This is How The Fed Just Ruined Your Life - George Gammon Goes Off

Summary

In this episode of the Della Kon Show on ITM Trading, George Gamon of The Rebel Capitalist Show discusses the Federal Reserve's recent decision to cut rates by 50 basis points, which he believes is insufficient. He argues that historical patterns show the Fed typically cuts rates more aggressively when the two-year treasury yield and Fed funds rate align. Gamon anticipates further rate cuts and suggests investors should position their portfolios accordingly, favoring gold and treasuries over stocks due to an expected economic downturn. He also touches on the political landscape's impact on the economy and the importance of monitoring economic indicators for investment decisions.

Takeaways

• 📉 The guest, George Gamon, believes the Federal Reserve made a significant mistake by not cutting interest rates more aggressively, suggesting a 75 basis point cut was appropriate instead of 50.
• 🤔 Gamon discusses the Fed's tendency to follow the two-year treasury yield and how the market's expectations often lead to further rate cuts than initially provided by the Fed.
• 📈 Historically, when the Fed cuts rates, the two-year treasury yield continues to fall rather than stabilizing, indicating that the market anticipates more economic trouble.
• 🔍 The conversation emphasizes the importance of economic indicators like the yield curve, the Phillips curve, and the unemployment rate in predicting economic downturns.
• 💼 George Gamon criticizes the Fed's narrative that they can control the economy through interest rate adjustments and stimulate economic growth.
• 🏦 The script suggests that financial institutions are risk-averse, preferring to buy treasuries instead of lending to the real economy, contributing to an inverted yield curve.
• 🌐 The global demand for US treasuries, despite high levels of debt, indicates confidence in the US economy and the dollar's role in the global monetary system.
• 📊 Gamon forecasts more rate cuts by the Fed in the future, based on historical patterns of economic cycles and current economic indicators.
• 💵 The discussion points out the economic divide in the US, with the wealthy benefiting from asset inflation while the poor and middle class face a depression-like situation.
• 🏠 George recommends being prepared for potential buying opportunities in the stock market if a recession occurs and the Fed intervenes to stimulate the economy.

Q & A

What does George Gamon believe the Federal Reserve's big mistake was?

George Gamon believes the Federal Reserve's big mistake was not cutting interest rates enough, specifically that they should have cut by 75 basis points instead of 50.

Why does Gamon reference the two-year treasury yield as an indicator?

Gamon points out that the Federal Reserve often follows the two-year treasury yield, and historically, when the Fed cuts rates, the two-year yield doesn't stabilize but instead goes down further.

What is the 'neutral rate' or the 'terminal rate' that Gamon mentions?

The 'neutral rate' or 'terminal rate' is a term used by the Federal Reserve to describe the ideal interest rate that neither stimulates nor contracts economic growth.

How does Gamon interpret the behavior of the two-year treasury after Fed rate cuts?

Gamon interprets the continued decline of the two-year treasury yield even after Fed rate cuts as a sign that the market believes the Fed is still offside in its monetary policy.

What does Gamon suggest about the Federal Reserve's ability to orchestrate a soft landing for the economy?

Gamon is skeptical about the Federal Reserve's ability to orchestrate a soft landing, stating that they are always behind the curve and have never been able to prevent a recession through rate cuts.

What is the significance of the yield curve inversion mentioned by Gamon?

Gamon discusses yield curve inversion as a powerful economic indicator that typically precedes a recession, suggesting that a sustained inversion is a sign of upcoming economic downturn.

Why does Gamon criticize the Federal Reserve's narrative on the economy?

Gamon criticizes the Federal Reserve's narrative because he believes it overstates the Fed's control over the economy and underestimates the potential for a recession, which he thinks is not in line with actual market indicators.

What is the Philips curve and why does Gamon mention it?

The Philips curve is an economic concept that suggests a trade-off between inflation and unemployment. Gamon mentions it to criticize those who ignore its historically high accuracy in predicting economic conditions, such as the current risk of a recession.

How does Gamon view the current state of the US economy and the role of asset prices?

Gamon views the current US economy as being propped up by asset prices rather than by actual production of goods and services, leading to a bifurcated economy where the wealthy benefit while the poor and middle class suffer.

What advice does Gamon give for portfolio positioning in the current economic climate?

Gamon advises having a portion of the portfolio in gold as an insurance policy, preferring liquidity like T-bills, and being prepared for potential buying opportunities in the stock market if there is a significant downturn.

What does Gamon think about the government's response to economic recessions?

Gamon believes that the government's response, such as stimulus checks and lockdowns, has created economic distortions and exacerbated issues like homelessness and drug addiction, rather than solving the underlying problems.