Powell Gives Trump Tariffs the Benefit of the Doubt

 The stock market initially interpreted the Fed's actions this week as dovish in that despite the prospect of tariffs on April 2, the Open Market Committee maintained its guidance for two rate cuts later this year. Although Fed Chair Powell couldn't say it, what is going on is that he is giving the Trump's tariff policy the benefit of the doubt by calling the inflationary impact "transitory." 

What we witnessed is Powell at his political best. In effect he is saying the Fed will wait and see how the tariffs play out. If instead, he were more hostile to the tariffs, Trump would have come down hard on the Fed triggering a political fight Powell does not want. This way the Fed will wait to see how inflationary the tariffs will be and if they turn out to be malign the Fed will have the political ability to react to them.

Thus, in my opinion, the stock market's enthusiasm for the Fed's move is misplaced.

My Review of Hampton Sides' "On Desperate Ground"

 The Chosin Few

Hampton Sides published his Korea War opus “On Desperate Ground” nearly seven years ago. It was highly acclaimed at that time, so don’t have much to add. All I can say his book portrays the heroism of the men of the 1st Marine Division in extraordinary personal detail. They were true heroes surrounded by Chinese and North Korean forces in the Chosin Reservoir who engaged in a spectacular breakout in the freezing cold. Through his words you can feel the snow and the winter cold at 4,000 feet in the North Korea of November 1950. 

To me the marine grunts are the true heroes of the book. However they benefitted from the great generalship of Oliver Prince Smith, who should be in the pantheon of great American generals. They also benefited from the engineering genius of Col. John Partridge who, under fire, constructed the landing field that would supply the surrounded marines and built a pontoon bridge that enabled the mass evacuation of the division. 

General Douglas Macarthur comes under withering criticism. After his very successful Inchon landing, MacArthur became blinded by his own ego. He ignored warnings of an imminent Chinese intervention and when it came, he was oblivious to its impact. It was the human wave attacks of the Chinese that made the defense of the Chosin Reservoir so perilous. Had the marines not benefitted from American air superiority, they would have been massacred. 

Although the Korean War took place 75 years ago, it still resonates today by asking the questions: Do we have soldiers of courage that would display the heroism of that time, and do we have the generalship to guide them? It goes without saying that Donald Trump couldn’t shine Harry Truman’s shoes. 

The Recession of 2025

This coming December the Business Cycle Dating Committee of the National Bureau of Economic Research will find that a recession began in the second quarter. Although there are clear signs that the economy is weakening, most observers believe that we are in a temporary growth slowdown. Moreover, you can’t see a recession in the most recent economic data. Therein lies the point I am trying to make. When a recession is in the data, it is too late to make a credible forecast, because the whole world would already know it. The task of a forecaster is to make a call when the data is ambiguous, not when it is clear. Of course, I along with many who called for a recession 2022 and 2023 were dead wrong.* Obviously, the forecasting community is gun shy.

My argument for a recession is based on the recent 10% decline in stock prices that will dampen consumer spending, the friction caused by the Trump tariffs that will raise prices, stall capital spending, and disrupt supply chains and government spending will decline making it pro-cyclical. It looks like we are about to relearn the very hard lessons of the 1930 Smoot-Hawley Tariff Act.  

At the start of the year the value of an expensive U.S. stock market was more that two times nominal GDP. As Keynes noted, “Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.”

Moreover, I would suggest that the stock market decline is far from over. On March 5th I posted on LinkedIn that the high for the stock market was in. Steve Blitz of Lombard came back to me with the comment, “More critical is where is the low.” My sense is that the stock market and the recession will feed off each other that will send the S&P 500 down to the 4900-5000 level, making for a bear market-like 20% decline. We closed to today at 5600. 

Although it is hard to prove statistically my guess is that with 50% of consumption accounted for by the top 10% of income earners, the decline in stock prices will have a negative effect on consumer spending via the wealth effect. Consumption spending as a share labor income is very stable, not so for wealth.  Early signs of weakening consumption was highlighted by several airline executives mentioning a slowdown in air travel.

As far as supply chains go just think about the amount of steel and aluminum, now subject to a 25% tariff, which is used by the Ford F-150 truck and the Boeing 737 airplane. There may be domestic substitutes for steel, but not aluminum. The electric grid is troubled enough that it would be hard pressed to supply electricity to a new aluminum smelter.

Net Net. President Trump’s speculation that the transition to his “golden age” could be marked by a recession.

* I operate under the slogan "Often wrong, never in doubt."

 

My Review of I.S. Berry's "The Peacock and the Sparrow"

 Betrayal in the Desert

Former CIA Officer I.S. Berry has written a terrific first novel set in Bahrein at the time of the Arab Spring. It is a classic espionage novel. Her protagonist is Shawn Collins, an aging CIA officer with an alcohol problem. He finds Rashid, a questionable source within the Iran-backed Shia underground that is attempting to overthrow the ruling Sunni monarchy.

Collins’ new station chief is a young and arrogant Ivy leaguer who thinks he knows it all. The two don’t get along from the start. Collins is attracted to a stunning local artist named Almaisa of European/Arab parentage. She has studied in the west and his interest in her is more personal than professional.

With Almaisa and Rashid we get a sense of the real Bahrein. We get a real smell of the streets and get an understanding of violence associated with uprising. I visited Bahrein on business many years ago and only saw its office towers and a large collection of Mercedes automobiles. I didn’t see the back streets or the outskirts of Manama, the capital.  

Along the way we get a sense of the politics of the CIA and the habits of the elite westerners who reside there. They live in a different world. If I had one criticism it would be the lack of maps, for the country as a whole and Manama. It would have made it much easier to follow the plot.

SHAME

I never felt so ashamed for my country than I did yesterday when I watched President Trump bully Ukrainian President Volodymyr Zelensky in the oval office in front of a worldwide television audience. In Trump’s mind Zelensky was guilty of not kissing his ass so Trump stood foursquare for Putin’s aggression in Ukraine and in the process seemed to abandon the Western Alliance. I really should not have been surprised because his administration threw Ukraine under the bus at the Munich Security Conference two weeks ago. (See: https://shulmaven.blogspot.com/2025/02/trump-and-new-hitler-stalin-pact.html) 

As I noted then what Trump is doing is not appeasement, but rather he has made the U.S. a co-aggressor with Putin’s Russia. This will end badly with China being the only real winner. If there is a small silver lining here it will be to rouse Europe from its slumber by forcing a massive increase in its hitherto inadequate military expenditures.

In the aftermath of Trump’s bullying, I was nauseated to watch his sycophants cheer him on. Secretary of State Marco Rubio, Secretary of the Treasury Scott Bessent and Senator Lindsay Graham all belong in the hall of shame. Trump wanted a cabinet of suck-ups; he certainly has one.

 

"People of Color" Ideology Headed for the Dustbin of History

 Politico in the form of of a column by UC Berkely Professor Jerel Ezzel has come around to the Shumaven view that the term "people of color" belongs in the dustbin of history. (See Below)

"The moment, predictably, triggered a backlash from conservative commentators, who accused King, who is Black and a journalist, of being preoccupied with race. But it was also a reminder of the awkward, clunky and frequently backward attempts by the left (or those perceived to be on the left) to, literally and figuratively, read the room. For years Democrats’ understanding of race has not only not evolved, it has arguably been in full-blown retrograde. Nowhere has this been more evident than in the party’s canned usage of the term “people of color.”" https://www.politico.com/news/magazine/2025/02/21/people-of-color-race-dei-democrats-00201548?nname=playbook&nid=0000014f-1646-d88f-a1cf-5f46b7bd0000&nrid=0000014e-f0ed-dd93-ad7f-f8edae200000

We discussed this issue in 2022 in writing about the Latino/Black schism in the Los Angeles City Council. ( See: https://shulmaven.blogspot.com/2022/10/peope-of-color-false-political-construct.html ) If anything the election results of 2024 highlighted the fact that "people of color" do not not vote in a bloc and many of them voted for Donald Trump. Indeed blind support of DEI is an election loser.

United to Restart Service to Israel

 United to restart service to Tel Aviv, Israel

(February 4, 2025)

In early February United Airlines announced it would restart service to Israel in mid-March with one flight a day out of Newark which would be upped to two flights a day by the end of the month thereby beating Delta by two weeks. In January we called on the major U.S. air carriers to end their de facto boycott of Israel. (See: https://shulmaven.blogspot.com/2025/01/us-air-carriers-stop-boycotting-israel.html) Delta announced their resumption of flights to Israel starting in April later that month.(See: https://shulmaven.blogspot.com/2025/01/delta-to-resume-flights-to-israel.html)

For United, this should only be the beginning because it has historically had the most flights to Israel of all the U.S. airlines. For example United had flights, in addition to Newark, out of Washington, D.C., Chicago. Los Angeles and San Francisco. Now all we need is American Airlines to follow suit.