Minyan Mailbag: The "Surprise" FOMC Rate Cut
The key will be not to get swept up in the euphoria or or drowned in the negativity.
Props to all the Minyan Professors on a great job and keeping everyone up to date on what you're seeing. One question, If the Fed does cut rates, are there any certain sectors you will play for a quick bounce? Or do you think most anything would bounce?
The financials come to mind as they've been the sector most beaten by the ugly stick but, truth be told, the bounce would likely be monolithic. In other words, the world is massively correlated with asset classes trading as a whole versus the dollar. That's what we've been discussing for years - and that's why the risk is so great. Asset class deflation versus dollar devaluation, with a lil' nationalism sprinkled in for flava.
I do think the knee jerk reaction to a rate cut is higher. But I also think it'll prove fleeting for two reasons. The first is past history, which supports the notion that Minyans should ask "why" the Fed is cutting rates rather than just react. Just look at what happened the last time they tried to surprise the Street.
The second, which is really just an extension of the first, was solidified by Willy Poole last night when he said the Fed wouldn't cut before the next meeting unless there was a calamity. That, in plain-Jane English, pretty much puts the bow on the Box that the Fed finds themselves in. Now they can't cut without implicitly admitting to financial crisis.
Taking a step back, I will offer that we're witnessing the most amazing financial experience in the history of mankind. A grand experiment on the back of the tech bubble that has seemingly gone awry. Perhaps the most bullish element of this entire dynamic is the very desperation that got us to this point in the first place.
As a firm believer that nobody is bigger than the market--not even those who believe they are the market--I continue to be cautious for the big picture. But that doesn't mean we can't (or won't) see sharp rallies and other opportunities. The key will be not to get swept up in the euphoria or or drowned in the negativity.
It's about understanding that capital preservation is the first step towards capital accumulation. It's about surrounding yourself with people you trust that have skill-sets that complement your own. It's about maintaining perspective and remembering the important stuff. It is, in many ways, about everything we strive and thrive for in Minyanville.
Thank you for being a part of our journey.
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