- Things do not change; we change.
- Henry David Thoreau
For the past two weeks, news of the solar eclipse dominated the media. In the stock market there was another eclipse. Fed members gave forecasts that maybe the Federal Reserve will only have one rate cut instead of three and late into the year?
The solar eclipse lasted less then five minutes; the Fed market eclipse will last a lot longer. The Bulls had pushed the recent market rally with a meme of 40,000 Dow. Now, they secretly hope that support holds at 38,000. They cannot find help in the SPY. We believe it will test 497. We have already told you, Dear Reader, that this is not a true rally according to Dow Theory. The Transports have not participated. The index is still in consolidation. The bottom of the range is 1,000 points below the last high. Unlike Elon Musk who said in 2022 that we will have robo or driverless taxi's in one year, our forecasts are a little more accurate.
Interest Rates and the Dollar
By keeping interest rates at a higher level, the Fed is playing a dangerous cat and mouse game. At the end of every month commercial real estate loans are closer to be refinanced. At present rates, many will bust like we have seen with Evergrande in China. Once liquidation happens, there is a danger of contagion within the commercial real estate sector. This will cause Trump to suffer economically, but his ego could use the disaster to win in November. However, a lot can happen between now and the election. Biden can benefit by saying that he kept the economy going in the face of strong inflation, higher rates by the Fed and all his legislation and efforts to keep the economic boat on an even keel. If he keeps his help to the Baltimore bridge in the news, this will be a plus. Again, too early for election predictions and we dislike both candidates. However, since we mentioned the Francis Scott Key bridge, we will throw out the BDI or shipping index. It has not budged from its low-level range.
King $Dollar
It has rallied. Even the retrace did not reach the 103.5 level. This has kept inflation at bay, but the danger of inflation in a second wave is never far away. If the dollar falters, inflation will return. At the moment, we are seeing a strong rally in commodities. We predicted this. Truth be told. We believed a falling dollar would be the catalyst. This belief still holds. This is our point. If gold, oil and copper are all climbing in this upper level interest rate structure, how high will they fly when the US debt causes King Dollar to decline?
Doctor Copper
It reached $4.24 last Friday. The next leg up is $4.40. Then, resistance at $4.60. If this momentum continues, it could pierce the last high at $5.00. Here's hoping everyone had a pleasant holiday and did not pick up any virus because a doctor's visit can be expensive. Peace.
