The Fed's recent rate cuts, despite strong economic indicators, are seen as a capitulation to political pressure. This suggests the central bank is now functioning as a "political utility" to manage government debt, marking a victory for political influence over its traditional independence.
Following a dovish Fed meeting, the outperformance of small-cap stocks (IWM ETF) versus large-cap tech is the key signal of a healthy, broadening market rally. This indicates capital is flowing beyond mega-cap names into the wider economy, confirming a "game on" sentiment for risk assets.
A consistent, lagging relationship exists where gold prices rally first, and Bitcoin follows after a period of consolidation. This pattern, observed over multiple cycles, suggests capital flows into "sound money" assets sequentially, starting with the traditional store of value before moving to the digital alternative.
Fed rate cuts are primarily driven by the need to support the value of assets predominantly held by baby boomers, such as commercial real estate and pensions. This policy prevents these assets from reaching a natural market clearing price, effectively functioning as a tax on younger generations to prop up boomer wealth.
Economic policies benefiting older, asset-owning generations at the expense of younger ones are reshaping politics. The traditional left-right divide is becoming less relevant than the conflict between classes, which is highly correlated with age, creating unusual political alliances between formerly opposed groups.
The Fed is cutting rates despite strong growth and inflation, signaling a new policy goal: generating nominal GDP growth to de-lever the government's massive, wartime-level debt. This prioritizes servicing government debt over traditional inflation and employment mandates, effectively creating a third mandate.
High dilution costs and a focus on narrative-driven stocks (AI, crypto) make public markets unattractive for traditional businesses. These companies now favor private credit for growth capital, creating a bifurcation where public markets are dominated by speculative assets while real economic value stays private.