if oil inventories are falling & oil prices stay high for a few years, what is the next logical thing to happen fairly quickly now that solar & batteries are cheaper than natural gas produced electricity, & EVs are about the same price as ICE vehicles (I can't make it easier)? https://t.co/M2rXLm61hL

NeutralWTICLWTI Crude OilWTI Crude OilOPOptimismOptimism

9/13/2026 on

A Fed Rate Hike Is A Massive Mistake

Higher short-end rates hurt small and midsize businesses without lowering energy inflation, leading to a “stagflation light” economy. Earnings don’t move the overall market; it’s the Federal Reserve Board... focus on the central banks, and focus on the movement of liquidity... most people in the market are looking for earnings and conventional measures. It’s liquidity that moves markets.” — Stanley Druckenmiller The Federal Reserve Board meets this week on September 15th and 16th. Prediction markets and banks now overwhelmingly support the idea that a rate hike is coming. You better hope they’re wrong. I know many believe that raising interest rates will help quell inflation, and they are probably right, but at great cost. There is also an argument that a rate hike gives Kevin Warsh “credibility.” I would ask with who? Wall Street? Is that what we care about or what is good for most of us? Last chance to get your 1st year of Kirk’s Growth Stocks 50% off for only $149. I believe that rate hikes are a massive policy mistake. Weirdly, I agree with President Trump, whom I am known to have major disagreements with and suspicions of, that we should lower short-term rates. My simple thesis is that higher rates will not slow AI or military spending, nor lower healthcare costs, nor lower energy prices which are being impacted by wars. Those are the major current components of inflation. What higher short-term rates will do, is hurt small and midsize businesses that contribute the lion’s share of jobs and income security in America. Those businesses are already on the verge of recession. Raising rates only hurts them and those they employ more. Higher rates will also cause interest on the U.S. debt to rise and ultimately crash the stock and real estate markets. Because asset prices are directly correlated to tax revenues, we will then see a deeper deficit, which spirals the economy to be even worse off, especially as the surge in AI and military spending tails off. Ultimately, rate hikes today, dramatically lead to my longer term thesis becoming true, that “all roads lead to QE.” In the credit crisis I see unfolding , rate hikes today make it worse, and, in turn, require more QE than otherwise would have been needed, in turn, creating even more inflation. Rate hikes today will stifle inflation a bit, but at the expense of pushing small and midsize business into a recession. That will amplify and reinforce the spiral of collapses, bailouts, inflation and more American wealth being concentrated into fewer wealthy hands. Higher Fed Rates Don’t Fix Inflation Core CPI, what everyone hyperventilated about Friday, rose .3%. The annual core rate actually fell to 2.4% from 2.5% and nobody cared. Prices rose .4% in August and 3.4% over the trailing twelve months according to the BLS. Gasoline rose 3.9% and accounted for slightly more than a third of the monthly increase. There is a direct timeline correlation to the conflict in Iran and higher oil, gasoline and diesel prices. With China stepping back into the oil market as a buyer, after a pause at the start of the Iran conflict, they are applying upward pressure to oil prices again. Would higher rates lower gasoline and diesel prices that have risen in line with the conflict in Iran? Actually, maybe! But only at the expense of other economic growth, that is, pushing at least parts of the economy into a slowdown or outright recession. To be blunt, no amount of Fed tightening reopens the Strait of Hormuz. Goldman Sachs anticipated $120/barrel for oil coming with continued conflict. What higher rates do is lower some marginal demand for diesel, gas and jet fuel by industry and consumers. Translate that as bad for trucking companies, airlines, contractors, travelers and Americans who would like to spend on something but have their pocketbooks stretched. Health insurance rose about 20% this year and projections are for a 15% increase in 2027. The commercial group health market took a 9% increase this year and is projected to rise 8.5% next year . Marsh’s survey of over 1800 employers cited health benefit costs rising 8.2%, and possibly up to 11%, in 2027. Those are the steepest increases since 2003. Many of those businesses are midsize employers. How do higher interest rates help lower healthcare inflation? Hint: they don’t. That’s a fiscal policy problem. Inflation is also coming from the military-industrial complex that Eisenhower warned us about three generations ago. The defense budget is likely to increase again from around a trillion dollars to possibly as high as $1.5 trillion. It’s not hard to see the inflation from the defense contract. Simple math is that it could be up to 50% with a wildly expanded budget. While that is good for Margin of Safety Investing members drone and defense investments, I’m not sure it’s “good” considering the impact on the Federal Deficit, and, you know, life on earth in general. By far the largest contributor to inflation are the derivatives of the AI buildout. That’s important when considering rate hikes because there is no slowing that down with a quarter point rate hike, or even a full point in the next year. Just the top-five hyperscalers are forecast to spend around $600 billion in 2026 , or even up to $765 billion according to Goldman Sachs ( GS ). Regardless of which number it is, it is huge. ING attributes about one-third of 2026 U.S. GDP growth to AI . I’ve seen consultancies point to AI being up to half of U.S. GDP growth. What does that say when GDP is between 1.5% and 2.1% for 2026 ? Incidentally, not close to Bessent’s target of needing to exceed 3%. Deep Value Investing on Seeking Alpha did a nice piece on how AI CapEx Is Distorting The GDP Growth Picture. Since growth equates to inflation in most cases, this is an important idea when considering rate hikes. That is, will raising rates actually slow AI capex? More on that below. Much of the inflation from AI is powering it. PJM Interconnection reported that 30GW of 32GW forecast demand growth to 2030 is from AI data centers . The result is higher household electricity bills - certainly part of the reason many are opposing AI data centers (wrongly in my opinion). Similar numbers are being reported by multiple utilities and power providers. I ask, how do rate hikes help inflation, when it’s tied to healthcare, the military-industrial complex, energy and AI? I don’t think it does. What’s worse, is that raising rates could lower certain demand, in turn slowing down growth, without lowering inflation. That is a “stagflation light” scenario. Small and Midsize Business Recession Looming We already know that most GDP growth is tied to the healthcare, military spending, energy and AI. Where does that leave small and midsize businesses not tied to those parts of the economy? Not in a good place is the answer. Let me share some data and perspective on why this is important. I built this based on my experience as an accredited investor in private equity investments and economics education in the 1900s. Note that I rounded the numbers because nobody really knows the real numbers, everything, everywhere is an approximation even with collected “data.” What should jump out at you is the impact on those who employ the most people, i.e. small and medium sized businesses. If they get hurt anymore, we have a major unemployment problem and recession looming, on top of the idea that a Fed rate hike likely does little for growth and inflation in AI, military or healthcare. While the labor market jumped in August by 162,000 against a consensus 53,000, that does not undo the prior twelve months average of 31,000. And, what about adjustments to the August number in the future? It would not be surprising if those were adjusted downward. On the flip side, the ISM Services Employment index came in at 47.8 in August. This is the second straight month of contraction. Interestingly, services prices hit 72.6, the highest in four years. I would argue, and will in a piece on demographics, that the Baby Boomer retirement process is having a significant impact on both jobs and wage levels in certain areas. Manufacturing PMI also slipped, from 55.6 to 54.6, with new orders down 3 points to 53.7. While that is still growth, it is flattening out and not the type of “booming economy” that certain politicians tell us about. Here’s another tell about how small and midsize business in America is doing. U.S. business bankruptcy filings rose 16.9% in the twelve months ending June 30, 2026. The acceleration bankruptcy of filings is the tell here. For the rolling periods ending December 2025, March 2026 and June 2026, bankruptcy filings rose 7.1% to 11.4% to the 16.9%. The NFIB’s Small Business Optimism index stayed below 100, falling 1.1 points to 98.7 in August. While this is not horrible, there is a downward trend for over a year now. There is both a correlated and causal relationship to the consumer situation given the high employment from small and midsize businesses. Credit card delinquencies are rising, lage mortgages are rising and auto loan defaults are rising. Not good. Closing Investment Thoughts If the Federal Reserve raises rates, then we have a recipe for “stagflation light” cooking. AI, military and healthcare growth won’t slow, but many other parts of the economy will. At the same time, higher energy costs, which are the major part of inflation, don’t come down except at the expense of the part of the economy that gets hurt. For investors this is a tough spot. The potential for higher rates on debt and inflation concerns make bonds not such a safe haven in the very short term - though I think there’s an opportunity coming. I think the most important thing here is that you have to be a stock picker. Indexes won’t work in the short-term if they raise rates and further bifurcate the economy. We also love selling options. Speculators have pushed premiums up, so, selling cash-secured puts on stocks you’d like to buy lower, or covered calls on stocks you own that might stall out, can generate big income while reducing your equity risk versus owning equities outright. We like industry that supports electricity production and distribution, as well as, cybersecurity as our plays on AI. We love the developing drone and defense supercycle and recently put out a special report covering the industry, 34 public stocks, and backdoor plays into Anduril. We also like a handful of other government favored businesses or industries that are seeing positive regulatory developments. And, a bit of gold. Last chance to get your first year of Kirk’s Growth Stocks 50% off at only $149.