Act Accordingly

Attempted Assassination, Economy and Demographics

Politics, History and Demographics

This past weekend was one Americans will never forget. I think deeply and passionately about politics but intentionally do not feature those thoughts in this newsletter. No matter what you think about the state of US politics today, though, an attempt to assassinate a president is shocking and disturbing. Have we really come to this?

As we try to understand this and wonder what might happen next, we also question how such a thing could happen in the first place. And fools on the Left and jokers on the Right have no shortage of stupid opinions, wild conspiracy theories, and platitudes that serve their ideology.

There is signal in the noise, though. First, historically assassinations happen when one system fundamentally shifts to another in a way that isn’t widely understood by the masses. It’s akin to a “nervous breakdown” when the identity you thought you had is so obviously no longer valid, but you haven’t replaced it with something you can understand yet.

Trump is a symptom (and sometime instigator) of that change, but it’s much bigger than he is. The world has existed in a certain state of affairs since WWII called by the name of an international agreement, “Bretton Woods II.” In this system, the US pledged to make free trade by sea and air inviolate to violence from individual or state actors. It has been foolproof and subject only to exception by rogue actors (e.g. Saddam Hussein), and terrorism, which the world has spun up against to solve with varying levels of success.

With the growth in the world economy and the breaking down of physical barriers by digital action, that system no longer makes sense, except to those steeped in the horrors of what came before and the realization that without it, we are headed back there again. Said more clearly, those who lived through the nightmare of WWII with its mechanized death visited on civilian populations and led by populism and socialism, put together a system that would prevent its reoccurrence at any cost. That system is US-led, expensive, exclusive, coercive, and under attack by the junior hegemeons of China, Russia and Europe.

What comes after Bretton-Woods II is what we are living in now, and no one knows what that is. The struggle to define it is the struggle of our time and there are no shortages of opinions, or deadly emotions as to what that means. Factor that through a demographic lens that so clearly favors the US, Mexico, India, South Korea, and pretty much no one else and you get a world realpolitik that will be very different than what has come before.

The Economy

While the world is still in shock, our economy keeps surprising us, making us stay alert. Everyday Americans wait anxiously for what's next. Historians will study these events for the next two hundred years. We are living through changes and world events at a speed never seen before. What used to take a decade now happens in a single year, and by the time we understand the chess board, the pieces have already moved again.

Economically, experts keep saying things are improving, but I have the sense that the reality is much more complex. Sure, people are excited about the economy, but I’m concerned that so much of it is illusory. We keep hearing that the stock market is powering upwards, but is it? This year, just 10 stocks made up 71% of the S&P 500 returns. However, 40% of Russell 500 companies are losing money. When you look at the numbers, you see how hidden the real profits are.

Real estate is struggling, too, as we work through the hangover of cheap money that drove rents up, and capital was so cheap that it couldn’t last and the Fed had to overcorrect to the high side. More people are not paying their loans, and commercial real estate is also seeing more defaults. In New York City, office building defaults increased by over 1,000% from January 2023 to January 2024. San Francisco will be even worse.

New commercial construction projects are down, and U.S. manufacturing has shrunk in 19 of the last 20 months — the longest streak since 2008. And we are still running a housing deficit that will only be exacerbated by the triple threat of Blackrock, Millenials (who aren’t selling their first homes but keeping them for rentals which restrict recirculation supply) and population growth.

And if you think things are dramatic here with the presidential election coming up, nearly half the world is also electing new leaders. It is only those who understand the new world that are going to be successful in securing and keeping office in a governing coalition. Add to this the fact that institutional election fraud is rampant — apparent to those paying attention — as preliminary elections show landslides for one party, but actual returns flip 180 degrees to the party in control. It will take a long time for people to understand the insidiousness of election fraud, but when it becomes known, the last remaining institution of trust will crumble, too.

But for now, what about the average citizen?

The Middle Class

The American middle class has been the economic savior of the world since 1944. For the last 25 years, the middle class has been the subject of relentless attack by the bureaucratic machine. These attacks have piled on new taxes, fees, and more importantly, regulations designed to shrink its total participant population and total wealth. Even now, with the upward trajectory of house prices and a stock market that defies gravity, the middle 40% has nominally more to spend, but less that it affords.

It’s also the twilight of the Boomers. The last Boomer will turn 65 in the next 2-3 years, which leaves 10-16 years for the majority of them to pass into memory. Their estates will be divided between their 2.3 children, and 5.1 grandchildren in the largest transfer of wealth in human history. Those kids are not as wealthy in income terms as their forebears and will have hard choices to make as to what to do with businesses they don’t want, vacation homes they can’t afford, and stock market accounts that are overweighted to large US equities — after they pay Uncle Sam.

The gap between the rich and the poor is also getting wider, not something I generally care about until the rift grows this large. Inflation typically hits the lower half of the population the hardest, and if you’re already struggling to make ends meet, when the ends get further apart, there is something in you that just quits and looks for escape.

Home prices hit new highs which does you no good if you don’t own one, and electricity prices are rising which hurts because you have to keep the lights on. More people are falling behind on their credit card payments and debt balances as they use credit for expensive necessities.

For the first time in American history, the top 20% of wealthy people are driving the economy right now and the Fed hasn’t realized it. An economy built on finance isn’t a participatory one and the social unrest that it creates — nurtured along always by the insidious influence of socialism — is becoming more commonplace.

Job numbers are often revised lower after being reported. In 14 of the last 17 months, job openings were adjusted down. Big companies are still laying off employees and closing stores. Facebook and Google have laid of 15,000 jobs between them, and Walgreens just announced they're closing 2,150 stores, cutting about 57,000 jobs.

Life is getting so tough for average Americans that even spending at bars and restaurants has declined in four out of the last six months. Economists look at outliers to signal economic shifts. One of those is Rick’s, a chain of “gentleman’s clubs,” which has posted declining attendance and spending for the last 6 months. The last time that happened, we went into recession. Other markers point that way, too.

The Fed is going to be stuck soon, too. Boomers are really liking 5% return on no-risk deposits right now. Cutting rates will increase their home prices but cut into their income as more of them move into fixed-income portfolios for retirement. It will benefit Millenials because it will make monthly payments more affordable. If I know anything, though, I know that when faced between a choice of benefiting Boomers or Millenials we choose Boomers every time. Yes, rates will ease, but we won’t see 2% mortgages again for 40 years.

Joseph Campbell tells us that the hero overcomes fears and reaches a higher state of understanding. In ancient myths, this often means becoming a god — a faultless, blameless figure above reproach. It was called the Apotheosis, the “god-becoming,” and always followed a learning of a universal truth.

Real-life heroes reach understanding when they learn from their experiences and apply those lessons. I lived through 2008, made sacrifices to pay my creditors, and radically reshaped how I allocated capital afterwards. As a result, I made smart investments and learned how hard it is to hold cash in reserve against the inevitable denouement.

I’ve been preaching this for 2 years now: there will come a reckoning and those with ample cash reserves will build generational wealth from it. That’s the signal that’s being obstructed by the noise, but if you tune your receiver, and listen for the message, it’s there.

Act Accordingly

The assassination attempt on Trump shocked everyone and surprised no one. There’s some wisdom in that. When we realize that things have changed forever, but we don’t know how, it’s a signal to slow down and get the next few moves right. As individuals in a collective, we can control neither the economy, politics or demographics except in the tiniest of ways. But we can control our reactions and the behaviors they produce.

By using what we already know from history and personal experience, we can see patterns and plans. We can't stop unprecedented events, but we can avoid being foiled by them by using the lessons from the past. We can choose to seek understanding in a world full of confusion, and act accordingly.