Why do people rush in to buy things when rates are about to be lowered?

[takuma sato]

If you look at a chart that puts the sp500 on top of the FED rates, you will notice a pattern that shows how whenever the FED has lowered rates, the sp500 has crashed pretty bigly. So im wondering, is this going to be different this time?

https://en.macromicro.me/collections/9/us-market-relative/91/interest-rate-sp500

Since the year 2000, when I believe the dynamics of the FED changed and the QE era started, the baseline for rates is basically near 0, with small pumps here and there whenever inflation was starting to go to high, or whenever government spending was needed (see the Covid incident)

So basically, why is people buying, if with 100% of certainty, this has been working since the 2000? Shouldn't you be considering a scenario where prices will be lower?

In that case, how would BTC perform? Will it successfully decouple from the markets, or is it going to mimick SP500 and just crash harder? Will the ETF hype + halving be enough to counteract these dynamics?

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[franky1]

before rate news is released people prepare for the worse. so they buy before news.. locking-in certain rate.. then when the news is released that rates are not as feared the market corrects.. and people can short/refinance their asset at the lower rate

before 2000, market rates were alot higher so people fear rates going back to the 1980's highs..
mortgages used to be 14% and many fear those numbers again so when there is a "rate risk" announcement approaching many will buy from 2-6 fearing the feds call for 10-14

after all we have just seen inflation reach 11% recently so numbers above 6 are a possible risk.

[Egii Nna]

From the subject of the topic, I will like to clear up some perceptions of your thinking in economics. If you have ever encountered what is called the theory of demand, you would have understood why people rush for certain goods if the prices are low.

The theory of demand stated that as the price of the product increased, the lower the demand for that same product in the market, and as the price of the product decreased, the higher the demand. So, in marketing or economics, if the price of a product is high, the number of people purchasing that product will be low, and if the price of that product is low, the number of people buying the product will increase, which is the main reason why people rush to buy things if the price of such things is low.

[adaseb]

In the past the reason why they lowered rates is because there was a recession and they had no choice but to cut rates.

This time you can say it’s different. It appears there might be a soft landing instead of a crash and when they cut it , it will be because employment is still strong but inflation is under control.

Will this work? It’s hard to tell. Economy is pretty bad right now. All it would take it one bank failure and all hell would come loose.

[franky1]

From the subject of the topic, I will like to clear up some perceptions of your thinking in economics. If you have ever encountered what is called the theory of demand, you would have understood why people rush for certain goods if the prices are low.

The theory of demand stated that as the price of the product increased, the lower the demand for that same product in the market, and as the price of the product decreased, the higher the demand. So, in marketing or economics, if the price of a product is high, the number of people purchasing that product will be low, and if the price of that product is low, the number of people buying the product will increase, which is the main reason why people rush to buy things if the price of such things is low.

other economic mindsets are about if there is a fear that soon prices will sky rocket. some will stock up and buy while the prices are low and yet to rise... the problem is its speculation. and when the actual news comes out that the rates wont rise to the fear amount. people then correct/short/re-finance to the new number thats lower then speculated fear
its called FOMO

[safar1980]

Will this work? It’s hard to tell. Economy is pretty bad right now. All it would take it one bank failure and all hell would come loose.

The government will not let a large bank go bankrupt and will help it. And a small bankrupt bank will not cause a tragedy in the country’s economy. Therefore, in all countries there is a lot of control over banks, and in this country large banks have huge profits per year.

[gunhell16]

Perhaps the numerous reasons why they have persisted to buy since 2000, despite the market's rising trajectory, are due to FOMO, which causes investors to invest.

Investors invest in the stock market in addition to diversifying. Take note that they continue to do this despite the fact that the situation is ATH. However, when we get to the bottom line, the relationship between liquidity and volatility is complicated and nuanced. While there is a historical link, different circumstances can impact this relationship, making it critical to assess the larger market situation and do thorough analysis before making investment decisions.

[el kaka22]

I would say that inflation plays a big role, I mean it's quite obvious that when people fear that prices will go up, they will end up buying earlier. This is the trouble I had, well I had plenty of troubles in my life financially and I am in by far the worst financial situation of my entire life right now, but even I would spend some money on something if I think that I will need it in the future and I will end up spending more later on.

Why not make a 100 dollar debt today, when you know you are going to spend 220 in 8 months? That's why people spend a lot more, anything like 10%+ increase in price for something means that it would be smarter to buy earlier, because rates would be lower, and you would be able to pay a lot less interest and yet save money anyway. I have done this many times, maxed out my credit card, had a huge debt, but had nothing else to buy but food, that's it, just food, and that's the most important thing a person could have in that regard.

[Bananington]

We are expecting much from the dynamics mentioned in the post about halving, and ETF hype. For now it's still a hype and we need be observant enough to understand how the market around this time would be inorder to strategically earn from it.
No one knows for sure if the rates right now will get any lower because signals have been up about its price nearing and even surpassing the $40k mark.

[Fortify]

If you look at a chart that puts the sp500 on top of the FED rates, you will notice a pattern that shows how whenever the FED has lowered rates, the sp500 has crashed pretty bigly. So im wondering, is this going to be different this time?

https://en.macromicro.me/collections/9/us-market-relative/91/interest-rate-sp500

Since the year 2000, when I believe the dynamics of the FED changed and the QE era started, the baseline for rates is basically near 0, with small pumps here and there whenever inflation was starting to go to high, or whenever government spending was needed (see the Covid incident)

So basically, why is people buying, if with 100% of certainty, this has been working since the 2000? Shouldn't you be considering a scenario where prices will be lower?

In that case, how would BTC perform? Will it successfully decouple from the markets, or is it going to mimick SP500 and just crash harder? Will the ETF hype + halving be enough to counteract these dynamics?

Money is always moving around in markets somewhere, but you may be overlooking a large correlation that takes place and is the impetus for rate cuts - recession. The fed mostly raises rates when it looks like the markets are overheating and there is too much money sloshing around, credit is too easy to come by. The aim of raising rates is to slow down that easy cash and encourage savings, but this often goes too far the other way and can trigger a recession. So there may be another recession around the corner, but that is likely the real reason the stock market crashes but could also be independent from rate changes. When rates fall, people start pulling money out of bonds and savings in search of better returns, that cycle often starts a long time before when it comes to professional traders.

[Lucius]

~snip~
So basically, why is people buying, if with 100% of certainty, this has been working since the 2000? Shouldn't you be considering a scenario where prices will be lower?

In the title you say "things", and I assume you mean goods and services and not Bitcoin? I think that when it comes to some basic needs and a little more than that, we cannot expect people to refrain from spending money and buying something even if they know that in x months the same thing or service will be xx% cheaper.

No one can wait to buy gifts for the Christmas and New Year holidays, or to repair a leaking roof - but they could definitely think about it when it comes to buying a new car or some expensive device.

In that case, how would BTC perform? Will it successfully decouple from the markets, or is it going to mimick SP500 and just crash harder? Will the ETF hype + halving be enough to counteract these dynamics?

I believe that the next year is specific because of the halving and the possible approval of the spot ETF, so I personally expect that the price of Bitcoin will achieve a new ATH considering that this year (so far) we have had a growth of over 100%. Taking that into account, I believe that $80k to $100k by the end of next year is a realistic price to expect, even if the spot ETF is not approved.

[takuma sato]

before rate news is released people prepare for the worse. so they buy before news.. locking-in certain rate.. then when the news is released that rates are not as feared the market corrects.. and people can short/refinance their asset at the lower rate

before 2000, market rates were alot higher so people fear rates going back to the 1980's highs..
mortgages used to be 14% and many fear those numbers again so when there is a "rate risk" announcement approaching many will buy from 2-6 fearing the feds call for 10-14

after all we have just seen inflation reach 11% recently so numbers above 6 are a possible risk.

But those rates are insanely high if you consider the current amount of debt. How realistic is that interest rates goes to double figures? It's not the same as 20 years ago, now debt is higher, the higher the debt, the less leverage they have to make higher rates viable, this is why I think the market is betting on the rates going low, and even long term rates are considered to be good enough to start going low, meaning that people are buying TLT at current prices because they see it going lower, they don't believe the FED is going to be able to sustain anything above 4% for any longer. And as you can see on the link I posted, whenever rates have gone down, a recession kicked in and SP500 dumped. I want to see how will BTC perform in such scenario, considering that BTC has just followed SP500 more or less so far. Gold used to perform well in those scenarios, we'll see how BTC does. I think a TLT+BTC+some SP500 just in case we have a soft landing, would be a good bet.

[adaseb]

Yes the government has a lot of debt and it paying large amounts of interests on that debt. I think a trillion a year or so. It’s a crazy amount. And it would be best if they lowered interest rates so they spend less and have less deficits. However they can’t do they because …

If they lower rates right then it can be a repeat of 1970s. Where inflation came back and was much worse. And instead of 5% interest we can get 10% interest. It’s cheaper for the government right now to keep rates where they are instead of lowering them to raise to even higher next year.

[takuma sato]

Yes the government has a lot of debt and it paying large amounts of interests on that debt. I think a trillion a year or so. It’s a crazy amount. And it would be best if they lowered interest rates so they spend less and have less deficits. However they can’t do they because …

If they lower rates right then it can be a repeat of 1970s. Where inflation came back and was much worse. And instead of 5% interest we can get 10% interest. It’s cheaper for the government right now to keep rates where they are instead of lowering them to raise to even higher next year.

Yeah I believe there could be a second wave of inflation that hits the economy bigly due the FED cutting rates way too song, if not too fast. They said they will leave them high for as long a needed, but you already know if the market starts crashing, specially during election years, they are going to lower rates again, which will cause inflation to go up, which will make the FED raise again, but this time even higher, and that will as well cause an even bigger recession. Im not sure 2 figure inflation rates are sustainable at the current debt levels. Who knows how much shit will break at these rates. So the FED has to pick their poison at this point.

[pinggoki]

If you look at a chart that puts the sp500 on top of the FED rates, you will notice a pattern that shows how whenever the FED has lowered rates, the sp500 has crashed pretty bigly. So im wondering, is this going to be different this time?

If this has been the thing that's happening every time they lower the rates then I don't think that it's ever going to be different. To answer the question in the title, I think that they're misinformed or they're probably shorting a lot of stocks, that's the likely reason why they're buying.

If they lower rates right then it can be a repeat of 1970s. Where inflation came back and was much worse. And instead of 5% interest we can get 10% interest. It’s cheaper for the government right now to keep rates where they are instead of lowering them to raise to even higher next year.

It's good for the government but it's the people that are shouldering the burden of this rates right? Maybe if the US government is ever changing the way that they're managing their budget, they might be able to afford to lower the rates that the people don't have to worry about it.

[jacafbiz]

It is a just human psychology, buy the news, from past performance, we can see that the market always do well when the interest rate is low, reason being that access to capital improves, just look at when the interest rate was close to zero, you can access capital at zero interest rate and helps companies to perform better but when interest rate increases, the rate on the capital alone kills most companies, this is why you see so many companies defaulting on their interest payment and also household defaulting on their credit card payment because it has turned to burn on them.

[Husires]

The timing of the Federal Reserve raising interest rates will be at the end of the first quarter or the beginning of the second quarter, and at that time halving will have occurred with expectations of a correction. Therefore, if the ETF is approved, the price will be in the range of $60,000, and then the price will collapse to $43,000, and if it is not approved, I think we will be at $30,000 to$ 40,000 by then.

What governs the word correction is the timing in which you look at the chart, as if the price returns to $30,000, it is a correction, but it is not the case if we take the measure of a year.

[iBaba]

From the subject of the topic, I will like to clear up some perceptions of your thinking in economics. If you have ever encountered what is called the theory of demand, you would have understood why people rush for certain goods if the prices are low.

The theory of demand stated that as the price of the product increased, the lower the demand for that same product in the market, and as the price of the product decreased, the higher the demand. So, in marketing or economics, if the price of a product is high, the number of people purchasing that product will be low, and if the price of that product is low, the number of people buying the product will increase, which is the main reason why people rush to buy things if the price of such things is low.

I agree with this analysis and it can be more simplified with some few examples. Let's take a first example with those who invest in the cryptocurrencies as they buy the currencies when the prices of the crypto is low and with that, they have the advantage of buying more money to hold and having the opportunity to get it cheaper than the upward trend. These investors they wait until the market is saturated and have decided to rise in the upward market trend before they come out to release those coins for transactions. The same thing applies to the forex market.

Secondly, this is seen in the commodity exchange market where countries and individuals go out to purchase more commodities when the prices of those items shoot up in the market. You find people buying goods to stock because they heard a news of the prices going up and need to get the more quantity of the same value than they will get if the market rises.

Lastly is seen in the oil and gas industry where people rush to buy PMS when the are pretty cheaper you will find get to see situations where people store more on their cars especially as seen in developing countries during festive periods.

[bluebit25]

Crowd psychology, I want to talk specifically about the performance of bitcoin and crypto recently. Doubts were overwhelming at the times when BTC touched $15000 and $24000. Do fiat holders have no clear strategy? Can take advantage of those times to accumulate, and by now those who buy at FOMO prices will expect positive price growth. I am similar to some people who prefer to stay out of trends rather than follow the news with FOMO. I also express my opinion about price drops with huge pressure causing prices to drop suddenly but not for too long because there will be after a recovery, I also received a lot of criticism from people with opposing views. Anyway, with the crypto market, people should not be too confident. Although also need to change their approaches to adapt. Although the strategies may be different and looking at the longterm positive, it is always good for me, but does not mean that capital management is always favorable to maintaining investment.

[gunhell16]

Crowd psychology, I want to talk specifically about the performance of bitcoin and crypto recently. Doubts were overwhelming at the times when BTC touched $15000 and $24000. Do fiat holders have no clear strategy? Can take advantage of those times to accumulate, and by now those who buy at FOMO prices will expect positive price growth. I am similar to some people who prefer to stay out of trends rather than follow the news with FOMO. I also express my opinion about price drops with huge pressure causing prices to drop suddenly but not for too long because there will be after a recovery, I also received a lot of criticism from people with opposing views. Anyway, with the crypto market, people should not be too confident. Although also need to change their approaches to adapt. Although the strategies may be different and looking at the longterm positive, it is always good for me, but does not mean that capital management is always favorable to maintaining investment.

If the intention and desire of the investor is just to save and save via dca, what he is doing is that he does not affect any happening news in the market about such situations, so there is no problem. Whether it goes up or down, just save or buy as long as there is an opportunity to do so.

That's what long-term investors do most of the time, right? But let's just remember that they will not always favor what we want to happen. This is sometimes something others always forget in a scenario like this.