the last honeymoon ?3

01:55 27-Jul-26

There is no especially important economic data coming between now and the next Fed decision on the 29th, and PCE on the following day.  The latter should be of no concern since it's trailing data and inflation measures had already risen significantly.  That leaves Alphabet earnings tomorrow night as the major impending factor on index direction.  Normally I'd expect to see a pretty significant rise during such a lull, but I remain wary of the megacaps.  I just commented on FLNC to end last week, and the interplay in trading between sorts of stocks I mentioned then and the indexes will be of primary interest to me in the short term.

The update for the weekend is a lull in hostilities surrounding Iran, but a munitions shortage is just as plausible a reason for that as peace talks.  In any case, downplaying statements from Tehran and the White House continues to produce sound analysis for this service, and the rest of this note will be its attempt to look beyond this latest Middle East war and the American midterms.  On the way to the latter, it will note the results of October elections in Brazil, and one for Israel's Knesset on the 27th of that month.  However, the base case continues to be that the midterms will crystalize my peak Trump point with law makers, even though we seem set for more populist politics before austerity truly hits America.

They key to the austerity timing lies with Warsh, from whom we'll hear on Wednesday, but don't expect any hint of such issues.  Instead, we can be sure that the words "deliver price stability" will be repeated ad nauseam.  That ultimately means either fudging the numbers or raising rates, and this service projects that the former eventually leads to the latter and the Volcker scenario that CrowdWisers has long warned about anyway.  Other possibilities have been considered...

Some, including Warsh, have posited productivity gains from AI to spawn strong economic growth.  Two years ago CrowdWisers projected that AI could "be revolutionary with carefully curated data for highly specific tasks like finding new fit-for-purpose molecules", but also a generic AI backlash.  Now, the latest Fed study glosses over the finding that:

While sectors with more exposure appear to have higher labor productivity growth, we see that productivity trends across all three levels have been relatively consistent over time, suggestive of micro-level productivity gains not adding up in aggregate.

In order for AI productivity to relieve federal budget issues it would have to include the vast majority of workers, but the Participation Rate and Employment Population Ratio have both dropped by over a percent since early 2025 when CrowdWisers projected that stagflation was the best possible outcome.  Otherwise, the government will have to broaden its safety net spending when it has been going in the opposite direction.  By my calculation, that saves in the neighborhood of $9b annually, but that's about an eight of one percent of the budget.  To put that in context...

On 3/7/25 17:48, Esekla concluded:

The latest attempt to distract from this, after the administration walked back tariff implementation, is an executive order creating a Strategic Bitcoin Reserve, supposedly as a "unique store of value".  My observation is that Bitcoin has always behaved more like a measure of risk appetite.  I think the reaction supports my stance that this move is as poorly timed as Stargate.  Lack of accountability, the fact that the government will cease selling the Bitcoin it seizes for the time being, and Fed rate cuts may lead to a dead cat bounce, but I'd guess that risk appetite will be more fully exhausted before the Nasdaq can get 24/5 trading implemented in 2H26.  In the meantime, is it too late to say that the presidential honeymoon is ending?

Now investment appetite for AI is souring, and Bitcoin has lost half its value since October.  Reinvesting seized BTC it could have more than offset dropped SNAP benefits for the entirety of Trump's second term.  Instead, over $21b is currently off the table so far and tariffs are back on it.  That's too bad, because free trade and immigration are a large part of what's needed for the administration to succeed with its very laudable on-shoring goals.

However, the honeymoon for Warsh has just begun, and the midterms are likely to extend it toward the turn of the year as he projects independence while determining the details for responding to an intractable situation.

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