So there's all this coverage now about the next FOMC (that's Fed Open Mouth Committee) meeting this week and the expected rate cut.
FWIW, I think the Fed will cut. Look at who the chairman is. 25 bps. But that's just a guess, not even a forecast. To paraphrase a friend of mine, when it comes to economics, I'm not even a dilettante.
However, what will this cut (and God forbid if it turns out to be a 50 bps cut), do to the USD? OMFG! I think we see oil at $100 if that happens, quite honestly. Not for any actual, real, fundamental reason. It really becomes a psychological move at that point, but I think it happens. At that point, things get ugly. I think you face the imminent move away from the greenback by everyone tired of paying more dollars for the same resources. Look, Kuwait already made the move. You know the Chinese have to be looking for the exit, and how to get out of it before anyone notices they left the party. Fuck, I'm trying to as well, quite honestly. The question really becomes who is the next to fall if we touch $100/barrel oil?
While there are arguments against this (WSJ.com sub req'd), and again, they involve psychology, they argue for an optimistic view versus a pessimistic one. In my experience, people are far more negative than positive, and I think the negative psychology on oil is becoming sticky. Look, real inflation is in the 6% - 7% range anyway, right? So how hard is it to believe that oil bounds up past $95 and continues, especially on a 25 bps rate cut? Sounds perfectly reasonable to me.
Until next time...