All the books are gone and I may never run this offer again – certainly not this year.

Interest rates rise in times of strong economic growth in the economy or times of inflation. Last year the Federal Reserve was projecting that it would raise rates this year and even next year.

Then in the Fall the stock market fell 20% and they stopped predicting that.

One of the big things I was saying around New Years was that the stock market drop last Fall was telling us that we were at the end of the interest rate hiking cycle and actually in a slow transition phase in the economic cycle – which meant it would peak out sometime in 2019.

It’s a slow motion process, but it is happening.

Now the bond market itself is forecasting an over 70% chance of an interest rate cut in December and a 50% chance of one in September. This is why the TLT Treasury Bond ETF soared last week.

Here are the Fed Fund futures projections for December so that you can see them for yourself.

So should you believe these projections for a rate cut?

I don’t see why you shouldn’t!

The more important question is what will happen when rate cuts come in the future?

There are two things you need to focus on.

1)Gold will go up and benefit from rate cuts and in fact gold and mining stocks are likely to simply go up ahead of the first rate cut as trading robots and smart money gets in ahead of them.

In fact that move could start any week now.

2)The Federal Reserve actually will need the stock market to drop before they can lower interest rates, because that will give them the political cover to make that move.

If the stock market is going higher and inflation is growing then they won’t be able to raise rates and right now they don’t want to raise rates.

That’s why the Fed is in a wait and see mode at the moment not doing anything.

Now this doesn’t mean the stock market is going to crash like 2008 as a simple dip down to the December lows before the year is over would cause enough stock market players to crave rate cuts to stop the stock market from falling more on them.

So when the Fed Fund futures say there is a 70% chance of a rate cut in December they are also saying there is a 70% chance that the stock market will go down towards its December lows before then.

That’s not something to be scared of and doesn’t mean money can’t be made by buying things as there are some things that will go up to benefit from the situation. It’s all about understanding what happens when cycles shift.

In fact, if the stock market dips before the end of the year to cause the VIX to spike to 30 and the masses to panic it would probably be a good buying opportunity as there would almost certainly be a big rally afterwards.

And don’t forget – gold will go up and a few select sectors will too. That’s the key.

-Mike



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