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The Fed Will Cut

Inflation Tracker bio

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Inflation Tracker
Former hedge fund analyst turned private investor and GRIT content whizz by night, I bring you top-notch stock ideas in my weekly newsletter.
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The Fed Will Cut

Good morning and happy Monday. Earning season for small-caps is still upon us. Over the course of the week a number of companies I have covered will be releasing their results for Q4. Keep an eye out on updates in the Telegram channel where I will provide a quick update for all Pro members. If the news is notable enough I will publish updates on the covered companies here.

I’ve been thinking a lot about the Federal Reserve and interest rates this past weekend. Eventually I think the Fed will start cutting rates as things in the economy start to break. The remainder of this article will highlight my high level thoughts here. But before we get into the Fed cutting rates, first a word from today’s sponsor…

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The Fed Will Cut

I don’t know when it will happen but eventually the Federal Reserve will start cutting rates. Bond prices will move up aggressively as the Federal Reserve turns the money printer back on. Yields will plummet. The move will be aggressive, quick and when it happens you better have your portfolio positioned to maximize your exposure.

Risky garbage equities will do the best. Companies that are trading for basement level valuations with non-existent near-term cash flows will fly when the Fed starts cutting. The worst companies in the world will get a turn or two higher in multiple expansion. It will be an incredible move and when it comes it will come fast.

Companies with gobs of high rate debt should perform extremely well — especially the ones with variable rate debt. Any company that needs near-term financing will perform well. Look for companies with a large portion of their debt stack in short term liabilities that needs to be refinanced. The debt market will turn back on and money will start flowing quickly.

The housing market will catch a bid too. As rates go down potential buyers of homes will rush to the flood gates. There will be a huge increase in the demand for housing. The Fed has artificially turned down the demand for housing as they have moved rates up. A large portion of would be home buyers are waiting on the sidelines for home prices to come down or interest rates to begin their move lower. When rates go down again it will be a floodgate of pent-up demand. Housing prices could make new highs.

But before the Fed starts cutting again we will need something in the economy to break. As long as the economy continues to function like it has been, the Fed will likely hold their ground and keep rates high. There needs to be justification for the Fed to cut and reverse course. A few ideas I had:

  1. An all out global recession and high unemployment

  2. A collapse in housing prices leading to the uproar of the middle class who has most of their net worth in their home

  3. High interest rates taking down too many heavily in-debt companies

  4. The interest payable on the national debt becoming a significant cost burden to service

  5. Any other numerous event where something in the economy just stops working, leading to a financially dire circumstance

Making macro predictions is hard. The logic behind the prediction isn’t the tough part. It is the timing of those predictions. I’m not making any drastic moves to my portfolio to time a rate cut. I continue to buy low priced equities that are trading significantly below replacement value. It is what I have done my entire career and it works. The day I start buying options to time a macro prediction like the Fed cutting rates is the day I lose significant sums of capital.

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Disclaimer:The publisher does not guarantee the accuracy or completeness of the information provided in this page.  All statements and expressions herein are the sole opinion of the author or paid advertiser.

Grit Capital Corporation is a publisher of financial information, not an investment advisor.  We do not provide personalized or individualized investment advice or information that is tailored to the needs of any particular recipient.  

THE INFORMATION CONTAINED ON THIS WEBSITE IS NOT AND SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE, AND DOES NOT PURPORT TO BE AND DOES NOT EXPRESS ANY OPINION AS TO THE PRICE AT WHICH THE SECURITIES OF ANY COMPANY MAY TRADE AT ANY TIME.  THE INFORMATION AND OPINIONS PROVIDED HEREIN SHOULD NOT BE TAKEN AS SPECIFIC ADVICE ON THE MERITS OF ANY INVESTMENT DECISION.  INVESTORS SHOULD MAKE THEIR OWN INVESTIGATION AND DECISIONS REGARDING THE PROSPECTS OF ANY COMPANY DISCUSSED HEREIN BASED ON SUCH INVESTORS’ OWN REVIEW OF PUBLICLY AVAILABLE INFORMATION AND SHOULD NOT RELY ON THE INFORMATION CONTAINED HEREIN.

No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned.  

Any projections, market outlooks or estimates herein are forward looking statements and are inherently unreliable.  They are based upon certain assumptions and should not be construed to be indicative of the actual events that will occur.  Other events that were not taken into account may occur and may significantly affect the returns or performance of the securities discussed herein.  The information provided herein is based on matters as they exist as of the date of preparation and not as of any future date, and the publisher undertakes no obligation to correct, update or revise the information in this document or to otherwise provide any additional material.

The publisher, its affiliates, and clients of the a publisher or its affiliates may currently have long or short positions in the securities of the companies mentioned herein, or may have such a position in the future (and therefore may profit from fluctuations in the trading price of the securities).  To the extent such persons do have such positions, there is no guarantee that such persons will maintain such positions.

Neither the publisher nor any of its affiliates accepts any liability whatsoever for any direct or consequential loss howsoever arising, directly or indirectly, from any use of the information contained herein.

By using the Site or any affiliated social media account, you are indicating your consent and agreement to this disclaimer and our terms of use. Unauthorized reproduction of this newsletter or its contents by photocopy, facsimile or any other means is illegal and punishable by law.

For Full Terms of Use Click HERE. For the Privacy Policy Click HERE.

Gritcapital.substack.com (“Grit”) is a website owned and operated by Substack. Grit is paid fees by the companies that make investment offerings on this website. Be aware that payment of these fees may put Grit in a conflict of interest with the investor. By accessing this website or any page thereof, you agree to be bound by the Terms of Use and Privacy Policy, in effect at the time you access this website or any page thereof. The Terms of Use and Privacy Policy may be amended from time to time. Nothing on this website shall constitute an offer to sell, or a solicitation of an offer to buy or subscribe for, any securities to any person in any jurisdiction where such an offer or solicitation is against the law or to anyone to whom it is unlawful to make such offer or solicitation. Grit is not an underwriter, broker-dealer, Title III crowdfunding portal or a valuation service and does not engage in any activities requiring any such registration. Grit does not provide advice on investments or structure transactions. Offerings made under Regulation A under the U.S. Securities Act of 1933, as amended (the “Securities Act”) are available to U.S. investors who are “accredited investors” as defined by Rule 501 of Regulation D under the Securities Act well as non-accredited investors, who are subject to certain investment limitations as set forth in Regulation A under the Securities Act. In order to invest in Regulation A offerings, investors may be asked to fill out a certification and provide necessary documentation as proof of your income and/or net worth to verify that you are qualified to invest in offerings posted on this website. All securities listed on this site are being offered by, and all information included on this site is the responsibility of, the applicable issuer of such securities. Grit does not verify the adequacy, accuracy or completeness of any information. Neither Grit nor any of its officers, directors, agents and employees makes any warranty, express or implied, of any kind whatsoever related to the adequacy, accuracy, valuations of securities or completeness of any information on this site or the use of information on this site. Neither Grit nor any of its directors, officers, employees, representatives, affiliates or agents shall have any liability whatsoever arising from any error or incompleteness of fact, or lack of care in the preparation of, any of the materials posted on this website. Investing in securities, especially those issued by start-up companies, involves substantial risk. investors should be able to bear the loss of their entire investment and should make their own determination of whether or not to make any investment based on their own independent evaluation and analysis.