Dog Days, Get Used To It
I know, I know. Where is the Monday, Wednesday, Friday regimen? Well, it’s the summer. I have a tan to maintain and this is what you have until the summer ends. Tuesdays will be a combined business and political post and Fridays, if I am up to it, will be about music or maybe some movies. Get used to it.
After watching the equity markets rebound nicely in July, the thinking is that maybe we have seen the lows and that July rally will sustain itself through August. Not bad thinking but I do believe you need to act with some caution here.
The Fed has made it crystal clear that they will be fighting inflation first and foremost and the thought of any recessionary result is not on their radar right now. Might be another stupid move by the Fed and by not acknowledging the possibility of some recessionary result or even a possible stagflation situation is once again shortsighted. These are some of the smartest people in the Country and I am sure they are keenly aware of history. Historically, raising interest rates to combat the increased demand of a potentially overheated economy usually results in some recessionary pressure. It could lead to a larger full scale recession as well. It is a very tricky situation for the Fed in the best case scenario and we are certainly not in that typical inflation period that we have all experienced in our lives. This one is different.
To top off the complex nature of this cycle, you have an administration that clearly has no clue as to what they are doing. Increasing spending at this point in history is beyond stupid. It is just going to fuel pricing pressure for a longer period of time. Possibly raising taxes on any economic group will not slow inflation, it will increase the likelihood and depth of a recession. Historically look back and you will see that other than the pandemic induced recession in 2020, almost every recessionary period was preceded by a tax hike. Look at every major expansion over the last 60 years, they were preceded by tax cuts. Pretty sure there is a correlation there.
What is very clear is that the administration can not or will not; Backtrack on their climate goals (which, while admirable is impossible to achieve), realize that they are a big reason we have this inflationary period i the first place (spend, spend, spend. Where did they think that would lead?), come up with a viable economic policy that will eliminate or at the very least create new routes in the supply chain (why would they do that? That would be a blatant admission that their policies have failed so far).
I know that I have gotten more critical of the Biden Administration as the months pass by but even his supporters have to know that he has failed at almost everything he has put his name on. This latest “Inflation fighting Act” or whatever it is titled is another attempt at throwing money at a problem that with any foresight would have been kept under control. Is Joe Biden responsible for all the ill’s of this country? No. He is not. However, he had the power to mitigate a lot of things and because this moderate Democrat has completely lost his way, he has created a whole new set of problems. Economically, he will be compared to Herbert Hoover and that might be a compliment. Domestically, this administration has created chaos at the borders and his party has created chaos in democratically run cities.
His foreign policy, as limited as it has been may be looked back upon as a moderate success. It was way above my pay grade but it looks to me that the administration is doing the only possible thing to counter Russia’s advances. Should they have acted sooner and prepared for it better, yes, but I am not sure any administration would have done things any better at this point.
The situation with China is another matter. I like to have a strong backbone when dealing with countries like China but it is not easy. We are so dependent on China that they in effect can call the shots if they want to regarding any number of issues. Sanctions against China for whatever atrocities will do more harm here than in China for sure. This dependence on China is not Joe Biden’s fault. That horse was let out of the barn in the mid 80’s and no one bothered to go and catch it. Americans became addicted to low cost, poorly manufactured items and while we were buying all this crap, the Chinese created better manufacturing processes fueled by very cheap labor. We had no answer and now the Chinese are no longer third world. We helped them. It didn’t just happen. Now, we are faced with veiled threats that there might be some sort of international incident if our Speaker of The House, Nancy Pelosi, visits Taiwan. She may or may not go there but the administration needs to make clear that a representative of the United States government can not be threatened and while no one wants a military confrontation with China, we can’t back down. They look for these signs and look to take advantage of weakness. How this plays out is anyones guess but I do believe she is scheduled to visit Taipei tonight (our time) so we will know soon enough.
There is obviously a lot at stake here. Taiwan produces roughly 75% of the worlds semiconductors. They have been steadily moving that manufacturing off the island but it is still very significant. Again, this is a failure in the US not to foresee that eventuality. Is it Biden’s fault, again no. The little piece of legislation that passed last week by both parties should help the situation but that is not a quick fix. Building semiconductor manufacturing plants takes years and billions of dollars.
As you can see, I have to give credit where credit is do and the administration has a couple of feathers in their cap now. Are they big looming feathers that might change the expected outcome in November? Absolutely not but when you fail so often, you need to take the victories when they come.