Tony Greer, editor of the Morning Navigator, breaks down why the FOMC decided to cut interest rates for the first time in a decade. Greer reviews why he is actually on board with the 25 basis-point cut, and discusses how traders should position themselves in the weeks and months to come, in this interview with Jake Merl. Filmed on the afternoon of July 31, 2019. Watch more Real Vision™ videos:
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What the Fed Rate Cut Means & How to Play It (w/Tony Greer)
Transcript:
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JAKE MERL: So, we just saw the first rate cut in over a decade. Powell just got done giving a speech. And personally, this is the first rate cut I've seen. I know I'm a student of the markets, just getting into the markets. And I want to get your thoughts. Is this a good thing? A bad thing? What's going on?
TONY GREER: Yeah. I guess we should set it up with some history since you're a student of the market. Last time the Fed cut rates, we were addressing the housing crisis. So, we started off with Fed Funds at five and a quarter and wound up lowering them to zero over the course of I think just over a year. And during that time, the market got shellacked, because the stock market was then falling in the mortgage crisis. We were dealing with- excuse me, we were dealing with Bear Stearns, we were dealing with Lehman Brothers going bankrupt, the whole thing. We had a much different economic background as well. We had higher oil prices, we had oil prices up at 95. So, we had higher interest rates at around 4% in the 10-Year, so things were much different. We were addressing then what was coming out of a crisis. Right now, we're not coming out of any crisis. It seems like a sort of smartly prudent rate cut to me, believe it or not, and this is a little bit of a change of opinion for me. I originally thought that Powell was one hundred percent beholden to Trump for this rate cut. He literally seemed optically like he was just caving to the President pointing around the world saying, being a complete baby, the way he knows to be. Everybody else gets lower rates, why do we have such high interest rates? President Obama got zero interest rates for his whole 10-Year. Why do I have to have 3% interest rates? So, he conflates the stories out of nothing, and starts putting pressure on the Fed Chairman. And that's when we saw even more of a dovish pivot but we saw the dovish pivot go around the world. And it was really in reaction to a collapse in the manufacturing sector, which was really evident, like you can see them go right around the world, Europe to China. We saw PMIs tick down from either the mid-50s to high 50s to the low 50s and then some into the high 40s. Now, as you know that PMIs, we judge economic expansion and contraction as being either north or south of 50. So, we've seen Europe already go into economic contraction due to the trade wars. At this point, we've seen the market falter, when we have fears of trade wars tipping equity earnings over and having a negative effect on the economy. So, what do we have every time we see that? US gov to the rescue. Like we saw Steve Mnuchin back in December, the government comes to the rescue, says there's going to be plenty of liquidity at all the banks and the market manages to recover. So, the market gets back on its own feet. And we go into earnings season and earnings start coming out positively and then the S&P can continue to run from there.
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