The Stock Market Is Crashing - This Is Why

Summary

In this video, Sasha discusses the Federal Reserve's decision to reduce interest rates for the first time since April 2020. Contrary to popular belief that this will boost the stock market, Sasha presents a different perspective. He highlights the potential risks of the Fed's actions, including the possibility of a rapid rate drop in response to economic downturns, rather than a controlled reduction from a position of strength. The video delves into economic indicators such as inflation, manufacturing activity, and consumer spending, suggesting that the US economy might be in a more precarious position than the market anticipates.

Takeaways

• 📉 The Federal Reserve is expected to reduce interest rates for the first time since April 2020, which traditionally would be seen as a positive for the stock market.
• 🚀 Despite the anticipation of a rate cut, the stock market's reaction has been mixed, with big tech companies experiencing a downturn.
• 📈 The stock market had a significant rise in 2022 due to the AI boom, but this has not translated to a broad market uptick.
• 💹 The current interest rate is over double the rate of inflation, which historically has been a precursor to economic downturns.
• 📊 Inflation rates have been falling, with some sectors like discretionary spending showing signs of deflation.
• 🏭 US manufacturing activity is contracting, with factory output dropping for most of the last 22 months.
• 💼 There's a growing concern about consumer spending and personal savings, with credit card delinquencies on the rise.
• 🏠 Housing market indicators show a slowdown, with house prices falling and mortgage rates decreasing.
• 📈 The AI sector has seen significant investment and growth, contrasting with the broader economic trends.
• ⏳ There's a risk that the Federal Reserve's actions may be too late to prevent an economic downturn, as they have been in the past with rate adjustments.

Q & A

When did the Federal Reserve last reduce interest rates before September 2024?

The Federal Reserve last reduced interest rates in April 2020, setting them straight down to 0%.

What was the market's initial reaction to the announcement of interest rate cuts in 2024?

The stock market initially celebrated the announcement of interest rate cuts, closing just below its all-time high, with a 19% increase since the start of 2024.

What happened to the stock market after the initial celebration of the interest rate cut announcement?

After the initial celebration, the stock market opened with big tech companies in the red, indicating a change in sentiment from the initial positive reaction.

How did the stock market perform in the first 9 months of 2022 when interest rates were increasing?

In the first 9 months of 2022, the stock market fell by 25% as interest rates increased to combat inflation.

What was the impact of AI advancements on the stock market in 2022?

AI advancements led to a significant increase in stocks of big tech and AI companies, with some experiencing growth of a few hundred percent overnight.

What is the current relationship between the Federal Reserve's interest rate and the inflation rate?

The current interest rate is over double the rate of inflation, with the interest rate at 5.5% and the inflation rate just below 2.5%.

What historical parallels does the script draw between the 2024 economic situation and previous economic events?

The script draws parallels with the economic situations in 1994 and during the financial crisis, noting similar interest rate to inflation rate ratios and market reactions.

What is the concern regarding the Federal Reserve's timing of interest rate adjustments according to the script?

The concern is that the Federal Reserve might be reducing rates too late, similar to their delayed response in increasing rates in 2022, which could exacerbate economic issues.

What economic indicators suggest potential trouble in the US economy according to the script?

Indicators include rising credit card delinquencies, low personal savings rates, deflation in discretionary spending, and a contracting manufacturing sector.

What does the script suggest could be the Fed's rationale for reducing interest rates in 2024?

The script suggests that the Fed might be reducing rates not from a position of strength but potentially in a panic mode to stop deflation and economic collapse due to over-tightening.

How does the script evaluate the Federal Reserve's projections for interest rates in 2024 and 2025?

The script evaluates the Federal Reserve's projections as 'shocking and abysmal,' suggesting that they have consistently been wrong and are currently over a year too late in reducing interest rates.