I was expecting the Fed to lower its target rate at the next meeting in mid-March.  Instead, we got a surprise with a 50 basis point cut on Tuesday morning.

The Fed is now only 100 basis points (1%) away from its all-time low for the federal funds rate. It can’t go beyond that unless it goes negative.

With the surprise news, yields fell once more.  It is no surprise that short-term yields plummeted.  But the 10-year yield briefly fell below the 1% barrier for the first time ever.

Gold went up on the news, which makes some sense.  The lower interest rates are correlated with a looser monetary policy.

I don’t know if the Fed was expecting to save the stock market, but stocks ended up tanking again, giving up much of the massive gains from Monday.  This just shows that the Fed can only do so much.  If anything, this move may have just spooked investors more.  Now we know the Fed is really worried about the situation.

I continue to contend that this is not just about the coronavirus.  That may have been the trigger, but the gun was already loaded.  Stocks were in a massive bubble, and they continue to be in a massive bubble.

I am a part of some online groups that discuss financial independence.  There are many people asking if they should buy now while stocks are on sale.  My answer continues to be a firm “no”.  They are on sale compared to two weeks ago, but they are still in a major bubble.

I can’t be certain, but I think we are in a recession now.  The bond market is certainly telling us that.  And if the Fed is cutting 50 basis points in an emergency meeting, I think Fed officials see it that way too.

Hopefully most people reading this are not heavy in stocks right now.  If you are, I would recommend diversifying now.

It took many years to blow the bubble up this much.  It won’t take years to deflate it.