Fed Cuts Coming or Crisis Brewing? | Macro Mondays: November 17th, 2025

Key Concepts

• Liquidity: The availability of money or easily convertible assets in the financial system.
• Repo Rate: The interest rate at which financial institutions lend money to each other overnight, using securities as collateral.
• Standing Repo Facility (SRF): A Federal Reserve tool that allows banks to borrow money overnight against collateral at a set interest rate.
• Yield Curve: A graph showing the relationship between the interest rates (or yields) and the time to maturity of debt. A steep yield curve indicates higher long-term yields compared to short-term yields.
• Credit Creation: The process by which banks lend money, thereby increasing the money supply.
• ISM (Institute for Supply Management) Manufacturing PMI: An economic indicator that measures the manufacturing sector's health. A reading above 50 indicates expansion.
• QE (Quantitative Easing): A monetary policy tool where a central bank purchases long-term securities to inject liquidity into the economy.
• Rare Earth Magnets: Critical components used in various high-tech applications, including military equipment and renewable energy technologies.
• Supply Chain: The network of organizations, people, activities, information, and resources involved in moving a product or service from supplier to customer.

Macro Mondays: Liquidity, Fed Policy, and Global Trade

This episode of Macro Mondays, hosted by Mikol and featuring Andreas, delves into the current state of market liquidity, potential Federal Reserve actions, and ongoing global trade dynamics. The discussion highlights the volatility experienced in recent weeks and aims to provide a deeper understanding of the factors influencing market movements.

1. The US Government Reopening and its Liquidity Impact

• Main Topic: The US government's full reopening following a shutdown.
• Key Points:
  • The reopening allows the government to resume paying its bills, which should reduce the amount of trapped cash at the Federal Reserve.
  • When the US Treasury pays its bills, this liquidity flows into the private banking system, benefiting depositors and banks.
• Argument/Perspective: While the reopening is positive for liquidity, it is not considered sufficient to fully resolve the current liquidity crunch.

2. Persistent Dollar Liquidity Scarcity and the Repo Market

• Main Topic: Ongoing concerns about dollar liquidity, particularly between banks.
• Key Points:
  • Fact/Figure: Repo rates have been observed rising above the Federal Reserve's Standing Repo Facility (SRF) rate of 4%. For example, two-week repo rates have been pricing around 40-50 basis points higher.
  • Technical Term: The Standing Repo Facility (SRF) is a tool designed to cap money market rates at 4%. Its inability to do so indicates a liquidity shortage.
• Arguments/Perspectives:
  • Reason 1 for SRF Ineffectiveness: Not all market participants have direct access to the SRF, leading to higher rates for those without access.
  • Reason 2 for SRF Ineffectiveness: Banks may be hesitant to use the SRF due to the potential negative market perception of borrowing from the Fed, which could be seen as a sign of distress.
• Conclusion: The repo market continues to signal that the liquidity situation is not fully resolved, suggesting the Federal Reserve will need to intervene.

3. Federal Reserve Policy and the December Meeting

• Main Topic: The upcoming Federal Reserve meeting in December and the possibility of an interest rate cut.
• Key Points:
  • Data/Statistic: Market odds on Poly Market for a December rate cut have narrowed significantly, approaching a 50/50 chance.
  • Supporting Evidence: Several Fed committee members (e.g., Collins, Schmidt) have publicly expressed doubts about continuing the cutting cycle.
  • Counterpoint: Other members (e.g., Waller, Bowman) are more supportive of a cut.
  • Key Figure: The Fed Chairman's stance is crucial for consensus building in a divided committee.
  • Crucial Data Release: The next inflation report (CPI) will be released six hours before the Fed decision, likely influencing the committee's deliberations.
• Argument/Perspective: The speaker leans towards a December cut, believing that the committee will have sufficient data (including the inflation report) to justify it. The primary focus for the market will be whether the Fed signals a continued easing bias into 2026 or if this cut marks the end of the cycle.
• Additional Point: There's a growing likelihood of the Fed expanding its balance sheet, potentially even before the December meeting, as indicated by comments from the head of the New York Fed.

4. Global Trade Dynamics: US-China Relations and Rare Earths

• Main Topic: The complexities of US-China trade negotiations, specifically concerning rare earth elements.
• Key Points:
  • Contradictory Headlines: Despite previous reports of a trade deal, new headlines suggest ongoing negotiations for a rare earth deal.
  • Historical Context: Past trade agreements with China have not been fully implemented (e.g., promised agricultural purchases).
  • Rare Earth Magnets: These are critical for military equipment and renewable energy.
• Arguments/Perspectives:
  • The current negotiations appear to be more of a "handshake" agreement, with details still being worked out behind closed doors.
  • There's a rhetorical détente, with both sides attempting to avoid public disputes.
  • Long-Term Strategy: Regardless of short-term deals, the US and Europe need to re-establish their own rare earth supply chains due to China's weaponization of its supply chain control.
  • Solar Supply Chain: A significant counterargument to large-scale solar adoption in the US and Europe is the continued reliance on Chinese supply chains.

5. Investment Themes: Solar Energy and Drone Technology

• Main Topic: Investment opportunities in the solar energy and drone sectors.
• Solar Energy:
  • Argument/Perspective: The speaker remains bullish on solar, viewing it as a fundamental energy source.
  • Investment Strategy: Prefers exposure to multiple parts of the solar supply chain, particularly companies with a strong US domestic footprint.
  • Rationale: The US market is seen as having a significant catch-up play in solar adoption compared to China and Europe.
  • Comparison: Solar and natural gas are considered the most viable options to meet near-term electricity demand increases (e.g., from AI) within the next 12-18 months, potentially outperforming small nuclear reactors.
  • Political Immunity: Solar is considered more politically resilient than nuclear power.
• Drone Technology:
  • Trend: Exponential adoption of drones in the military realm, particularly evident in the Ukraine-Russia war.
  • Investment Case: A slightly longer-term investment case exists, especially if headwinds emerge in 2026.

6. Addressing Listener Questions

• Question 1: Mike Howell's View on Liquidity and 2026 Outlook
  • Howell's Argument: Liquidity growth is slowing, and 2026 looks bleak for risk assets without explicit Fed QE. Howell's liquidity index incorporates the collateral value of bonds.
  • Speaker's Counterargument: Disagrees with Howell's methodology, particularly the negative impact of rising bond yields on his index.
  • Speaker's Perspective: A steeper yield curve is a natural liquidity enhancer because it allows private banks to profit from the difference between short-term borrowing costs and long-term lending rates. This has shifted credit creation from central banks to private banks.
  • Conclusion: The global liquidity picture appears better when accounting for the natural amplifier of a steeper yield curve.
• Question 2: "Repocalypse" and ISM Above 50
  • "Repocalypse" (Repo Market Collapse): The speaker believes the first signs of stress have been seen, but the New York Fed is likely to manage the situation, preventing a full-blown "apocalypse" akin to 2019.
  • ISM Above 50: The speaker predicts this will occur within two months, suggesting an upcoming upswing in the manufacturing sector. This prediction has been consistently wrong this year, but a de-escalation in US-China tensions could facilitate this.

7. Real Vision Content and Upcoming Events

• Weekly Editorial: Andreas's editorial this week dives deeper into the liquidity issue and the role of leverage.
• Model Portfolio: Discusses bets in the model portfolio, including some that have recently underperformed, such as drone shield cage and other drone stocks.
• Ask Me Anything (AMA): A live Q&A session with Mikol and Andreas will take place tomorrow at 3:00 PM Eastern Time.
• Monthly Drink with Raoul: A free show with Raoul Pal on Wednesday.

8. Conclusion and Takeaways

The discussion emphasizes that while the US government reopening offers some liquidity relief, the financial system still faces dollar liquidity scarcity, as evidenced by the repo market. The Federal Reserve's December meeting is a critical juncture, with a potential rate cut being closely watched. Global trade remains complex, with ongoing US-China negotiations and a long-term imperative for diversified supply chains. Investment opportunities exist in solar energy, driven by domestic catch-up potential, and in drone technology, fueled by military adoption. The conversation also highlights differing views on liquidity assessment and the outlook for key economic indicators like the ISM PMI. The importance of staying informed through Real Vision's content and live events is reiterated.