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.