Recently, I saw some people asking: Has the December rate cut already been fully priced in? I actually think that maybe the macro-level bearish factors are about to bottom out.

Of course, the end of bearish news doesn’t mean it’s about to take off immediately; it just means the downward pressure might not be as great anymore.

# The Fed’s Pace Has Changed

There was a pretty key move at the beginning of December—the balance sheet reduction stopped. No matter if the rate cuts are gradual or consecutive from here, the easing cycle has officially begun.

# Why Are Banks Short on Cash?

There’s an interesting phenomenon: with rates this high, you’d think banks would attract more deposits, so why are they complaining about a cash shortage?

The logic is actually simple. In a high interest rate environment, it also costs banks more to get money, and the profit margin they make from lending it out gets compressed. What’s more, these high rates aren’t because the economy is overheating, but are being passively maintained, so loan demand is already weak, and naturally banks experience liquidity stress at times.

Just look at the data: the overnight repo in June was $11 billion, in October it shot up to $29.4 billion, and recently there was another $13.5 billion in temporary injections. Three large-scale operations show that the banking system’s liquidity issue is no joke.

Looking back in history, similar situations occurred from November 2019 to April 2020—that was also the early stage of rate cuts. But the scale of overnight repos back then was even more dramatic, and the rate cuts in early 2020 were much more aggressive...