US Fed Cuts Interest Rates to Near Zero and Launches a 700B QE Program

[Chromatic Lover 868]

The Federal Reserve, saying “the coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States,” cut interest rates to near-zero on Sunday and launched a massive $700 billion quantitative easing program to shelter the economy from the effects of the virus.

Facing highly disrupted financial markets, the Fed also slashed the rate of emergency lending at the discount window for banks by 125 bps to 0.25%, and lengthened the term of loans to 90 days.

The new fed funds rate, used as a benchmark both for short-term lending for financial institutions and as a peg to many consume rates, will now be targeted at 0%-0.25%

The quantitative easing will take the form of $500 billion of Treasurys and $200 billion of agency-backed mortgage securities. The Fed said the purchases will begin Monday with a $40 billion installment.

https://www.cnbc.com/2020/03/15/federal-reserve-cuts-rates-to-zero-and-launches-massive-700-billion-quantitative-easing-program.html

 Nothing turns me on more than cheap loans 

[Luc 4,776]

The thing is, this crisis is not about having to incentivize people to start a business or making loans cheaper so that the cafe around the corner can cut costs and hire that extra person. Rate cuts and QE will do nothing to fix the short-term effects of the coronavirus. They're just there not to make markets meltdown. And for that they're misjudging the momentum completely (I think). Markets would react much more positively to a measure like this if the coronavirus seemed over. Now, the momentum these kind of rate cuts create will be gone within a few days, because the stock market will inevitably deteriorate further and the coronavirus will inevitably seem more and more serious day by day. 

But I'm finally going to join the stock market hype. Buying long-term SPY puts tomorrow morning. Going to be cheap.

[Chromatic Lover 868]

5 minutes ago, Luc said:

But I'm finally going to join the stock market hype. Buying long-term SPY puts tomorrow morning. Going to be cheap.

My stock trading mentor a few years ago once told me to never let a crisis go to waste. 

[Luc 4,776]

3 minutes ago, Chromatic Lover said:

My stock trading mentor a few years ago once told me to never let a crisis go to waste. 

For every trade where I make a gain, someone is making a loss. So I hope I'll be on the right side of this. Chances are, the person I'm trading 'against' is probably more experienced and has more knowledge about this than I do. But I'm not going to wait ten years for another crisis.

[DeleteMyAccount 11,881]

So for us ave folks that don't trade, what does this mean for the general public? Is this basically a pump to help the market/economy? Or are we headed towards an inevitable recession? Too early to call?

[Chromatic Lover 868]

1 minute ago, Luc said:

For every trade where I make a gain, someone is making a loss. So I hope I'll be on the right side of this. Chances are, the person I'm trading 'against' is probably more experienced and has more knowledge about this than I do. But I'm not going to wait ten years for another crisis.

Be careful and don't let your emotions consume you. Majority of the time, people loose money because they can't control their emotions. I day trade so it's regularly i have to deal with this. 

[Luc 4,776]

18 minutes ago, ZacharyMark said:

So for us ave folks that don't trade, what does this mean for the general public? Is this basically a pump to help the market/economy? Or are we headed towards an inevitable recession? Too early to call?

Inevitable recession. The coronavirus means that many businesses (basically all of tourism sector, transport sector, hotels, restaurants, going out, amusement parks) have no income but many costs for two months. Many will go bankrupt, or at least fire a lot of people. Add to that that the oil sector is facing much lower prices, and that car sales and industrial production will go down significantly. Lockdown of the country is inevitable. It's either a total lockdown or a healthcare crisis at this point.

And because it's inevitable, I just don't really understand why they're taking this measure so quickly. What I think they're trying to do is to keep the stock market going well, because how the stock market is doing can be an important factor in consumer confidence. Consumer confidence will play a big role in how quickly the economy recovers from this coronavirus. Say, the virus is gone by May. If consumer confidence is still very low by then (e.g. people fear losing their jobs, so they cancel subscriptions, they go out less, they don't buy that new kitchen or get their car repaired), that will mean many more jobs will be lost, making a recession much deeper, comparable to 2008 more so than 2001 (after 9/11).

But I don't think Trump would let a recession like that happen in his re-election year, so expect him to get into even bigger debt to get the economy going for this year. Whoever is president in 2021, they could enter a shitshow just as big as Obama entered in 2009.

[Chromatic Lover 868]

2 minutes ago, ZacharyMark said:

So for us ave folks that don't trade, what does this mean for the general public? Is this basically a pump to help the market/economy? Or are we headed towards an inevitable recession? Too early to call?

I hope its not an inevitable recession. It will ruin people.  However, they said this is in response to the corona virus. If we don't get it under control, then the economy can take a major hit which would lead to a recession. Back in 2008 we were in a better situation to deal with a recession. Today, we have a pandemic with a vaccine still out of sight, the US is running trillion dollar budget deficits  and there is a naturally slowing global economy. There isn't much left to do to prop the US economy up given how low interest rates are ( I guess the experts will find something to do). 

The QE Program can be explained with this article: https://money.howstuffworks.com/fed10.htm 

So basically the fed wants to increase the flow of money in the economy which they hope will boost it. But i don't see how this will work given that we are experiencing a pandemic, people are loosing their jobs, staying home from work and school. It's a mess. I don't even know anything anymore. I just read my trade patterns and let the markets guide me on how to move.