From Graham Stephan.
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THE FED CUTS WITHOUT DATA
The Federal Reserve lowered rates for the third time this year, the first-ever cut made without any inflation or labor data because the October jobs report was canceled during the government shutdown. This leaves policymakers steering blind while global pressures build, especially from Japan. The shift signals the start of more liquidity and potentially a massive transfer of wealth…in either direction.
THE JAPANESE CARRY TRADE UNWINDS
For decades, Japan’s near-zero rates encouraged traders to borrow yen cheaply and buy higher-yielding U.S. assets. Now Japan is raising rates and issuing major stimulus, forcing traders to unwind the trade by selling U.S. stocks, crypto, and dollars to repay yen. That capital drain is historically negative for markets and adds volatility as liquidity tightens.
WHY RATE CUTS CAN SIGNAL TROUBLE
Rate cuts aren’t usually celebratory, they’re historically made in anticipation of downturns. In 2001, 2009, and 2020, markets fell not because rates dropped, but because conditions requiring the cuts were deteriorating. Still, after initial declines, markets typically recover and often rally strongly. Current corrections remain normal by historical standards: roughly 10% every 16 months with an average 15.6% depth.
BITCOIN AND GOLD DIVERGE
For the first time, gold is strongly positive while Bitcoin is on track for a negative year. But large Bitcoin drawdowns are normal: six crashes of 50–80% in the last 15 years. Recent declines stem from leverage unwinds, profit-taking, and higher Treasury yields pulling capital away from risk assets. Historically, Bitcoin’s median drop is ~40–50%, and it has never fallen below estimated electrical cost (~$71k), making the current range potentially attractive for long-term accumulation.
THE HOUSING MARKET RESETS
Price cuts are becoming widespread as unrealistic sellers chase the market down. Zillow reports typical cumulative reductions of $25k, the largest ever recorded. Homes owned by low-rate borrowers tend to list high and sit, while realistic sellers (often pre-2022 buyers) price aggressively and move quickly. Median selling prices show a ~7% decline from peak, though some forecasts suggest prices could rise in 2026 if mortgage rates fall below 6% and wages increase.
THE END OF QUANTITATIVE TIGHTENING
The Fed officially ended quantitative tightening, closing the chapter on shrinking its massive pandemic-era balance sheet. They’ll now reinvest maturing assets and begin purchasing $40B in Treasuries to stabilize markets, laying groundwork for more liquidity if needed. Their projections show only slight rate reductions in 2026, falling inflation toward 2% by 2027, and relatively stable GDP.
WHAT THIS MEANS FOR 2025–2026
The Fed is signaling readiness to stimulate further if conditions worsen, even though they publicly expect a stable economy. With shrinking liquidity, high uncertainty, and rapid economic shifts, traditional fundamentals matter most: steady income, emergency reserves, and consistent investing. Today’s decision wasn’t “just another cut," it broke precedent by easing policy with no data, ending QT, and adding stimulus in a partially unmeasured economy. These are the moments where errors happen…and where fortunes are made.
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