124 - The Ugly Truth About Rate Cuts Nobody Tells You

The Fed just cut interest rates by 0.25% — but what does that actually mean for you, your portfolio, and the broader economy? In this episode, we dig into the ripple effects of rate cuts across consumers, businesses, and markets.

✔️ Will your mortgage or credit card get cheaper?
✔️ How will BDCs, REITs, and growth stocks react?
✔️ Why a weaker dollar could make your life more expensive, not less.
✔️ The hidden inflation risk no one’s talking about.

We’ll also break down how small, “modest” cuts like this rarely deliver instant wins — and why in the current environment, the cons may outweigh the pros.

If you’re trying to understand how rate cuts really play out (beyond the headlines), this episode is for you.

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**DISCLAIMER**
Ticker metrics change as markets and companies change, so always do your own research. The content in this podcast is based on personal experience and is for educational purposes, not financial advice. See full disclaimer here.

Episode music was created using Loudly.

Transcript

Welcome to roaming returns a podcast about generating a passive income with dividend stocks so you can secure your finances and liberate your life. 

Everyone’s cheering the Fed’s 0.25% rate cut — but let’s get real. A quarter-point sounds nice on paper, but does it actually help you, me, or the economy? This week we’re unpacking who really wins, who loses, and why small cuts like this might actually cause more harm than good. If you want the no-BS version of what happens when rates drop, stay tuned. 

Peeps. Oh, hello. Last week we did a credit card podcast that, amazing to me, a lot of people actually listen to.
I thought it would be boring and they'd be like, eh, whatever. So good on you all for listening to the credit card. This week, we're going to be talking about interest rates.
Last week, the Federal Reserve lowered the benchmark interest rate 0.25, yay. Massive sarcasm right there, you can pick up on it. They think they're going to lower them another 0.5, so for a total of 0.75% for the year.
And the markets are going absolutely bonkers about it. So we're going to break down what it actually means to the average person when the interest rates are cut. Are we going to talk at all about the fact that people have been waiting for this, waiting for this, and we have, if you haven't been signed up for the email, we drop hints throughout the podcast, but if you missed them all, we are not a fan of this, right? The freaking metrics do not line up.
I'm not a fan of it at all. And then Trump fired the people that report the metrics. So now the data is questionable.
So the second that happens, guess what? The interest rates actually get lowered. Coincidence? Probably not. I don't like it.
I don't think the metrics for the inflation meet lowering interest rates, because normally what happens is interest rates are lowered when inflation is low, because it's going to jack the prices up a little bit. But because we have high inflation plus low employment, they're like, well, we better lower the interest rates, so it'll motivate employers to hire people. Yeah, the interest rate is a tool to help stimulate the economy, which isn't a thing in this case, right? The economy is actually kind of in a bad place.
It's in a bad place, too, but you have high inflation, so you have those two contradictive things. So it's like they can only manipulate a couple of different things. What I've been harping on for about two months now in the emails is stagflation, like stagflations when there is a slow economy and high inflation.
Right now. And that's what we have right now. Although, I think the last report was 2.9 inflation year over year, so it's not super high, but it's like their benchmark's 2.0. Is that with the weird new numbers? Yeah.
It's even with the doctor numbers. But the average person probably sees that inflation's in the upper threes to lower four percent range. What do you mean by that? Like 3.8 to 4.3 range.
No, why do you mean the average person? Because stuff costs more. The groceries cost more. You mean the average person is seeing it day to day because of their expenses? They're seeing it higher than what is being reported.
There you go. That's what I was trying to get at without telling you. Why didn't you say it? Jesus.
I'm trying to floss. Continue. This week, we're going to look at what the interest rate cuts mean for the average American.
Given that the results could take time, the average person won't see much, if any, results. But we'll go through it, and we have other goodies, too. So for consumers, what the lower interest rate means is cheaper loans.
It's less expensive for consumers to borrow money. Now the 0.25 is eh. But if you think by the end of the year, it'll be almost one percent, it'll be 0.75. So at that point, you're going from, say, a four and a half percent loan to a 3.75 percent loan.
Who's getting a four percent? They're like seven at the low end. Oh, I don't know. Okay.
So go seven. So it would be like a almost six. Almost six.
6.25. Yeah. So it does make it less expensive to borrow money for large purchases like homes or cars, which is good. That number does add up.
That interest does add up when you have longer loans, like we said last episode. What it does is it actually makes the mortgages more affordable. Mortgage rates and monthly payments may decrease, and if it's like one percent, that's a pretty big decrease, making it easier for people to buy property.
The problem is with buying property that because of, since COVID, like the housing market's been going between 10 and 11 percent per year, like upwards. So like depreciation is going between 10 and 11 percent. So it's very difficult to buy anything reasonable.
So even if you have a more affordable mortgage, it doesn't matter because you're spending like $600,000 on a house that you could have got for like $300,000 before COVID. Yeah. So if you're putting off buying a house, it totally makes sense because that is some crazy overgrowth, overinflated.
Well, you figure 10 to 11 percent in COVID is about 50 to 60 percent, like how much home prices have increased in the last five years. That's crazy. One of the drawbacks for consumers is there's less savings reward.
What I mean by that, with lower rates, the interest earned on savings accounts and other deposit products at your bank will decrease as well because the bank's not going to be lending money out at a lower rate and giving you the same rate. They're going to drop the rate so they have their spread. Yeah.
So you benefit if you're taking on debt, but you actually get penalized if you are trying to earn money off your money, basically what that is. But- In one area where like a lot of people probably will be doing because they can't afford a new home, they'll actually be doing HELOC, Home Equity Line of Credit. These rates are directly tied to the prime rate, which is influenced by the federal funds rate.
Borrowers with HELOCs could see their rates decline within a month or two, potentially saving about 173 annually on a $100,000 HELOC. Yeah, because 173 seems like a lot. People do- Annually? People do crazier shit for less money.
Oh man, when the interest rates were as low as they were and people were freaking out about refinancing, I'm like, you realize you have to pay to refinance, right? And if you just make some extra payments on your mortgage, it comes out in the wash. And then credit cards. Most credit cards have variable rates that respond to the Fed changes.
While the cut might not be immediately significant for those with large balances due to the existing high rates, it could lead to slightly lower interest costs over time. So if you have a lot of credit card debt, it's not going to benefit you that much because you're kind of locked into the high rate. But if you don't have credit card debt- I would say the credit card stuff's negligible because you're still in the super high numbers.
But so if you don't use your credit cards extensively, if you're not looking to do a HELOC, if you're not looking to buy a home, if you're not looking to get a loan because the economy's uncertain, the interest rate cuts literally do shit for you. So that's why I said for the average American, these interest rate cuts aren't going to do anything. But we'll go into where it will make a difference.
One of them is businesses. For businesses, it's easier to invest. Companies find it more affordable to take out loans for expansion and new projects.
Which is good for the stocks we invest in. Now again, that's going to take time because you have to get the loan and then it takes a pretty extended period for the new projects or the infrastructure or the new programs to be implemented. So it could be a year or two or three years.
You won't see it right away, but it does make it easier for them to take a loan out and to invest in their- Do stuff. One of the areas where I think the Fed thinks that the interest rate cut's going to do something is increased hiring. Cheaper borrowing costs can lead to more investment, which in turn creates jobs and stimulates economic growth.
I think that's what they're trying to do. But because we have the tariffs and we have the prices going up from inflation, these companies don't really have the extra capital to create jobs. So they actually have to take a loan out specifically to create a job.
And I don't think most of the businesses are going to do that because if the consumer has less money and they have less, the business itself has less money, there's not really any incentive to take on more debt because you're not going to be able to extract as much from the consumer. Yeah. Exactly.
Why would you hire new people if you can't sell more products? You actually make any profit. That makes no sense. Another area where it actually will impact businesses, this one's pretty significant, is lower borrowing cost businesses with variable rate loans like a small business 7A loan will likely see lower monthly payments.
For example, a $250,000 SBA 7A loan with a 10-year term could see interest rates of savings of nearly $4,500 over the life of the loan with a 10-year term. And that's just due to the 2.25, so with the extra cuts. Yeah, that'll triple by the time, the end of the year, if they may be able to.
You're looking at almost $14,000 on a $250,000 loan, that's a big number for businesses. That's almost like a new hiring. New loans may also become more affordable, encouraging expansion, investment in equipment or hiring.
So again, the lower borrowing costs, I think the whole point of it is to stimulate a hiring of new people, but I don't see it. Don't see it coming because of the other factors at play here, right? Potential for higher consumer demand, this is another area I don't really see it happening, but lower borrowing costs for consumers, mortgage, auto loans, credit cards, etc., may increase disposable income for the consumers and boost spending, benefiting businesses in consumer-facing industries like retail, hospitality, and services. Again, if we were in a normal period of time where inflation was 2% and we didn't have the tariff costs creating chaos and everything, it potentially could be good for consumers to have more money.
The other thing, too, going into this, we found numbers or you found statistics that were showing that more and more people are putting their normal expenses on credit cards and on loans and all this other stuff, so it's like I think they've been waiting for interest rates to come down to maybe reconsolidate things, so I don't really see that one as being valid either. I would have to agree with you. It's not really, but it could potentially be.
For the FOMO people, maybe. One area is improved cash flow, reduced debt service payments on floating rate loans, free up capital for operations, marketing, and other needs, so that is a big one. If we go back up to the $250,000 loan, if they have $14,000 saved, then they have capital for operations, marketing, etc., so most businesses should have improved cash flow with a lower interest rate.
If there are some interest rate-sensitive businesses that won't finance the financial sector, they're going to be messed up because banks are different than normal businesses because banks require that spread between what they lend money out and what they borrow money for. The last area for businesses is easier access to capital. Lower rates can increase the likelihood of loan approvals and allow businesses to qualify for more capital than they might have in a higher rate environment.
That again is a shaky area because nothing systemically changed from the business, but they're actually going to be having a higher approval rate for loans because of a lower interest rate environment. That's shaky ground that kind of has 2008 vibes, if you remember the mortgage crisis in 2008 that led to the end of the world for two years, but that's the business one. For markets, now the stock market is... What did the Fed say? What did the Fed say? The Federal Reserve Chairman said, he came out in a speech last week and said, the valuations of the current stocks are overvalued.
The next day the market was down because they were like, oh my God, the Fed even thinks it's an overvalued market, but then it went back to record highs. There is a higher potential for higher stock prices. Lower interest rates can make stocks more attractive as companies may see increased profits and growth, which can drive stock prices up.
How they're going to do that, you're starting to see... If you've been paying attention to 2025, I think a lot of companies were anticipating the interest rate cuts. There's been a lot of stock buyback. If you're not familiar with the stock buyback, that's when a business just says, hey, we're going to buy our stock back during an earnings report, and what they do is they just take a block of stock off the market for millions of dollars.
That's one way to drive the stock prices up, because if there's fewer stocks, then the revenue and EPS and all the metrics that you use when you're looking at stocks goes into a smaller pot because you have a smaller number of stocks on the market. I think a lower interest rate of like a 0.75, there's probably a 75% probability that stocks will go up in price. One area that's usually the inverse of stocks is bonds, lower bond yields.
New bonds issued in a lower rate environment will typically pay lower interest rates, which can affect returns for bond investors. If you are an income investor strictly, and that's all you look at is like CDs and bonds, the new bonds coming out, which I'm assuming a lot of the companies, whenever they have extra cash, they'll buy back all their high rate bonds, and they'll issue new bonds at a lower rate, because that'll save them millions of dollars in the long run. If you're just strictly income investing, and you like bonds, sucks, sucky environment for that.
We have some bonds right now. Does that mean they might potentially call back? Ooh. That's why when we were looking at bonds last year, I said, make sure you don't buy above a certain price for bonds, because they can be called back at any time, and because the interest rate talk was going on, if you paid, say, $101 for a bond, so you paid 1% more than it was worth, they could be called back at any time, and because businesses will be sitting on oodles of cash, they will just probably buy up bonds, buy their higher-yielding bonds back, and they'll buy up shares of their company stock, would be my guess.
Another area for the market where we're going to see boosted valuations, rate cuts reduce the discount rate used to value future earnings, which increases the present value of future cash flows, and can make stocks, especially gross stocks, more attractive. That's just a really cumbersome way of saying, when they're going to have more cash available, so their earnings and their cash flows and their margins will be higher in quarter one and quarter two of 2026 because of the rate cuts, so they're going to have higher valuations because of ... If you're not familiar with how you take their current cash flow, current money they bring in, and you divide it by ... How do you get the prices to earnings? Then you divide it by their current stock price, and that comes up with the PE, which is what everyone uses. That's going to go up.
The PEs, the sectors, sector-wide, they should increase, so if you're ... Again, if you don't subscribe to the email, you don't know what I'm talking about, but if you subscribe to the email, listen to the podcast, you know what I'm saying. Every week I have a chart, and in the chart I have the PE versus the sector average. The sector averages are all going to go up, and then the individual companies will go up as well.
The datums get shifted. It's probably going to go up one or two. It doesn't help the super high PE ones, though.
It doesn't, but it is what it is. Is there still overvalued? One thing we just touched on, we'll touch on it again, is reduced attractiveness of fixed income. I can speak.
As interest rates on safe investments like savings accounts and money market funds fall, investors may be more inclined to seek potentially higher returns in a stock market, but if you literally are just an income investor who have ... You have your dividends or your interest coming in, you're going to miss the higher returns in the stock market, because with the interest rates going down, the yield on your bonds and your CDs is going to go down. Your dividends should be okay. In fact, there might be dividend increases because, again, they're going to have oodles of cash on hand, so they might boost their dividends by more than what their five-year or 10-year average is, but it's like fixed income, generally when you think of fixed income, it's CDs and bonds and money market funds and shit like that, so that's all going to go down, so you're actually going to be making less for the same amount of money because of the interest rate cuts.
One area, well, actually two areas that I think will be pretty good are tech companies and small caps. They're labeled as growth stocks. Don't ask me why.
Small caps. Yeah. Interesting.
They tend to benefit significantly as they often rely on external funding, which becomes cheaper. So they're going to be borrowing money at a lower rate than they probably haven't borrowed very much money in 2025 because they anticipated the interest rate cuts. So they're going to be borrowing money at a cheaper rate, which will free up capital to do, like in tech companies, what they use the capital for is not to give money back to you.
They use it for innovations, infrastructure, things of that nature. R&D. Small caps, some give you a good dividend payout.
Some don't. Some will actually use the extra money for infrastructure and things of that nature again. But if you've paid attention to us, I have actually outlined a lot of small caps that have a pretty good, decent dividend return.
Dividend paying sectors like utilities, real estate, investment trusts, BDCs, often perform well in lower rate environments. So like if you... Yeah. That's why I said our stocks.
Utilities, BDCs. Utilities, BDCs. Yeah, everything that we're in.
If you've been following, like we do that at the end of the quarter where we give you everything that we own. We don't hide anything. It's all transparent.
If you've been following along and you cherry picked a couple of them, they all should be doing pretty well in a lower rate environment. Very nice. We've been prepping for a while.
Only obviously camping world and... Minus the bad one. And icons, shit like that. Just stay away from those.
Stay far away from those. And one area of... When I was researching, it looks like financials and industrial, those two sectors can see strong gains, particularly in non-recessionary rate cut cycles. What that means is generally, if you're in a recession, the Fed will lower the interest rate to help stimulate the economy to get out of the recession.
But because we're not in a recession right now, these should see strong gains from industrials and financials. Financials because the people that run the financials know how to get the most money out of things. So their bottom line is not going to be affected very much at all.
But the industrials, they've been getting kind of shit on. So the same as commercial real estate, it's been getting kind of shit on for a while now. So this should help the commercial real estate industrial sectors.
Now, there are some broader economic impacts from a rate cut. So we'll go over those real quick. It stimulates spending, generally.
Historically, it stimulates spending. But if people don't have any money to spend, I don't see how much it will actually stimulate Right, how is it going to stimulate spending? Although, if you were holding off on bigger purchases that you needed to make for your normal shit, you might be excited now that you have less of an interest situation, potentially for furnace repairs or whatever, whatever. Lower borrowing costs provide households and businesses with more money to spend, generally, boosting overall economic activity, again, generally and historically.
But I don't think this is a general or historical period. And I think this is the aberration, aberration, aberration to the rule. I think this is like the 70s when they were stagflation and shit was just wild.
But that's my opinion. I could be wrong. But I don't like the metrics of the general economy right now.
Another impact for the broader economic impact is signals economic conditions. A central bank's decision to cut rates can be a sign that the economy is slowing too quickly or that inflation is below target. You can take out the last part because inflation is not below target.
The economy is slowing. You can tell that by the labor report, like the private, the private jobs report just came out today and it was like negative 40,000 jobs so that we actually lost jobs in the month of September. And they revised August's from 54,000 down to negative 5,000.
So that's what it's two months in a row. The private sector has actually lost jobs. Wait, wait, 40,000, 40,000 down to negative five.
Mm hmm. Right. Those revisions, I don't understand.
So I personally think we're on a very shaky ground situation when it comes to the economy. I would say melting ice. Current economic conditions.
Ice is thin. But I'm just one little person when the experts all say everything's great. But they then do tend to drive the narrative so that to get the sheeple to do what they want them to do so they can either profit control things or something else.
Okay. Inflation is the next area. Rate cuts can potentially fuel inflation by increasing the money supply and encouraging more borrowing and spending, which can lead to higher prices.
Again, inflation actually never got under control. So my prediction is we're going to have within the next six months, we're probably going to have officially 4% inflation around there. But as you know, if you have boots in the street, the real inflation is much higher than 4% already.
But I'm just saying the official number is going to be like 4%. But you were saying before that you think that they're actually going to try to skew it as a new normal. I do believe 3% is going to be the old 2%.
That was something that I've been trying to figure out how to say. For years and years and years, the Fed said the preferred rate of inflation was 2%. That's why we have that 2% thing in all the publications and emails and everything.
The Fed wants the inflation to be 2% year over year. I think 3% is going to become the new norm. I don't know if it's going to go straight from 2% to 3% or if it's going to go from 2% to 2.5% and then 2.5% to 3%.
But I do believe 3% is going to be like in 10 years, that will be the preferred inflation number for the Fed will be 3%. Unemployment is the next broader economic impact. Lower interest rates can spur economic activity and potentially lead to lower unemployment as businesses expand and hire more workers.
However, the relationship between interest rates and unemployment is not always straightforward and other factors can influence the labor market. Right now, I think unemployment is the key word because I think people are going to lose their jobs. That's why I put that in there because it actually has two meanings.
Traditionally, whenever we raise lower interest rates, there are more job openings. But I don't see that. We still haven't actually had the tariffs go through like the official data from the government.
And the tariffs, they fucked everything up. So that's interesting. So this could actually, instead of having a positive benefit on people keeping jobs or like getting new jobs or having more job availability, it could actually go the opposite.
So this could affect normal people outside of the whole people who don't need to take on debt type deal. Most likely will. Yeah.
I don't think it could. I think it most likely will. Okay.
However you want to word that. The last area we've touched on briefly is housing and affordability. While lower interest, lower mortgage rates can improve affordability, increased demand could also push up home prices, creating an affordability paradox.
Home prices were up roughly 50% nationally since the start of this decade, making affordability a challenge, even with lower rates. And then we had like the perfect storm for that to actually happen. We had a pandemic, everyone was trapped inside.
So they stopped making houses. So then we had a housing shortage. I know they still haven't caught up with the way.
Traditionally, they like to have like, I want to say a million to a million and a half like new homes on the market each month. What? And we haven't even been close to that. So the reason that housing prices are up 50% nationally since the start of this decade is because there's less supply and people still need their shiny house.
Well, and it's crazy because we were even saying before, again, you get into that interest rate, interest rate, interest rate, but you could have bought at a lower price with a slightly higher interest rate and just made a couple extra payments to knock off the interest and have the same outcome. So there's more things about saving money for mortgages than just the interest rate. Now, one area where interest rates are seldom touched on is the impact it has on the United States dollar.
Oh, this is a very, very hot button topic. Lower interest rates make dollar denominated assets less attractive to foreign investors who may seek higher returns elsewhere. Could I put that in layman's terms? Foreign people don't want to invest in American stuff because we have lower interest rates.
They're not getting as much as a high return as they would say if they invested in European things. And that actually is going to weaken our economy, our GDP, all sorts of stuff. And you have that trickle down effect.
This reduced demand for the dollar weakens its value compared to other currencies. That has been happening all year since Trump got into office. It's been happening hand over fist.
And we weren't sure if that was intentional because he wants to go to digital.

It's like the dollar, the dollar has dropped like 30% in 2025 already, which is scary. There's a lot of people like my brother is really hard on this, this topic specifically that like weakening the American dollar is putting us in a very precarious situation. Kind of like what was that country that had the thing, Venezuela, the one that had the currency implosion? It was Venezuela.
It was Venezuela. Yeah. So we could very well be following trend and then we're pissing off big people like China and a whole bunch of other stuff and then we're weakening our thing.
Not setting up for a very, very good time. If you've subscribed to emails, I've been probably for two and a half to three months, I've been saying you might want to get into emerging market stocks or closing the funds because it looks like if not in 2025, probabilities high in 2026 that emerging markets will actually outperform US equities. Which is scary.
Just, you know. But if you're looking to profit, you go where the things are. Now there is a thing called US exceptionalism.
That's where people in the United States or other countries generally in the United States, they have a demand for the dollar as a safe haven currency. These are not smart people. Sounds like the people that are anti-crypto if you ask me.
Like a lot of boomers. Would you rather have like $2,000 in cash or would you rather have $2,000 in Bitcoin? I personally would like Bitcoin. It's worthless.
Mm-hmm. But that's me. It really is.
Other people think Bitcoin's worthless. Well, and so what was crazy is if you read anything about currency, they're saying most of our actual physical dollars are outside of the country. And if we are weakening as an actual currency, guess what? That we're going to get replaced with something else, which means all of that money that would have had an impact is going to be poof, kaput, whatever.
Pretty scary. Now, one area that we had, I didn't touch on and wouldn't type it up, the podcast was the US debt. Like we owe like $37 trillion or some shit like that.
Some astronomical debt. If you have a weaker dollar, people aren't going to want to take on, they're not going to want to take the, like to lend to the United States. So the debt's going to then fall on Americans because we don't have like Chinese and we don't have Russians that are willing to take on the American debt.
Well, in currency exchange, right? I assume we're paying back in a weird currency exchange if we're taking it on from another country, right? And then you're going to have like, you know, our money's worth less so we're going to need to pay more even. Come up with that money. I don't know why the experts haven't talked about the US currency when it comes to interest rate cuts and all sorts of shit.
Probably because they don't want to freak anybody out. But then there isn't, then on the flip side, you have the US currency, then you actually also have an impact on international trade because of the weaker dollar exports. For example, a weaker dollar makes US exports cheaper for foreign buyers, potentially boosting demand for American goods and services.
That's good because you might have like a lot of companies that are multinational, like Span the Globe, that won't like, oh, we can get a bunch of shit from the US for cheap because they're- Do you really think people want to buy from us with a low quality stereotype that we have? But the only thing I can think of would be like cars, maybe, or like maybe produce or farming stuff, like crops. Maybe crops, but I don't know. What are we known for? We're like steel, maybe.
Maybe. Imports, on the other hand, become more expensive for US consumers and businesses, which might encourage the purchase of domestic alternatives. So because we're in shambles economically, these companies probably even with the tariffs are more inclined to import in stuff from other companies, therefore making American companies have narrower profit margins, which will implode the stock market, which then would be a whole other can of worms.
Lots of worm and fuzzies in this one. Trade partners, countries whose currencies appreciate against the dollar may find their exports to the US becoming pricier. We have the tariffs, which are anywhere between like 20% and 60% or 70%, I don't know what the top number is because it shit changes like every two or three hours.
So you have that. On top of that, when we have a weaker dollar, like because their currency is actually better against our dollar, they actually find that exporting to us becomes pricier because of this whole currency problem. But I don't think that will have much impact because the tariffs pretty much are the only focal point for most companies right now because they don't know what they're going to be charged in the tariff realm.
Emerging markets, which I just mentioned, these markets may benefit from a weaker dollar attracting capital flows and easing their external debt burdens, especially if their currencies appreciate. What we mean by like appreciate is like if you go into any currency exchange, say you want like the yen, it will tell you what $1 buys will get you how much yen or like ruples or like pesos. I mean, it's just like stocks, like so much.
It's just if you do it in currency, it's currency to currency exchange. If you get on any crypto exchange, I think it's a lot easier to see. But if our dollar weakens, that means like one of our dollars will actually buy less of their currency.
Yeah. If our value of our dollar goes down, we buy less quantity of their stuff. And if it strengthens, we're able to buy more because our dollar is worth more.
So like if their currency depreciate, what we mean by appreciate is that means that we would like, so right now we got say 12 pesos for a dollar if it appreciates to the point where it's like 20 pesos to the dollar. People I think have a hard time understanding this because until crypto really came online, we just assumed a dollar was a dollar, but we never really noticed like the fluctuation of value of that because we were within America to be able to exchange it. It was always a dollar.
But if you want to get a concept of this, if you haven't before, go on and just like use Bitcoin against any other crypto and just look at how much it buys and that's constantly fluxing in its value and then how much it buys. Like that's a better example of like a currency exchange. It's constantly fluctuating.
Isn't that the Forex market? Forex. Yeah. So like there's a lot of people that will like if the dollar drops and the British pound or something goes up, vice versa, they'll do trades back and forth because you can actually make it in those gaps.
And if you've ever bought something in a different country and then like bought it or looked at it a different day, the price changes and you're just like WTF, how did that happen? It's because of the currency exchange. And then another area of the market that actually could be good, again, could in quotation marks would be commodities. Prices of dollar denominated commodities like oil and metals, they may rise.
Metals probably oil, not so much because there's so much manipulation going on outside of America to keep the supply over flooded. I mean there's still some manipulation in metals but … OPEC Plus just came out and said they're going to increase their daily production by like 175,000 barrels. Well, that's because they're mad at … Just to mess with us.
Exactly. They're being spiteful, retaliatory. But I think they actually have the capability to say like the price of crude could drop to like $30 and they still make a profit and they're hoping to put a lot of American companies out of business because we can't compete with $30.
It would be like I think 58 or 48 would be like where we have a lot of companies start closing. So it's like the race to the bottom? Yeah. Yeah.
With the third-party seller on FBA for Amazon and stuff? Yep. Anybody who's done that kind of stuff knows race to the bottom. It's interesting OPEC's getting into that.
OPEC Plus, OPEC Normal. OPEC Normal is like the Middle Eastern countries. OPEC Plus is like Russia and China and … I did not know that was a thing.
Yeah. Yes. Yeah.
Global supply chains, businesses that operate across borders need to adjust their pricing strategies and cost structures due to currency fluctuation caused by rate cuts. What that's basically saying is there's going to be like something that you see for like $2 might be like $2.25 or $2.50 because they actually have to adjust their prices to actually keep their profit margins because of our weaker dollar. Now I'm going to go back to inflation because I have a couple points about that, like how interest rates actually affect inflation.
First stimulating demand. When the Fed cuts interest rate, it becomes cheaper for consumers to borrow money for mortgages, car loans, blah, blah, blah, blah, and for businesses to borrow for investment and expansion. This increased access to cheaper credit encourages more spending and investment throughout the economy.
Again, if you have more money, their thought is you're going to spend more. If you have more access, like if your credit card, you have more room on your credit card, the thought is that you're going to max your credit card out. That's just the thought.
Yeah. The increase in demand then can push prices up. A surge in borrowing, spending, and investment increases the overall demand for goods and services.
If this aggregate demand grows faster than the economy's ability to produce those goods and services, supply can lead to higher prices. This scenario is known as demand pull inflation. What that's saying is increase in demand is like larger than the ability to produce those.
So like say you go like pencils, for example, like they can only make 10,000 pencils a day, but the increase in like back to school, for example. Oh, this is what I see in the book we were reading last night on systems thinking. Interesting.
With the supply of like salmon. I think fish is a better example actually. If people are fishing fish and the fish, like literally population goes down, like the price of fish has to go up because they can't keep fishing and finding fish.
They can't. Yeah. They can't keep bringing back like four full boats of fish, so they'll come back with one full boat of fish.
used to cost X for four boats now, now costs four X because they only were able to retrieve one boat. I think crabs are actually another good example of this. Like the bay, Chesapeake Bay is getting over crab.
So they're actually importing stuff for New Orleans and stuff. And like, it's, it's crazy. Okay.
Now here is the balancing act fed aims for a healthy inflation rate, often targeting around 2%. This level is believed to promote economic growth without excessively eroding purchasing power. If inflation is already low or the economy is sluggish, rate cuts, rate cuts can help stimulate growth.
However, if inflation is already high or the economy is robust, rate cuts can risk fueling excessive price increases. So back to my stagflation theory, because we already have a higher inflation rate and the economy is like, if you have to separate the economy into like production, production is pretty robust. We're, we're producing shit left and right.
The actual buying of it and things that is not as robust as the, so like we're going to have too many products on the market, I think for a little bit, but because we already have a high inflation, we have a, a slowing economy when it comes to the labor market or like the, the probability of stagflation is probably 90%. If you don't remember what, if you weren't alive in the seventies, stagflation lasted the entire decade. Really? Yeah.
Damn. So you were paying more for stuff and that's when we had, that's when we had like the gas shortages and shit like that, where like you could only get like five gallons of gas because there wasn't enough gas. I remember hearing about the shortage from my parents.
So like stagflation is nothing to fuck with, but like that's where, that's where we're, that's where we're going. Stagflation is nothing to fuck with. Oh my God.
Now this is the key point that like all the experts are missing. The full impact of interest rate cuts on inflation is not immediate. It can take several months for the effects to ripple through the economy as consumers and businesses adjust their behaviors.
So what we're saying now probably won't be accurate until like 2026 at the earliest, like the beginning of 2026. So just keep your, your, your memory banks like, Oh, they, Timela, Timela did mention that. Timela.
Smashy. Shamy. Shamy.
Uh, there are some risks and considerations that we must take into, to take into account the weakening dollar and import costs. As mentioned previously, rate cuts can weaken the dollar, potentially making imported goods more expensive and can be contributing to inflation. So we're going to have a weaker dollar, which makes imported goods more expensive plus tariffs, which is going to make important goods more expensive.
So both, both those factors are going to contribute to inflation even more so than like the, than putting more demand into the, uh, into the market over like worst on both sides, overheating economy. If the rate cuts are too aggressive or implemented when the economy is already strong, they can lead to an overheated economy and higher than desired inflation. Like I don't know if I'd call 0.25, but then again, inflation is going to be a problem.
I couldn't believe they said three, three by the end of the year, like what inflation is going to be a problem that nobody wants to admit because the overlord says you can't talk about inflation. You can't talk about inflation because that data is manipulated to make me look bad. He said that shit.
How can you address the problem if you can't talk about it? You can't. That's the whole point. And like we have like 40% of the population that just like listens to what he says and then they'll argue and do all crazy, all kinds of crazy shit.
Oh my God. That's just... Supply driven inflation, interest rate adjustments are more effective at addressing inflation driven by demand. They are less effective at directly competing cost push inflation, which arises from increased production costs.
Example, higher raw material prices for wages. So what's going to happen? So this is the other part of the inflation because we're going to have increased production costs because of tariffs and because of the weakening dollar. So like we have the supply driven inflation probably going to go up.
We have the demand driven inflation probably going to go up. We have the tariffs causing inflation probably to go up. So that's all three levers pointed upwards.
That's why I said inflation 4%. That's crazy. Crazy.
Now this next week's podcast, if you're interested, is going to have a bunch of tickers in it and it's going to be specifically from the macro trends that I'm going to... I'm covering right now. I think that will happen. But next week we'll have a few companies in each of these areas.
So basically because inflation is doing what inflation is doing, interest rates are doing what they're doing, macro or I guess the update for macro trend reassessment, yes, this is where we're at again. Reassessments. So sector specific macro trends, manufacturing and construction.
Manufacturing? Manufacturing. Manufacturing. I'm drunk.
And construction. These industries are poised to benefit from lower financing costs for projects and equipment. So that makes sense and they're going to be able to actually afford equipment.
But the actual construction of goods and services, they're still going to have to go to Home Depot and get wood and shit like that, which is going to cost more. But they're going to be able to get a loader or something like that for cheaper. A loader.
A loader. A skid loader? Skid loader. We call it a loader.
Bobcat. No, you call it a loader. I call it a skid loader.
Dad calls it a loader. When did he get lazy? I don't know. Commercial real estate.
Like I said, commercial real estate has been getting shit on pretty much for over a year now. Lower rates could boost confidence, improve investor sentiment and potentially lead to more acquisitions and development. If these companies have more cash in their pockets, they're going to go out and buy something else to strengthen their portfolio.
That should in theory provide more revenue, which will then provide a better balance sheet which should then equate to higher dividends. So commercial real estate I think potentially could have a good end of the year maybe, but 2026 should be pretty banging. Technology and growth stocks.
These companies often rely on borrowing for expansion and innovation, making lower rates particularly beneficial for funding and valuations. Shocker. Tech and growth? Yeah.
So like I have a couple of- NVIDIA a bit much? Take it over the whole market? No. I don't have- That was sarcasm. I don't have NVIDIA.
I'm just saying. Sarcasm. I think everybody- Tech boom.
Already has NVIDIA. Already has it that's going to have it. Yeah.
And then it's going to pull back. And people will be like, oh my God, I'm losing my life savings. Retail, hospitality and services sector.
These sectors could see increased customer traffic and sales driven by higher consumer spending. Again, the theory is if you have more money, you're going to go on a trip or you're going to take an airplane or you're going to go on vacation. When most people, not us, but when most people go on vacation, they ritz it up in a fancy hotel and they order room service and all that shit.
Whereas we just like park in the middle of nowhere and eat out of our fridge. That's us. Well, the holidays are coming up and I imagine people are going to be traveling.
Yeah. We have a fridge in our van and it's pretty sick. And a wood burning stove in case it gets cold because I'm a bitch.
You are a bitch. Banking, the financial sector. The impact is mixed.
Lower rates can compress net interest margins but potentially increase lending volumes. This is how the financial sector gets away with the higher profits during low rate environments is they just lend to a shit ton more people because they're not making the same high interest rate they were making before so they have to just a shit ton more people. So we'll cover some bangers in that one next week.
Interest rate dependent businesses. Companies whose profits rely heavily on prevailing interest rates like some lenders might see reduced revenue per loan necessitating a focus on increasing client volume. That's again like the banking and financial sector, but there are actually other interest rate dependent businesses like mREITs for example, regular REITs, BDCs who basically will borrow or will lend money out at a lower rate so they actually have to have a higher client volume.
Yeah. So like I said, this moment in time a 0.25 rate cut will do more harm than good when you consider all this evidence. A 0.75 might actually start to sway it so it's not more harmful than good.
Might be like even Steven at that point. What? You think adding more interest rate cuts is going to make things better? Yes. From like all the sectors, like the consumer will be like, oh, I see what you're saying.
As you're saying. So it's going to swing things towards the business benefit, but like this incremental in between does jack shit on either side. Yes? Is that how I'm interpreting it? Okay.
Sure, some loan rates and credit card rates will decline a little, but the overall economic picture between inflation and a weakening US dollar in my opinion shows that the cons outweigh the pros at this time. So I'm not one of the people that's like, oh, the interest rates have cut, yay. Let's invest, invest, invest.
Right. In fact, I've been actually taking cash and then I've just been strategically allocating it where things make sense. Like Target, like Bristol Myers, like IIPR, shit like that.
Like I've been using cash from the value investing component right now because some of these businesses have been kicking the teeth so much for the year that I'm just like, it's too cheap. The Chipotle was one. I just picked up like $1,500.
Intel? Intel is banging. It went up 7% again today. Dude, we talked about that forever ago when it fell off a cliff and it is just, oh my God.
You take $1.50 away from 100%, you double, if you could have doubled your money had you listened to us. We're actually up almost 100. When we said buy.
We didn't buy enough shares of it. Like he was kicking himself in the face for not buying enough shares of it before. But government's now getting into contract with it.
Didn't you say something about Google or somewhere, Meta, somebody? Where's Google Meta? No. We have the government and we have Nvidia. Just put some money into Intel.
Oh, that's who it was. I knew it was another big business. AMD there.
Intel's almost, I think they're going to announce in the next couple of days that they actually have partnered with AMD for their chips. So Intel's pretty banging right now. So that's that.
That's interest rates don't mean shit. That's why we have these guys here going. They're just like hanging out.
They're like, who cares? Business as usual. Who cares? That's like, I said, well, I could do this and nah, who cares? But we went with Koalas instead. But there's a lot of good data in here to know because it's like you definitely need to understand.
But next week's going to be super important. I think I have three businesses in each of those macro trend sectors that you can look at, evaluate and then pick from. So yeah, next week will be how you can invest based on the crap we just talked about.
But needing to know this is a good thing, again, to predict said micro macro trends to be able to make money and not get slaughtered by as a consumer, taking it from the business side and profiting. I think what's going to happen, but I do believe the market's going to pull back. So don't buy anything just yet.
You should also say September is usually a down month historically across the board. We did not have a down month. We went up and we went up.
So it's either going to be the late a month or it might be like a really bad 2022 October was terrible. I think that could happen because we just had the government shut down that government shut down. Did they not sign a thing again? They didn't pass a budget.
So the government shut down. So we have 700, 750,000 federal workers are on furlough and the overlord said he's going to fire a bunch of them and he's going to withhold money to like all the all the, but that like when I was at the government for 11 and a half years, it was like literally a yearly thing. They're like, Oh, we didn't sign it.
We're in furlough mode because I was one of those technically like essential employees. We would have been forced to work for no pay, which makes no sense. But the people that got like furloughed actually would get to work and they get back pay for not working.
And I was like, this is horseshit. But uh, so he's actually going to furlough and fire. Oh my God.
That's fucking insane. He's going to furlough and fire a bunch of them and the money, like he's withholding money from like all the stuff that the Democrats like. Honestly, I'm not surprised with everything he's been doing up to this point.
It's going to be insane. Like October is going to be crazy. So the very good chance we'll see like a 10 to 15% pullback in October.
That much? Wow. All right. All right.
So I'm excited for next week to see, because if we do have a pullback, you'll want to see what the heck Tim's talking about to pop into to get that reverse pullback, the opposite of pullback, the uptrend, upswing, pull up, pull up. You're like, oh my God. All right, guys, we're not going to go too long on this one because it's a lot of boring dry stuff.
So hopefully you retained some of that. And if you didn't just know that inflation is not good, but if they do keep pushing it, then we are going to see some good stuff for the business end. So we can profit from an investor standpoint and we'll let you know what macro trends are, which stocks actually will be probably the ones that get into you to take advantage of the pivot point.
Pivot. All right. Pivot.
See you guys next week. See you.