Fed Day: 25 vs. 50 bps.. Bullsh*t Aside

Market Rundown

VBL

and

CJC

Sep 18, 2024

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Housekeeping: Good Morning.

Today:

Premium Analysis: Fed to Announce Cut at 2p.m.
**Bonus: Goldman’s New Gold Model**
News: Israel Detonates Hezbollah Pagers

Premium Analysis: Fed to Announce Cut at 2p.m.

The discussion is over whether the Fed will cut 25 bps or 50 bps.
ZeroHedge
The rhetoric behind Democrat senators like Warren asking for 75 bps, aside from the fact it is borderline election tampering1, is simply a ploy to move the Overton window and hopefully influence the Fed to cut 50bps while energizing their electoral base. It’s all bullsh*t sadly.. back to the task at hand
1. Smart good analysts are stressing about this: They say things like What the Fed should do is 25bps. But what I fear they will do is 50bps. They aregetting caught up in the nonsense
2. We’d remind them the Fed raised 25bps at the peak of the Banking crisis as people begged for a pause/pivot. Rumors of Yellen banging on Powell’s door didn’t dissuade him then.
  If he cuts 50 it’s because he thinks it’s a good idea not because you losers convinced him with STIR futures- Source
3. What they should do may be what they *do* do for a change. The Fed is more independent *currently* than some think. And the beggardly behavior surrounding cut expectations is from a decade of being spoiled by a Fed that held the hands of wall street every step of the way.
The marketplace using STIR futures to place bets is sitting closer to 50bps than to 25 bps as the answer
Zoomed in ZH chart shows 1.64 cuts are expected..
Some stocks are behaving as if 50bps is a given since the August Low. This is likely a reflection of sector rotation and can be interpreted either way. ignore it
SPX vs NDX
Bottom Line: When the Fed cuts 50bps or more, stocks frequently do badly. Why? That’s because they are already fighting an error or economic headwinds2
Behavioral Grid for Stocks and Gold
The market thinks the Fed will cut 37.5 bps now
- What should stocks/gold do if they cut 25?- lower with gold dip bought
- What should they do it Fed cuts 50bps?- higher wit hgold runningand Silver running faster
- What will they do in either case will be a reflection of the greed and fear pent up in the market- see opinion
Opinion: We think he will do what he should do 25bps. But were not married ot it. If he does 50bps, he either sees something horrible coming (unlikely), or he truly capitulated to political pressure and will go down in history as Arthur Burns 2.0

Gold and Silver:

Gold is definitively in buy-mode now. Also definitely by many measures way ahead of itself going into this.
That said….the most recent data point we saw was actually hot indicating less chance of a bigger rate cut,but gold took off anyway..
There was a lot of money still looking for dips to buy then. There has to more waiting to buy
The question we want answered is: Was this latest buying because gold is money? Or was it Fed Cut Fomo. 3

News Items:

BRICS platform an alternative to dollar, euro attracts increasing number of nations

Russian Foreign Minister Sergey Lavrov told a press conference: Payment platforms are being developed within BRICS, which allow trading, investing, carrying out other economic operations without being dependent on those that decided to weaponize the dollar and the euro, Link

Silver Demand To Hit New High In 2024 Despite Growing Headwinds

Metals Focus reported a 64% y/y surge in silver PV offtake to a record total of 6,017t (193Moz). However, with technological progress and market fluctuations, it is important to examine if this trend will continue, or if new dynamics will emerge, laying out a different path for this sector. Link

New Jersey Eliminates Sales Taxes On Gold And Silver

Sound money advocates are hailing their hard-fought victory today as New Jersey’s Senate Bill 721 was signed into law – thereby removing sales taxes on purchases of gold, silver, and other precious metals above $1,000 effective January 1, 2025. Link

Equity Recap:

US equities closed flat on Tuesday ahead of the Fed's rate decision and Chair Powell's press conference on Wednesday. Large caps lagged small caps: S&P 500 (+0.03%) vs. Russell 2000 (+0.74%). MSCI Emerging Markets (EEM) added 0.12% and MSCI EAFE (EFA) lost 0.56%.

Market News:

"Microsoft and BlackRock are part of a group of companies collaborating to pull together up to $100 billion to develop data centers for artificial intelligence and the energy infrastructure to power them.CNBC

"The US and Japan are close to a deal to curb tech exports to China’s chip industry despite alarm in Tokyo about Beijing’s threat to retaliate against Japanese companies Source: FT

PMorgan Chase is talking with Apple about taking over the tech company’s credit-card program. WSJ

"Ozempic, the blockbuster diabetes shot made by Novo Nordisk, is “very likely” to be one of the next drugs to have its price slashed in bargaining with the US government, Bloomberg

"The United Auto Workers is once again taking aim at the Jeep maker, Stellantis, WSJ

Politics/Geopolitics: Pager Explosions

Poignant yet horrifying symbolism. Credit: Unknown

At least 2,750 were injured and 9 died in the pager detonation incident across Lebanon, while the Lebanese Information Minister said the government condemned the pagers detonation as '"Israeli aggression".
Israel’s Mossad reportedly put a quantity of high-explosive PETN on the battery of devices and it was detonated by raising the temperature of the battery, according to Sky News Arabia citing special sources.
Hezbollah promised to retaliate
Israel didn't inform the Biden administration ahead of its intelligence operation that included exploding thousands of Hezbollah members' pager devices, according to Axios citing sources
- For more: Nine Killed, 2700+ Wounded In Israel's Pager Attack On Hezbollah
How did this happen: Recapping the NYT
1. Israel apparently intercepted the pagers from Taiwan that detonated in the pockets of thousands of Hezbollah fighters before they reached Lebanon.
2. According to the New York Times, Israel tampered with the devices that Hezbollah ordered. They reportedly placed two ounces of explosive material next to the battery in each pager.
3. "A switch was also embedded that could be triggered remotely to detonate the explosives," the Times reported. Hezbollah fighters received a message at 3:30 p.m. Lebanon time that looked like it was coming from Hezbollah’s leadership.
4. When the message came through, there was a brief pause, presumably so the fighters would raise the pagers toward their face, before they detonated.
Russia's Tver regional governor ordered a partial evacuation of Toropets town after a Ukrainian drone attack sparked a fire.