Key Takeaways
1. We Americans have so very much to be thankful for. Celebrate!
2. The US midterm elections now handicap as few gains for either party in the House or Senate.
3. Even if the Iran War resumes, the US economy is on an even keel and is now gaining momentum. That is unlikely to change.
4. Ukraine is now clearly winning its war against Russia. An end to the war could come surprisingly soon.
5. China’s economy is weak in many areas and strong only in its exporting and positive balance of trade. Relative to the US. China is a declining economic power with major problems its leaders and system are ill-equipped to solve.
Celebrate America!
There are so many wonderful things to celebrate in and about America. Step back from the doom and gloom and count our blessings. We certainly have many problems but so many more positives than negatives. Think about … really think about our great blessings and the things the American people have created.
· The goodness and fairness of the American people
· The magnificent Declaration of Independence, Constitution, and our unalienable rights
· The entire Bill of Rights
· Freedom of religion
· Freedom of speech
· Freedom of the press
· Freedom of association
· The right to bear arms
· Democracy/rule by the people
· A market economy where the people make the choices, not the government
· An economy where innovation and risk-taking are encouraged
· The rule of law
· Private property rights
· Energy independence
· Food independence
· The wealthiest nation ever to exist
· The most powerful nation ever to exist
Think about all the rights we have that most of us take for granted. But note that they will exist only if we work to keep them.
The Iran War
CURRENT SITUATION
There are three kinds of negotiations going on now because of the war. The most important is the direct negotiations between the US and Iran, aided by mediation by the Qataris and Pakistanis. In the last week we have heard little of substance about those negotiations. That could be good or bad news.
The second set of negotiations is between the US, Israel, and Lebanon. The goal of those negotiations is to disarm Hezbollah in Lebanon, get the Israelis mostly out of Lebanon, and restore the Lebanese state. Progress is being made in the talks but peace in Lebanon is months or years away.
The third set of negotiations is a series of informal multi-faceted ones. Iran and the Gulf Arab countries have been talking about the future of the Persian Gulf area and the Strait of Hormuz. Several weeks ago, it looked like Iran might partially win its battle to control the Strait but that has now been vetoed by the other Gulf countries. Iran will still push for control of the Strait but is unlikely to get it.
Most of the over 1000 ships that had been stranded in the Gulf are now out, but several hundred remain. Hundreds got out over about a week of indecision by Iran. Since Thursday two ships were attacked by Iran, and the US has responded with attacks on Iranian military assets. The Iranians also attacked US assets in Kuwait and Bahrain. As the TR goes out on Sunday, I don’t know what is coming next.
FACTS AND REALITIES
Iran and the US signed a Memorandum of Understanding (MoU) setting up negotiations to settle the Iran War and have agreed to a 60-day ceasefire to negotiate that deal.
Note that no countries or groups other than the US and Iran have signed the MoU or are parties directly participating in the negotiations. Those excluded include Israel, Lebanon, Hezbollah, the Gulf Arab countries, and others who have been involved in the Iran War.
We’ll see where things go from here with negotiations over the 60-day ceasefire. But don’t expect a quick positive resolution. Do expect a long tedious unsatisfactory process which may or may not end in real peace. Also expect numerous twists and turns.
President Trump has established three red lines he is highly likely to stick to and enforce.
They are:
1. A free, open, and safe Strait of Hormuz and Persian Gulf guaranteed.
2. Shipment of Iran’s current supply of enriched uranium out of that country or otherwise disposing of it.
3. An enforced prohibition on future uranium enrichment or other means of obtaining a nuclear weapon by Iran.
Those red lines are real. If they are not met through current or future negotiations the shooting war will restart.
Trump will suffer serious political damage at home and internationally if he does not insist on maintaining his own red lines.
The shooting war is now in a ceasefire. But if it resumes, the US and Israeli attacks on Iranian military, government, and defense industry targets are sure to resume. It is also quite likely that numerous Iranian economic assets will be added to the target list. That will probably include major road and rail bridges, power plants, oil and gas terminals, and other economically valuable Iranian assets.
The US and Israel have been in a major war with Iran for over three months. Below is a list of realities I think will help you understand where we are and where we are probably going even as we are headed to the next stage of negotiating a peace deal.
1. Iran’s military has been mostly defeated. It has lost almost all its defensive capabilities against air and naval attacks except hiding its remaining missiles, drones, small boats, and other weapons. But Iran still has offensive military capabilities, especially missiles, drones, and small boats with weaponry which can swarm ships in the Strait of Hormuz. An important consideration is that Iran can still do major damage to the Gulf Arab countries.
2. The Iran defense industrial base (DIB), its various defense industries, has been mostly destroyed.
3. A large ground invasion of Iran by the US will not occur and was never in the cards.
4. Do not count on regime change in Iran. The regime may survive even if it ends up accepting a demeaning settlement of the war.
5. NEW – Notwithstanding what the MoU says, the Israel-Hezbollah War in Lebanon is near certain to continue even if there is a deal in the Iran war.
A New Reality for the Midterms
WHERE STAND THE DEMOCRATIC AND REPUBLICAN PARTIES
The Republicans
The Republican Party is now in the typical position for the party in power – controlling the White House. Incumbent President Trump leads the party organizationally, politically, and programmatically. There are always conflicts in the diverse “big tent” mass American parties over policies and power but that is normal. President Trump is very controversial and aggressive. He is also clearly in charge. He draws adulation and loyalty from millions of voters and contempt and disdain from millions of others. In this year’s midterms he will gain votes for his party but also drive other voters away.
The biggest threat to the Rs for the midterms is the affordability/inflation crisis which carried over from the Biden-Harris years but is now owned by the Rs. The Iran War has exacerbated the affordability problem by pushing up gasoline prices.
The Democrats
The contrast between the Democrats and Republicans could not be starker. Where the Rs have a strong Trump and his leadership, the Ds have no leader or leadership. Biden is in dementia, Harris is clueless, and Obama’s time has passed. In the Senate and House, Schumer and Jeffries are weak and trying to figure out what to do about the startling rise of radical democratic socialists in their party. Their policy leadership consists of just saying NO to everything the Rs try to do.
Since the 2024 elections, which they lost badly, the Ds have been in a civil war pitting the traditional libs against the younger radical democratic socialists. With the election of Zohran Mamdani in NYC, other democratic socialist mayors in big cities, and numerous radical Ds winning primary victories this year the battle is on for control of the Party.
That battle has flared in recent days with legendary Democratic strategist James Carville so outraged at the beliefs of many radical democratic socialists that he said on-air, “And I actually do think it’s time for the Democrats to talk the S word; schism. I really do.” He clearly wants the anti-American, antisemites out of the Democratic Party.
Normally calm and thoughtful Democratic Senator Elissa Slotnik of MI opined last week. “Every day there is a debate within the party about the path forward.” It is not just a debate, it is a vicious civil war over policy, power, and leadership.
The faces and voices of the Democratic Party are no longer the Clintons, Obama, or Biden. They are now Bernie Sanders, AOC, Mamdani and other radical democratic socialists. Many of them hate America, its history and values. Many are looking for racial spoils and reparations. Those ideas will not sit well with centrist Middle Americans.
Normally midterms are about “throwing the bums out” – i.e., changing who is in power. But this year the game is much more complicated. The voters have low opinions of Trumps, the Rs, and the Ds.
That is the playing field as we head toward November 3.
The Midterms
I’m going out on a limb and suggesting that the way we have been analyzing midterms for decades is now misleading us. Fundamental changes have occurred and are still underway in various structures and realities of our politics, especially for the election of House members.
Historically, the party controlling the White House has lost an average of 26 House seats in midterm elections. But this year’s midterms now handicap far differently than that.
The structure and realities of US election campaigns have changed dramatically. The old rules and formulas are no longer reliable. Consider the evidence for that.
· American partisanship has hardened. There are now fewer split-ticket voters and swing voters who go back and forth between the parties. Straight ticket voting has increased because of the antipathy, even hatred, between the parties. These changes make it less likely that either party will win this year’s midterm elections or future ones with a big win.
· The Democrats have moved significantly to the left and away from the center, while the Republicans have remained right of center where they have been for years. The US is still centrist.
· Widespread redistricting/gerrymandering, especially since the last election, has markedly cut the number of House races likely to be competitive. As recently as the 2022 midterms, about 60 House races were rated as competitive while this year it appears the number of such races will be less than half of that. At this time, the UVA Sabato “Crystal Ball” has only 16 House seat races rated as “toss-ups,” 13 R seats and 3 D seats.
· Trump, the Rs, and the Ds ALL have much higher disapproval scores than approval scores. THE VOTERS ARE VERY UNHAPPY WITH TRUMP AND WITH BOTH PARTIES. Normally the party controlling the White House/presidency gets punished because the party out of power looks more appealing. That is the “throw the bums out” phenomena.
But this year both parties and the President are being rejected. Trump’s approval rating in the recently released Harvard/Harris poll among likely midterm voters was 46% approve and 52% disapprove – a net of minus 6%. The R party was at 45% approve and 55% disapprove – a net of minus 10%. The D party was at 44% approve and 56% disapprove – a net of minus 12%. That same poll now has the Ds ahead of the Rs by 4% (52% to 48%) in the choice between House candidates.
In an election year where the electoral system looks fundamentally changed, we also see the Rs with some unusual advantages and the Ds creating an increasing number of problems for themselves.
· Led by President Trump, R fundraising this year is likely to be much higher than D fundraising. It is likely that R funding of the eight competitive Senate races will be over $100 million each, and in most states well over $200 million each. The Ds are unlikely to be able to match that in most states. Similarly, in the 20-30 competitive House races, R fundraising and spending in competitive districts is likely to be over $50 million each. Again, the Ds will be hard-pressed to match that in many districts.
· With the Democrats now lambasting billionaires and campaigning across the country to “tax the rich,” it is less likely that the rich will fund D campaigns, which many of them have done in the past. And some angry rich folks who normally fund the Ds may fund some R campaigns.
· The trend so far this year is for the Ds to nominate candidates farther to the left than they have in the past. That will continue. By contrast, the Rs are nominating few “kooks” and mostly conventional center-right candidates. D candidates farther to the left are likely to find winning in November harder than traditional center-left candidates would.
· Avowed socialists like Zohran Mamdani and AOC have become the faces and voices of the Democratic party. That may not go over well with centrist American voters. Many Democratic candidates believe socialism can work and will forcefully push it. That will work against them and the Democrats in general.
· The Ds are in the process of nominating quite a few “kooks” and extreme radicals this year. Senate nominees Graham Platner in ME and James Talarico in TX are “kooks.” The Ds also look headed toward choosing radical nominees in the important MI Senate contest and in the MN Senate race. Numerous D nominees are socialists, and/or antisemites, and/or anti-white racists. They are far from the center of American politics.
· THE BOTTOM LINE ON THE FUTURE OF THE DEMOCRATIC PARTY IS THAT THEY ARE SLOWLY DESTROYING THEIR BRAND AND THEIR PARTY.
· It is certain that the Rs will run well-funded media campaigns against the leftist radicalism of the D party and many of its candidates. Effective campaigns like that will go a long way toward indicating which party will control Congress next year.
· Don’t take just my analysis of the Democrat’s mistakes as correct. Many respected Democratic strategists agree. One example, among many others, is Doug Schoen, one of Bill Clinton’s pollsters, who is still a respected voice in the party. He recently wrote … “With the nomination of Graham Platner in Maine on June 9, the Democratic Party’s record of advancing extreme, left-wing progressive candidates for Congress has begun to take full form. … Indeed, Platner is both so extreme and so compromised that his support from Democratic leadership, along with other extremist candidates, could well become a deciding issue in the midterms.” Many other respected Democrats agree, including politicians and analysts like Rahm Emanuel, Ruy Teixeira, Mark Penn, Paul Begala, and the Clintons.
· A month or two ago, it looked like the redistricting wars would end up close to a draw. But recent events now suggest the Rs will have a net gain solely due to redistricting of 10 to 14 seats.
Considering these major changes, which have occurred or are now occurring, I am shifting my previous analysis that the Ds would gain a dozen or so seats in the House to an analysis that neither party will make much of a gain in the House. My analysis is also that neither party will gain or lose much in the Senate.
But remember, it is four months until the midterms, and much can change. I’ll update my analysis regularly.
The Economy and Markets
Economic Data
· NEW – The Q1 estimate of GDP change was raised from +1.6% to +2.1%, an important increase.
· NEW – The Fed’s favorite inflation measure, core PCE inflation, were unchanged month-to-month at +0.3% and +3.4% year-to-year.
· NEW – The Federal Reserve left the Fed Funds rate unchanged at its meeting last week. Future changes will be driven by whether inflation is rising or falling; it could go either way.
· The Federal Reserve just released an update of the net worth of US households. At the end of March that statistic was an amazing $174 trillion. Such a huge amount of wealth is one of the reasons stock market records continue to be set. This huge wealth stabilizes the economy by keeping consumer spending high, especially by upscale households. The wealth creates and supports employment, the stock markets, and the economy in general. But US wealth is very unequally spread across the population.
· Last week the S&P500 was down 2%, the NASDAQ was down 4.6%, and the Dow was up 0.6%. Gasoline was down 1.6% and crude fell almost 9%.
· Retail sales rose a strong 0.9% month over month, a positive sign of a growing economy.
· NEW - The latest estimate for Q2 GDP from the Atlanta Fed GDPNOW is a solid +2.5%.
· NEW – Earnings reports for Q1 continue to look very strong.
· NEW – New claims for unemployment insurance last week fell to 215,000. This demonstrates that layoffs are still quite low.
UPDATE - The US Economy Overall
We are now over three months into the Iran War. With the peace negotiations beginning, a promised ceasefire may run 60 days or longer.
For us at home, it is comforting to see how limited the effects of the Iran war have been on our economy and on the financial markets. It is very unlikely the war will seriously harm the US economy even if it restarts. Consider:
· 10-year treasuries are now up about 25 basis points (.25%) from the first of the year, before the war started. That hurts but not seriously.
· The major stock market indices fell a bit last week but are still at or near record highs.
· The US job market has turned very positive over the last three months.
· Unlike almost all other nations, the Iran War has had only limited negative effects in the US with the worst widely felt negative being a $1.00 rise in the cost of gasoline. But that has pushed inflation up noticeably.
As we move into summer, the economy looks very positive overall. Corporate earnings have been very strong and look like they will continue that way. Real economic growth in 2026 looks likely to be solid and a 2026 recession looks very unlikely.
Last year’s trends were for both very low numbers of layoffs but also limited hiring. Several stats just out for May suggest hiring is picking up while layoffs remain low and with unemployment claims low in June the employment market looks solid.
Crude oil and gasoline prices are coming down quickly. They will continue to do so if the peace negotiations are successful.
Global Watch Updates
China’s Economy
China’s economy lately has had an odd mix of positives and negatives, with many more negatives than positives.
China now relies more than ever on its exports. It has become the world’s #1 manufacturer by far. It exports far more goods than it imports and has a huge trade surplus because of that. China’s trade balance with the US is down some because of Trump’s policies but China’s trade balance with the rest of the world has expanded greatly.
The size of these trade balances is becoming a major problem for the Europeans and Asians. China is producing far more goods than it can sell at home. While industrial production in the country over the last year is up 4.5%, retail sales in China have declined by 0.6% over the same time period. It is exporting its overproduction at low prices and cannibalizing sales of other countries’ goods.
Other aspects of China’s economy are not good. Housing prices continue their steady decline. Over the last year alone those prices have been down 3.5% and there is no end in sight. As most Chinese household wealth is in homes and housing, the declines are a serious economic and financial problem. One of the consequences is falling retail sales. Most households in China are struggling to make ends meet.
A traditional source of financial strength and economic growth in China has been in investments in fixed assets like housing, public infrastructure such as roads, bridges, and ports and other long-lasting investments. Such investments are now declining, down over the last year by 4.1%. The declines in housing and fixed asset investment bode ill for China’s economic future.
The Iran War has dominated international news. But China’s weak economy deserves much more coverage than it has gotten. Economically, China is relatively declining versus the US.
And the Iran War has exposed some very serious weaknesses in China’s strategic situation. Consider two economic realities China has and is unlikely to be able to change anytime soon. The first is that China uses 16 million bbl. of oil each day and must import 12 million of them. Second, China imports 40% of its food each day. Think about that considering what we are learning from the Iran War about seaborne trade being shut down. (Note that the US is a major exporter of both oil and food.)
I get asked all the time if China will invade Taiwan. Imagine such an attack and also note that virtually all the freighters and tankers then headed to China would turn around and leave the war zone. How will China feed its people, heat its homes, keep its factories open, and export its goods?
Ukraine’s Strike Campaign
Late last week, Ukraine President Zelenskyi ordered a 40-day Strike Campaign on the Russians in occupied Ukraine and in Russia itself. Even prior to this campaign being ordered, Crimea was in a official “state of emergency” brought on by recent Ukrainian missile and drone strikes. Petrol supplies are not available there to the public but only for government vehicles. Thousands of Russian tourists and Crimean citizens are trying the escape to the Russian mainland.
In Russia itself, numerous large Ukrainian missile and drone strikes have destroyed energy and defense industry infrastructure as well as anti-aircraft defenses. Most Russian regions now have petrol shortages and are rationing supplies. The war has been brought home to the Russian people.
This is speculation but it seems likely Zelenskyi’s Strike Campaign will attempt to seriously rachet up the quantity and intensity of the missile and drone strikes. The goal is to create an economic and political crisis in Crimea and Russia to get Putin to abandon the war and negotiate a settlement.
Is the Ukraine War Headed to a Ukrainian Victory?
· Zelenskyi’s Strike Campaign has begun.
· But President Putin and other Russian officials continue to demand maximalist Ukrainian concessions which Zelenskyi will never accept.
· Now, in Russian occupied Ukraine both civilian and military vehicles are being hit by Ukrainian drones making transport very hazardous. Logistical transport of military supplies and even civilian transport of people and goods are getting very hazardous in Crimea and in other Russian occupied Ukrainian provinces.
· In both Russia proper and in occupied Ukraine the Ukrainian attacks on refineries are creating severe petrol shortages. These shortages are likely to get worse.
· Neither side is making significant ground gains. The stalemate has hardened even though the shooting continues.
My overall analysis is that the shooting in the Russia-Ukraine War may end before the end of this year in a negotiated settlement. The reason is that Russia is now losing the war militarily, politically, economically, financially, and technologically.
Month by month this year there have been growing indications that the war has moved into a new phase, one much more favorable to Ukraine. April and May were bad months for the Russians in the war, and June has been worse.
· Almost all Russian attempts to gain ground this year have failed badly with large manpower losses for them. The beginning of a planned spring-summer Russian offensive has been stalled by the Ukrainians and may never get underway.
· Russian casualties have been unsustainably high, higher than their ability to replace lost troops with new recruits. In Q1, the Russians had about 35,000 casualties per month but were able to replace only about 23,000 of them with new recruits.
· Ukrainian missiles and drones are also doing increasing amounts of serious damage to Russian energy and defense industries in the western half of Russia. Ukrainian air attacks can now reach over 1,000 miles into that country. This is a huge problem for the Russians for which they seem to have no good defense.
· Week after week Ukraine’s missiles and drones are seriously cutting Russia’s ability to export oil from their Black Sea and Baltic export terminals. If the Ukrainians can continue creating such major damage at the Russian oil export terminals, the Ukraine War will be in a whole new phase. Ukrainian drones and missiles are also doing serious damage to defense industries in Russia.
· According to many economists, including Russian analysts, Russia’s economy is stagnating and near collapse outside of the heavily subsidized defense industries. A major economic and fiscal crisis is at hand and Putin is getting desperate.
· Putin is also panicking because he fears a coup against him.
The 40 Day Strike Campaign may end the war.
Ideas to Remember
1. The US is the world’s dominant power. China and Russia are declining in power relative to the US.
2. Take Trump seriously but not literally. Remember he is always setting up the next negotiation. His off-the-cuff comments frequently cause major confusion.
3. The Republicans have become the party of the working-class and middle-middle class.
4. In politics, it’s the economy, stupid. The average household will be able to balance their budget or else the party in power will be punished.
Political Psychiatry 30-Day Test
With daily disturbing news, teach yourself to take a deep breath and ask if that news will matter much in 30 days or so. Only rarely will it be important. So, ignore it, and lower your blood pressure.
Tuchfarber Report Goals
My primary goal is to present accurate facts, analyses, and predictions. Another goal is to live in neither the Land of Chicken Little, where the sky is always falling, nor in Fantasy Utopia Land, where everything is always going to be fine.
Predictions – Methods & Standards
My method – gather accurate facts, analyze them with no biases, and make accurate predictions.
The Tuchfarber Standard – make predictions on important issues when I’m over 80% convinced the prediction will be correct.
I’m sure many of you chuckle when I claim I do unbiased analyses. But if my biases, which I do have, and hopes influenced my predictions, how did I get 97% of my 248 predictions correct over the last four years?
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Al Tuchfarber PhD -- Professor Emeritus of Political Science, University of Cincinnati
Tuchfarber Political-Economics LLC
Dr. Tuchfarber founded the Ohio Poll, one of the country’s most accurate, while directing the Institute for Policy Research at the University of Cincinnati for four decades. He is an engaging, informative, and dynamic speaker. Al has published well over 100 publications about politics, political-economics, society, and research methods.
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