Three Reasons a Fed Rate Cut Can’t Save The Dow

Three reasons the Federal Reserve can’t save the stock market:

1. The Fed already over expanded the money supply in QE1 – 3

federal reserve fed rate cut recession economy
The Adjusted Monetary Base | Source: Federal Reserve Bank of St. Louis

The Fed has already given it all they’ve got, captain. There’s nothing left for them to do. The Federal reserve is a one trick pony that cuts rates and expands its balance sheets to provide liquidity. But they’re about to beat their horse to death.

They’ve stretched the dollar too thin. There’s not any give left in the money supply. The next round of rate cuts and easing will push the dollar off a cliff. If you think of the economy as a video game and central bank interventions as an “extra life” in the game- we’ve already used our last remaining extra lives since the Great Recession of 2007.

And the decadent elite of this country wasted them on over leveraging debt for overpriced houses, and acquiring more lambos, and eating $95,000 dollar truffles.

The Bernie bros and AOC squad are mad at “capitalists,” but these Wall Streeters didn’t turn all of the Fed’s insane liquidity flood into productive capital. They blew it on stupid business expenses and mindless consumption.

So the next shock to hit, whatever it is, will mean Game Over for equities.

2. Fed rate cuts will bring inflation, which will tank the Dow

dollar crisis
With every redesign, Fed notes look faker and faker.

So the Federal Reserve is steering the economy between a rock and a hard place.

The rock is inflation, and the hard place is recession.

And if inflation gets bad enough, it could be the shock that triggers the next recession and tank the Dow and other equities benchmarks.

If we’re all lucky we could even have both and get absolutely crushed by record stagflation. The 70’s literally does not even register as a blip against the graph of the monetary insanity of the last decade.

Trump the television entertainer who became president, who we all thought was a Reagan redux (Reagan’s 1980 campaign slogan: Let’s Make America Great Again), could turn out to be a Carter reboot, one term presidency and all.

3. Easy money policies don’t change fundamental realities

The fundamental economic reality is that most everyone in America from the poor to the elite is over-leveraged up to their eyeballs in debt.

Often for lavish over-consumption on things that they don’t need, or worse, things that don’t even make them happy. The fundamental economic reality is even more fundamentally a cultural problem.

We’ve become naive and decadent. We’re a nation of children. Our priorities are badly misaligned. Ad execs have created ridiculous aspirational images that have become the de facto materialistic consumer religion of the masses and the elite.

The Madison avenue ad execs themselves believe in their religion more than anyone. It’s made too many people emotionally sick, mentally immature, and morally weak.

And it’s bankrupted our government and our economy. The coming recession is unavoidable. It’s a force of nature. It’s the price we have to pay for the last three times the Federal Reserve stepped in to save us from ourselves.

Why It Matters to Investors

If you see the signs of what’s ahead for the economy, you can plan ahead, protect your wealth, and even profit from the next inflationary recession to hit.

When it does, inflation will likely drive down the value of growth and dividend stocks more dramatically than the benchmark, but value stocks could stand to gain.

Meanwhile traditional hedges against inflation and recession (like gold and silver), and 21st Century hedges against the same (like Bitcoin and Ether) could become more important than ever for securing and growing your savings.

Disclaimer: The author owns gold, silver, Bitcoin, and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.