Chart Spotlight

Commodities have been moving sharply higher for a while now and were goosed along even further when the Fed cut rates. The two most followed commodities are oil and gold, below are charts of both. Each has made multi-year highs, oil is all time and gold is since the early eighties. What does appear is that these may be break out moves, and if they are it could mean inflation may be following in their footsteps. Inflation is one of the major concerns of the Fed and these charts are challenging the flip side of the rate cuts. On one hand they goose the economy and relieve some stress for the financial markets and on the other they stoke inflation which if grows unchecked can ravage the home currency and fracture the long term prospects of an economy. Think it was a coincidence that Greenspan quit when he did?

One More Chart

The last time the Fed initiated rate cuts was the first week of January 2001. The market rose through the end of January only to drop precipitously through the end of March. The S&P 500 lost over 40% of its value from the January 2000 high to the October 2002 low. Not all initial rate cuts have had this outcome, but I think there distinct similarities in the current environment to the 2001 period.