27 Jul Mid-Year Musings

“Uncertainties abound.” – The Lonely Realist

The Economy

After the Presidential debate on June 27^th, Joe Biden and Kamala Harris were seen as the lamest of lame ducks…, and the stock markets promptly leaped with the expectation of a second Trump Administration. Donald Trump has promised additional tax cuts (including for businesses), smaller government and reduced regulation, all of which should be bullish for stocks. If he’s re-elected, pundits accordingly have predicted boom times ahead. So why then did America’s stock markets tank in mid-July after post-debate polls made Donald Trump the even stronger favorite to return to the White House? President Biden was understood to be unfit for a second term. Vice-President Harris was perceived as his weak second-seater. And the Biden-Harris Administration was viewed as bad less good for business because of its big government approach to regulation, the inflation flare-up in 2022 and 2023, and its anti-carbon/pro-green policies. So why then did America’s stock markets jump directly after Joe Biden dropped out of the Presidential sweepstakes and Kamala Harris, with her personal and policy baggage, became the presumptive Democratic Party nominee?

There is no simple answer. Recent stock market moves create a puzzle that highlights risks. Perhaps Donald Trump’s tariff plans, his calls for a weaker U.S. Dollar and his (and Vance’s) anti-internationalism are seen as greater risks to America’s economic future than his pro-business policies? Or maybe limiting President Biden to a single term and “staying the course” with Kamala Harris provides investors with a sense of comfort and stability? Or maybe recent stock market moves are due to complex economic factors…, or simply are random? Whatever the reason, the markets’ reactions cannot be ignored. Something’s happening here…, something that intensifies TLR’s concerns about the confluence of potential geopolitical and economic risks. The proximate economic ones include: America’s massive debt and deficits; a continuing inverted yield curve (that today is less inverted, a potential recession portent?); leading economic indicators that now are declining; money supply growth that is falling; unemployment claims that are rising; job openings that are declining; the too tight residential real estate market; commercial office space that seems balanced on the edge of a knife; and consumer spending and optimism that are dropping with households switching to house brands and avoiding expenditures for luxuries. Some analysts also are questioning whether investors have placed too much faith in AI and therefore over-invested in an industry that will not profit for many years. If so, a great many eggs have been placed in the Magnificent Seven basket (which this week broke below its 50-day moving average). The fact is that uncertainties and investment concentrations have reached levels exceeding those that previously raised concerns from alarmists that include Ray Dalio, John Mauldin, Peter Turchin and others. Have their too-early warnings been accurate? TLR intends to explore Cassandra’s perspective on America’s economy later this Summer.

The President

The decision by President Biden to debate Donald Trump raised judgment questions well before its denouement on June 27^th. Former President Trump is a media virtuoso who can dominate a stage (despite his increasing tendency to muddle sentences and veer off into inanities). Joe Biden is a poor public speaker, and has become less capable with age (even without considering his speech impediment). Why then did he his team press for a live debate…, and at an unprecedentedly early date far removed from the Democratic Party Convention in mid-August?

The June 27^th debacle debate coupled with subsequent Biden stumbles suggested confirmed that Joe Biden is has been suffering from progressive age-related disabilities. If so, serious questions about his ability to run for a second term most certainly likely were raised some time ago by his colleagues, Cabinet members and Democratic Party officials. President Biden apparently rejected all concerns and insisted on running for a second term. Assuming that this was the case, what action might Democratic Party leaders have taken knowing in the belief that the President might not be in full command of his faculties?

Recognizing that the highest priority for elected officials is their re-election, Joe Biden’s colleagues, Cabinet members and Democratic Party officials nevertheless must have considered invoking Article 4 of the 25^th Amendment, which allows the Vice President and a majority of undefined “principal officers” of the Biden Administration to petition Congress to temporarily remove the President from office. Such a move would have been unprecedented, would have highlighted ambiguities in the drafting of the 25^th Amendment and, in the absence of consent by Joe Biden (which clearly was not forthcoming), would have triggered a crisis. TLR speculates that Democratic Party leaders, unable to persuade Joe Biden to abandon his run for a second Presidential term, instead engineered the early Trump debate with the expectation hope that a failing Biden performance would compel the President to accept the reality of his one-term Presidency. If so, they succeeded [ED NOTE: What would they have done had their ploy failed?] and those same Democratic Party leaders also should have scripted (1) a broad Democratic Party consensus for a smooth transition – which appears to have happened (although a competitive process would have been far better), (2) the selection of the strongest possible Vice Presidential running-mate to complement that candidacy, (3) a revised Party platform intended to attract younger voters, and (4) a strategy that would move the Party close to the center of the American political spectrum (and away from the priorities of the Party’s Progressive wing). We shall see [noting that the “Inevitable Michelle Obama Candidacy” has proven to be a “MAGA Media Myth”]. In the words of Tony Blair, “Winning power is all about being The Great Persuader. Exercising power is all about being The Great Chief Executive.”

Gold

TLR this past March asked whether gold’s “then-rocketing price” – it began the year at $2,070/oz. and was at almost $2,200 in mid-March – was signaling a warning about potential economic and/or geopolitical risk. Since then Gold has leaped above $2,400/oz., appreciating at one point by more than 20% year-to-date…, and then breaking down along with stock prices…, which is why TLR is repeating that question.

TLR Index

Prior TLR commentaries can be found here.

Finally (from a good friend)