Liquidity Tsunami Incoming
Believe it or not - we’re about to enter into the final quarter of the year…2025 is right around the corner. And while there’s only a quarter left in 2024, there’s still so much left to unfold before we ring in the new year.
The good news? It’s finally Fall (the best season of the year).
The Fed has just announced an official interest rate cut of .50% which we’ll start to see the effects of in the coming months.
The election continues to draw ever-closer.
And just this week, China has shot a stimulus bazooka into their economy. Literally.
They chose the “kitchen sink” method as they are throwing absolutely everything imaginable in an effort to spark growth.
If you remember an article I wrote earlier this year, I discussed the floundering of the Chinese economy as they were experimenting with liquidity measures. It didn’t work.
Now, we’ve received major news of even more stimulus and liquidity from China after a surprise press conference by Chinese officials.
What’s going on?
Reserve Requirement Ratio, the amount of cash reserves banks are required to keep on hand will be cut by .50% with further cuts being guided. This frees 1 Trillion Yuan in liquidity because now banks do not have to keep as much Yuan in reserves and can instead use that in the general economy (loans, etc.)
Rates being cut on trillions of dollars worth of mortgages
Eased rules for second-home purchases
Pledging 100s of billions in support for equity markets - they are allowing funds and brokers to use central bank funds to purchase buy stocks (!)
Closely considering a “stock stability fund”
An absolutely astonishing amount of stimulus being announced all at once. China is in panic-mode.
What’s It All Mean?
Stimulus of this size from one of the largest global economies will likely have profound impacts not only in China but globally as well.
China has been mired in deflation for a long time which is damaging to an economy and difficult to reverse. It’s why Chinese officials are now throwing just about everything they can at this problem.
And don’t forget all of the stimulus in China is happening at a time where the US Fed is easing as well…interest cuts, fiscal stimulus, more money printing.
If you’ve been reading my articles for a while, you know what massive amounts of liquidity means to asset prices…they go up - WAY UP.
An event like this is outright bullish for practically all risk assets - stocks, crypto, commodities.
I want to break down Bitcoin and AI/semiconductors and what we’re seeing as we enter into a new stage in the liquidity cycle.
Asset markets generally lag global liquidity by about 10 weeks - the Chinese announcements don’t even show on this chart yet.
Get ready for a possible blowout fourth quarter.
Bitcoin is the most reflexive asset to liquidity.