FED rate cut- Panic or Prosper?

Today the FED announced a long anticipated rate cut and the postponement of Quantitative Tightening.  It was a classic example of “buy the rumor, sell the news”.  The S&P500 dropped more than 1%, breaking below 3,000. 

Should you panic?  I’m not.  I maintain the rationale that as long as the economy isn’t headed into a recession, it’s a prudent strategy to buy the dip.

The suspicion over a rate cut is no more valid than the previous hysteria about an inverted yield curve.  Just another artificially induced economic indicator for the Talking Heads to clamor about.

As I’ve discussed in the past, we’re in a paradigm shift interest rate environment.  A Twilight Zone of sorts.  Everyone’s fear is INFLATION, but I believe the more likely culprit is DEFLATION.  I think it’s very dubious that we’ll return to old fashion interest rates of 6%.  Yields of that level just can’t be supported by the economy…neither the US or Globally.  Forces of Technology and Demographics are both converging towards deflation, not inflation.  See my book:  The Robots are Coming: A Human’s Survival Guide to Profiting in the Age of Automation

Note the attached chart.  The average 10 Year Treasury yield over the past 15 years (pre/post Great Recession) is only 3%.  That’s significantly below the generational average of 6.25%.  But I think regression to the past long term historic mean is unlikely.  That’s evident in the performance of Treasuries over the past decade- post Great Recession the average yield is 2.5%.  Throughout the recover, whenever rates near 3% the economy stalls.  Conversely, whenever rates drop and bottom, the S&P500 rises to set new record highs.

Today I released a new podcast episode to further discuss this topic:  https://www.wealthsteading.com/293

On a separate but somewhat related topic…would you do me a favor?  Earlier this year when I was in Europe, I spoke at an industrial conference and was interviewed by a Paper Industry association in regards to how Automation can impact mature industrial companies.  Recently I was made aware that the interview can be viewed on YouTube.  I’d like to direct some traffic to the site.  It’s a short clip, less than 5 minutes.  As an added BONUS, you’ll get to see me wearing a suit and tie- a rare sight.  Please click:  https://youtu.be/LZ4xcsLaH8s

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The Robots are Coming: A Human’s Survival Guide to Profiting in the Age of Automation  available at AMAZON and all fine bookstores.

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