by Dr. Chris Kacher
Most central banks have started lowering their interest rates. The European Central Bank is likely to make sharper cuts to interest rates than previously expected, lowering its key deposit rate by 25 basis points at each of its upcoming meetings from now until April 2025. CME FedWatch futures predict the US Federal Reserve will lower rates by 50 bps at their next meeting then another 25 in December 2024. Rates overall in the US are expected to hit 3.5% at the end of 2025 then to a neutral level of 3.0% by June 2026.
Prior to the election on Nov 6, the upcoming inflation or non-farm payrolls (NFP) data could cause ripples in trading, but otherwise investors face few headwinds. With global liquidity on the rise, markets could continue trending higher.
That said, stocks have trended lower the last two times the Fed kicked off a new rate-cut cycle with a half-point cut. This was in 2001 and 2007. But both of those occasions were already on shaky ground well before the Fed made its move. 2000 was the bursting of the dot-com bubble and 2007 led to the Great Financial Crisis of 2008. Further, a year later the S&P 500 was higher 20 out of 20 times for an average gain of 13.9 percent. Finally, quantitative easing was launched at the end of 2008 to rescue the markets. The Fed has unleashed QE every time markets got into trouble such as in Mar-2020 to address COVID and in Mar-2023 to address the banking disaster. Meanwhile, stealth QE remains alive and well due to massive debt interest and other unfunded liabilities.
China also announced a series of easing measures designed to stimulate the world’s second-largest economy to try to get growth back to the 5% target, including cuts to interest rates, mortgage rates, and down-payments for house buyers. Going all in on stimulus sent Chinese stocks 4% higher.
China's central bank:
- Lowered policy #interestrates and signaled more cuts are coming.
- Cut rates on over USD 5 trillion in #mortgages.
- Eased rules for second-home purchases.
- Lowered the required reserve ratio for banks, freeing up fresh #liquidity
- Pledged over USD 100 billion in equity market support.
- Stated policymakers were studying a stock market stabilization fund.
This set of measures is astonishing in itself, but the fact that China opted to announce them all at once is a significant deviation from previous years. All this means China is (again) unlikely to stay within its budget #deficit target of 3% of GDP and unleashes a massive slew of liquidity that will be felt globally as it was in early 2023. This is outright bullish for stocks, cryptocurrencies, real estate, and gold. It will also push inflation higher in China which has hovered just above zero for months.
This strong wave of global liquidity from major central banks will propel the price of hard assets higher including commodities such as gas, oil, coal, and precious metals as well as stocks and real estate.
Bitcoin
The PBoC operations bodes well for bitcoin. This yearly cash injection is likely a big reason why, in 2023 (while the US was restricting liquidity with increased interest rates), we saw $BTC and $ETH follow the pattern of blasting off through Q4, and into Q1 of the following year. It looks as if similar will repeat.
We also have the Puell Multiple which measures miners relative profit to past revenues. It's a 1-2 punch macro signal. 1) Macro bottoms happen when profitability is at a minimum 2) A signal bottom happens when BTC halving cuts miner earnings by 50%, leading to the proper bull run. We were at (2) in July.
Bitcoin sold off twice more due to Japan carry trade issue then jobs report worries on September 6. Here's a snapshot of the reasons why bitcoin made major moves up or down.
It looks as if bitcoin is ready to trend higher. In the chart below, the first part entails macro bottoms happening when miners are seeing minimal profit, while the second is a signal bottom that occurs when bitcoin halving slashes miner rewards by 50%, leading to a bull run. A great time to buy bitcoin is at the post halving re-accumulation or when global liquidity is increasing. The second and third green dots represent increasing liquidity while the orange dots represent both increasing liquidity and bitcoin halvings. It looks as if we have both once again.
A breakout in bitcoin seems highly likely which means altcoins are going to go on a tear. I sent out a crypto report yesterday highlighting certain altcoins.