Fed Under Attack; What's Next For Stocks, Bitcoin, Gold As Bull Market 'Ends' | Gareth Soloway

The Federal Reserve has announced a 25 basis point interest rate cut, as widely anticipated by the market. However, Federal Reserve Chair Jerome Powell indicated that a 50 basis point cut was not seriously considered by FOMC participants, and he expressed concerns about inflation pressures stemming from tariffs and a weakening labor market, which he described as stagflation. The market reaction was mixed, with an initial pop followed by a sell-off, then a recovery, mirroring the inverse relationship observed with the U.S. dollar. The 10-year yield saw significant intraday movement but did not drop substantially despite the rate cut.

Economically, projections suggest a slight improvement in growth over the next two years, with the unemployment rate expected to remain relatively stable and inflation gradually decreasing towards a 2% target by 2027. However, there's a concern that this disinflation will be driven by a weakening labor market and economy, rather than positive factors. Historical data, particularly from 2007, is being compared to current trends, with rising credit card delinquencies and a topping housing market signaling potential future economic distress.

The discussion also touched upon the disconnect between weakening economic data and all-time highs in assets like gold and Bitcoin, attributing it to FOMO among retail investors and the end stages of a bull market. Strategies for navigating this environment include buying put options, lightening positions, or investing in defensive assets with good dividends. The future of the U.S. dollar's reserve currency status is also being questioned due to perceived threats to the Fed's independence and geopolitical shifts, with countries diversifying into gold and other assets.

• The Federal Reserve cut interest rates by 25 basis points, but a 50 basis point cut was not seriously considered.
• Inflation pressures are linked to tariffs and a weakening labor market, creating a stagflationary environment.
• Historical parallels from 2007, including rising credit card delinquencies and a topping housing market, are being drawn to the current economic situation.
• There's a significant disconnect between weakening economic fundamentals and record highs in assets like gold and Bitcoin, driven by FOMO.
• The U.S. dollar's reserve currency status is under scrutiny, with potential negative implications for interest rates and asset prices.

Related Video Summary

• Federal Reserve meeting begins as pressure mounts for interest rate cuts
• Rate Cuts Trigger Inflation — Stocks, Gold, and Crypto Melt-Up
• Dollar Crisis — The World Is Dumping Dollars and Buying Gold
• Fed to Begin 2-Day Meeting: Will It Change Interest Rates?

Federal Reserve Rate Cut and Market Reaction [0:00]

• The Federal Reserve cut interest rates by 25 basis points, as expected by the markets.
• A 50 basis point cut was not widely considered by FOMC participants.
• Market reaction was mixed, with initial gains followed by sell-offs and recoveries, mirroring movements in the U.S. dollar.
• The Fed's stance remains data-dependent.

The Federal Reserve implemented a 25 basis point rate cut, which was already priced into the market. However, the indication that a larger cut was not seriously considered, coupled with concerns about inflation and the labor market, led to a complex market reaction and an inverse correlation with the U.S. dollar.

The Fed cut interest rates by 25 basis points today on Wednesday the 17th as expected by the markets. Some may have been disappointed by the fact that uh Jerome Pow said that a 50 basis point cut was not even widely considered by FOMC participants.

Economic Concerns: Tariffs, Labor Market, and Stagflation [1:41]

• Many Fed board members are reportedly against even two rate cuts for the remainder of the year.
• Inflationary pressures are being observed from tariffs.
• A weakening labor market is also noted, leading to a potential stagflationary environment.
• The U.S. dollar's inverse relationship with markets is highlighted as consistent and likely driven by algorithmic trading.
• Retail investors often maintain a "buy the dip" mentality.

The speaker suggests that the Fed is facing inflationary pressures from tariffs and a weakening labor market, describing this as stagflation. The inverse relationship between the U.S. dollar and market movements is a recurring theme, indicative of algorithmic trading and persistent investor optimism.

He said that many members on the Fed board are against even two rate cuts in the remainder of the year.

Fed Projections and Expert Analysis [5:31]

• The Fed projects a slight improvement in economic growth over the next two years.
• The unemployment rate is projected to see little change through 2027.
• Inflation is expected to trend down towards a 2% target by 2027.
• The expert's analysis suggests inflation will see upside in the short term, with potential increases in upcoming CPI numbers.
• As the labor market weakens, it could have a deflationary impact, offsetting tariff-related inflation.

The Fed's economic projections indicate moderate growth and a gradual decrease in inflation. However, the expert anticipates that a weakening labor market will eventually lead to deflationary pressures, counteracting the current inflationary trends driven by tariffs.

The projections that I have anyways that I've done the number crunching on, it looks like inflation will continue to be in the short term up to to see upside.

Recession Indicators and Historical Parallels [9:37]

• The possibility of a labor market recession without an outright GDP recession is discussed.
• Historical comparisons are made to 2007, noting that housing topped 2 to 2.5 years before the stock market and the first rate cut.
• Credit card delinquencies are at 2008-2009 levels.
• The current environment mirrors the lead-up to the 2007 financial crisis, with a rate cut coinciding with a weakening labor market.

The discussion draws parallels between the current economic climate and the period leading up to the 2007 financial crisis, highlighting similarities in housing market tops, credit card delinquencies, and the timing of rate cuts relative to labor market weakening. This suggests a potential for a significant economic downturn.

And so, you know, it's it's, you know, it's not meaning that this is exactly how it's going to play out, but I think investors have to really take a close look at what comes before a recession.

Market Disconnect and Investor Psychology [13:13]

• There's a significant disparity between the real economy's slowdown and the growth in financial assets.
• This disconnect is often seen at the end of bull markets, fueled by FOMO (Fear Of Missing Out).
• Margin levels are at all-time highs, indicating increased borrowing to invest in the market.
• Meme stock frenzies and rapid gains in cryptocurrencies are observed, similar to past cycles.
• This behavior is attributed to human psychology and can signal market tops.

The speaker points out a disconnect between the real economy and financial markets, attributing this to FOMO and speculative behavior, which are common indicators of market tops. The extreme use of margin and the resurgence of meme-driven investments are seen as red flags.

And at that point, you have to play catch-up. And by the way, hedge funds find this this the hard way, too.

Trading Strategies Amidst Uncertainty [16:12]

• Historically, stock markets tend to fall when the Fed begins to cut rates after an economic slowdown.
• Investors may become concerned that the Fed is behind the curve or unable to cut as much as needed due to inflation.
• Strategies to protect capital include buying put options on the market or lightening positions to take profits.
• Long-term investments can be hedged by taking partial profits and implementing trailing stop-losses.
• Shorting the market is an aggressive strategy for those seeking downside benefits.

The analysis suggests that contrary to popular belief, stock markets often decline when the Fed begins to ease policy. Investors are advised to protect their gains by lightening positions or utilizing options to hedge against potential market downturns.

And believe it or not, and this goes contrary to kind of the the narratives that have been spun out there on social media and even in mainstream media, when the Fed begins to cut rates, the markets actually start to fall.

Hedging and Defensive Assets [17:56]

• Assets like the VXX can be used as short-term trading vehicles to hedge against market sell-offs.
• Defensive stocks, such as Pfizer and Dr. Pepper, offer dividends and can provide stability.
• These defensive stocks may trade near 52-week lows with attractive dividend yields (4-7%), potentially offsetting stock depreciation.
• The focus should be on capital preservation rather than solely maximizing gains.

For investors seeking to hedge against equity declines without complex trading strategies, defensive stocks with solid dividend yields are recommended. These assets can offer a buffer against market volatility and protect capital.

And so there are other ways. People just have to think outside the box and it's very hard to because then you feel like you're missing out, right?

Technical Analysis of Market Charts [19:33]

• The S&P 500 is struggling within a wedge pattern, with a key trend line from October 2023 now acting as resistance.
• The QQQ is trading within a parallel channel, suggesting more downside risk than upside potential.
• The speaker emphasizes the importance of letting charts dictate trading decisions, advising tight stops for breakouts.

Technical analysis of key market indices like the S&P 500 and QQQ reveals resistance levels and potential downside risks, suggesting that charts provide clear signals for trading strategies. The advice is to follow these signals with strict risk management.

To me, this means the market has more risk of downside right now versus upside.

Comparing Current Cycle to 2021 Easing [21:06]

• The easing cycle of 2021 is viewed as an outlier due to the unique post-COVID economic environment.
• Current conditions are significantly different, with a weak housing market compared to the rapid rise in 2021.
• The cost of homeownership, including mortgage rates, insurance, and maintenance, has skyrocketed, impacting consumer spending.

The current easing cycle is considered distinct from the 2021 period, which was influenced by extraordinary post-COVID circumstances. The speaker highlights the current weakness in the housing market and the escalating costs of homeownership as significant economic concerns.

Much different now. Much different now. In fact, what we're seeing now, by the way. And then housing prices were just going straight up at that during that period versus now we're seeing the housing market unbelievably weak.

Bitcoin's Price Action and Volatility [23:59]

• Bitcoin is moving in lockstep with the stock market and oscillating between $115k and $116k.
• A trend line connecting the 2017 and 2021 highs suggests a critical level around late 2024 and early 2025.
• Breaking above this trend line could lead to new all-time highs, while failure to do so may result in a correction below $100,000.
• Bitcoin's volatility is reportedly decreasing, becoming comparable to tech stocks on a risk-adjusted basis, which could lead to smaller corrections.

The analysis of Bitcoin's price action points to a critical trend line that will determine its trajectory. While institutional adoption may be reducing its volatility, a failure to break through key resistance levels could trigger a significant correction.

So what the chart is telling me is this is that this trend line, number one, it was major in 2017, 2021, 2024, and 2025.

Gold's Performance and Fed Independence Concerns [28:48]

• Gold is trading at unprecedented levels, with projections of $4,000 and even $5,000 from some institutions.
• A significant price surge for gold is projected if the Federal Reserve loses its independence and is forced to lower rates.
• Concerns are raised about potential political meddling in the Fed's decisions.
• A compromised Fed could lead to higher inflation, lower asset prices, and an erosion of the dollar's reserve currency status.

Gold is exhibiting unprecedented strength, with predictions of substantial gains if the Federal Reserve's independence is compromised, leading to potential inflation and a weakening dollar. The market is closely watching for any signs of political influence on monetary policy.

Goldman Sachs is projecting $5,000 gold if the Federal Reserve loses independence.

U.S. Dollar Decline and Global Implications [31:40]

• The U.S. dollar index (DXY) has broken major support levels, with a potential to fall significantly if it breaks below the 96-94 zone.
• This decline could be influenced by tariffs and attacks on the Fed's independence, leading other countries to diversify away from dollars and U.S. debt.
• Poland's recent announcement to hold 30% of its reserves in gold and the emergence of Bitcoin in national reserves are mentioned.
• A sliding dollar is generally positive for stocks and risk assets, unless accompanied by fear.

The weakening U.S. dollar, influenced by geopolitical factors and concerns over Fed independence, could lead to a global shift away from dollar-denominated assets. This trend, if it continues, may result in a significant decline for the dollar and a rise in other assets like gold and Bitcoin.

If you break this zone, basically anywhere between 96 to 94 on the Dixie, the DXY, you likely are headed back to the7s, basically 71 on the DXY.

Investment Strategy and Asset Allocation [35:02]

• The speaker is currently long volatility (VXX) and generally short tech stocks.
• They are also long Russell (IWM) and certain emerging markets like Brazil (EWZ).
• Defensive U.S. names like Pfizer and Dr. Pepper are favored for their dividends.
• There is a cautious approach to gold and silver at current high levels, with a willingness to buy on pullbacks.
• Long-term accumulation of Bitcoin is planned once it corrects.

The current investment strategy involves hedging against market volatility, favoring defensive sectors and certain international markets, while anticipating future opportunities in Bitcoin after a potential correction. The focus is on a balanced approach that considers both risk mitigation and long-term growth potential.

So, so I'm long volatility right now. Volatility has gotten way too low.

Fed Dissent and Independence Concerns [37:00]

• A newly appointed Fed governor dissented, calling for a 50 basis point cut, which raises concerns about Fed independence.
• This dissent is seen as a potential signal of fragmentation within the Fed, or pressure to increase liquidity.
• The speaker believes this further erodes the Fed's long-term credibility and prospects for the U.S.
• The stock market closing during the discussion is noted.

A dissenting vote from a new Fed governor on the interest rate decision raises concerns about the Federal Reserve's independence and potential fragmentation within the committee, which could impact the long-term economic outlook for the U.S.

This is a direct nod to his boss who just appointed him, right?