Bridger Pennington warns about misleading financial headlines and breaks down Fed policy concepts ahead of the FOMC meeting. He covers a widely expected 25 basis point rate cut, rumors of a U.S.-China trade deal, and recent market moves in gold, stocks, and Bitcoin.
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We're in finance, crypto stocks. Pretty fun week ahead of us here. Now beware of headlines like this. They are very misleading. Let's break down each one of these as we kick off the week. Let's jump to this Thursday one: U.S.-China deal. There's a lot of rumor right now that we're going to strike a good U.S.-China deal before the tariff deadline on Saturday. Saw a huge rally this morning on that news, which is pretty awesome. Let's go to this top one: QT ends on Monday. That is not confirmed at all. QT stands for quantitative tightening. So with the Fed, you have quantitative tightening and quantitative easing. Core mechanism in quantitative tightening or easing is balance sheet compression or expansion. During a quantitative tightening period like we've just had, the Fed is selling or letting assets mature. So the Fed holds a bunch of assets and it starts selling these assets into the market, making usually the market go down. Quantitative easing is when the Fed starts buying these things. We saw this during COVID where the Fed Started buying equities. The Fed was buying Microsoft stock, Google stock. So hence, you have a big buyer. Those stocks tend to go up. Now we could go to quantitative easing this week with the FOMC meeting, but nothing is confirmed yet. A few other things that go into quantitative tightening or easing is the reverse repos, interest rate policy, reserves and liquidity. Could all be flashing for this week, but again, nothing is confirmed. Tuesday, FOMC rate cut. That's not on Tuesday. The FOMC meeting starts Tuesday. It ends Wednesday at 2:30 Eastern. That's when we— actually 2:00 Eastern. When we know if there's a cut or not. As of last night, the derivative markets are pricing in a 96% chance of a 25% rate cut on Wednesday. This thing is dead on, gives you all the probabilities. This is what derivative markets, billions of dollars are trading right now. Pretty high probability of a 25% basis point cut. Back to this post. The Fed prints $1.5 trillion. That is like not— anyways, just scratch that one off. We don't know. No one knows anything. US-China deal could be struck by Thursday, maybe. Maybe not, because the tariff deadline is Saturday. They could not strike something and we could have panic through Saturday and Sunday. Furthermore, the government shutdown is November 1st, is another huge slog of things that turn off on November 1st, which is Saturday. I actually got a message from my local church saying a lot of people on food stamps or government support will need help November 1st if they don't figure out this government shutdown thing. Hey church members, can you guys put money in and/or put food in, or can you take a family to your house to like feed them for the weekend if, uh, November 1st that happens? So a lot of stuff going on. Do not be deceived by stuff like this. But again, really cool things happening in the market. We see a major gold sell-off after all-time highs and a rotation into right now stocks and Bitcoin. Stay vigilant. Should be a fun week though. I'm excited. We'll see what happens.
