Last week we talked about market price movement with the analogy of a ball moving. We ended with the word, stop. It signifies the give and take between the Bulls and the Bears. The conclusion being the market would settle into a consolidation period, waiting for something to change perspective. It came from Jackson Hole, Wy. The Fed chair, Powell kicked the ball to get it rolling again. He announced an interest rate is coming at the next meeting in September.
Dear Reader, it does not matter the size of the rate cut. The important aspect is the change in policy. The future rate cut will break the uptrend in interest rates. History shows that the Fed follows a pattern. When they raise rates, it develops a channel rising. By the same token, when they cut, rates go staight down. This kicking of the ball sets many other things in motion. We can see the most important one...
King $Dollar
It has fallen sharply from 105+ last month to 100.61 last Friday. This drop was based on the anticipation of a rate cut. The dollar experienced the same type of price action last November when the value of the dollar was 106+ and then, dropped in December to the 100 level. The rumors proved to be wrong. The dollar rose. This time is different. The price change is based on verification from the horse's mouth. The story in the dollar's value will get more juice or stall by what Powell says at the September meeting. We believe the dollar will test the last low of 99 and consolidate until the word is given. If the market believes that more rate cuts are coming, the dollar will test the next level down at 89. Powell does not want that to happen because the...
Market could explode. The lower rates will help housing. We can see the anticipation in two large home builders. Toll Brothers and Lenar rose to all-time highs. The spark of lower rates will help commercial loans that are in do-do. Job layoffs will stop and turn to hiring. This all sounds good. Even the two presidential candidates will spin off these developments. Harris will say the Democrats plan is working. Trump will say the economy is responding to his projected victory. Neither will mention the second confirmation. Powell gave us the first one. The truth is just like rate increases take time to be felt, so does rate cuts. However, the value of the dollar is effected right away. The falling value will enact the second confirmation.
Inflation!
The dollar is central to world trade and commodities. Gas will get expensive and if demand rises, a spike to $100 is possible. It gets worse because everything is shipped. Transportation costs rise. Producers will hike prices and shrink product size. Housing prices will rise and this will make rental prices rise. No matter how you look at it, we all will suffer another round of high prices. As we stated in an previous piece, a second wave of inflation. I suggest that you stock up on products like bathroom tissue, coffee, rice and similar items that are not perishable. To be warned is to be forearmed. Peace.
