Israel and Iran: The Fog of War

 With Iran rushing headlong towards nuclear weapons, last Friday Israel engaged in a pre-emptive strike on Iran’s nuclear programs and its leadership exactly one day after President Trump’s 60-day deadline for a negotiated settlement expired. Iran immediately counter-striked with a barrage of missiles on Israel’s population centers. Since then, the world has been watching successive Israeli air raids on Tehran and Iranian missile attacks on Israel.

 

To Israel this is a war of necessity. Iran has promised to destroy Israel since the Ayatollahs came to power in 1979. Over the years Iran built up its proxy fighters in Gaza, Syria, Lebanon, and Yemen. However, with the destruction of Hezbollah in Lebanon, the removal of the Assad regime from power in Syria, and the degrading of Hamas in Gaza, Israel, for the first time, had a free hand to strike Iran.

 

Israel’s goal is to eliminate Iran’s capability to develop nuclear weapons. To that end it has decapitated much of the program’s leadership and has degraded parts of its facilities. However, Iran’s major uranium enrichment facility is buried 1500 feet below ground at Fordow. It is not clear that Israel has the ability to take out Fordow, which might require U.S bunker-busting bombs. If Fordow remains operational, the war would be a failure.

 

As of this writing it is unclear whether the U.S. will attack Fordow and risk a much wider war in the middle east. Alternatively, if the U.S. does not act, the risk of a nuclear Iran would be far greater. Absent Israel pulling a rabbit out of the hat, the ball is in Trump’s court.

 

What happens at Fordow will determine the course of the war and that will not be televised. Without U.S. support can Israel use special forces in a very risky operation and/or taking out the above ground infrastructure (electric power, water, ventilation) by air that keeps Fordow operational remains to be seen. We know Israel has a presence on the ground in Iran, but it is likely inadequate to overcome the heavily guarded and forewarned Fordow site. Remember, Israel cannot conquer Iran, it is pursuing a limited goal of removing Iran’s nuclear capability and that has to be done quickly because Israel doesn’t have the resources for a long war.

Stay tuned.

My Review of Jake Tapper's and Alex Thompson's "Original Sin"

The Tragedy of Joe Biden

Joe Biden was elected president in 2020 on his being both a moderate and a transition candidate who would serve one term. He failed on both accounts by swerving to the Left under the aegis of Bernie Sanders and Elizabeth Warren and then by declaring himself a candidate for re-election in April 2023. Little did the voters know that as early a 2015 Biden was on the road to cognitive decline that rapidly accelerated in 2022. Much has already been written about reporters Jake Tapper and Alex Thompson, well-sourced, albeit largely anonymously sourced book, so I will limit my comments here.

 

My sense is that had there not been the COVID pandemic in 2020, Biden would have lost. Why? He would not have been able to handle the stress of a national campaign. Because of COVID he ran from his basement and the public hardly saw him. Once elected he was placed in a cocoon by what Tapper and Thompson characterize as the politburo which consisted of four of his top aides. They included Mike Donilon, Steve Ricchetti, Anita Dunn, and Bruce Reed, all of whom had family members working in the administration. Those four along with wife Jill controlled access to Biden and controlled the flow of information to him. For example, Biden never saw polls in Spring 2024 showing how badly he was doing.

 

On many occasions Biden failed to remember the names of long-time acquaintances and because his cabinet and congressional leaders hardly saw him, they were shocked when he appeared distant and fragile at formal events. Indeed, Biden was forced to use a teleprompter at intimate fund-raising events. This all came home to roost when the whole country witnessed his disastrous performance at the June 27^th debate with Donald Trump.

 

In fact, we were forewarned with the Hur report on Biden’s unauthorized possession of classified documents. Robert Hur declined to prosecute because he though a jury would find Biden “a sympathetic well-meaning elderly man with a poor memory.” For that statement Hur was flamed by the politburo, while all of them knew it was true. To be sure, Biden and his inner circle were motivated by the fear that he and he alone could defeat Trump. At the end of the day, they ended up with the worst possible world; Trump being elected and Biden in disgrace.

 

Tapper and Thompson are especially good at describing an almost daily tick-tock of the post-debate events leading up to Biden’s withdrawal from the race. Along the way the politburo was kicking and screaming to keep Biden in the race, but ultimately, they were forced to accept the reality of a debacle in November.

 

Although I think Tapper and Thompson have written an important and very readable book, there are three failures that come to mind. First, far more blame should be put on the compliant press in covering up Biden’s cognitive decline. Second, Jill Biden’s role in this affair in this reading is limited. She knew, but my guess is that she loved the trappings of power. She loved being the first lady and being on the cover of Vogue magazine four times. Third, at a time when foreign policy crises were happening almost daily, there is no discussion as to what Biden’s foreign policy team thought of him. Biden might not have seen his cabinet that often, but he was in constant contact with Secretary of State Antony Blinken and National Security Advisor Jake Sullivan. Different decisions might have been made had we a more alert president. 

My Review of Ron Chernow's "Mark Twain"

 American Original

 

He came into this world with Haley’s Comet (1835), and he left this world with Haley’s Comet (1910), and for a time his star shined brighter than the brightest stars in heaven. In his encyclopedic study of Mark Twain’s life, biographer Ron Chernow follows Twain from the backwater town of his birth, Hannibal, Missouri, to his being feted by the crowned heads of Europe.

 

Born Samuel Clemens from a family of modest means, Twain was a troublemaking kid in his hometown. He rises from being a printer’s devil to holding a highly lucrative job as pilot on the Mississippi River. Twain’s life on and near the Mississippi became the backdrop for his most famous works. His piloting job ended with the start of the Civil War and for a fleeting time he serves in the confederate militia. Recall that Missouri was a slave state and Twain was part of the culture.

 

One of my criticisms of Chernow is that he applies 21^st century mores to 19^th century America. He should remember Genesis 6:9 “Noah was a righteous man; he was blameless in his age.” So too was Mark Twain and Chernow traces his evolution from supporting slavery to becoming a supporter of civil rights for women, African Americans, and his opposition to antisemitism.

 

Twain leaves Missouri for Nevada and then California by working as a reporter. His breakout work “The Celebrated Jumping Frog of Calaveras County” established his reputation as a humorist and writer and leads him to the lecture circuit where his reputation for exaggeration became widely known and appreciated.

 

From there it is onward and upward. He travels abroad and coins the phrase “Gilded Age,” and as a result of a trip abroad he meets through her brother Olivia Langdon and marries her. Langdon is the heiress to a coal mining fortune and the couple sets up housekeeping in her home in Elmira, New York. It is from there that Twain writes “Tom Sawyer” and later “Huckleberry Finn.” Those two works give him a worldwide reputation and travels and lives abroad for many years using Hartford, Connecticut as his base. Unfortunately, Olivia was never in the best of health and his three daughters all die young.

 

Wherever he traveled Twain was treated as a conquering hero, especially in Germany and England. He meets all of the movers and shakers at home and abroad, including Woodrow Wilson Theodore Roosevelt, Nikolai Tesla, and Kaiser Wilhelm II. His political views evolve from being a Southern Unionist, to being a staunch Republican, to being a “mugwump” reformer and later in life he adopts a strongly anti-imperialist worldview. Despite being critical of Theodore Roosevelt, he enlisted his aid in extending the time period for copyrights for the benefit of his heirs.

 

Chernow goes into great detail about Twain’s failed investments in publishing and a linotype machine. In the 1890’s he actually went bankrupt, but he was rescued by Henry Morgan, a Rockefeller partner in Standard Oil. Although Twain sympathized with the downtrodden, his personal lifestyle took on many of the aspects of the gilded age.

 

My primary criticism of the book is its length.  It is 1196 pages including footnotes; way too long, maybe 200 pages too long. Towards the end it became a slog to read.

Stocks too Complacent About the TACO Trade

 Last week brought with it the International Trade Court opinion declaring Trump’s use of the Emergency Economic Powers Act declaring his reciprocal tariffs on all of America’s trading partners to be illegal, the arrival of the new acronym TACO and a breakdown in trade talks with China. Coined by Financial Times columnist Robert Armstrong, TACO stands for “Trump Always Chickens Out.” That was brought home by Trump’s sudden pullback from his 50% tariff on the EU. (See: https://shulmaven.blogspot.com/2025/05/debt-tariffs-and-stocks.html ) When Trump was asked about it at a White House event he reacted very defensively because the one thing a bully can’t stand is being called “chicken.”

While the trade court ruling is being appealed, the Trump team said it would use all of the other powers available to him, of which there are many, to maintain his high tariff wall. On Friday he acted by doubling the tariffs on steel and aluminum from 25% to 50%. That will work as a dagger in the heart of America’s steel and aluminum using industries, namely automobile, aircraft, and machinery. This certainly won’t help Boeing, America’s leading exporter, on its road to recovery. 

The steel and aluminum tariffs will further estrange Canada from the U.S. where its direct exports will be clobbered, and it will make Canadian manufactured autos and parts even more expensive. If Canada weren’t heading for a recession before, it is now.

 

My guess is that in the long run the TACO trade maybe right, but in the short run, Trump will keep tariffs much higher than the 10% the market now expects. Thus, when the 90 day pause on high tariffs rolls around on July 2^nd, a whole new round of high tariffs will be put in place. Just when investors thought it was safe to go back in the water, a dangerous riptide will be pulling away from the shore

Debt, Tariffs and Stocks

On Friday Donald “The Tariff Man” Trump struck again with his new 50% tariff on EU products scheduled to take effect on June 2^nd and a new 25% tariff on I-Phones.* (See: https://shulmaven.blogspot.com/2025/02/the-tariffman-strikes.html ) Earlier the House of Representatives passed its budget reconciliation bill that called for continuing the 2017 tax cuts plus further tax cuts along with spending cuts that would increase the national debt by about $3 trillion over the next ten years with the higher deficits front-loaded into the earlier years.

 

However, not counted in the budget calculations is the revenue coming from the tariffs. The current run rate is $250 billion/year, and a 10% universal tariff would yield in excess of $300 billion/year, which would totally offset the cumulative deficit of the reconciliation bill. Essentially Trump will be using tariffs to offset his tax cuts. Because there is little new stimulus in the tax bill and the drag from the tariffs is new, the economy will stall out. (See: https://shulmaven.blogspot.com/2025/03/the-recession-of-2025.html )

 

Nevertheless, the bond market evidenced its unhappiness by sending the yield on 30-year U.S Treasuries over 5% for the first time since 2007. The bond bear market is in full force. ( See: https://shulmaven.blogspot.com/2025/01/we-are-in-early-stages-of-bond-bear.html )                                                                                     Reflecting a run on U.S. assets, the dollar index declined 3% from just two weeks before and it stands 1% above its April low and down 11% from its January high.

 

Until last week stocks were enjoying a powerful 20% rally off the April lows. Even after last week’s decline, the S&P 500 was trading 22.3X the $260 earnings estimated for this year. That equates to an earnings yield of 4.48%, equal to the 4.51% yield on 10-year treasuries. Put simply, the equity risk premium has vanished.

 

A narrow equity premium might be justified if the economy were about to experience a growth spurt. On the contrary, we are now in the beginning of a stagflation era. Growth will be slow, and inflation will be higher than what we have been used to. (See: https://shulmaven.blogspot.com/2025/04/regime-change-end-of-economy-as-we-have.html ) Thus, if anything, we will soon be entering and era of high rather than low equity premiums and the S&P 500 will plumb new lows before the year it out. 

*- Subsequent to this post Trump announced the deadline for the new 50% tariff on EU products was postponed to July 9th.  I guess someone in the White House read this blog. HaHaHa

My Review of Shaun Walker's "The Illegals"

“The Americans” in Real Life

 “The Americans” was a hit TV show from 2013-2018 where it portrayed the daily life of two Soviet illegals and their two children as they worked their spy craft against America. Here Guardian reporter Shaun Walker delves into the history of Soviet illegals from Lenin to Putin. Indeed, before the revolution, Lenin himself was illegal in Britain. Because the in the early days Soviet Russia was a pariah state, there only way of obtaining intelligence on the West was through the use of illegals. As the Soviets obtained embassies, they integrated the work of the illegals with spies working under the cover of being embassy officials.

In this deeply researched book, which included interviews with former illegals in Russia and his use of the Mitrokhin files Walker puts together a history of Russia’s use of this method of espionage. He uses several case studies that would include Dmitry Bystrolyotov, Stalin’s Romeo and “Baron von Hohenstein.” To me the most fascinating spy was Iosif Grigulevich who was involved in a failed attempt to assassinate Trotsky and later as Teodoro Castro became a Costa Rican diplomat,

 Castro was ordered by Stalin, against the wishes of the KGB to assassinate Marshall Tito. Stalin’s death intervened and the order was never carried out. Who knows what the consequence would have been had he succeeded.

 Americans first learned of the Soviet illegal operation with the arrest of Rudolf Abel in 1957. Posing as an artist, Abel worked as a courier for other Russian spies operating in the country. In 1962 he was exchanged for the U-2 pilot, Francis Gary Powers. That is how high the Soviets valued him.

 In 2010 the American public learned of a roundup of 10 illegals in Boston and New York who ranged from being a high-end realtor to a Kennedy School graduate. It was their arrest that became the basis for the TV series. They were caught be- cause the CIA had an informant high in the SVR, the international intelligence service of Russia.

 In the 1970’s Putin watched the “Stierlitz” show on Russian television. That hit show featured the work of illegals in the West. Apparently, that made enough of an impression on him to become a KGB agent, and the rest is history. As president Putin stepped up the illegal program.

As depicted in the TV show, despite all of the training, the pressure on families was significant.  Many broke under the pressure of the job and the need to maintain there new identity. Indeed, there is a scene where an illegal in labor was fearful of blurting out Russian language expressions for pain.

 By 2016 it became apparent that through social media identities could be created in an instant Those social media identities have been used to great effect ever since to create discord in the West, especially during American elections. Thus, going forward the Russian need for illegals might be lessened.

 Shaun Walker has presented to us a very readable book on the underworld of the use of illegals in spy craft. He also demonstrates how asymmetrical the use of illegals is. It is much easier to create an illegal in America than it is in Russia. Given that asymmetry the Russians will continue to use them.

My Review of Kenneth Turan's "Louis B. Mayer and Irving Thalberg: The Whole Equation"

The Mogul and the Genius

Former Los Angeles Times film critic Kenneth Turan has written a dual biography of Louis B. Mayer and Irving Thalberg and how their partnership built the most profitable motion picture studio from the 1920’s into the early 1940’s. Mayer, the mogul, a Russian/Jewish immigrant from Russia and former scrap dealer in Canada became a theater owner in Boston and eventually ended up in Hollywood. He knew the business end of the business and he knew how to spot talent. Thalberg came from an upper-middle class Jewish family from Brooklyn who through his family connections became an assistant to Carl Laemmle, the boss of Universal studios.

Thalberg, through his genius and instinct, knew how to make great movies and by 1924 he was in charge of production at Metro Goldwyn Mayer (MGM) studios. Loew’s Theaters orchestrated the merger of Metro, Mayer and Goldwyn Studios thereby creating a vertically integrated behemoth that controlled production, distribution, and the exhibition of motion pictures. That model was rendered illegal as a violation of the antitrust laws by the famous 1948 case of United States v. Paramount. Interestingly, the model of production, distribution and exhibition has been successfully reincarnated by Netflix and its streaming competitors.

With stars like Greta Garbo, Clark Gable, Joan Crawford, Norma Shearer, Jean Harlow, Dick Powell, Myrna Loy, Judy Garland, the Marx Brothers and Mickey Rooney’ MGM couldn’t miss, especially under guidance of Irving Thalberg and his crew of directors and writers.

 

Despite his congenital heart condition, which would kill him at the age of 37, Thalberg was a workaholic. One scene in the book has him lying in hospital bed looking at the rushes from the 1925 production of Ben Hur on the ceiling. Along the way, Thalberg found love and married Norma Shearer, one of his stars, and had two children with her. Shearer converted to Judaism prior to the marriage.

 

Between Mayer’s business sense and Thalberg’s creative talents, MGM, in the words of Turan, had the whole equation. Although MGM prospered for awhile after Thalberg’s death, Mayer lost his touch, and the studio entered into a long- term decline and was recently acquired by Amazon. Nevertheless, for a dozen years MGM stood astride of Hollywood like no other. 

A Stock Market in Denial

Investors in the U.S. stock market are living in a state of denial. To be sure, the S&P 500 advanced nine days in row for the first time since 2004, and it has bounced 14% off the early April low, investors are wishing away the trade tsunami that is about to hit the economy. As I write this, the west coast ports are shutting down, bringing with it layoffs among dock workers and truckers. That malaise will soon spread eastward. 

Consumer confidence remains in the toilet. Thus, it is no surprise that year-over-year same store sales for McDonald’s, Chipotle, and Starbucks are down. Indeed, domestic airline travel is down, and foreign tourists are staying away from America in droves. On the business side, save for the Magnificent 7, capital spending plans are plummeting. Although the recent employment report for April was better than what I would have expected, my guess is that it will turn out to be the last good report we will see for quite some time. As a result, my March forecast calling for a recession starting in the current quarter still stands. (See: https://shulmaven.blogspot.com/2025/03/the-recession-of-2025.html ) 

Investors remain in denial that the postwar global architecture of the past 80 years is in ruins. (See: https://shulmaven.blogspot.com/2025/04/regime-change-end-of-economy-as-we-have.html ) To me this means that all of the old rules of thumb concerning the economy and the stock market are no longer valid. Simply put, we are entering a new world with unknown economic and geopolitical   consequences. In a nutshell, the world has become a much riskier place.

For those who believe that the U.S. will win the trade war with China, I have a few words of caution. According to the “Sinocism” newsletter, the domestic Chinese media are portraying the trade war as a “protracted war.” The members of the Chinese Communist Party know full well that the term “protracted war” harks back to Chairman Mao’s 1938 pamphlet calling for protracted guerilla warfare against the Japanese aggressors. That war lasted for seven years. Further, Thucydides taught us 2500 years ago that nations go to war for “honor, fear, and interest.” To China the trade war with the United States is a matter of honor.

The bottom line is that soon the denial phase of the current bear market will soon turn to anger as investors realize that the Trump tariff policy will bring with it higher prices and reduced output yielding a stagflationary recession. When that realization crystalizes, the S&P 500 will breach the April low before too long.

My Review of Jill Eichler's "Mellon vs. Churchill"

 Duel over Debt

On the surface it appears that only a history/economics nerd would read Jill Eichler’s book on the inter-Allied debts arising out of World War I. However, Eichler discusses that history through the lens of its two main protagonists, Secretary of the Treasury Andrew Mellon (1921-1932) and Chancellor of the Exchequer Winton Churchill (1925-1929) It is through their eyes we see how complicated the debt duel was. 

At the end of World War I the allies owed the United States something over $10 billion with the bulk of the borrowings coming from Great Britain and France. Simply put, the allied viewed the debt as a cost of winning the war and therefore did not have to be repaid, while the United States viewed the debt a commercial transaction that had to be repaid. Making matters worse was that the United States in 1922 passed the Fordney-McCumber Tariff which made it more difficult for the Europeans to earn the need dollars to repay the debt. 

In the first round Mellon and then Chancellor of the Exchequer Stanly Baldwin renegotiated the $4.6 billion owed to the U.S. at 4.5% interest rate with a 25-year term, down to a phased 3% and 3.5% loan with a 62-year term in 1922. This took quite some doing on Mellon’s part to convince a recalcitrant Congress to accept the new terms. Nevertheless, Britain was very unhappy with the agreement and when Churchill became chancellor, he worked to further ease the burden. Later in 1926 Mellon negotiated a restructuring of the $4 billion French debt on easier terms than what Britain had agreed to. It took until 1929 for France to finally ratify the deal. France received better terms because Mellon viewed that their ability to pay was less than that of Britain.

Hanging in the background was the issue of German reparations. To Britain and France, the reparation was linked to the repayment of debt to the U.S., while the U.S. viewed it a separate issue. The Dawes Plan of 1924 which enabled U.S. loans to Germany which then were used to pay France and Britain who in turn paid the U.S... For full discussion of this and other inter-related issues see Liaquat Ahamed’s “The Lords of Finance” and Straumann’s “1931: Debt Crisis and the Rise of Hitler.” ( https://shulmaven.blogspot.com/2019/07/my-amazon-review-of-tobias-straumanns.html)

My criticism of Eichler is that she views the Dawes Plan in the light of history rather than how contemporaries experienced it. The Dawes Plan set off a boom in Germany and put Europe on the road to recovery in 1925. That along with the Locarno Treaty which established the borders of Western Europe engendered an uptick in confidence. That was true on the continent, but that was not true of Britain where Churchill returned to the gold standard and over-valued the pound at its pre-war level. Thus, Britain missed out on the boom. It was only with the 1929 stock market crash that the inherent flaws of the Dawes Plan became manifest. In the end most of the debts would never be repaid so it would have been much better had the slate were wiped clean in 1921. The world would be a much different place today had that happened.

Further, Eichler gives us a real sense of the high society that Mellon and Churchill moved in from London parties to excursions in Paris and the south of France. Three people in Mellon’s entourage would go on to bigger and better things. Assistant Secretary of the Treasury Russell Leffingwell would chair JP Morgan and the Council on Foreign Relations; Parker Gilbert who succeeded Leffingwell at treasury would go on to chair the Reparations Commission, and later Morgan Stanley (his son would also do that); and his son-in-law David Bruce would be an early hire in the OSS and later become a distinguished diplomat.

To sum up, Jill Eichler has tuned what could have been a nerdy story into an interesting history of some of the financial aspects of diplomacy of the 1920’s. 

My Review of Donald Chew Jr.'s "The Making of Modern Corporate Finance"

An Ode to Modern Financial Theory

As a former professor of finance, I read Donald Chew’s book with great interest. His book is a history of the development of modern financial theory from its early roots in John Burr Williams’ 1938 “Theory of Investment Value” to its beginning in the late 1950’s with the works of Miller and Modigliani on capital structure and dividend irrelevance. He made a mistake in attributing Myron Gordon’s model to Williams. 

Chew writes in a very breezy style by referring to Michael Jensen as Mike and Stewart Myers as Stu. From his post as an editor of Stern Stewart’s “The Journal of Applied Corporate Finance,” he got to know most of the major players in academic finance. I too met many of the academics he discusses, and indeed I was an early adopter of Brealey and Myers textbook he highly praises in my corporate finance class during the 1982-83 academic year. I also met, on several occasions, his mentor, Joel Stern.

Chew makes the case that earnings per share don’t count, but rather it is the ability of a corporation to earn a return above the cost of capital with return measured as net operating profit after taxes. It is with this insight that Stern Stewart pioneered the concept of economic value added. (EVA) Indeed, instead of using earnings to value a corporation, value can be defined as the present value of the cash flow associated with existing assets plus the present value of future growth opportunities. Hence, Amazon for example, can trade at values divorced from current earnings.

However, he oversells his point that earning per share doesn’t count. Corporate management and analysts continue to stress earnings per share and woe to the company that misses its quarterly earning estimates.  In the short run earnings seem to count a great deal.

He also oversells private equity. To be sure private equity posted extraordinary returns in its first twenty years starting in the 1980’s. Since then, returns have eroded, and their risks have been underrated. Put simply, the industry is guilty of what Cliff Asness of AQR, calls “volatility washing.”

This book is of interest to readers who are interested in how modern financial theory evolved and it is helpful in understanding what forces drive stock prices in long run.

 

Regime Change: The End of the Economy as we have Known it

 “There are decades where nothing happens: and there are weeks where decades happen.”

                       Attributed to V. I. Lenin

In the short span of twelve weeks, Donald Trump has undone the Bretton Woods monetary order established in 1944, the GATT free trade order of 1947, and the NATO collective security order of 1949. (See: https://shulmaven.blogspot.com/2018/02/my-amazon-review-of-benn-steils-marshal.html) As a result the world is now facing a simultaneous geopolitical and economic crisis and it is no surprise,  that stocks and especially treasury bonds and the dollar have sold off. (See: https://shulmaven.blogspot.com/2025/04/a-broken-stock-market-and-broken-trust.html) Simply put, the old world order is gone, an there is nothing, as of yet, to replace it. The transition will be painful.

Those who expect that the Trump tariffs are negotiating tactic will be sorely disappointed. Trump needs the revenue to finance his tax cuts, and the Democrats only differ with Trump as to the way his policy has been conducted. They still hope to reclaim their union support by being pro-tariff and they too need the revenue to finance an ever-larger welfare state. The era of free trade, as we have known it, is over.

Three years ago, I wrote that the United States was about to enter a new 13-year economic cycle. I noted:

“My guess is that we are at the very beginning of new thirteen-year cycle with unknown consequences. I would speculate that the next thirteen years will bring with it a much higher rate of inflation than we have been used to, a multi-year bond bear market and a partial deglobalization of the economy caused by local politics, supply chain issues and geopolitical tensions. To me the big question is whether this cycle will bring with it a stagflation or a high cap-ex/high inflation economy with a cap-ex boom coming from the in-shoring production and energy transition. As they say, time will tell.” ( See: https://shulmaven.blogspot.com/2022/05/the-useconomy-is-entering-new-thirteen.html)  

Although it has taken a bit longer to play out, we are now in the midst of it and perhaps something much more. We are likely entering an eighty-year super cycle in what Neil Howe has called a “fourth turning” which will involve economics, politics, values, and the way we relate to each other in society. (See: https://shulmaven.blogspot.com/2023/09/my-review-of-neil-howes-fourth-turning.html)  This is far bigger than my 13-year cycle in that it encompasses six 13-year cycles that began in, not coincidentally 1945.

If this is close to correct, then we are now entering unchartered waters. The stock market and economic histories that we have been used to over the past 80 years may no longer be relevant in understanding the future. Instead of ever rising share prices we may now be in an era where stocks go sideways for an extended period of time. I would note that between 1924-1949 the Dow Jones Industrial Average traded in a range of between 100-200 with the significant upside exception of 1928-30 and the significant downside exception of 1931-1933. For example, in 1927 the high in the Dow was 201 and which was nearly identical to that recorded in 1949 and the 1929 high was not exceeded until 1954. The equivalent going forward would be for the S&P 500 to trade in a broad 3500-6500 trading range over the next several years.

The recent action of the bond, currency and stock market is indicative of a sea change in the markets. Instead of rallying in a time of turmoil both the treasury bonds and the U.S. Dollar have sold off. Indeed, the dollar has declined 9% since the end of February. Simply put foreigners are losing trust in the U.S. Dollar and with 18% of U.S. stocks held by foreigners the selling is only now beginning. I would say the same thing for foreign holdings of U.S. real estate.

Over the weekend the Trump Administration announced that it would reduce the Chinese tariff of 145% to 20% on smart phones, computers, and other electronic products. That action has lifted the Sword of Damocles hanging over Apple. This suggests a major relief rally for Apple and the stock market as a whole, but what multiple can you put on company and the stock market as whole whose share prices are subject to the whim of one very unstable man? I would sell the rally.  

Bond Market Carnage Bombs Trump Back to the Table

With the yield on the 10-year Treasury bond skyrocketing from 3.9% last week to 4.4% today, the Trump Administration called for a 90 day pause on the extortionate tariffs  announced last week.  Going forward there will be a minimum tariff of 10%, except for China(125%), steel, aluminum, and automobiles. The tariffs announced last week are now a ceiling and 10% is now a floor. In response the S&P 500, as of this writing (2:43 EDT) soared 8%. I would remind readers that the best single days in the stock market occur in bear markets. 

My guess is that the downturn will resume in a few days as investors realize the huge uncertainty associated with negotiating tariffs with 80 countries over the next 90 days will have a deleterious effect business and consumer investment. As a result my call for a recession starting this quarter still stands.( See: https://shulmaven.blogspot.com/2025/03/the-recession-of-2025.html ) My view is reinforced by the fact that the  backup in interest rates will drive another stake in the already weak housing market. A 7% interest rate on a 30-year fixed rate mortgage is a killer.

Lastly something very negative is going on in the bond market. Whether it is trillion dollar basis trades going south or selling by international holders losing trust in the United States, the fact remains a 4.4% 10-year Treasury bond in a weak economy signals something is very wrong. (See: https://shulmaven.blogspot.com/2025/04/a-broken-stock-market-and-broken-trust.html)

A Broken Stock Market and Broken Trust

 The headline read:

“Selling Swamps Exchange

Leading Issues Tumble

As Wall Street Assails

The New Tariff”

This is not from yesterday; it is from the front page of The New York Times dated June 17, 1930. The day before President Hoover announced he would sign the Smoot-Hawley Tariff Bill and stocks responded with an 8% decline in the Dow Jones Industrial Average. Responding to President Trump’s tariff announcement the S&P 500 declined by 9% last week, wiping out $6 trillion in market value. Simply put, just as in 1930, high tariffs are poison for the global economy. And to add insult to injury, the Trump tariffs are higher than Smoot Hawley.

My sense is that the decline in stock prices is not over. In the week leading up the October 19th,1987 20+% crash in stock prices, the S&P 500 witnessed a similar 9% decline. As we wrote last month, we believe that the recession of 2025 has now begun. ( See: https://shulmaven.blogspot.com/2025/03/the-recession-of-2025.html) In response to the tariff announcement and the wealth destruction that it caused, consumption and investment are freezing up and as a result of the DOGE cuts, government spending is heading lower. The recession is baked in the cake.

Adding to the unease is that in less than three months the Trump Administration has broken the trust in America with respect to our military alliances and our reliability as a trading partner. What has taken decades to build up has been destroyed in a few months. Further, even if Trump tries to repair the damage, his administration is staffed by D and F players who are incapable of playing on the global stage. Commerce Secretary Howard Lutnick, trade advisor Peter Navarro and Economic Council Director Kevin Hastett hardly inspire confidence. 

Although Scott Bessent is potentially a B or an A player, he was, according to Bloomberg News, not in the room when the tariff schedule was decided upon. Indeed, Secretary of State Marco Rubio has proved himself to be so much of a Trump sycophant that would be incapable of healing the breach with our allies and Secretary of Defense Pete Hegseth is clueless.

This is a far cry from the team Nixon had when he broke the dollar’s link to gold and devalued it. Nixon had Secretary of State William Rogers and Secretary of the Treasury John Connally, neither of whom were A players. In the background, however, were National Security Advisor Henry Kissinger and Under Secretary for Monetary Affairs Paul Volcker. ( See: https://shulmaven.blogspot.com/2021/07/my-amazon-review-of-jeffrey-gartens.html) During the 1987 stock market crash Ronald Reagan was guided by the expert advice of George Schultz and James Baker, both consummate A players. Thirty years later George W. Bush had the steadying hand of Secretary of the Treasury Hank Paulson during the financial crisis of 2008 and Obama benefitted from the advice of Tim Geithner his treasury secretary.

As a result. It is hard to see how we are going to get out of this mess with minimum damage. The easier way would be for Trump to take that advice of former Goldman Sachs CEO Lloyd Blankfein. He tweeted the other day:

Lloyd Blankfein

@lloydblankfein

“The switchboard at the WH must be burning up with gov’ts trying to surrender in this trade war. Why not give them a chance? Make the 10pct min tariff immediate but defer the “reciprocal” part 6 mos. Take the win! The Prez said he’d make us tired of winning…I’m there “

That would certainly give the markets some breathing space. The much harder way is for the Republicans in Congress to become so fearful of the midterm elections that they break with him on the tariff issue. To get there will require a lot of carnage in the markets. Similarly, a court action to declare Trump’s actions illegal will take time.

Finally, we have to remember that the Trump Administration needs the revenue from the tariffs to fund its tax cuts and to protect American industry.  A 10% tariff would raise $300 billion/year and a 20% tariff $600 billion/year. Tariffs aren’t going away. So, my guess is that when the markets open tomorrow, it won’t be pretty.

My Review of Ezra Klein's And Derek Thompson's "Abundance"

Two Liberals Take a Walk on the Supply Side

Card carrying liberals New York Times columnist Ezra Klein and Atlantic writer Derek Thompson have created quite a stir with their walk on the supply side. They have concluded that the “blue model” of California, New York and Illinois is not working. Simply put, those states are bogged down with procedural liberalism that makes process more important than the end result. Making matters worse the blue states are guilty of “everything bagel” liberalism where before a project is approved every erogenous zone associated with the Left has to be satisfied. (e.g., union labor, day care, affirmative action quotas for contractors and workers, neighborhood input, affordable housing, environmental protection). 

As a result, nothing gets built, or it takes forever. No wonder house prices are out of control in California. And perhaps more stunning is an "affordable" housing project in Santa Monica was recently approved at an estimated cost of one million dollars a unit.

Procedural liberalism arose in the 1970’s to deal with the excesses of the prior decades where projects were built without regard to the environment and the neighborhoods affected. In response a host of national and state laws were passed to control development. Unfortunately, what seemed reasonable in the 1970’s, turned into monstrosity in the 2000’s. 

The change in the development regime can be seen through the window of Pat Brown’s administration in California from 1958-1966 and his son Jerry’s first administration from 1974-1982. Under the first Brown, freeways, water projects and universities were built. Under Jerry Brown’s administration we were in “the era of limits.” Liberalism stopped dreaming big and when it did with its plans for high-speed rail, it got completely bogged down in a procedural morass.

Klein and Thompson’s solution calls for a radical deregulation of the housing permitting process. They look admiringly at the Texas cities of Houston and Austin. The solution to a housing shortage is to build. However, California’s sacred environmental quality act (CEQA) would have to be drastically amended for this to work. That act has been weaponized by homeowners and environmental groups to stop or drastically curtail developments and by construction labor unions to extort project labor agreements into major development projects. Furthermore, in deep blue Santa Fe, a major neighborhood group is using every available legal channel to block a major solar/battery storage facility. What was designed to halt fossil fuel projects is now being used to halt clean energy projects.

The authors cite what can happen when the regulatory burden is lifted. For example, Governor Josh Shapiro rebuilt a break in the I-95 corridor in less than two weeks. Had the normal procedures been followed it would have taken two years just to go through all of the approvals needed. Similarly, Operation Warp Speed delivered COVID vaccines in less than a year, saving the lives of millions. Unfortunately, the liberals did not want to praise the effort in fear saying something nice about Trump, and Trump himself walked away from it because he worried too much about his anti-vax base. 

Government can work and Klein and Thompson rightly believe that we can return to a more efficient model of government. My own thought is that Roosevelt’s New Deal would never have gotten off the ground if it had to operate within today’s regulatory framework. I would note that where after two years Biden’s electric vehicle charging stations and rural broadband; both of which are bogged down in bureaucratic red tape. 

The buzz around “Abundance” is justified. Whether the silos within the Democratic Party yield to the book’s logic remains to be seen, but one can only hope. If I would have major criticism, it would be that nowhere, do they discuss the abject failure of America’s public schools. I guess the teachers’ unions are too sacred a cow for them. I would note that the path to their abundant society has to be built by an educated workforce.

 

The Week the Wheels Started Falling Off the Trump Train

 Last week the wheels started falling off the Trump train. We learned from Atlantic editor Jeffrey Goldberg, who some how was patched into a national security call on the messaging Ap Signal where he listened into a haphazard discussion on the imminent attack on Houthi bases in Yemen. To have such a discussion on Signal was a clear breach of national security by the principals involved who included National Security Advisor Michael Waltz, Vice President J.D. Vance, and Secretary of Defense Pete Hegseth. To add insult to injury, the principals lied about their conversation, only to be shown up by Goldberg, who published a transcript of the call. 

Also on the call was Trump’s envoy to Ukraine and the Middle East, Steve Witkoff. Real estate lawyer Witkoff committed the cardinal sin by listening in on the call from Moscow, where every normal diplomat knows everything is bugged by the FSB. Witkoff is a complete amateur in diplomacy, and he is so far in over his head. Further, Putin and is Minister of Foreign Affairs Sergey Lavrov have been run rings around experienced American diplomats over the past two decades. Simply put, Witkoff is being taken to the cleaners. 

This affair, now called Signalgate, will have a lasting effect on the Trump Administration. If any the American people don’t forgive, it is incompetence. Joe Biden learned this the hard way with his chaotic withdrawal from Afghanistan.

Later in the week Trump announced 25% tariffs on imported automobiles and trucks with its obvious inflationary consequences. In my largely Latino gym, the leading topic of conversation were the auto tariffs, and their imposition is obviously feeding into inflationary psychology.

The week closed out with new data on the deflator for personal consumption expenditures, which for core goods and services in February came in at a higher than expected 0.4%. Inflation has not gone away, and my guess is that market hopes for rate cuts later this year will be quashed. Not surprisingly, consumer confidence in March plummeted to a three year low. 

Further unnerving the public’s mood was Trump’s attacks on Big Law. Two big law firms (Paul Weiss and Skadden Arps) caved into his threats of pulling security clearances and access to Federal buildings. Apparently, they were guilty of supporting anti-Trump efforts. Fortunately, three firms (Perkins Coie, WilmerHale and Jenner Block) successfully filed suit to halt his efforts at intimidation. I am sure that this did not go unnoticed by Chief Justice John Roberts, a veteran of Big Law firm Hogan and Hartson. This will not augur well for the administration when their appeals hit the Supreme Court.

The already weak stock market took notice of these events and declined 1.5% on week and it is now down 5% on the year. Remember Tariff Day is set for next week on Wednesday April 2nd. To close I would note that the day before Herbert Hoover signed the Smoot-Hawley Tariff Act of 1930, the Dow Jones Industrial Average declined by 8%.

My Review of Alexander Karp's and Nicholas Zamiska's " The Technological Republic: Hard Power......"

Technology in Service of the Republic

Alexander Karp, the CEO of the artificial intelligence data analytics firm Palantir and his head of corporate affairs, Nicholas Zamiska have written a scathing attack on the consumerism of Silicon Valley and a plea to use American technology to defend our country. They view the current ethos of Silicon Valley as hostile to government and society, especially to using technology in national defense. This is the complete opposite of the World War II ethos of science adviser Vannevar Bush and Robert Oppenheimer of Manhattan Project fame. At that time and into the 1950’s and early 1960’s technology was harnessed in defense of the nation. In contrast the valley’s current avatars are more interested in shopping apps. They forget that Silicon Valley got jump started by the need for integrated circuits to support the ICBM programs.

Karp and his colleagues, on the other hand, are more interested in protecting our troops from IED’s and for detecting terror threats in advance. To them if a marine needs a better rifle, the Pentagon should order it. Similarly if the a marine needs better software, the Pentagon should order it. 

Karp blames the cultural relativism of the 1970’s on for the valley’s distaste for America. By that the authors mean the valley leadership believe that our culture is not inherently superior to other cultures. Hence, it is not worth fighting for, yet they live under a defense umbrella that enables them to create great wealth. As a result, you can read Karp and Zamiska as a call to arms for Silicon Valley to utilize its unique talents to defend our Republic.

At times the book gets very pedantic. It seems that Karp has read every German philosopher in the original German. That slows down the read, but it should not deter anyone from getting the fundamental message of this very important book.

 

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.

Trump and the New Hitler-Stalin Pact

In the early morning hours of August 24th,1939 Soviet Foreign Minister Vyacheslav Molotov and German Foreign Minister Joachim von Ribbentrop entered into a pact that would ratify the division of Poland and the ceding of Lithuania, Latvia, Estonia, and Bessarabia to the Soviets. The press would soon call it the Hitler-Stalin Pact that enabled Germany to invade Poland on September 1st and Soviet Russia to invade three weeks later. 

Today President Trump, echoing Russian propaganda, called Ukraine President Volodymyr Zelensky a "dictator" and accused him of starting the war in Ukraine, a complete lie. Put bluntly, Trump has thrown Ukraine under the bus. My guess is that Putin called in all his cronies and broke out the vodka in celebration of a new Hitler-Stalin Pact. And to put icing on the cake for Putin, Defense Secretary Hegseth announced substantial budget cuts for the Pentagon.  Instead of dividing Poland, Trump and Putin are setting the predicate for the division of Ukraine. The result in 1939 was a World War. I fear a Trump-Putin condominium will lead to a similar result. 

For previous posts on Ukraine, see for example: https://shulmaven.blogspot.com/2014/03/the-ukraine-what-is-to-be-done.html and https://shulmaven.blogspot.com/2022/03/mr-zelinskyy-goes-to-washington-via-zoom.html.

Donald Trump, Four Weeks in: The Good, the Bad, and the Ugly

Donald Trump’s second inauguration certainly did not take its cues from Lincoln’s second where he said, “with malice towards none and charity for all.”  It is turning out like a vengeance tour where he is flooding the zone with a host of initiatives, some of questionable legality. However, he is keeping his campaign promises and is acting in sharp contrast to the somnolescent Biden Administration.  Below is my take on the good, bad, and ugly so far. To be sure it is arbitrary, and it is no way a full list with the bad and ugly massively outweighing the good.

The Good

• A few good cabinet appointments: Marco Rubio at State, Scott Bessent at Treasury, Doug Burgum at Interior and Elise Stefanik, at the U.N.

• Doing away with DEI in the federal government and its contractors.

• Joining social-democratic Europe with restrictions on gender reassignment care for minors.

• Banning biological males from participating in women/girls’ sports.

• Although it can turn ugly fast, passing the Laiken Riley Act and a crackdown on unlawful undocumented immigrants. Tough actions on border security are long overdue. 

• Cracking down on campus antisemitism.

• Unambiguous support for Israel.

The Bad 

• DOGE, Elon Musk’s Department of Government Efficiency. Although the New York City power broker Robert Moses taught us you can’t make an omelet without breaking some eggs, Musk is going way too far in his noble attempt to cut government waste. He is using a butcher knife instead of a scalpel. As a result, many hard-working government employees are living under what they rightly perceive as a reign of terror. Simply put, it is very hard to improve the efficiency of government with a demoralized work force.

The Ugly  

• Pardoning the January 6th rioters.

• Decapitating the FBI, Justice Department and the CIA, leaving us vulnerable to acts of terrorism.

• Horrendous cabinet appointments featuring incompetent and vile people. Namely, Pete Hegseth at Defense, RFK, Jr. at HHS, Tulsi Gabbard at National Intelligence, and Kash Patel at the FBI. Yet again the Republicans in the Senate have proved themselves to be moral eunuchs in approving these appointments, with Patel pending. (See: https://shulmaven.blogspot.com/2021/02/the-party-of-moral-eunuchs.html) With Hegseth, Gabbard and Patel, our security is at risk.

• Starting a trade war with our allies Canada, Mexico, E.U. and Japan. This is a sure-fire way to increase inflation and to lower growth. (See: https://shulmaven.blogspot.com/2025/02/the-tariffman-strikes.html)

• Practically surrendering Ukraine on a platter to Putin at the Munich Security Conference. 

• Dropping the bribery prosecution of NYC Mayor Eric Adams.

My Review of Williamson Murray's "The Dark Path: War and the Rise of the West"

 War Through the Ages

The late Williamson Murray, a military historian at Ohio State, has written a tour de force history of war from the 1500’s to the present. He argues convincingly that the intense competition for the mastery of Europe led to advances in military technology and the infrastructure of war making were responsible for European success in mastering the globe.  His other thesis is that wars are not won by decisive battles, but rather by brute numbers, organization, economics, finance, and logistics. 

For example, Napoleon’s victory at Jena, which so impressed Hegel and Ludendorff’s victory at Tannenberg did not determine the outcome of the Napoleonic Wars and World War I, respectively. Napoleon lost because the coalition against him was far better organized and financed and had numbers on their side. Similarly, Germany and its allies lost world War I because with America’s entry into the war they were outnumbered and out financed. However, “time and chance happen to all” or in Clausewitz’s word “friction” and at times friction can overcome a lack of resources. For example, Ukraine is still in the fight, but it appears that heroic country was just sold-out by Trump.

Williamson discusses at length the various revolutions in military affairs. He starts with gun powder rendering castle walls obsolete and he goes on to discuss innovations in sailing that happened 100 years later that enhanced naval power. The most important revolution was the merger of the French Revolution with its levee en masse with the industrial revolution which made war total by making the civilian population enmeshed in warfighting. The flowering of that would occur in the American Civil War where the North was far better organized with far better logistics to overcome the South. The war lasted as long as it did because of poor generalship on the part of the North and better generalship on the part of the South.

If there is a hero in the book, it is Otto von Bismarck, whose strategic vision unified Germany with three wars. He had strategic focus and fully understood Clausewitz’s dictum, “that war is the extension of politics by more violent means.” Thus, the lack of strategic vision is road to ruin in wartime. For example, Bismarck understood that after victory against Austria he chose not seize any territory and that ultimately made Austria an ally.

For recent history Murray relies on the work of Andrew Marshall, the longtime head of the Pentagon’s Office of Net Assessment. ( A biography on Marshall was reviewed here: https://shulmaven.blogspot.com/2015/04/my-amazon-review-of-andrew-krepinevichs.html ) In that biography I noted, “As the Cold War was winding down in the mid-1980s he focused his attention on the rise of China and was quick to point out how the revolution in military affairs (precision weapons, computerized command and control and information warfare) in the 1990s would significantly change the nature of future battlefields.” Indeed, this is how Murray viewed Marshall’s work. Further Murray noted that Marshall was among the first to see the Soviets lacked the economic strength and the scientific bench to keep up with the U.S. in 1980’s, which highlighted the fact that war involves far more than kinetic battlefields.

Although “The Dark Path” is a long book, it offers a kaleidoscopic view of the history of war over the past 500 years. It is not for the casual reader, but for those interested in understanding how our world came into being, it is well worth the effort.

Trump's Gaza Plan: More than Meets the Eye

 At his joint news conference with Israel's Prime Minister Netanyahu, President Trump stunned the world by calling for the resettlement of Gaza's population to pave the way for a massive development project under U.S. auspices in Gaza. According to Trump it would be a new "Riviera." Aside from the Israel far right, the idea was uniformly panned in the middle east, Europe and among Trump's MAGA base. Simply put, it is not going to happen.

However, Trump's forced the region to wake up to the fact that we can't go back to the world as it stood pre-October 7th. It will force the Palestinians to come to terms with the new realities of the region.

What has not been said is that while the U.S. will not rebuild Gaza, Trump's idea has whetted the appetite of every property developer from Egypt to Turkey to Saudi Arabia to the Gulf. While Gazans won't accept the U.S. to take the lead, they might be more amenable to an Arab consortium in a project that, of necessity, would involve the temporary exile of portions of the current population. I have to believe that discussions are already underway across the capitals of the middle east.  

The Tariffman Strikes

Donald “the Tariffman” Trump will announce today a 25% tariff on all goods coming from Mexico and Canada and a 10% additional tariff on all goods coming from China. And this is only the beginning with additional tariffs on E.U. products and some specific duties coming. The tariffs on Canadian and Mexican products are an obvious violation of the United States-Mexico-Canada Treaty that Trump signed when he was president the first time. 

To put the tariff question in context, the U.S. imported $3.3 trillion of goods last year, about 11% of our GDP. On a purely arithmetic basis, a 10% tariff on all imports would raise the price level by approximately one percent and a 20% tariff would raise the price level by 2%. However, a potentially stronger dollar and foreign producers absorbing part of the cost would partially reduce the inflationary impact.

Although many economists poo-poo the long-term inflationary impact of the tariffs as a one-time increase, I am skeptical. Why? First, the tariffs will cause a costly rejiggering of supply chains in the longer run, and second in the short run there will be chaos at the Mexican and Canadian border points of entry where all goods shipment will be held up until the tariff is paid. Further it is not clear to me how consumers will respond to the price increases. Instead of thinking like an economist, many consumers might believe that a new inflationary spiral has started. Recall, all the talk about the transitory nature of inflation in 2022.

Importantly, we have to remember that tariffs are an excise tax on imports. As such they raise prices and reduce output with stagflation being the result. Throwing sand into the gears of the economy can hardly promote growth. To the contrary it will stifle growth and add to inflation.

Delta to Resume Flights to Israel

 Delta Airlines announced it will resume flights to Israel. (See below) Less than a week ago we called for the three major U.S. air carriers to end their boycott of Israel. (See: https://shulmaven.blogspot.com/2025/01/us-air-carriers-stop-boycotting-israel.html) Delta has followed though and we applaud Delta CEO Ed Bastian for his decision. Now it is time for United, who had the most flights to Israel, and American to follow through.

Delta to resume Tel Aviv service from New York-JFK on April 1

Delta will restart daily nonstop service to Tel Aviv (TLV) from New York-JFK on April 1, utilizing its Airbus A330-900neo to provide customers with nearly 2,000 weekly seats. 

Staff Writer 

Jan 24, 2025 9:00am

https://news.delta.com/delta-resume-tel-aviv-service-new-york-jfk-april-1

My Review of Andrew Leigh's ""How Economics Explains the World: A Short History......"

History Through the Lens of Economics

Andrew Leigh over-promises and under-delivers in his history of the world through the lens of economics. To be sure economics is particularly important but as Ecclesiastes says, ‘time and chance happens to all.” Economics gives us tools to help understand the world, such as incentives, diminishing marginal utility and sometimes, as behavioral economics has taught us, people aren’t as rational as the classical theory would predict.

He, of course, mentions many of the great economists from Smith to Keynes and Freidman, and Kahneman. There works clearly help explain the world. He also mentions the work of Jared Diamond on the importance of an economy residing along and east-west axis as opposed to a north-south axis. This helps to explain why the northern hemisphere has done so much better than the southern hemisphere, but what does that have to do with economics?

He fails to discuss how human beings can really screw up what apparently looks like a strong endowment. Witness the weakness of Russia and Argentina and the converse of South Korea and Japan.

My bottom line is if you want a very short overview of the role of economics in history, this book might be for you, but it leaves out much.

U.S. Air Carriers: Stop Boycotting Israel

An Open Letter to:

Robert Isom

CEO, American Airlines

Ed Bastian

CEO, Delta Airlines

Scott Kirby

CEO United Airlines

As a frequent flyer to all three airlines, I have one question for you: Why are you boycotting Israel? All three of you had regularly scheduled flights from the United States (JFK, EWR, ORD, DFW, ATL, LAX, SFO, and IAD).  I recently flew on El Al  from LAX to TLV. I would have preferred an American carrier, but because of your boycott I had no choice, but to fly on El Al.

I understand that Israel has not been the safest of countries. Nevertheless, El Al has been operating safely since the Gaza war began and now with a limited cease fire in place, I don’t think you have any excuse for not flying into Tel Aviv. If your current policy of not flying into Israel persists, there can be only one explanation: you are boycotting Israel. 

I therefore urge you to resume flight operations to Tel Aviv as soon as possible. Otherwise you would be doing a great disservice to the flying publics of the United States and Israel. You also would objectively be taking the side of Hamas in the Gaza War. If that is your policy, say so!