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All I’m Saying Is…

When I was overseas, a long, long time ago, it took me a while to understand, but confusion about what to do next was an opportunity for a bribe. I’m not talking about thousands of dollars here. I’m talking about a couple of bucks to get someone to stamp a piece of paper. They knew they had to stamp it, and they probably would without bribe, but the bribe made it happen a lot faster.

That’s what comes to mind when I see the confusion caused by the tariffs. I’m not saying anyone is expecting a bribe. After all, the ticket agent, conductor, or whoever, would never take a bribe. I’m just not sure who is supposed to offer the bribe? Are US citizens supposed to offer the bribe? Are foreign countries? Are the importers? (Like Apple).

What’s On Tap for This Week

This is going to be a light news week.

Tuesday – Case Schiller home price index.
Friday – CPI/PPI data

The other thing to watch is who is filing for refunds for tariffs paid. There are two levels of tariffs at play. The first are the tariffs in place before we started this descent into stupidity, and the yo-yo tariffs that have come on and off since “Liberation Day.” There is an orderly process for refunds, but not everyone is sure these refunds will be orderly. It may result in a class action suit to compel the refunds, but we’ll see.

CNBC estimates about 175 billion subject to refunds. That’s in line with other estimates from 130 to 175 billion. That’s considerably less than the additional tariff revenue collected since April 2025. That’s because the other tariffs were under different laws, which are still in place. For example, if there’s a finding of an unfair trade practice, a different law is applicable. The process under those laws requires some additional work. Whether it’s all kabuki theater or it will be done in good faith, I can’t say. (Despite my suspicions). I’m not an expert, but my guess is the section 122 tariffs (the sudden imposition of a 15% tariff on “global” imports that expires in 150 days) will be a bridge to get all the paperwork complete for other tariff statutes.

That said, the random 100% today and 20% tomorrow and then 55% the day after tariff announcements were under the International Emergency Economic Powers Act. That’s what the Supreme Court said was unconstitutional, because under their reading, it did not grant tariff authority. Section 122 requires Congress to reauthorize the tariffs in 150 days. I think Republican support for that is far from automatic. That means going into Labor Day (when most people start to think about elections), Congress people would have to explain why they authorized more taxes on American businesses.

Senate Seats Up for Grabs

The ability for Trump to set up a primary challenge to House and Senate candidates will have been long past, and it will be the Democrat challenger that candidates will be the big concern for Republicans. If the administration wants section 122 tariffs (the 15% just imposed) extended beyond late July, it will have to convince the Republican House and 22 Senate Republicans to vote for it, knowing they will hand their Democratic opponents a blunt instrument which will be used to beat them, repeatedly. Or, they will have to explain why tariffs on French wine and cheese is a national security issue.

This is an administration that is threatening Netflix with “consequences” if they keep Susan Rice on their board, given Netflix needs government approval for their upcoming merger with Warner Brothers. Their willingness, and the willingness of the billionaires who are ideologically aligned, to use every legal and possibly illegal means to keep at least the Senate will be used. These people realize if the Democrats do come to power, they won’t retaliate in the same way the Trump administration will retaliate. A Democrat president will probable drag their feet on firing the partisan hacks, like Brendan Carr, when they get into office. So why should they care about what Democrats might do them, should power change.

Nor is it clear that the election will not result in massive chaos. As was evident in the 2020 election, claims of fraud went forward even though it (implicitly) invalidates Republicans that won down-ballot. They might have a Democrat win a House race, and a Republican win the Senate race, but still claim the vote was fraudulent. And the 40% or so of the country that’s “ride or die” with Trump, they may even be more amped up than 2020. Along with the fact social media execs have shifted right, ff not captured by a system of patronage, that suggests they’ll be protected if they help Trump. For example, showing they are willing to exempt Apple ICs from tariffs, but also “mentioning” that Apple News appears to favor a left-wing liberal agenda.

2026 is not in the bag for a Blue Wave. Nor is 2028 in the bag for a transfer of power. At this point Trump is still respecting the decision of the courts, if only grudgingly, and sometimes completely with contempt. If the energy is to impeach and prosecute him for stealing billions of dollars (for example, transferring US funds to his board of pieces of shit), he may pull off the last guard rail. A lot of his supporters among the elite are not ride or die. They know they may not go to real jail if caught for criminal activity, they may lose a lot of money. But if the deal is better to back Trump over the US constitution, they may back Trump.

I would like to think that between tariffs and immigration enforcement Republicans would be handed a soul-searching political ass-pounding. But social media feeds can have an insidious impact on political opinion. Just like Tik-Tok’s algorithm fed several many times more images of murdered Gazans than murdered Israelis, and helped from the initial push for protests of Israel. Then Israel managed to provide more than enough reason to protest their invasion of the Gaza strip and continued occupation of the West Bank. But that’s for another day. The point is, that among Tik-Tok users, those videos were very effective. And I think, with the transfer of Tik-Tok away from China to Trump’s friends, I think the feeds will be manipulated to stunt what should be an epic smashing.

A side note if you think other governments pay tariffs. You are ignorant. Many people have explained how tariffs work and it’s the company importing the good or service that pays the tariff. Since China doesn’t import anything into the United States, it’s US companies like Wal-Mart that import Chinese made goods, it’s the US company that pays the tariffs. There are so many explanations of this around that if you don’t understand it, you’re a fucking idiot.

What the Supreme Court Decision was Not About

It was not about anything other than Article I specific powers that Congress has and the statute under which Trump was operating. Let’s say that despite their best efforts, Republicans lose the White House in 2028. And 2029, despite the Sargent at Arms arresting him to count the electoral votes, Democrats take over. A Democrat decides to cut tariffs on everything, but double them on hydro-carbons. Because the climate is an emergency and the president has these emergency powers. And the three justices who “crossed the line” understood that and the law.

I think they would have easily changed their tune had the tariffs been enacted by a Democrat. I think the mask has been off with Alito and Thomas for some time. They aren’t concerned with the about a Democrat using those powers, because they would stop that in a heartbeat. They are not there for precedents or the law. I think they’re there for a political agenda. This should have been a 9-0 decision. It should have been a slam dunk. Nothing in the statute indicated Congress gave up the power to tax.

My hope is that a Democrat House and (more importantly) Senate majority is in place when Alito or Thomas leave their posts. That way the majority leader could discover a tradition that says the appointment of a new judge can wait until the next president. You know, pulling a Mitch McConnell. Clarence Thomas is 77 and Alito is 75. The average age for upper income Americans is in the 80s. They might go for six more years, but they might not. Or it might be evident that they cannot. I don’t know what will happen if a dementia ridden judge refuses to step down because the president is the “wrong party.”

And let’s face it, we no longer care what the Bar Association thinks about qualifications, temperament, or caliber of individual. The court has come out as partisan so we’re going to pick the youngest partisan hack we can find that has a credible CV for the Supreme Court. An existing federal judge who we think will advance our agenda. The idea we’re going to pick our best jurists for the role is a quaint notion.

What the decision was not about was any kind of split or rebuke of the president. For the three judges who “crossed over,” their basic sense of the job and their sense of their legacy probably prevented them from voting to protect the tariffs. But only in this narrow instance. From the earlier immunity decision, we have plenty of evidence what the conservative justices think the limits of their president are. To varying degrees, they support a stronger, less restrained executive. (And thankfully it’s openly written about, so we know the Unitary Executive isn’t just a liberal brain disease).

Rehashing Supply Side Lies I Once Believed and 10 Days

Under what scenario does cutting rates, along with heavy deficit spending, not lead to inflation? If productivity expands from AI and automation. Setting aside my disbelief in the mechanics that would allow this to play out in a short-term basis, it is reminiscent of the supply side argument from the 1980s. You’ll still find people who believe in the argument to this day, even though the evidence has eviscerated it. But let’s hop into the way-back machine to 1980-something.

The argument was that inflation was a result of demand suddenly outstripping supply. If you lower taxes or raise spending, you stimulate the economy (that was when congress was not so politically deranged they couldn’t raise taxes to slow the economy, if needed). Other levers could be using the reserve requirement to stimulate or depress lending or raise the federal funds rate. By the early 1980s, and a brutal several months of extremely high rates, inflation was on its way down. But an interesting phenomena was emerging. The Philips curve, the statistical relationship between unemployment and inflation, began to ratchet up. For the same level of unemployment, it seemed like we were getting higher levels of inflation.

The solution was to push out the supply curve1. And if the solution sounds similar to every single Republican proposal you ever hear, it’s because it is. Cut taxes, especially among the investing and business class, and remove the pesky red tape, safety regulations, and environmental regulations. That would “unleash the animal spirits” of American enterprise and the supply curve would be pushed out to achieve higher levels of output (lower unemployment) without inflation. Well, we did cut taxes and Regan and trigger what (at that point) had been record deficits.

As we can see, except for World War II and the great depression, we’d never seen deficits so large as under Regan. And now we can’t even get to striking distance of a surplus. But that’s okay. We’ll have deficits now, but the economic activity will make up for it, right? Meh – not so much. They say George H.W. Bush lost the 1992 election because he broke his promise of no gnu taxes. And I beg to differ. Neither yaks, gnus, oxen, or other ruminants had their taxes raised. Under the profligate Democrats, from 1992 through 2000, deficits actually shrank and we had a surplus. Until the next Republican figured out how to drive massive deficit spending again (and almost put is into another great depression – but that’s a story for another time).

Any economist, in the 1980s, believed the supply side of the demand and supply curves could expand out, achieving greater well-being with limited changes in the price level. It just took time. It takes time to build a factory or get a business running. Because of improvements in technology and productivity, over a period of 5, 10, or 15 years, the supply curve slowly pushes outward.

That wasn’t the supply side argument. It argued that you could drive the supply curve to higher levels of productivity in the short term, without inflation. Not 5 or 10 years, but 1 or two years. Tax revenues would shoot up and cover the short term deficits. But, at the end of the day, there was no great well of untapped capacity in the United States that would have allowed such an expansion. And low and behold… there was no great increase in production and deficits went up. To avoid inflation, Volker had to keep rates high and jack up the Fed Funds rate again. No great swell of tax revenues came in to fix the deficit issue.

But the 1980s were a decade of great prosperity and economic growth, right? Yes, as the Fed and the administration and congress had dueling economic policies. The don’t tax but spend a lot policy of the Republicans had to be throttled by the interest rate policy of the Fed to avoid a return to high inflation levels. Maybe Volker should have just said “fuck it” and let the deficit spending result in massive inflation, but he kept the brakes on. So yes, the 1980s was a great decade because we mashed the accelerator and the brake at the same time, but just so the car could move forward.

The argument evolved from the short term variant to a new variant (much like COVID) that was more congruent with reality. That was the long term supply side argument. “See, we were right, the supply curve eventually did shift right.” Over a period of several years, just as many economists would have argued before the ill-conceived economic experiment. Their revisionists argue it was about long term movement of the supply curve, you just mis-understood us on the short term stuff. That’s not an evolution of the argument to take into account new realities, but rather how intellectually dishonest people (liars) cover their tracks.

Which brings us to the present. The president wants to do what Regan never would have dared, because Regan believed in America and American institutions. He wants to make the Federal Reserve a tool of the administration. He wants them to drop rates at the same time he’s engaged in deficit spending. (And like any good autocrat, skim a little off the top and drop it in an account in Qatar). The claim is there is a great untapped reserve of unproductive people who could be rendered so much more productive, that we’ll get more output at the same level of prices.

This argument is completely predictable. Lower taxes, lower regulation, and lower rates and the economy will blossom. The magic will be AI that will suddenly allow people to produce so much more that the increased demand will be satisfied at the same price level. We’ve had AI in various forms for a few years now. We are not seeing any change above the historical bounds for productivity. In the last couple of years there hasn’t been any sign that productivity is being impacted at all. In fact, computers have coincided with a drop in productivity since their wide-spread introduction in the 1970’s. But that was a key to the supply side argument as well, the animal spirits would be unleashed, in part, through productivity.

I want to be clear that in the 1980s I believed the argument the supply side economists were making. I’m writing this, as someone who took the argument seriously, looked at the outcome, and then realized the argument was wrong. And I see why it didn’t work, and never would have worked, even if Volker had dropped rates. I look at it this time and see the same argument being made, except by clearly worse people. We drop taxes on (disproportionately) the wealthy, we lower safeguards around our safety and health, and now we drop interest rates (which will cause the assets of the wealthy to inflate), and we’ll get this ground swell of growth without inflation. We are making the same mistake, twice.

That takes me to my next topic, which is the Iran strike. Now we have a 10 to 15 day timeline. That puts it in the range of March 2 to March 7. The next new moon is March 18. However, as I explained, that doesn’t matter if the moon is set. Moon set, however, will be between 6 AM and 8 AM, meaning there will be moon all night, with March 3 being a full moon. Darkness is good for US operations because we’ve focused on being able to see at night, something that’s expensive and out of the reach of many militaries. The darker it is, the harder it is to spot planes, helicopters, and drones. The next good opportunity after March 7 is about a week later, March 15. March 15 is a Sunday, so the strike would get full Monday morning news coverage. Beware the ides of March?

  1. I should state, for clarity, that there are no Supply and Demand curves. It’s a pedagogic tool used to explain concepts around issues like how economic output and price level interacts. That sometimes the nominal growth you see comes in the form of inflation and not more goods and services. ↩︎

Will the US Strike Iran?

I don’t think the gold market thinks so. Price action is essentially flat. This may change on Friday, but right now it looks like gold is having a consolidation moment after the run-up. I don’t think a lot of countries want to hold gold as a reserve, as its volatility means your reserves are subject to constant swings. The traditional reserve was the dollar, but many countries are looking at an administration willing to subvert its own laws and weaponize its currency. So that makes the Euro more attractive, but it lacks the depth and breadth of market the collar occupies.

The next proof point would be an appreciation of the dollar combined with falling prices on bonds. I see some, but not much movement. Again, that could change by Friday. But the dollar and interest rate aren’t signalling a belief the US will attack this weekend. The dollar continues to sit in it’s range and the upward movement is as easily explained by the strong economy and the likelihood interest rates don’t change until mid-summer.

What we learned from Venezuela is firstly the operation was a surprise. Second, we have some tactics and weaponry a lot of us didn’t realize we had. Third, the US had no interest in anything but a quick win. Forth, there is no interest in democracy or actual regime change. Fifth the goal, explicitly stated, is control of oil and oil sales.

Thanks to Charle’s brother, the news has a lot on the arrest of Andrew. Iran is below the fold at the NY Times, not on the front page at Bloomberg, and missing from The Guardian. I’ll get to the AP and BBC later, but likely the same. People aren’t looking that way and the administration has tamped down the rhetoric, making it look like talks are underway. No reason to attack if people are talking, right?

The attacks preceding the abduction may have been probes to test the speed, reaction, and air defenses of Venezuela. I suspect we have that dialed in on Iran after the raids with Israel. It’s likely we have good intelligence and wouldn’t need to probe their defenses by striking other targets. After all, we dropped bombs on their most sensitive nuclear facilities with impunity. I suspect we can strike anywhere in the country at any time. And likely one result of the Ukraine war is highly detailed information on Russian air defenses at their most capable.

It’s not likely the US would swoop in and take the Ayatollah back to Rikers in cuffs. But it might be a decapitation strike. There are plenty more religious leaders waiting in the wings to replace any “martyred” leader. So I’m not sure what lasting chaos or policy change it might cause. If there’s anything to strike that would have lasting impact, it’s the revolutionary guard and secret police forces. Maybe target the control and command systems that enable them to suppress internal dissent? After reading about their brutal response to protesters, I doubt anyone would shed tears for secret police and military that shoot at civilians.

The moon this weekend is heading to first quarter. The next new moon is March 3. This doesn’t matter as much as some people think, with the assault for Maduro taking place, as January 3 was a full moon. The moon will set in Tehran shortly after 10 PM, local time. Which means it will be moonless in the early hours of the morning. (The moon isn’t always up at night – remember?)

What will the US want? I don’t think anything but a vague “lay off the dissidents” and demands on the oil. It might have some added benefits of keeping Iranian drones out of Russian hands, to fire on Ukraine. With all the ships and capabilities arriving in the Gulf, a timer has started. There’s a point at which those assets have to be rotated out for maintenance and refurbishment, and to give their crews some time off. A build-up can’t sit there forever. A “permanent” presence, simply means the US rotates ships in and out of the region. It’s not the same ship, years on end.

I don’t expect the US to land troops or in any way take a long-term approach. I suspect it will be much like Venezuela, meaning they realize no one is going to keep paying attention to see it spiral into shit or realize nothing changed. I don’t know what targets they intend to hit. Maybe it will be the re-built nuclear sites. Maybe it will be the revolutionary guard barracks and headquarters. Maybe it will be government buildings. I have no idea. But I don’t think Iran will be able to retaliate in any meaningful way and I don’t expect Iran to be able to stop the attack.

[Note] With this administration, watching the markets may be a good indication they’re about to do/not do something. They tend to be leaky with non-public information.

Calling It What It Is

The practice of calling something what it is seems jarring sometimes. None of us want to come to the horrible conclusion what we’re looking at is as bad as we think it is. That’s why it’s nice to see the NY Times call out voting restrictions for what they are: an attempt to blunt the Democrats taking the house and possibly Senate. Do I think Republicans know better than to believe that illegal immigrants voted in 2020? At this point, I don’t know. I think the person who originates a lie knows it’s a lie, but maybe not the person who repeats it. And human beings have an amazing ability to believe something that suits them.

A lot of journalism, in order to avoid seeming biased, gives both sides a pass. That’s why people who pushed an anti-science agenda that carbon emissions aren’t ruining the climate got an equal hearing with actual scientists. This is especially true if the denier had some scientific credentials, even if they weren’t in anything related to meteorology or climate work. Putting one person “pro” and once person “con” in a discussion group makes it seem like there is a split on opinion. Even though you can see the impacts of a changing climate, you find something else to believe. Or you just don’t believe it, because it’s easier not to. Even with a top tier education, all the information in the world at you fingertips, and being accomplished in your own field, does not prevent you from convincing yourself of something that isn’t true. It allowed you to believe that the scientific field is split, and therefor no one knows. And if it’s all about money, maybe its the 60k a year climate researcher that’s making a mint on this.

Often, this follows familiar contours. We just went through the Epstein file dump and saw the degree to which people tried to excuse, minimize, hide, or ignore what it was about Jeffrey Epstein that was so vile. And what it implied about him and the people that frequented his island. It has become clear that at many turns people could have named Epstein for what he was and what he did, but chose not to. Not because they don’t abhor trafficking and raping children, but it would mean naming themselves as abetters and enablers, and their friends (and possibly family) as rapists. I’m not sure what they allowed themselves to think, or what to believe. I don’t think they can think of themselves in those terms. I don’t think any decent person can, so there has to be another explanation. He’s mentoring them. They’re actually older than they look. Maybe those girls are getting something out of it too, staying on a nice island. And for some of the abusers, probably that if she really didn’t want to, she would have left the room.

Unless we want to fall into that same pattern of behavior, at some point we have to name the Republican party and its attempts to illegitimately secure power. They intend to keep eligible voters out of the polls to hold power in the 2026 mid-terms and the 2028 election. This is an undemocratic attempt to maintain one party rule by tampering with elections in a way that gives a thin veneer of legality. Enough of a veneer to let people continue to believe it’s for securing or protecting the elections. That they’re the good guys, because otherwise, it would make them no better than any other one-party rule dictatorship. They have to believe there is a problem with illegitimate voting, despite the evidence to the contrary. Because if they actually named what they are doing out loud, if they acknowledge it to themselves, they will realize the enormity of what they are doing.

This is why the facts don’t matter. Because the belief is based on what they want to be true. For example, Biden won on the presidential ticket, but Republicans won down-ballot. Does that mean that those results are invalid? It doesn’t matter to them. If you look at pieces of evidence like the Utah audit of illegal voters, that found essentially no problem, it doesn’t matter to them. And it’s no longer just a few fringe lunatics like Sidney Powell, who came off as nuts. In terms of people who’ve convinced themselves illegal immigrants voted, it’s likely a majority of the Republican caucus. If not almost all of the Republican caucus. Some are just dumb and gullible, but others have just convinced themselves this must be true. Otherwise, they will have their asses handed to them in a few months. And more importantly, if they can’t convince themselves, it just means they are anti-democratic and breaking with a fundamental tenant of being American.

Representation, voting, was the chief complaint of Americans that lead to independence. That the English parliament, across an ocean, was making decisions about English citizens that were denied the same representation available to people living in England. While many people look at the tax issues, it was that the taxes were imposed without the colonists feeling like they had a say in it. Denying eligible voters, in America, access to the ballot box makes one a traitor to the very idea of being American. And that’s what these laws intend to do. To take people who could vote, and have grievances about how the government is running, and turn them away by adding additional requirements for identification well beyond what is necessary. Or up-ending the constitution and imposing control over a function explicitly left to the states.

For example, say you were born overseas but became a US citizen. You are allowed to vote. The proposed laws require you to show a passport or birth certificate to vote. Your birth certificate is useless. You have to show a passport. I have always had a valid passport. But only half the country does. I’m assuming among that half are people a fair number are born overseas. It can take weeks to get a passport and there is a non-negligible price. Or if you are a woman, who changed her name after being married, you need to show both the passport and a marriage certificate. I’m sure my marriage certificate is around somewhere, but I’ve never had to show it. Women have been been skewing toward Democrats, as might more immigrants after the horrific ICE crackdowns. What better way to throw up a little roadblock to registering to vote. The icing on the cake will be to place ICE at polling places. The goal being to instill fear into people afraid they might get unlawfully arrested and spend weeks in detention before their citizenship is verified, don’t show. Why on earth would they think that? Because that has been happening to brown people, especially if they have an accent.

But, that’s only a few people, right? Think about how close the elections can be in the United States. We now consider a presidential election decisive if there’s a whole percentage point difference in the popular vote. You don’t have to keep 10% of the likely Democrats from voting. Maybe just have to keep a percent or two from voting. You might still lose the House, but maybe keep the Senate, and pretty much stay in power. Nothing a Democrat House does will pass a Republican Senate. And the slim margin is even more true during the presidential election. And on top of that, the administration will lean on broadcasters and social media to avoid spreading messages that will hurt them in the polls. While no longer under the cover white supremacists funnel money into Republican races. And what coercion by the FCC or FTC can’t handle, and money can’t buy, the patronage system pressure companies to fall in line.

But that may not be enough. You may get a large number of people voting for Democrats, even with all that suppression work. You might think the laws would prevent them from claiming fraud. It won’t. Just like 2020, they will let results that favor Republicans stand, while claiming Democrats cheated with illegal votes. If passage of voter id laws is blocked by either the Senate or impeded by the courts, they will claim the results were full of illegal votes. If the laws are passed, enacted, and allowed for the 2026 mid-terms, they will claim the laws weren’t enough, or that Democrat states failed to enforce them. And it won’t matter if those states are traditionally ‘red’ states. They will do everything they can to deny Democrats seats but will not attack a Republican win, even on the same ticket. They did this in 2020. They will do it in 2026 and 2028.

The voter id laws are a thing to help them structure their fantasies. In one sense they don’t matter. With the laws in-place, after a defeat in the mid-terms, they won’t care about audit trails, voter roles, manual re-counts, or whatever you propose. These are people who legitimately looked for traces of bamboo in paper to show it was from China. They cannot believe anything else than they lost because they cheated. Will there be Republicans that know they lost but still make the argument? Of course there are. Just as there were tobacco executives that realized smoking was killing people, was addictive, and they needed to get kids hooked as teenagers. And that their claims about the science not supporting the cancer claims was just a smoke screen. But plenty of people allowed themselves to be convinced tobacco wasn’t the problem, it wasn’t that addictive, it was their right to smoke, and that if teens smoked, it was the parents’ fault.

It may come to mass protests in November through January to force the Democrats to be seated in Congress. You can be assured that every procedural impediment to swearing in new Democrat congress members will be applied. Every court challenge to their win. Every counter protest (complete with stop the steal activists in battle-rattle and long guns) to declare the results invalid will be pushed. Every attempt to cower the media and social media narratives to de-legitimize the results will be taken. Every time a Republican is interviewed, they will focus on language tuned to resonate with their base and help them continue to believe the election is being stolen. That their country is being stolen. That their voice is being stolen. And their way of life will be stolen, if the Democrats win. But at the same time, accepting every Republican win as legitimate, not really up for discussion, or part of the clever plot.

Just as many Republicans have made it clear they feel voting is a privilege, not a right. Or that maybe their faith says we should allow head of household voting. Or that they can discern who the real Americans are, and only they should vote. Or, if push comes to shove, they can’t trust the ballot box to their satisfaction so there’s no point in having elections. We have over-used the word “fascist” way too often. The county requires separating recycling by type, and people scream it’s fascist. It’s lost its meaning. Authoritarian and autocratic don’t hit has hard as fascist used to hit. But make no mistake, what I’m seeing in America is little different from the slide that Turkey and Hungary took, and Poland was taking, to a single-party, failed democracy. If Orban loses, he may not leave power without blood in the street. Erdogan has shown a willingness to brutally crack down on his opposition and probably won’t leave without a revolt or military coup. And Putin consolidated power that ten years ago so people largely stopped questioning obvious murder.

If the Democrats do well enough in the polls come November, we may not have to listen to history rhyme as Americans fight to be represented. That even if you wipe out a few thousand votes here or there, it doesn’t make any difference and the House and Senate are both taken by Democrats. And that if you don’t acknowledge the election, you can’t seat a new Congress, and the business of the country stops. (I don’t put a full up coup beyond the pale at that point. You just don’t seat Congress and the president runs the country by fiat. Or tries to, in which case we’ll see which way the military heads.) But the fact that a blow-out or landslide is the only way we keep democracy going, kind of shows we’ve already lost. And lost because of the dumbest reason, that people have convinced themselves of something that isn’t true as they can’t just admit they are sheep who would rather give up their rights and live in a dictatorship.

A Little Perspective

NVDA is going to announce earnings on Feb. 25. Like everyone else, I think I’m more interested in the forward guidance on sales than sales over the last quarter. I think we’re all looking for an indication of any pull-back in AI capex spending. This would not just be an issue for Nvidia, but also for companies ranging from turbine generator suppliers to utility and real estate companies. Looking at current levels for the NASDAQ, the recent high was about 26,000. A historically normal bear market pull back takes us to just under 21,000. That’s at the bottom end of a congestion area from last December. The S&P 500’s recent high was just above 7,000, meaning it’s 20% retracement is in the 5,600 ballpark.

The difference between a regular bear market pullback, that cleans out some of the deadwood, and something bigger is only visible in the rear view mirror. When the stock market started dipping before the GFC, a lot of people thought this is just about clearing some deadwood from the system. Once it’s done, the infinite money glitch will restart. Jim Cramer gets a lot of shit for the “Buy Bear Stearns” call just before it went tits up. But he wasn’t the only one who genuinely believed Bear Stearns was in a bind but would find its way out. In part because they didn’t have all the information necessary to make that call. They did not know what Bear and its counter-parties knew. They have opinions on dozens of individual stocks and are not specialists who follow just one company. As Bear kept dipping, they thought it was time to buy. The bias sell side analysts have toward buying just made them look that much dopier when it happened.

Contrast what happened with the sharp pullback and return during the start of the COVID lockdown. The S&P 500 went from almost 3,400 to 2,200, well over 20% and came back fairly quickly. In six months it was pushing new highs as we sat around swimming pools, masks on, glaring at the neighbor jogging by without their mask. Okay, that was one stock versus a whole market, but after the 1929 crash, the stock market came back in what’s called a bull trap. Price came back, people bought in, and then resumed their slide. In fact, the prices came back to nearly the 1929 top.

I don’t know, Jim Cramer doesn’t know, and no one knows if Nvidia’s earnings announcement will cause investors to double down, pull back, or continue to waffle in the trading range. Or pull back for a couple of months, come down 20%, and then come back. As Yogi Berra said, predictions are hard, especially about the future.

But it’s good to clear out the deadwood. For example, the zero days till expiration options trading may be contributing nothing more than volume, income for brokers, and some volatility. I would say it would be nice to wash those folks out of the market, but I suspect a majority are not professional traders. They think they are, but they’re just gambling on whatever free broker they’re using. It would also be nice to nip the prediction markets betting on the market in the bud. But again, that’s not done by people whose wealth moves by six or seven figures on a daily basis. It’s done by people who can’t replace their fridge, if it breaks.

But then again, other than time horizon and belief, what makes someone betting Tesla will move up at least half a percent today, different from me? I have a longer timeline. And for the last 100 years, we’ve seen the US economy grow and wealth accumulate in assets like stocks. Over a long enough time-line (with an important asterisk there about when you buy in and when you cash out), people have generally done well. But we wouldn’t be the first example of a country killing its golden goose for the dumbest of reasons. London has played second fiddle to New York for some time, but Brexit has accelerated its trajectory into irrelevance. Now, its best financial innovation is possibly loosening laws to become more like Dubai, where it’s anything goes (including fraud). Once, even after the US economy eclipsed the British Empire, London was the financial and insurance center of the world.

At some point, the hyper-scalers will need to stop buying Nvidia hardware unless they figure out profits from AI. The market is already giving Google, Amazon, and Microsoft the side eye for heavy capital spending to support AI. The punishment by the street for not investing in AI might be worse right now. But at some point, if AI isn’t making real money (and not just redeeming credits issued in exchange for ownership in Open AI or Anthropic), money spent on AI chips or data centers would be better used to buy back stock. At that point Pinchai, Nadella, and Jassy might decide to stop advertising their AI capex spend, as it would be driving down the stock, and focus on “core competency.” They will pivot by laying off a bunch of people and fucking over a bunch of contractors who anticipated the completion of additional data centers. Oh well. Somewhere between now and that possibly distant future, I expect to break Nvidia to break down from its trading range. Unless it doesn’t.

This is not investing or investment advice to you, or anyone. It’s is provided for your entertainment purposes only. And if you are investing, contact a professional before making any decisions. Buying and selling stocks, futures, or any investment is a risky activity and can cause you to lose money, including the principal which you invest.

On Tap for This Week

This week is a lighter week.

  • Monday – Markets are closed
  • Wednesday – Housing starts and FOMC minutes
  • Friday – GDP

Housing starts I don’t think are as critical as they once were. It used to be that sales of houses were tied to a lot of other economic activity from buying new furniture to updates to existing homes. It used to be more a headline number and market mover.

Here we see the last couple years of starts, compared to the historical numbers for housing starts. Although housing remains unaffordable for many, we don’t see a huge increase in starts over the last three years. From the chart above, we can see a jump shortly after the COVID lockdowns, but nowhere near enough of a bump to deal with the lack of housing created after 2008. And if you have to ultra-stretch your budget for a house, that doesn’t leave a lot for new furniture or trips to Home Depot.

The FOMC minutes, however, will be interesting to see. We’ll get a view of how hawkish or dovish the over-all committee is. And remember, even if Trump installs a rate-cut happy lunatic as Fed chair, that lunatic doesn’t set policy. It’s voted on by the full committee. Which is why Trump is testing his ability to fire other Fed members. In the presence of tax cuts and proposed spending increases, a Fed that cuts rates will be adding stimulus on top of stimulus when the employment rate is in the range of full employment. Which would attack the debt level by devaluing the dollars in which the debt had been issued. But then interest rates (should) climb, or the dollar (should) fall to offset the devaluation of the dollar. When the dollar falls, oil and other commodities climb in price, pushing more inflation. And there is no guarantee that the increase in wages would outpace inflation. We would almost certainly all be worse off.

A quick note for folks that think 0% unemployment is full employment, that’s not how it works. Inflation has a statistical relationship with unemployment known as the Philips curve. Below a certain level, like 7% unemployment, a decrease of 1 percentage point of employment has no impact on inflation. At lower levels of unemployment, a 1 percentage point decrease in unemployment drives higher inflation. Why? Because when the labor market gets tighter (and everyone is immediately swept up into a new job), companies wind up bidding up wages to attract workers.

Those workers have more money for cars, food, vacations, and so on, and that drives inflation from the demand side. Also, as wages get bid up, more workers come off the sidelines into the workforce. These range from moms who no longer see it economical to stay at home, or retired people seeing opportunities, or people who left the job market to write a cook-book, etc. You can get a month to month increase in unemployment as these people come back into the workforce, while having a very tight labor market. As we pushed down toward 3% unemployment post-COVID, that contributed to an increase in inflation. It was great because everyone’s salary was jumping, but few people feel it outpaced the impact from inflation.

It’s a Special Hell

I feel like it’s a special hell to be stuck in a democracy with people who are so fickle and easily manipulated. Frankly, the best thing that could happen is that we walk away from social media and instead start walking toward places where we meet other people, like a bowling league, bar, maker space, library, or whatever. Sure, some places will code right-wing, but people don’t like blowhards and usually just want to bowl, or have a couple of beers, or work on a project, or find a good book. At the end of the day, in spaces with people, blow-hards have their moment and flash out. You find your people. The people who you look forward to seeing the next time you go there.

But we aren’t doing that as much as we should. We just scroll through phones and social media posts. Like, share, re-share, or maybe even re-mix if you’re bored. And before you know it, another hour or two has gone by. That happens for most of the week and you lose days worth of time before you know it. You look and see things aren’t going so well in other areas, so you jump back on social media. Its a combination of an escapism factory and a dopamine dispenser. How should you feel about something? How did you react to that meme? Did you re-share it? Or did it change your gut reaction to a story? Did you switch teams on that one? Did it make you feel smarter? You’re not a sheep. You think for yourself! Except, did you?

It’s a special hell to be stuck making decisions with people whose frontal cortices have shriveled and are driven by their amygdala and limbic system. Feed enough of the right trash into the chum-bucket that is their media diet and a president trying to become a dictator is romanticized as a Tony Soprano, having the guts to go for what he wants. Not pausing to think that it’s against the basic idea of American democracy. Reaching that conclusion requires logical thought. Having an instant reaction to a meme, an image, a video that has to be shortened to seconds to deal with a decaying attention span, requires no thought. Feed enough of those images and you get powerful reactions.

All the while the people that are making money by monetizing your eyeballs are entering into a new and dangerous relationship with a dictatorship-coded regime. One of patronage. Special privileges, tax breaks, or rewards for being a swell pall. The people who decide what to feed your atrophied brain have an interest in feeding the message the dictatorship wants. What Orwell missed about dictatorship was not that government ministries had the ability to sway citizens. It would be the private companies, beholden to the state, that would do the state’s bidding to pursue personal wealth. It wouldn’t be faceless bureaucrats. It would be opaque content policies that might decide which image to feed you, based on careful targeting.

And with all the noise about the Blue Wave, I imagine we have yet to see the content that will be pushed to fire up fear, resentment, and anger to counter that Blue Wave. Whether it’s voter suppression by making people feel their vote is meaningless to stem the authoritarian tide, and they should just protest, or drowning them in emotional counter-narrative, the push back is coming. They don’t have to hire an army of content creators. They just have to push what ever is working and amplify that. That is the same tactic Russia uses to push its narratives in the West. Don’t push all at once. Seed it. See what works. Amplify that.

In addition we have the novelty of AI to prod the narrative. Imagine an Open AI signaling they need government investment to be profitable, and the only condition is they inject some additional prompting. If someone searches about specific topics, inject a small push to the government’s position. Not overt. Not blaring. Just a nudge. Offer content from a set of friendly sites to back up the claim. Not Fox News, just friendly sites. It can’t be obvious they’re being nudged. Maybe let Google and Meta know that a government ready to invest asks that they just treat sensitive subjects in a way the government desires.

Oh, but won’t they fear the Democrat’s backlash? What backlash? Backlash from people who are making their platform “we follow the law?” The Trump platform is “if you can’t help me – I’ll keep you out of jail and make you rich.” That’s why he’s pardoning scammers who now no longer have to provide restitution to their victims. And if he’s willing to bail out a scammer, he’ll definitely cover for a big-tech CEO. And they have no problem lying, even under oath. If anyone ever asks, it never happened. As we get past labor day, expect your feeds to get a little ‘odd.’ Nothing big, but … wow …. you did not know that Islamic terrorists were among the Minnesota protestors. I wonder what else those people with whistles lied about?

This is truly a special hell. I stay off social media not because I’m immune to manipulation (no one is, regardless of their self-image), but because I am just as susceptible as the next person. I had the misfortune to hop on today and was reminded how addictive scrolling the feed can be. Especially when people react to a comment or re-post. But millions of voters hook themselves to it, willingly reshaping their minds to big tech’s content.

[Note] I originally used the phrase “Red Wave”, when I meant “Blue Wave.”

Quick Note on CPI

I need to dive into the details but CPI came in on the slightly low side of “in-line.” This is good but does not necessarily translate to interest rates coming down. As we just saw in the last two weeks, the job market does not appear to be cratering. This could imply the “r*” rate (the neutral risk-free rate associated with short term government debt), could be between 3.5% and 4.0%. Even if inflation is coming down, it does not mean that reducing rates wouldn’t be an unnecessary stimulus, raising inflation. Especially when you consider the tax cuts and anticipated defense spending are stimulative. You can’t add stimulus on top of stimulus without driving inflation. We just did that, right?