Key Takeaways

1.   The Iran War is shifting into a new phase, into a combination of a traditional military war and a political-economic war, but mediation efforts are underway as of noon Sunday.

2.   American voters are now quite unhappy with the state of the economy, their family finances, and the direction of the US. They blame Trump, the Republicans, and the Democrats about equally.

3.   My handicapping of the US midterm elections continues to show few gains for either party in the House or Senate.  

4.   Even if the Iran War resumes, the US economy is on an even keel and is gaining momentum.  

5.   Ukraine is now clearly winning its war against Russia. That war may end this year.

Iran War Enters New Phase 

NEW - The military-shooting war in Iran has resumed. Iran is again attacking ships in the Strait of Hormuz. The US launched attacks on Iran in response. It also reinstituted the blockade of ships travelling to and from Iranian ports.

US targets were mostly military sites near the Strait. But recently the character and mix of the attacks changed in an important way. Some of the new targets were rail bridges, road bridges, and tunnels. The clear goal is to impede military shipments in Iran but also to seriously disrupt commerce in Iran by shutting down important transportation routes.

That is political-economic warfare as distinguished from military/kinetic warfare. Such warfare is designed to cut off money flows to Iran’s power bases, such as the Revolutionary Guard, and severely degrade the quality of life in Iran so that both the people of Iran and its various power groups realize they must settle the war.

Iran has now declared the Strait of Hormuz closed. Both sides have disavowed the MoU. The US is demanding the Strait be open to all shipping.

Iran attacked more ships in the Strait last week and attacked Arab allies of the US such as Jordan, Saudi Arabia, Oman, Bahrain, the UAE, Qatar, and Kuwait. The US responded with large scale attacks on Iran’s military sites.

But as of early Sunday afternoon, the next step in the war is unknown. President Trump has suspended attacks on Iran over the last two days because Omani mediators are in Tehran attempting to negotiate a deal. If those negotiations fail the next step is likely to be an US escalation, including attacks on additional important Iranian economic assets.

UPDATES AND BACKGROUND FACTS

The Iranian leaders are still delusional about what they can win.

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.

2.   Shipment of Iran’s supply of enriched uranium out of that country or otherwise disposing of it.

3.   A prohibition on future uranium enrichment or other means of obtaining a nuclear weapon by Iran.

If those red lines are not met through negotiations the war will almost certainly 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 and drones. An important consideration is that Iran can still do major damage to shipping in the Strait of Hormuz, to the Gulf Arab countries, and to US bases in the region.

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.

Public Opinion in America 

UPDATE - A large majority of Americans are unhappy now with the US economy, their family finances, and the direction of the country. They blame Trump and the Republicans but blame the Democrats equally.

My favorite poll is the Harvard/Harris poll because of its accuracy in predicting past elections and the broad range of topics they cover. Their latest poll, conducted two weeks ago, showed:

·      Among registered voters – just 35% think the US is on the right track and 55% think it is off on the wrong track.

·      Among likely midterm voters - the top five responses rating the most important problem for them personally were: 46% affordability/inflation, 16% restoring values of merit and competence, 8% crime, 7% racial equality, and 7% immigration. (ANALYSIS – The affordability issue is overwhelmingly dominant.)

·      Among likely midterm voters - Trump is at 45%approval and 54% disapproval – a net of minus 9%.

·      Among those voters - the Republican Party is at 45% approve and 55% disapprove – a net of minus 10%.

·      Among those voters - the Democratic Party is at 43% approve and 57% disapprove – a net of minus 14%.

·      Among likely midterm voters - their voting intention now is 51% D and 49% R. (ANALYSIS – The voters mostly dislike both parties, many hate Trump, but many are also frightened by the emergence of the democratic socialists in the D party. Right now, neither party seems to have much momentum.)

·      The poll asked registered voters whether they had a favorable or unfavorable opinion about a wide variety of things and ideas. Selected results were:

The USA: net (favorable minus unfavorable) +56%

Free Enterprise: net +40%

NATO: net +20%

US Supreme Court: net +9%

Ukraine: net +18%

Capitalism: net +11%

Israel: net 0%

Saudi Arabia: net -13%

Democratic Socialists of America: net -18%

Socialism: net -23%

China: net -33%

Russia: net -50%

Communism: net -55%

Iran: net -51%

WHERE STAND THE DEMOCRATIC AND REPUBLICAN PARTIES

THE REPUBLICANS

UPDATE - The Republican Party is now in the typical position before a midterm 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. He both pulls voters in but also drives them 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

UPDATE - 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 Trump and 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 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, a 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 to take over the party.

Another Democratic voice in the party fighting that takeover is Rahm Emanuel. He was a D congressman, President Obama’s White House chief-of-staff, and two-term mayor of Chicago. In a WSJ op-ed on Friday he wrote, “The DSA’s (Democratic Socialists of America) cultural agenda adds baggage for Democrats already saddled with the poor party image from the Biden era. … It was the socialists who led the charge to defund the police, open the borders, abolish prisons, release violent criminals into the streets and degrade the flag. We know those are electoral losers.

My analysis is that Emanuel will run for the D Presidential nomination in 2028 but knows he cannot win it. Rather, he expects his party to lose badly in 2028, and he hopes to win the nomination in 2032 of a D party that is then shunning the democratic socialists as losers. We’ll see.

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 UPSCALE OVEREDUCATED BUT IGNORANT DEMOCRATIC SOCIALISTS.

VISIONS LACKING

Neither party has communicated a clear vision for America’s future or for how the country’s problems will be solved. Whichever party does that well will do better in this year’s midterms. But as of now I don’t expect either party to articulate a clear vision.

A New Reality for the Midterms

UPDATE - The way political analysts have been analyzing midterms for decades is now misleading us. Fundamental changes have occurred and are still underway in various structures and political 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.

Again, this is because the structures and realities of US election campaigns have changed dramatically. Consider the evidence for that. 

·      Widespread redistricting/gerrymandering, especially since the last election, has markedly cut the number of House races likely to be competitive. Truly competitive seats are now probably just a dozen or two.

·      Trump, the Rs, and the Ds ALL have much higher disapproval ratings than approval ratings. 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” phenomenon. But both parties look inept now. Neither is presenting a clear positive plan for the country.

·      Led by President Trump, R fundraising this year is likely to be much 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. As of the end of June, Trump and the Rs have a large lead in cash-on-hand. The Rs have $677 million and the Ds just $136 million. 

·      Socialists like Zohran Mamdani and AOC have become the faces and voices of the Democratic party.  

·      The Ds are in the process of nominating quite a few weirdos and extreme radicals this year. Their former Maine Senate nominee Graham Platner is a great example and James Talarico in TX is another weirdo.  Numerous D nominees are socialists, and/or antisemites, and/or anti-white racists. The Ds have replaced Platner in Maine with another progressive radical, Troy Jackson, who finished 3^rd in this year’s D primary for Maine governor.

·      It looks like the redistricting wars ended with the Rs netting a gain of about a dozen seats.

Considering all these changes and political 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 new 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 continue to have an advantage.

5.   Does either party present a clear appealing vision for America’s future? The one which does a better job at that will gain 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 fell substantially to an extremely low 187,000.

·      NEW - Last week the S&P500 was down 0.6%, the NASDAQ was down 2.1%, and the Dow was down 0.3%. Gasoline was up 3% and crude was up 9%.

·      NEW - The latest estimate for Q2 GDP from the Atlanta Fed GDPNOW is a solid but modest +1.7%.

·      NEW – Earnings reports for Q1 were very strong. Q2 earnings are now coming out and are again very strong. Corporate earnings are increasing dramatically across many industries but especially tech and energy. Those large increases are forecast to continue into 2027. That bodes well for stock prices over the next year but be aware that volatility will likely remain present in the artificial intelligence and related industries arena.

UPDATE - The US Economy Overall

We are now over four months into the Iran War.

For us at home, it is comforting to see how limited the effects of that 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 increases in intensity. Consider:

·      UPDATE - 10-year treasuries increased to being up about 55 basis points (.55%) from the first of the year, before the war started. That hurts but not yet seriously, although further sizeable increases will begin to create more problems.

·      UPDATE - The major stock market indices are still at or near record highs, but volatility will continue.

·      UPDATE - The US job market has turned positive this year and trends look positive. The fear of massive layoffs being caused by AI was clearly misguided and incorrect.

·      UPDATE - 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 most unlikely. With historically high corporate earnings and a positive job picture, the US economy looks good, and the 2027 outlook is positive.

A Weak Chinese Economy 

Where the outlook for the US economy short-term and long-term is mostly positive the same is not true for China.

Other than its record exports, China’s economy is in trouble, perhaps serious trouble. Its global exports are surging but its domestic economy is weak and struggling. Some examples from stats just released:

·      Housing and property investment in China fell 18% in the first half of 2026 compared to the same period last year. Investment in housing had been the safest and best investment for Chinese households but has been a sinkhole since 2020. Future prospects for housing investment are bleak as the country has tens of millions of vacant housing units.

·      Retail sales in China rose just 1% over the last year. Households have cut back spending dramatically.

·      Fixed asset investment in major infrastructure like highways, ports, industrial developments, and housing projects used to grow by double digits every year. That spending created their economic miracle from the 1980s to the 2010s. Over the last year fixed asset investments fell 5.3% even as China’s exports surged.

·      Industrial production is up 5% but all the growth comes from exports and not from domestic demand.

China’s economy is very imbalanced. It has a record level of exports and a weak domestic economy that is getting worse. Many countries in Europe and SE Asia see their own manufacturers being destroyed by Chinese exports and the political-economic pushback on China is growing rapidly. Neither their current domestic economic model nor their global one can survive much longer. Massive planned or unplanned changes are coming.

Global Watch Updates

Ukraine Goes from Sure Loser to Star 

NEW - Think back to 2022 when the Russians massively invaded Ukraine with the intent to fully take over the country. Virtually all “experts” predicted the Russians would win in weeks.

Today Ukraine is an emerging international star. Its drone and missile technology and tactics have changed the very nature of warfare. Its ability to produce thousands of those weapons every day at very modest prices has changed arms manufacturing.

Ukraine’s national GDP before the war was just $132B. After the war with Russia ends its arms industry alone may approach that level in future years.

Ukraine Goes on the Attack 

UPDATE - Crimea is now in an official “state of emergency” brought on by recent Ukrainian missile and drone strikes. 

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.

Russia’s equivalent of Amazon, named Wildberries, now has its warehouses under attack by Ukraine’s missiles and drones. The company supplies military and non-military goods to Russian troops. But the real reason for the Ukrainian attacks is to frighten the Russian people who rely on the company and the Russian oligarchs who own the company.

Zelenskyi has seriously ratcheted up the 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.

NOTE THAT THE UKRAINE WAR IS NOW IN BOTH A TRADITIONAL MILITARY PHASE BUT ALSO IN A POLTICAL-ECONOMIC PHASE. THIS COMBINATION IS WHERE THE IRAN WAR SEEMS HEADED.

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.  

·      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.

·      But Ukraine’s cities are also being pummeled every day by Russia’s missiles and drones. However, the Ukrainian people show no sign of losing their will to fight back and eventually win the war. In Russia the constant attacks by Ukraine are shifting public opinion against the war.

The war may end soon.

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. Democratic socialism is now a serious threat to the Ds.

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

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

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Tuchfarber Political-Economics LLC

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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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