A Major Market Shakeup Is Coming

Dear Investors,

A big macro event will shake the markets in less than two weeks.

Will it be a positive boost or a market correction based on fears of recession?

Read online: https://newsletter.metainvestor.gg/

The FOMC meeting is behind the corner.

The FOMC (Federal Open Market Committee) meeting is scheduled for the 18th of September.

And this one will be a big one.

The current interest rates are the highest since the dot com bubble (January 2021). That means it is expensive to borrow money (credit).

In theory, the lower the rates, the more money is in circulation (people borrow more), and the higher risky assets, such as stocks and crypto, can go.

According to estimates, there is a 100% probability the FED will lower interest rates, either by 25 bps or even 50 bps.

Also, the FED’s chairman, Jerome Powell, signaled in his speech that “the time has come” to cut interest rates.

That is a very good sign for the risky assets.

However…

Some analysts are worried that the 25 bps is already priced in risky assets, and if the Fed decides to cut rates by 50 bps, it will signal a recession and spook investors.

To sum it up,

• In the long term, this is great, as it starts the new liquidity cycle that will drive crypto to new highs.
• In the short term, expect sharp rises and declines as investors search for a clear signal that the economy is under control and expanding.

And how much money are we talking about?

Money Markets - the 6.44 trillion cash.

As the title suggests, it is quite a sum. 6.44 trillion US Dollars.

This money is today invested in highly liquid, short-term debt instruments, such as:

• Treasury bills
• Commercial paper (short-term corporate debt)
• Certificates of deposit (CDs)
• Repurchase agreements (repos)

That is because their key features are: Safety, Liquidity, and with high interest rates (such as today), a decent yield.

When the Fed starts lowering interest rates, the yield will also decline, and investors will be motivated to rotate from safe assets to more risky assets, such as stocks and crypto.

Unfortunately, this rotation often follows a sharp decline, either in the form of a recession or a bigger market correction.

We can see it from the chart above - the tops are followed by a gray area, highlighting the recession periods.

Is it time to panic?

The short answer - no.

The longer answer ??

Unemployment is signaling a recession - from the trigger of the?Sahm rule?last month to the latest?Challenger report, which highlights record layoffs this year and that YTD hiring is the lowest since 2005.

On Tuesday, Nvidia recorded the largest single-day drop ($279 Billion) in the history of US Equity markets.

The previous record was held by Meta, which dropped by $232 Billion in a single trading day in February 2022.

VIX, an index tracking market liquidity, is increasing, which often highlights fear and uncertainty.

Ethereum is back on January levels, touching the bottom of the long trend line, with little to no demand from the ETFs (traditional investors).

However!

• Rate cuts are coming, and with that, the extra money from MMF (see above);
• Retail spending is up (even though on credit), inflation seems under control, GDP is strong, and productivity rising;
• Bitcoin is holding the ground, still above the problematic zone, and Bitcoin sets the trend for other cryptocurrencies;
• Plus ETH ETFs launched right into summer. Not many traditional funds rebalance their portfolio during summer. We shall see the real demand from them later in Q3.

In the long term, things still line up in favor of risky assets.

In the short term, we expect high volatility, not only from the macro factors but also from election debates and predictions.

For an investor who is looking into 2025 and beyond, this is a good time to accumulate.

The liquidity cycle will be close to peaking in the second half of 2025, and that’s when we expect the full bull market.

One chart and quote to finish with.

Regards,

Matt Curda

LinkedIn | Twitter

Web | Investment Fund