Appeals Court Rules (7vs4) Against Trump, but Life Goes On - Weekly Blog # 904

 

 

 

Mike Lipper’s Monday Morning Musings

 

Appeals Court Rules (7vs4)

Against Trump, but Life Goes On

 

Editors: Frank Harrison 1997-2018, Hylton Phillips-Page 2018

 

 

 

All of us were unprepared

The “Founding Fathers” designed our government to protect the minority against the majority, with the courts ruling on critical decisions. Now that the future of tariffs rests with the courts, I suspect The President will push for a quick decision.

 

I would hope at the end of judgement day we will have answers to two of the motivating drivers behind The President using tariffs to force discussions with both Congress and foreign countries.

• The first is “Non-Tariff Trade Barriers”, which may be larger than the size of the reciprocal tariffs, which are policies the importing nation forces on the exporting nation. The prohibition of certain fertilizers on imported food elements, or various power constraints on mechanical equipment or transportation vehicles are examples. There are a multitude of restrictions like these imposed by national or local governments on people’s taste buds. In total, these restrictions may very well be enormous in aggregate.
• The second issue is the use of the money generated by the tariffs. (It is well worth remembering that for more than a hundred years, tariffs were the main source of funding for the US government.) Economically, tariffs are a tax on the society. However, it is not clear whether the funds raised will fall under the control of the Internal Revenue Service (IRS) or some other instrument of government. The funds raised may potentially be used to reduce the existing deficit, pay for the newly issued tax breaks, or paid out directly to consumers.

The answers to these questions are needed to solve the riddle of weather these tariffs add to or reduce inflation. The independence of the Federal Reserve Bank is therefore a critical factor in dealing with the tariff issues. Many feel the Fed controls short-term interest rates and influences intermediate-term rates. However, it is not that simple. In an article by George Calhoun in Forbes, he lists recent experiences where the Fed lowered rates while the markets raised them. One of the reasons rates rose is the dollar declined or was expected to fall. George Calhoun is a professor and fellow board member at the Stevens Institute of Technology.

 

The commodity markets are keenly conscious of inflation expectations. This week commodity futures rose, led by natural gas +2.64%, gold +1.21%, and copper +1.01%. Another way to play the same trend is in the stocks of the commodity producers, which are owned by specialty funds. Specialty precious metals funds rose +2.70%, China funds +1.31%, Agricultural funds +1.30%, and Base Metals funds +1.12%. While the Courts will decide on the appropriate questions, the markets will collectively reward those who guess right regarding the direction of prices.

 

Please provide any thoughts that might give me a clue on how to avoid losing money and perhaps make some.   

 

 

 

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Expectations: 3rd 20%+ Gain - Stagflation - Weekly Blog # 896

 

 

 

Mike Lipper’s Monday Morning Musings

 

Expectations: 3rd 20%+ Gain - Stagflation

 

Editors: Frank Harrison 1997-2018, Hylton Phillips-Page 2018

                             

 

 

 

 

3 ½ Day Trading Week

Normally, in a three and a half-day trading week we expect low volume and muted news of any significance to investors with less intense trading instincts and reduced staff levels. This was not the case this past week. Despite initial unruly Republican Party members in both Congressional houses, the so-called Big Beautiful Bill (BBB) tax and tariff bill passed with few amendments. Significant progress was made on reciprocal tariffs and possible trade barriers. Cease fire agreements in Gaza moved toward peace agreements. One suspects a Russian economic crunch, continued causalities sustained in the homeland, and the US threatening reduced US military aid to Ukraine, could hopefully lead to a reduction in deaths and soon become less of a distraction.

 

Trading Reactions

Led by favorable reactions to the passing of the BBB that were cheered on by The White House, many saw things getting better. These reactions stirred up bullish sentiments resulting in the S&P 500 Index reaching its first high for the year since February. Some even suggested 2025 could be the third +20% gain year in a row, a rare event.

 

Professional analysts and experienced economists are two-handed thinkers who don’t receive the same air or face time that advocates of simple tales do. First, the S&P 500 is a capitalization weighted index with a small number of highly valued stocks recording bigger gains than the average stock. An equally weighted index gained 5% less than the S&P 500. More importantly, at least to me, 9 of the 11 industry sectors in the index underperformed the overall index, with Info Tech and Communications doing better.

 

Economists often turn to the actions of corporate leaders for clues as they feel the stock market is too volatile and occasionally wrong in direction or magnitude. Currently, slightly less than half of publicly traded companies have announced employee layoffs going forward. Considering the cost and time spent getting qualified employees, cutbacks are an expensive strategy companies would like to avoid. Part of their problem is that they can’t find qualified new employees today, which means it is particularly painful to let good ones go. This is particularly true for companies with an aging workforce.

 

The lack of success in finding good new employees while keeping the better aging ones is in my mind not a cyclical problem cured by higher sales levels. It is a secular problem caused by the system we have built, which has failed us by confusing education with schooling. The problem starts in the home, often due to a single adult household, and continues on through early childhood education. The impact is felt all the way through PhD studies, with a system awarding promotions through test taking rather than productivity and intellectual integrity.

 

Historical Lessons

Perhaps we can learn from the past. With that thought in mind I recommend reading this week’s Barron’s article titled “The Coming Stagflation Won’t Feel Like the 70’s” by Joseph Brusuelas. I believe there is another parallel that should be considered, the US with an activist President and an accommodating Congress. Both the current occupant of The White House and FDR came into office seeking to make fundamental changes, but both ran into opposition from the courts. FDR took a recession and turned it into a depression, not by choice but in part due to the impact of stagflation. I do not necessarily agree with Joseph Brusuelas’ statistical projections.

 

What do you Think?      

 

 

 

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Contact author for limited redistribution permission.