Key Takeaways
1. The Iran War is shifting into a new phase, likely into a shooting war phase for a while.
2. The US midterm elections now handicap as showing few gains for either the Ds or Rs 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.
4. Ukraine is now clearly winning its war against Russia. That war may end this year.
Iran War Enters New Phase
The shooting war in Iran has resumed. Last week Iran attacked and damaged several ships in the Strait of Hormuz. The US launched attacks on Iran in response. The vast majority of the US targets were military sites near the Strait. But one target stood out. That was a railway bridge in NE Iran hundreds of miles from the Strait.
With very few exceptions since the war started in February, the US has targeted only Iranian military, defense industry, and government sites. I think the railway bridge attack, which knocked out a major rail line that extends all the way to China in the east and Europe in the west, is a clear signal that such economic assets will be targeted in the future unless a settlement is soon reached.
Iran has now declared the Strait of Hormuz closed. The US is demanding it be open to all shipping. Iran attacked more ships in the Strait over the weekend and also attacked Arab allies of the US such as Jordan, Oman, Bahrain, the UAE, Qatar, and Kuwait. The US responded with large scale attacks on Iran’s military sites.
As of early Sunday afternoon, it is not clear what will come next.
UPDATES AND BACKGROUND FACTS
The Iranian leaders are still delusional about what they can win in the negotiations.
President Trump has established three red lines for the negotiations 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 continue.
Trump will suffer serious political damage at home and internationally if he does not insist on maintaining his own red lines.
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.
The Iran defense industrial base (DIB), its various defense industries, has been mostly destroyed. A large ground invasion of Iran by the US will not occur and was never in the cards. And do not count on regime change in Iran.
Senator Lindsey Graham Dies
SC Senator Lindsey Graham died suddenly and unexpectedly on Saturday. He was a Great American Patriot who loved this country and its people. He will be missed.
Republican SC Governor McMasters will name a temporary replacement for Graham soon. The Senator was running for re-election against Democratic nominee Dr. Annie Andrews. A special election will be held on August 11 to replace Graham as the Republican nominee.
SC is a strong Republican state and Graham’s Senate seat is highly likely to stay R.
WHERE STAND THE DEMOCRATIC AND REPUBLICAN PARTIES
The Republicans
The Republican Party is now in the typical position for the party controlling the White House. President Trump leads the party. He 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.
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 more stark. Where the Rs have Trump and his leadership, the Ds have no leader or leadership. 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. But they are not going away. They seriously threaten taking over the Democratic Party.
The battles in the Democratic Party are not just policy debates, it is a vicious civil war over ideology, 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 America.
THE BOTTOM LINE ON THE FUTURE OF THE DEMOCRATIC PARTY IS THAT THEY ARE SLOWLY DESTROYING THEIR BRAND AND THEIR PARTY. THEY HAVE ABANDONED THE WORKING CLASS AND ARE BEING TAKEN OVER BY RADICAL SOCIALISTS.
Visions Lacking
Neither party has communicated a clear vision for America’s future or for how the county’s problems will be solved. Whichever party does that well will likely prevail in this year’s midterms.
A New Reality for 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.
This is because the structure and realities of US election campaigns have changed dramatically. Consider the evidence for that.
· The Democrats have moved significantly to the left and well away from the center.
· Widespread redistricting/gerrymandering, especially since the last election, has markedly cut the number of House races likely to be competitive. Truly competitive seats used to be in the three to five dozen range but are now probably just a dozen or two.
· The polls which used to predict how many seats either party might gain are not very useful as most of them are now biased toward the Ds. We still must use them but take their numbers with a grain of salt. As we get into October, I’ll report what the polls I trust to be accurate and what they are predicting. One such poll is the Harvard/Harris poll which I find very useful.
· 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.
· Led by President Trump, R fundraising this year is likely to be higher than D fundraising. 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.
· Avowed socialists like Zohran Mamdani and AOC have become the faces and voices of the Democratic party. That will 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. Their former Maine Senate nominee Graham Platner is a great example and James Talarico in TX is another kook. 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.
· It looks like the redistricting wars have ended this year with the Rs netting a redistricting gain of 10 to 14 seats.
Considering all these changes and realities my analysis is that neither party will gain or lose many seats in the House or Senate.
Five factors are most likely to determine the outcome of the midterms. They are:
1. Does the affordability/inflation issue continue to dominate public concerns? If so, it will harm the Rs.
2. Do the Rs raise far more money this year than usual and spend it effectively? If so, it will harm the Ds.
3. Will the Rs develop effective messaging against the growing radicalism and socialism of the current young leaders of the Democratic Party? If so, it will hurt the Ds.
4. Will the Rs do a substantially better job this year of getting out the vote (GOTV) than they usually do? If not, the Ds will have an advantage.
5. Does either party present a clear appealing vision for America’s future? The one which does a good job will prevail in the midterms.
We’ll see. 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 – Unemployment insurance claims stayed low and unchanged at 215,000.
· The June employment report showed an increase of 57,000 jobs and a decline in the unemployment rate from 4.3% down to 4.2%.
· The latest job opening report showed them unchanged and high at 7.6 million.
· The Q1 estimate of GDP change was raised from +1.6% to +2.1%, an important increase.
· The Fed’s favorite inflation measure, core PCE inflation, was unchanged month-to-month at +0.3% and +3.4% year-to-year.
· NEW - Last week the S&P500 was up 1.2%, the NASDAQ was up 1.7%, but the Dow was down 0.5%. Gasoline was up 11% and crude was up 4%.
· 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 modest 1.3%.
· NEW – Earnings reports for Q1 were very strong. Q2 earnings begin coming out this week.
UPDATE - The US Economy Overall
We are now over three months into the Iran War.
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 the shooting war resumes. Consider:
· 10-year treasuries are now up about 40 basis points (.40%) from the first of the year, before the war started. That hurts but not seriously.
· The major stock market indices rose recently and are still at or near record highs.
· The US job market has turned positive over the last six months.
· Unlike almost all other nations, the Iran War has had only limited negative effects in the US with the worst widely felt negative now being a $1.00 rise in the cost of gasoline.
As we move further into summer, the economy looks 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.
Global Watch Updates
A Shift by Trump Toward the Ukrainians
To the surprise and dismay of many, President Trump has not previously committed to Ukraine winning its war with Russia. I have written often that one reason for that is that Trump thought he could pull Putin away from his dependence on Xi and China. That was never in the cards.
At the NATO summit meeting in Turkey last week Trump seemed to indicate full support for Ukraine, a huge and important shift. Trump clearly recognized:
· The great value of Ukraine’s drone and missile technology and that country’s ability to produce those items in large quantities.
· The value of those items in the Iran War and in future wars involving the US and its allies.
· The leadership of President Zelenskyi himself.
Hundreds of billions will now flow into Ukraine for access to those drones and missile by the US, other NATO countries, the Gulf Arabs, and other US allies.
Trump no longer trusts Putin. He correctly thinks of him as a loser, which he is.
Ukraine Goes on the Attack
UPDATE - Ukraine President Zelenskyi recently ordered a 40-day Strike Campaign on the Russians in occupied Ukraine and in Russia itself. Crimea is now in an 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-air defenses. Most Russian regions now have petrol shortages and are rationing supplies. The war has been brought home dramatically to the Russian people.
Zelenskyi’s Strike Campaign has seriously ratcheted 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.
UKRAINE WAR REALITIES
· In Russian occupied Ukraine both civilian and military vehicles are being hit by Ukrainian drones making all transport very hazardous.
· Russia is now losing the war militarily, politically, economically, financially, and technologically.
· Almost all Russian attempts to gain ground this year have failed badly with large manpower losses for them. Russian casualties have been unsustainably high, higher than their ability to replace lost troops with new recruits.
· 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.
· Ukraine’s people and cities are being pummeled every day by Russia’s missiles and drones. But they show no sign of losing their will to fight back and eventually win the war.
The Iran War may end this year.
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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