Core inflation at 1.8% continues to run below target 2%.
Federal reserve decides upon another 0.25% cut in interest rates, targeting range of 1.5% to 1.75%.
Action is taken to provide meaningful support to the economy in response to global economic slowdown and the increasing disinflationary pressure felt from around the world. The special characteristics of this particular slow down is a lack of any large imbalances in the economy.
Dual mandate of the federal reserve
2% symmetrical inflation target
Low unemployment rates
Consumer confidence remains strong
Unemployment rate is at historic low
Business fixed investments has slowed
Global exports has slowed
Manufacturing compared to a year ago is down
macro environment risk
protracted US/China trade risk is down
No deal Brexit risk is down
economic health monitor
Leverage in financial system: low
Funding risk in banks and non-banks: low
Asset prices: no major bubble, high in some
Leverage in non-financial sector
households: gone down
businesses + corporate debts: historic high
Concerns in Overnight Repo markets persist.
Banks have liquidity in excess of required reserves level but choose not to participate in the markets.
Federal reserve will seek to inject short term liquidity into the system
build up short term treasury reserves
buying into short term treasury bills thereby boosting treasury reserves
opposed to the standard QE mechanism which entails buying up of assets and securities with longer maturity periods
The polarization between democratic systems and authoritarian systems is becoming more apparent as China leverages its growing middle class to project it’s influence on the world stage a strategy that US has been utilizing for the past decades.
Facebook is a vehicle for projecting American values overseas.
The African continent remains a land grab for the two different regime types. Thus far, China has won out on the physical infrastructure and government level while FaceBook has won out on the community grassroots levels.
For the C Suite especially CMOs to execute their jobs well they need to be focused on what’s happening out there in the world as opposed to what’s happening within their own functional organization. It’s the VP of marketing’s job to handle what is within their own marketing organization.
Its a time when US companies will need to navigate the international markets while managing the challenges to their American values.
The Chinese government has done a better execution on that front with their One Belt Road initiative by clearing the path at the government level to facilitate the unhindered expansion at the commercial level by its enterprises.
Western media is working at full Rev to control the narrative frames that drives public opinions.
Mark Zuckerberg has masterfully leverage recent trends to reframe Libra as a champion of democratic ideals as opposed to a disintermediation force on central banks around the world.
Fascinating AB testing observed on the entire world’s population by major news networks.
Barely 72 hours after the announcement of phase 1 trade deal, its accompanying mass euphoria and surge in world markets, the almost same exact photo with some slight changes in copyrighting and background color is released into production.
It will be fascinating to observe the world’s reaction to this new AB year variant that just got released and the corresponding market price levels.
Public opinion is observed to be very malleable and fickle. It’s highly susceptible to reshaping by main stream media.
In an unlikely twist of events, what was once presented as a war by the White House against China over trade and national security has overnight morphed to become a fight for American values like democracy, free speech and human rights.
While the ongoing unrest in Hong Kong have provided ample fuel, the tweet by NBA Houston Rockets general manager was the spark that caused the fire.
Counter-intuitively when all news is bad news, it becomes good news. After receiving series of negative news both substantial and not, the market suddenly rebounds with the expectation that Federal reserve will further cut interest rates at the end of October 2019.
As it is now, it seems the market is trading with a narrow band of USD300 and USD290 for the SPY
Approximately 10% of all companies listed on Nasdaq and NYSE fell by more than 10% over the past week. Its like a magnitude 5 earthquake happened and the entire market goes into panic mode.
During this occasion, it is fascinating to observe at a macro level the flow of money within the system.
Sources of liquidity
the white house administration has cut taxes over the past 2 fiscal years between 2017 and 2018.
the Federal reserve increase money supply through the repo market and by lowering interest rates
Central banks around the world lower interest rates
the high US dollar signals that money from around the world is flowing into the US market
High pressure areas
the price of gold moves steadily upwards
the price of US Treasury bonds signaled by the fall in US Treasury yield moves steadily upwards
the SnP hovers near all time high
Companies classified as value stocks are trading at all time high multiples
Companies classified as growth stocks are trading at huge discounts versus all time highs
Once the psychological impact of the current set of stimulus wears off and assuming the supply of money stays constant within the US market, it is very likely money will start flowing from high pressure areas to fill up the anomalous vacuum described above.