Key Takeaways
1. Every few days lately the Iran war has rotated between violent attacks by both sides and negotiations that fail. As of early Sunday, we are in another negotiation stage.
2. American voters are now quite unhappy with the state of the economy, their family finances, and the direction of the country. They blame Trump, blame the Republicans, and blame the Democrats just as much.
3. My handicapping of the US midterm elections continues to show few gains for either party in the House or Senate. The Democratic Senate primary in Michigan on Tuesday will contain important indicators about this year’s midterms.
4. Even if the Iran War resumes, the US economy is on an even keel and appears to be gaining momentum.
5. Ukraine is now clearly winning its war against Russia.
Iran War Enters New Phase
NEW – In recent weeks the shooting war and negotiations have been rotating every few days. Last week was no exception with major attacks mid-week and negotiations now.
US targets were mostly military sites near the Strait. Recently, Trump threatened massive attacks on Iran’s energy assets but has yet to order them carried out.
Such attacks would be 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.
If negotiations fail, the next step is likely to be an US escalation, including attacks on important Iranian economic assets.
REALITIES
The Iranian leaders are still delusional about how much they can win, but the war will likely have numerous more twists and turns before it ends.
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. Destroy or remove Iran’s supply of enriched uranium.
3. A prohibition on future nuclear weapons.
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.
The Democrats, Republicans, and the Midterms
THE DEMOCRATS
NEW & 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 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.”
Emanuel will probably 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.
Additional platform promises from the Democratic Socialists of America are to abolish the Senate, defund the War Department, abolish ICE, pack the Supreme Court, and end all military and economic aid to Israel. These are explicit writing platform planks, not just the ravings of a few kooks.
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.
Some Ds and some in the media have been playing down the threat of the democratic socialists to the D Party but a just released CNN poll shows that about one-third of Democrats now identify as democratic socialists. That percentage is growing and indicates how much of a problem the democratic socialists are to both the current traditional liberal Dems and to the entire country.
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.
Evidence of the seriousness of the threat to the Ds is that is that the DNC voted last week to hold their first presidential primary in 2028 in South Carolina which is dominated by black Democrats. The democrat socialists in the party are dominated by upscale highly educated whites and foreign born or 2nd generation Ds. The D early primary states, unlike NY and CA, which are dominated by dem-soc groups, are dominated by multi-generation black or Hispanic voters or white working-class voters.
Added to the D civil war last week was the total collapse of Anthony Fauci’s reign as the demi-god of the Covid pandemic. All who treated him as such, especially the Democrats and mainstream media, have been shown their ignorance about Fauci and what a monster he is. His 111 pleadings of the 5th amendment to avoid endangering himself are likely to reverberate for many months.
Fauci’s diary, which he stupidly stored on government computers, provided all the evidence needed to prove his crimes.
THE REPUBLICANS
Recent weeks have seen Trump and some Republican Senators in fights neither can win. Those fights look stupid and are, but pale in comparison to the civil war between the liberal Dems and the democratic socialists.
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 MIDTERMS
UPDATE - Fundamental changes affecting the midterms have occurred and are still underway in the various structures and political realities of our politics, especially for the election of House members.
Very recently election campaigns have changed dramatically. Consider the evidence.
· 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 now, Trump and the Rs have a large lead in cash-on-hand. The Rs have about $1,060 million on-hand and the Ds just $410 million.
· 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 3rd 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. The affordability/inflation issue is likely to continue to dominate public concerns. ADVANTAGE D
2. The Rs are raising far more money this year than the Ds. ADVANTAGE R
3. The Rs are developing effective messaging against the growing radicalism and socialism of the Democratic Party. ADVANTAGE R
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. PROBABLY ADVANTAGE D
5. Neither party is now presenting a clear appealing vision for America’s future? The one which does a better job at that will gain in the midterms. ADVANTAGE UNKNOWN
NEW – A very important Senate primary will be held this week in Michigan. The race of most interest is the D nomination battle between Haley Stevens, a mainstream center-left liberal and Abdul El-Sayed, a radical progressive Democrat. This is a classic battle between a representative of the traditional liberal Democrats who have controlled the party for generations and a leftist progressive representing the radicals who are trying to take over the party. The polls suggest El-Sayed will win easily, but we will see.
Tens of millions have been spent on this campaign from traditional party donors but also from outside donors including wealthy Jewish donors who fear El-Sayed is antisemitic and pro-Palestinian. The America Israel PAC (AIPAC) is reported to have already spent $42M to defeat El-Sayed in the primary.
The Republican nominee will be Mike Rogers, a mainstream conservative. Should El-Sayd win the primary, the battle in the general election on Nov. 3 will be one of the most watched elections in this year’s midterms. This Senate seat is held by a retiring D and is rated the most likely Senate seat to flip to the Rs.
The Economy and Markets
Economic Data
· NEW – Last week’s unemployment insurance claims stayed extremely low at 197,000.
· NEW - Last week the S&P500 was up 1.1%, the NASDAQ was up 1.6%, and the Dow was up 1.0%. Gasoline was down 5% as was crude.
· The Fed’s favorite inflation measure, core PCE inflation, came in low at 0.1%, but that was caused by the ceasefires in the Iran War. We’ll have to wait for future months to see if inflation is generally slowing.
· NEW – The first official estimate of Q2 GDP was a somewhat weak +1.5%. That is down slightly from the Q1 level of +2.1%.
· NEW - The new estimate for Q3 GDP from the Atlanta Fed GDPNOW is a very strong 5%.
· NEW – The Fed left the Fed Funds rate unchanged at its meeting last week.
· NEW – Q2 earnings are now coming out and are extremely strong. Corporate earnings are increasing dramatically across many industries but especially tech and energy. Those large and widespread 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 five 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 toward the fall, 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.
Global Watch Updates
The Status of the Russian-Ukraine War
UPDATE – Except for two notable changes, the Russia-Ukraine war continued on its recent path last week. The first change was that the Ukrainians conducted successful attacks on a Russian warship and two cargo ships on the Caspian Sea about 400 miles from the nearest Ukrainian controlled territory. The attacks were carried out by drones and did damage to all three ships.
The Caspian Sea is bordered on the north by Russia and the south by Iran which is why the Iranians attacked. Transport of arms and numerous other supplies is extensive between Russia and Iran.
This attack and others are likely to open a new theater in the Russia-Iran war. The Caspian Sea and Iran’s rail lines have become more important export and import routes for Iran since Persian Gulf shipping has been blockaded by the US.
The 2nd noteworthy event was the Ukrainian delivery to the US military of 2,000 offensive drones to the US Department of Defense Drone Dominance Program. It is no exaggeration to say those are an early delivery of tens of thousands of weapons from Ukraine to the US and allied militaries.
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.
CONTINUING RUSSIA-UKRAINE WAR REALITIES
· 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. But 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.
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
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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