In this episode, I discuss the recent decision by the Federal Reserve to lower interest rates and what that really means for you and the economy. I’ll break down how this move might not be the great news it seems to be and how it could be signaling something more concerning. I also share my insights on how to best protect your money during uncertain times and what you should be paying attention to beyond the news headlines.
Timestamps:
- Introduction – The Fed’s Interest Rate Decision – 00:00
- The Importance of Reviews and Audience Support – 00:52
- How the Fed’s Rate Cuts Impact You – 01:31
- Treasury Yields and Why They Matter More – 03:02
- The Real Signs of Recession: Yield Spreads Explained – 07:02
- The Big Picture: Why Banks and Investments Are Struggling – 08:49
- Watching the Two-Year and Ten-Year Yield Spread – 11:16
- The Risks of Lowering Interest Rates – What You Should Know – 13:32
- Strategies for Protecting Your Wealth Amid Economic Changes – 14:53
- What You Should Do Now – Cash Reserves, Investing, and Planning – 17:54
- Why It’s Critical to Be Watchful and Stop Following the Media – 21:44
- Conclusion – 23:14
Passive income Calculator link: https://bit.ly/3ZqE5HC
TRANSCRIPTS
Speaker 1 (00:00):
No surprise, the Fed’s been lowering the rates, but is that a good thing for the economy or could it be a sign of something worse? That’s what we’re going to share in our episode today. Hello, my fellow Ripples. This is Chris Miles, your cashflow expert and anti financianal advisor. This show is for you, those that work so hard for your money and you’re sick and tired of that and you want your money to start working harder for you today. You want that freedom and cashflow. Now, you want to become work optional where you work because you want to, not because you have to and not just get rich, but live a rich life where you can bless the lives of others because when you’re blessed financially, you have a greater capacity to create a ripple effect of the lives of those around you. Thank you for tuning in today.
(00:52)
Thank you for joining our show because without you guys, we would not have been able to grow for the last 10 years. Now going on 10 and a half years, can you believe that, that we’ve had this show active and live? That’s all because of you. Hey, a quick ask for you guys. If you like this show, please leave us a review. Leave us a review on Apple, apple Podcasts and let us know. Do you love it? Now, if you hate our show, please don’t leave a review. Don’t even waste your effort. Just move on. But if you love our show, please give us a shout out. We really, really appreciate that. Alright, so let’s talk about the Feds, right? We talked about the Feds lowering the rates. Now I’m recording this before the feds actually do it. I actually predict that it’s going to be a quarter percent.
(01:31)
I don’t think it’ll be a full half percent. If it were, I’d be really shocked and actually scared, but it’s going to be like a little quarter percent drop and the question people will ask is, of course, are they planning to lower it? If so, how much? How far? And really, if they lower these rates, what does it really do for us? I’ll tell you this much right off the bat, guys, a quarter percent does nothing for you. It does nothing. Okay? Yeah, sure, your home equity equity line of credit might go down a little bit, but remember, credit cards lag on their interest following the rates. They tend to slowly follow those rates. Banks tend to move a little bit faster on their rates. They’ll tend to do it within a month of when it happens sometimes within a week or two. But really you’re not going to see a much of, even if it were a half percent, you’re not going to see anything effect it.
(02:17)
You would have to see the rates drop a good, I would say at least one and a half to 2% to start seeing this really affect things and it would actually be down the line. It would be a slower ripple effect. Money ripples, right? Slower ripple effect before it actually affects and benefits you. But if it does start to drop that much and depending on how fast it drops, you should be concerned. Here’s the thing guys. The feds actually aren’t the ones that are the bosses here. I mean, yes, they do determine the discount fed rate that they use for banks and things like that, and even for Prime is based on that, the prime rate that banks will charge you. Yes, it’s all based on that. But the truth of this guys is that the feds just follow behind what’s already happening in the interest rate environment.
(03:02)
Now, if you look at some of the interest rates right now, it’s pretty interesting. So right here, I’m showing you the 10 year treasury yield right Now, a lot of times mortgage rates will actually follow this line, but this 10 year treasury yield and general treasury yields everything. In general, the feds follow the yields. It’s not the yields following the feds. It’s the other way around and the feds are freaking slow at it, right? So just showing you the last five years, this is showing you from 2019 really the fall of 2019 until now. Here’s what’s fascinating guys, is that a lot of people think the feds lower the rates and do all that stuff. Well, they had already raised the rates, but they were considering lowering the rates at one point even though they were pretty dang low. So you can see back here, back in 2019 and 2019, we see the rates were kind of going flat For that month we saw a rate around 1.8, 1.9 on the 10 year treasury.
(03:54)
But then here’s what’s interesting guys. By February something already started to shift and then go into March. By the way, this is before lockdowns. This is just, but you can already see this thing drop down to route 1%, even lower than 1% at one point, even by early March, that’s the first week of March, we didn’t have a shutdown until about the third week, which we see there. Now it’s already bottoming out at this point. The rates had already dropped, the feds followed suit. Now if I show you the bigger, the bigger one right here, if you go many, many years to show you here and kind of see a little bit more easily that they were kind of going up, but then even starting in about 2018, they started to go down. The feds are already starting to see signs that there could be recession.
(04:37)
But as a result of what happened with that nice little bounce by way, you can see the eighties much, much worse than now, but as a result of the bounce, the things that happened where they started pumping tons and tons of money into the economy, as a result, we started to see this everything bubble inflation, and that’s what we’ve seen the after effects today. So they had to rise the interest rates fast and hard. They didn’t have to, but they did because why? They’re freaking slow. Because here’s the thing, we didn’t see interest rates start to rise until about mid 2022, right? Well look at this. Even after bottomed out, this is going up, it was still below 1%. It started to get above 1%. They were already going up in 2021, even going through 2021 now going into 2022. Now these things started to go up pretty hard and fast.
(05:25)
You could see that even by May, this thing was already up to almost 3%. What did the feds do? Nothing. At this point, they finally started to move. About this time period, they started to finally raise rates and they did it fast. And then yes, we saw these up until October of last year. So about a year ago it topped out right around 5%, and now as of September 13th when I’m recording this, they’ve dropped down about 3.65. So now the rates have actually dropped almost a full percent and a half from the highs. That was at in 2023 when they actually had about stopped raising interest rates. So naturally they are going to lower interest rates because they follow suit. They’re just really slow at doing it. They just are like the slow moving little truck that just follows along whatever those rates do. So the rates dictate it, and those are based on trading and things like that are going on, international stuff are affecting it, all that kind of thing.
(06:15)
Rates will come down, but your day-to-day life is not going to be affected by these rates going down much. This is not what you should be staring at. This is not what you should be worrying about. The truth is that if you’re in the right investments, the right assets, you really won’t care. Now, like I said, if you have a homemaker line of credit, you’re going to care because you’re noticing you’re paying a lot of money for this. But for the most part, these lowering rates aren’t going to do a whole lot unless they go down significantly. Even the apartment investing and everything else, the floating rate that’s been stressing out, or not residential, but multifamily and commercial real estate, you hear in the news, by the way, you notice in the news they said by 2024, everything’s going to hit the fan, right? Still, it still hasn’t hit the fan because banks have been more negotiating.
(07:02)
Why? Because the banks still have money. The feds have still been feeding them money. The money supply is still up, guys, there are still a lot of money being shoved out into the marketplace and that is why we’re not seeing contractions. Now, on the other hand, if you guys may not have noticed this now, fed rates, everybody’s looking at that, but what you should be paying attention to is this. Alright? So right here you’ll see we’ve got this, the two year, 10 year spread, they call this the yield spread. The difference is between short-term and long-term bonds. Usually just like CDs when you go to a bank, the longer term the CD is higher rate, the shorter term is lower rate. However, this changes. You’ll see here I got about a five year chart up. You see right here is about 0%. You can’t see it because it’s kind of covered up, but there is a line right about here, okay, that’s at zero Now this is where it’s zero.
(07:57)
Now when it gets above zero, now I notice in 2019 it actually dipped a little bit below. Let’s see if I can even, there we go. We did dip below for just a little bit there in 2019, which is why they were predicting a possible recession 2020 thanks to Covid and everybody else pumping lots of money. It’s almost like it delayed the inevitable, but usually when it drops below zero, that’s a signal that a recession is coming and usually on average it’s roughly about a 20, 27 month, about a two year forward looking type of thing. So when it drops below zero, that usually means the clock could be ticking. Again, there’s no guarantee, but this has been true of most recessions in the recent history is that usually in about two years you’ll see the recession hit. Well, guess what happened right there? About 2022 when there are certain raise rates, bam, it started going down, it hit zero, and then it started going negative.
(08:49)
It has been negative guys for over two years straight. This is big in the grand scheme of things. If you at this overall, let’s go back to look at this. You’ll see that it doesn’t usually dip for a long period of time. Notice right here we had 2005 where it started to dip right there about the third quarter, it went down below, and then of course in 2006 it went down. Then it popped back up in December of 2006 and started to go up again and it went up fast really fast. Now notice the recession wasn’t really until close to that point, that peak point again, it happens at the end. So remember it started about really about summer of 2005, and then we saw right there in 2007 and 2007, so again, a little over two years, the recession hits. If you go back to Y 2K, we started to see it drop below right there in 1999.
(09:43)
It went fast. It popped back up and then into 2000 and notice it was going up even in 2000, 2001. Well, the recession didn’t really start until about the end of 2000, right? So that one was about a little over a year, give or take, or about a year or so where it hit. You would see other times it did that right there in the eighties after the banking crisis, we had that little recession there too, had one that dipped close there in the early nineties. There was a little recession then as well. Course the eighties we see it dipped really bad. You can see it was horrible right there in 1979. It was really bad. It tanked, and then of course that’s where they started jacking up rates and doing all kinds of stuff. So really in this history now, the last two plus years, now we’re going on since this was about the spring of 22, we’re about two and a half years in it’s popped now above it.
(10:31)
This is what happens guys, every time it pops above zero, that’s usually when you start to see the recessions hit because all of a sudden there’s things get back into balance. But when they get back into balance, it creates a little bit of additional stress. Most times people think there’s so short-term thinking, this is why banks were only giving you 5% on six month CDs, not five year CDs. You were getting worse on the longer term CDs than the short term. Well, now things are getting flipped back in the other direction. Again, that can cause stress, especially in the bank environment. If things get a little bit tighter with money and things like that, people move money around. Depending on what happens, that can affect you. So that’s the kind of thing that I watch. I watch the yield spread. Now it’s gone positive. It’s kind of like, ooh, things could be getting a little exciting now, right?
(11:16)
It’s always been that way, but it’s kind of like now we get to see here it is. Could this be putting this new recession? This is what it comes back to. The fed’s rates. Remember, the feds are only reacting to data. They’re not actually the ones causing things. So when they’re reacting to this, if the rates go down, especially they go down fast, you should be concerned because that means there’s something worse. This is why they’re watching employment numbers. I know the employment numbers they’re coming out with are just total lies. The fact that they say that unemployment’s still considered full employment, but we’re seeing literally daily we are seeing retailers and restaurants closing down their chains and locations left and right, filing chapter 11 bankruptcy, trying to figure out what to do if they’re going to sell off or just disappear off the face of the earth.
(12:07)
Some of ’em might be able to keep in business, but they’re struggling, right? They’re struggling. Banks have been struggling. I’ve had clients in the banking industry get laid off. I’ve had clients in the tech sector and I know some of you guys are in the tech sector. You’ve been laid off. Sometimes there’s been plenty of you in that space that’s already seeing this happening. You’re seeing the real life. Not to mention spending is getting harder because inflation is still going up yet wages aren’t going up anymore. There’s not the great resignation. People aren’t trying to beg you to come work for them anymore. No, you’re actually getting pretty much the same pay as you were last year, unless you’re maybe a growing, thriving company, but most companies are having to cut back. That’s why they’re doing layoffs. That’s why they, all these things are happening.
(12:47)
This is a sign of retraction. Credit card balances have gone up, savings have gone down. Credit card delinquencies and auto delinquencies are still going up. Even if just slowly, all of these things are happening to combine to show us that things are slowing down. If they finally start to report real numbers, we know the Bureau of Labor statistics aren’t as good, but we do know that there’s a lot less jobs being created by the A DP who’s a much better. They do less, better measurements of what’s going on in the job market right now. Well, my goodness guys. I mean, if we’re seeing that happening, what else could be happening too? So that’s the worry is that if you start to see the feds really lower rates, it’s not because that they’re just giving you a break because they see that there could be a big retraction.
(13:32)
I don’t think they’re going to do it fast. I really don’t. I could be wrong. I don’t think they’re going to lower the rates really quickly. It is possible they might lower it a half percent by the end of the year by don’t know if three quarter percent is realistic. If it does happen, it’s because we already start the thing I just talked about with all these retractions could be happening at that moment, but for the most part, I don’t think they’ll go much more than about a half percent. I think they’re going to be very slow and gradual trying to create a slow landing as they’ve talked about. The thing is a slow landing. Is it just a dead stop? Is it going to be a slow crashing, whatever it might be? I don’t know. The truth is this guys that this is why I don’t try to predict everything.
(14:12)
I just try to read the signs and see what’s going on and say, alright, where should I have my money? And guys, when I put my money, one, I know the safest place I can put my money even beyond the bank is I put it in my life insurance guys. This is what I do literally for myself. It’s not something I say to say, go buy life insurance through us, right? Because that’s not the case. The reality is, is that we are all about that. It’s like how do we preserve the money we have? I’ve been over the last two years, been slowly building up my savings and slowly building that up. I’m still investing. I’m still reinvesting some of my cashflow and stuff, but I’m not doing as aggressively as it was in like 2021. I’ve been building up my cash reserves, just like Warren Buffet’s been building up now, he’s been building it up pretty aggressively.
(14:53)
He’s been doing it hard and fast. He’s got $300 billion just sitting on the sidelines. Half of his Apple stock gone. He’s been doing that because he’s gearing up for that retraction I’m talking about here, and that’s the thing that you should be watching more carefully, and this is why I don’t want money in the stock market, and by the way, September 13th when I’m recording, this is the last day that stocks can do buybacks. Companies have been buying back their stocks, making less supply of their stock, driving the prices up when they buy back their stocks, what happens if they start trying to sell it again? Then they put more stocks out into the marketplace that you can then buy. The price goes down even if the company’s fine. Still more supply means that there’s less demand, and as a result, prices can come down. I think right now, I mean again, I’m talking about this in September 13th, I really believe you’re going to start seeing the stock market react accordingly.
(15:46)
Not because, not just because of Nvidia being overvalued, which is true, right? And that’s driving the s and p. I mean, the sad thing is you got one company, big company that’s been overinflated driving the index, everybody says is the safe diversified index. But when that gets bigger and bigger, these bigger companies, even Google and Apple and all these companies are driving the big share of that value. They’re all tech stocks. What if tech gets affected? You watch the NASDAQ drop, you watch the s and p drop, the Russell won’t drop as much, but that gets affected too. But I mean, you got to see all this collapsing happening, and when that happens, what do you do right now? You’ll hold on tight. If you’re like the average American, you’ll just hold on tight to it because that’s what your financial advisor said to do is just stop looking at it.
(16:28)
Don’t even look at the daily numbers. In fact, just ignore it, which never works in real life. By the way, when you ignore anything like your marriage, your health or anything else, just ignore it. Ignore the signs. Ignore that. It seems like I might have cancer. I’m just ignore it and maybe it’ll correct itself. No, guys, that’s the dumbest thing to do. Why do it with your money? But people do it every day, and they especially do it when the markets start to go down and they retract and they want to stay in, right? That’s not the time to stay in. That’s the time that the smartest people have already gotten out by that point. They’ve already moved in saying, where can I move my money that other people aren’t talking about? Where can I move it to a place that people actually think is a bad idea?
(17:07)
This is why I think in 2025, you’ll start to hear about multifamily investing like apartment investing. You’ll probably see more podcasts talking about that in 2025. I could be wrong. Things could shift and change, and that’s again, why don’t try to predict it. I’m just watching the signs. Same thing with self-storage. Self storage has got some time still, they’re still hard to find good deals in self storage right now. That might be at least 20, 25 before you find that stuff, but right now, I think homes, single family homes are still a decent good place to store your money to keep it safe. I think, again, this is not investment recommendation. I’m not giving investment advice. That’s my disclaimer here. If anything, you store your money, life insurance is a safer place to go. I can say that legally, but even then, you should consult your financial professional in your life, right?
(17:54)
There you go. Another disclaimer for you, that’s what I’m seeing for myself is I’m seeing that I think properties will be good. I still think lending is fine if it’s lent to the right people. When you lend money to the right people, it can be a good thing when I get passive income from that. I’ve had great success in raw land the last few years, last three years really, and I’ve of course talked about that before with you guys in previous episodes. So I mean, regardless, there’s still plenty of opportunities. Still plenty of places to put money to make good money and make good cashflow. You just got to be aware that right now, whatever happens with interest rates, just know that the feds are just following and they’re following too late, and usually they correct too late and then they overcorrect too much. Just like with these higher interest rates, they might have already overcorrected for too much too long and they think things are going well, and who knows?
(18:41)
We might even see more inflation happening before the end of the year. I don’t think we’re done with inflation yet. I think that still can go up because again, that money supply, I watched that M two money supply, if you guys look it up, M two money supply watch that you’ll see that they’re really not backing off. There’s still money in the system. It’s when the money backs out of the system. When you start to see it drastically reduce, then you see a collapse, but we haven’t been seeing that lately. They’re actually still pumping more money, and by the way, you guess where the most of that money supply is coming from government spending. That’s right. The main reason, one of the main reasons, I can’t say it’s the main reason, but it’s one of the main reasons we’re still seeing what looks like a growing economy is because of government spending.
(19:21)
That is the thing that I’d be concerned about right now is at what point are governments going to just keep spending too much? Will they get it under control or not? That could create something even worse than what I could potentially seeing down the line where it could be this slow, gradual, maybe even a long mild recession. I don’t want to say it’s going to be a deep one. It might just be, what if it weren’t a deep recession? What if it wasn’t like another 2008, like another global financial crisis? What if it was just a long, slow, mild recession where people weren’t getting ahead, people were still suffering, they were still layoffs and things like that, but things are just stagnant. What if that happened? That would be worse, in my opinion, at least. Things were hard and fast. I call it fake recession of 2020 when it happened for just one quarter, for three months of the three month recession, those kinds of things.
(20:14)
That was just a quick little tidbit, little blip in history, but it came right RO and right back when they started to open things up again. I see the same thing here too, is that that was quick and fast, and then it came back roaring, and of course it came back. It was too fast in my opinion, and that’s why it’s almost as if it didn’t exist, and it created almost hyperinflation. Now we got the opposite problem. What if all of a sudden they created just stagflation? What if it created a worst case deflation, where actually your dollars become worth less, not even just worth less. They become worth more, but all of a sudden things start to drop in values, including the things you pay for and everything else. You’re like, yes, lower prices, but what if your wages meant lower wages too? What if it meant you got laid off because of what’s going on there?
(21:01)
There’s all kinds of things that can happen. I’m not trying to scare you guys. All I’m trying to say is it’s good to keep your ear to the ground. This is why I surround myself with people to do that. That’s why I bring people as guests on this podcast. They bring other perspectives besides just my own, and this is why you can’t always just predict going out even six, 12 months, sometimes only the next month or two, that we can predict things a little bit easier. But as you start to watch things, and especially as I like to do, I like to keep my money in assets that I believe are more recession proof. They’re not recession proof in that sense, but they’re recession resistant, right? They have more stability. They tend to hold their value better. Yes, I do have precious metals at gold and silver, but I keep my money in real estate for that very reason.
(21:44)
The one thing, people always need a place to live, but not everybody needs to buy an Nvidia stock share, right? That’s the truth. So that’s the difference. I like to know that I have real assets backing up my money and that I keep my money in good, safe places so I can grow and I can also create cashflow too. That’s why we got to tell you guys just as quick advice is that the advice is be watchful. Be watchful, especially of your money, and where do you keep your money? Are you keeping in high risk, high market, volatile type of things? You might want to cut that out. Maybe you want to start being a little bit more conservative. Maybe you want to start backing off that risk. Sure, you can still gamble your money and things like that. I still have clients that still have all their money in individual stocks in the tech sector, even for that matter.
(22:27)
Heck, even in Apple. But the thing is, you got to be aware of where do I keep my money to keep it safe? Where can I actually diversify it? Truly diversify, not like what the financial advisor says, which is just a bunch of mutual funds that are all in the same place anyways. Instead, being in multiple asset classes like real estate business, commodities like gold and silver and things like that on oil and gas and whatnot, diversify your money out. Have it in good cash reserves too. Even if you have paper assets, keep it in good solid places that you know can preserve your money because it’s much harder to dig back out of a hole than it’s to keep the money and then slowly grow it too. You can grow it slowly, you can grow it faster, but I’m here to say is preserving your money, having a return of your money is much more important than just having a return on your money.
(23:14)
We want both, but you want your money to come back to you first and foremost, that it’s in your control, it’s preserved, and then you can grow it with more confidence. So guys, be watchful, be wary and stop listening to freaking media because they’re always behind the times, right? They’re always behind the curve. Be sure to do what’s wise for you and your family. What really is on the table, this is what really matters, guys. It’s not about the markets. It’s about you and your family. How does it affect your life? Your peace of mind, day in and day out? This is why cashflow and passive income is so important. You need that, and you need to make sure that your money’s working harder for you so you don’t have to work so hard for it or worry about losing it at the drop of a hat. That’s what I recommend, is that you guys be wise with your money. If we can ever help you in any way, reach out to us@moneyripples.com. Make it a one phone prosperous week.