Don't Forget the Lags

Stop the Morphine. Cure the Patient.

(In the last CME, the danger of impatience was explored briefly. Here is a more substantive expose from Brian Westbury, Chief Economist First Trust. It was provided by a subscriber.)

In our lifetime, the best comparison for Trump’s election win is Ronald Reagan’s in 1980. That election, like this one, pitted big spenders and champions of government against tax cutters and critics of government. It is pretty clear that markets approved of both winning campaigns as they were happening. Leading up to the election in 1980, like this year, the S&P 500 rallied as it became clearer that Reagan (like Trump) was likely to win. The market also rallied in the days following the election because markets like tax cuts, deregulation, and restrained government. And, at the same time, the policies the markets didn’t like – such as a tax on unrealized capital gains – are now dead.

After being euphoric at the outcome of the election in 1980, however, reality set in. Paul Volcker was fighting inflation with tight money, a recession was inevitable and tax cuts took time to pass. The S&P 500 fell in 1981 and in the first eight months of 1982 before the Reagan bull market really started.

History doesn’t repeat itself, but at times it rhymes. And while there are similarities between today and 1981, there are also some key differences. For example, the Federal Reserve is now cutting interest rates, not raising them. However, there are some big differences that investors need to pay attention to. First, in October 1980, the Price-Earnings ratio of the S&P 500 was 8.6. In October 2024, the PE ratio was 27. In other words, while the market may appreciate better policies, it sure looks like they are already priced in.

The really powerful potential of the Trump plans will come from DOGE, the Department of Government Efficiency, where Musk and Ramaswamy plan on proposing big cuts to the fourth branch of government – the Bureaucrats. Every regulation that they can cut, every bureaucrat that they can keep from gumming up the private sector, will boost productivity. But in addition to cutting red tape, the US must cut the absolute size of government. John Maynard Keynes wanted deficit spending ended after a crisis was over. But, after both the Panic of 2008 and COVID, the US kept spending elevated. Government spending has risen from 19.1% of GDP in 2007 to 23.4% this year.

Government is a ball and chain on the economy. Every one percentage point increase in spending as a share of GDP reduces underlying real GDP growth by 0.2%. Every dollar the government spends is taken from the private sector, and the government taxes and borrows nearly 5% more of GDP today than it did seventeen years ago. From 1990 through 2007, real GDP grew 3% per year. From 2008 through the second quarter of 2024, real GDP has only grown 2% per year. No wonder “the economy” was the #1 factor for Americans in this election. Two percent annual growth is stagnation. And this shouldn’t be happening according to fans of big government.

Economists like Mark Zandi and Paul Krugman support government spending and argue that it has a positive multiplier ($1 of government spending creates more than $1 of GDP). The US has invented unbelievably productive new technologies in the last 17 years, so if government spending really boosts GDP, shouldn't the economy be booming? Especially with the Fed holding rates at zero for nine of those years. But it hasn’t, and the reason is that government is just too DAMN BIG.

Cutting government spending is a double-edged sword. Half of all job growth in the Biden years has been in government jobs directly, as well as healthcare which is dominated by government. Taking away that spending will initially slow job growth, but, with a lag, eventually boost economic activity. In other words, the Trump Administration has a chance to boost underlying economic growth rates, and that would be extremely positive for living standards and equity values over the long-term. But initially, it may result in slower growth. LAGS!

The US had a car wreck with COVID. Easy money from the Fed and big deficits were like morphine. The US is addicted to short-term fixes that do nothing to boost long-term growth. Withdrawal from the pain killers hurts, but is necessary to get truly healthy. While extremely positive about the long-term benefits of policy changes, like under Reagan, weaning the US from massively easy fiscal policies does not guarantee overnight success. It will take time, and the US will come through to the other side stronger. The entire world will benefit…with a lag.

Patience is not passive, on the contrary, it is concentrated strength. Bruce Lee.

Another Biden Press Secretary Weighs In

President Biden stated multiple times that he would not pardon Hunter and that he would respect the outcome of the legal process concerning his son. 

"I am extremely proud of my son Hunter," Biden said in a speech shared on Psaki's show. "He's one of the brightest, most decent men I know. I abide by the jury decision. I will do that, and I will not pardon him." 

In June, MSNBC host and former White House press secretary, Jen Psaki, praised President Biden alleging he would not pardon his son because he believed in the American justice system.

"His decision not to pardon his son is not an expression of restraint or removal in any way from what his son has gone through and is continuing to go through, but of principle," Psaki said on June 16, the same week Biden's son was convicted on federal gun charges and his father reiterated he would not pardon him.

"Because the justice system that convicted his only surviving son is the same justice system he vowed to protect, Joe Biden's character as a public servant is what drove him to make clear that the law applies to everyone." Psaki continued. "If that doesn’t tell you who Joe Biden is, I don’t really know what does." 

Sounds like John Kerry and Kamala. Before Joe pardoned Hunter, he promised he would not pardon Hunter. I agree. His behavior tells you exactly who Joe Biden is. A bald-faced liar.

In the 2020 election and throughout his presidential term, Biden repeatedly lied to the American public with an ease and impunity that shocked even many political veterans in Washington. He was repeatedly asked if he knew about Hunter's foreign dealings, including millions in alleged deals with Russians, Ukrainians, Chinese and other clients. President Biden lied and denied such knowledge. He is even on tape discussing news stories on the dealings

President Biden was repeatedly asked if he met any of his son's clients. Every time - he lied. There are pictures and records of dinners and meetings with these clients. At least 14 of them from the U.S., Mexico, Ukraine, China and Kazakhstan over the course of his vice presidency. Hunter Biden was expressly thanked for arranging such access to his father. Then there's the famous clip where Biden is bragging he got the Ukrainian prosecutor investigating Burisma "fired by threatening to withhold $1 billion in US aid". Or the one in which Hunter says in an email to a CCCP contact who provided millions to the Biden family, "the Big Guy is sitting to me".

President Biden's decision to use his presidential powers on Sunday to pardon his own son will be a decision that lives in infamy in presidential politics. It is not just that the president used his constitutional powers to benefit his family. It is because the action culminates years of lying to the public about his knowledge and intentions in the influence-peddling scandal surrounding his family. Biden has cemented his legacy for many, not as the commander in chief, but as "liar in chief." 

This is not a "well-meaning elderly man with a poor memory." This is a calculating, scheming liar, who has no compunction about treating Americans like dull-witted fools. A calculating, scheming liar who berates the well to do for not paying their "fair share" of taxes. But pardons Hunter because he was too doped up and forgot to pay $1.4 million (with a capital M) in taxes. I think I read, because of Dad's pardon, he's off the hook for good. Can that be?

Legal and political analysts are characterizing President Biden's stunning "full and unconditional pardon" of his son Hunter as an early holiday gift for President-elect Donald Trump. "Biden essentially endorsed Trump's long-held opinion that the Department of Justice is politicized and isn't acting impartially," longtime Republican strategist, Ryan Williams said. In absolving his son ahead of twin sentencings on separate gun and tax convictions later this month, Sleepy argued that the Justice Department's handling of the cases against Hunter Biden was politicized. Being prosecuted for not paying $1.4M in taxes on $20 million of "foreign gifts" doesn't seem like politics. I don't care how doped up you were. Bye bye - Lawfare.

And You Thought American Football was Rough

• January 2022, Cameroon: At least eight people were killed and 38 more were injured during a crush at the Yaounde Olembe Stadium in Cameroon prior to the Africa Cup of Nations last-16 match against Comoros.

• February 2012, Egypt: Fans rioted at the conclusion of a match between rivals Al-Masry and Al-Ahly in the city of Port Said. There were at least 73 people that were killed and more than 1,000 people were injured. The Egyptian league was suspended for two years as a result.

• March 2009, Ivory Coast: At least 19 people were killed at Abidjan's Felix Houphouet-Boigny stadium prior to a World Cup soccer qualifying match against Malawi.

• May 2001, Ghana: There were an estimated 126 people killed in a crush at Accra's main soccer stadium when police fired tear gas at rioting fans.

• April 2001, South Africa: At least 43 people were crushed to death when supporters attempted to force their way onto the pitch at Johannesburg's Ellis Park Stadium midway through a top South African league match.

• Last Monday, 56 were killed after a bad call in a match in Nzerekore, Guinea. Trampled to death.

Makes a few concussions seem mild.

In case you have some spare change laying around after the holidays...

Harris campaign is still asking for donations weeks after massive loss to Trump.

If It Walks like a Duck...

When President Joe Biden pardoned his son Hunter Biden, many people online and on air acted surprised. Of course the president had promised he would not do it. Of course he did do it. What is remarkable is that so much of the surprise seems genuine. 

When President Biden set out to make himself FDR 2.0 with massive and unnecessary spending after he took office, and, instead sparked an inflationary cycle unlike any we have seen since the late Jimmy Carter years, some people were genuinely surprised. It made no economic sense to do what he did, but Biden did what Democrats do: Spend money on favored constituencies. People like former Treasury Secretary Lawrence Summer warned Biden, but Biden waived it off and unleashed inflation. To repeat: spending enormous amounts of money on favored groups is what Democrats do.

When President Biden pulled out of Afghanistan in such a precipitous way as to cause the collapse of the NATO-backed regime in disastrous fashion, followed by Russia’s invasion of Ukraine, people were surprised. Why? It is exactly what President Obama did with American forces in Iraq in late 2011, and the rise of ISIS followed soon thereafter. Scampering out on allies no matter the predictable, indeed inevitable awful consequences, is what Democrats do. 

When Secretary Clinton turned out to have a private server, people were surprised. When her lawyers deleted thousands of emails, people were surprised. When the Department of Justice and the National Archives and Records Administration ordered a raid on Mar-a-Lago, people were not surprised. The "rules" are for Republicans, not Democrats.

Think about it. Were you honestly surprised? Yet liberals call Conservatives/Republicans mean-spirited, unfeeling, "bad people". I'll tell you who the really bad people are...the lying, thieving, manipulative Liberals and their media sycophants. Thanks to Donald J. Trump, we can all come out of the closet now.

If it walks like a duck. Biden started by lying on the Debate stage in 2020. He vehemently insisted that the Hunter laptop controversy was Russian disinformation and that he never met any of Hunter's business associates. Both have been undeniably debunked. Now he finishes his pathetic stewardship by lying about Hunter's pardon. While still finding time to do the wrong things, right to bitter end. BIDEN PLEDGES $1B IN AID TO AFRICA AS NORTH CAROLINA RESIDENTS CONTINUE IN MISERY AFTER HELENE. By the way, he was photographed having fallen asleep at the roundtable with African leaders. He's sharp as a tack, let there be no doubt. Good riddance.

Trump Effect Already Underway.

Trudeau heads to Mar A Lago to kneel and promise fealty so Canada can keep on NOT paying its fair share.

Mexican President walks back her tough talk and agrees to help deal with illegal border crossers.

Zelensky says he's ready to concede on land already occupied by Russia to bring settlement.

Hamas & Hezbollah are suddenly ready to come to the table.

Putin can't wait for Trump to take office so he can save face and end the conflict with Ukraine.

The Mullahs are reported hiding in a bunker in Tehran (lol).

China is eerily quiet. Keeping its head down.

Anybody who doesn't buy peace with strength or think carrying a big stick and being willing to use it is matters is badly misinformed. Or a Liberal. Wait, that's redundant.