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Don Kaufman here. |
Everyone's betting on rate cuts saving the day. Fed cuts mean cheaper borrowing, right? |
I'm looking at the actual futures right now – the ZQ Fed funds where people bet real money – and they're telling a completely different story. |
December Fed funds futures are pricing 3.7325%. Current rate's 3.8775%. |
That's only 0.14% cut priced in. Not even a full quarter point. |
These aren't wishful thinkers. These are traders betting hundreds of thousands saying it's basically pot odds whether cuts even happen. |
And when you look out further? January, February, all the way to April. None of them have a full cut locked in at 100%. |
The professionals moving billions aren't buying what everyone else is selling. |
Why Cuts Won't Help You Anyway |
But even if Powell does cut, it won't matter for what you actually pay. |
The Fed controls overnight rates. They don't control the ten-year Treasury that determines your mortgage rate. |
And that's where things get interesting. |
I'm watching seven to ten year bonds sell off every morning. Bond prices falling means yields rising. |
Your borrowing costs are climbing while everyone celebrates cuts that haven't happened yet. |
We're already back up another quarter point from the lows on rates that actually matter to real people. |
Powell's Hawkish Surprise Coming |
I think Powell drops 25 basis points like everyone expects. But comes out more hawkish than the market wants. |
The Fed's gonna try to assert some independence here. |
Show they won't just roll over for whatever the administration wants. |
I don't think this vote's gonna be unanimous either. Some of these Fed governors are getting uncomfortable with where we're headed. |
The Bond Market Rebellion |
I thought Fed bond buying would push prices higher and drive yields down. |
That's not happening. |
The bond vigilantes are waking up. The guys who actually decide if the government can keep borrowing like there's no tomorrow. |
We're already monetizing Treasury debt. The balance sheet's expanding again. |
At some point, somebody's gotta say enough. |
The Fed can cut overnight rates, but if bond buyers refuse to finance long-term government spending at current yields, those cuts become meaningless. |
Who Wins, Who Gets Screwed |
This creates winners and losers. |
Banks love this steepening curve. They can borrow overnight for nothing and lend long-term at higher rates. |
It's basically free money for them. |
Which explains why financials keep rallying even when everything else looks shaky. |
But for regular people? For businesses trying to expand? You're getting screwed. |
The Fed cuts the rate that doesn't affect you while the rates you actually pay keep climbing. |
The repo market's already showing problems. Why? |
Because all these banks would rather get paid 2.5% for doing nothing than lend to actual people at 2%. |
When they can park money risk-free with the Fed overnight, why take credit risk on some random borrower? |
Your mortgage rate isn't tied to Fed funds. It's tied to those ten-year bonds that keep getting hammered. |
Forget about refinancing. Forget about cheaper business loans. |
The Fed can manipulate short rates all they want, but if the bond market doesn't cooperate on the long end, you're getting exactly nothing. |
Everyone's pricing in Fed salvation. |
The bond market's pricing in fiscal reality. |
And reality's winning. Interest rates on the stuff that matters to you? They're going higher, cuts or no cuts. |
To your success, |
Don Kaufman |
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Bond vigilantes just crushed rate cut dreams | That's what happens when you can't see the real forces moving markets. | Thursday, Dec 11th at 1pm EST: Tony Rago reveals The Matrix Key - his new way to cut through machine-driven noise and spot what actually matters. | Stop chasing headlines. Start seeing the code layer underneath. | |
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