August 2nd Market Update – Our macro investment thesis remains intact; What I see coming

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-Recall my dour assessment of commodities two-three months ago. Despite many calls to the contrary at the time, commodities have faded as the dollar firmed and the global economy softened.

One-year percentage price changes in some of the major food commodity futures. Clearly there is no commodity bull market with a strong dollar. Remember the terrible weather and swine fever in April? All in the rear view mirror. I recommended staying away from all commodities except gold.

-Lower interest rates and a strong dollar are a one-two knockout punch to commodities.
-The only commodity I have recommended all year has been gold. Gold is rising despite a strong dollar as this is a reflection of investor doubt over central bank policy and the lack of confidence many have in Jerome Powell.

Since U.S. oil production is so important to the global petroleum market, the XOP seems to telegraph moves in the oil futures before they happen

-The XOP fell hard at market open, while stocks initially rose. This told us that oil’s next move would be down. Oil tanked later in the day.
-Investors who believe in bursting bond bubbles, out-of-control central bank policy, and a falling dollar will continue to lose money.
-Investors who believe that the central banks are suppressing bond yields, because they are trying to stimulate the economy and increase aggregate demand will make the wrong investment decisions. These investors will continue to be confused.
-If we understand why the central banks are engaging in these monetary policies then investing is much easier and more profitable. It has less to do with growing the economy and raising inflation growth, and more to do with keeping the existing global hierarchy in control. The prime directive is to keep the governments in business under the current system. It has plenty of room continue.
-Fed Chair Powell is in over his head and was chosen by President Trump, because Trump sees weaknesses in Powell that he can leverage. Powell’s decisions have been influenced by Trump’s behavior, but Trump would never be able to get away with what he does if Bernanke, Greenspan, or Yellen were Fed heads.
-Trump started this tariff stuff again, so he can get the Fed to drop rates again.

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