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Key Takeaways

1.   Pay little attention to politicians and pundits who tell you how the Iran War negotiations will go. NO ONE KNOWS! There will be numerous unexpected twists and turns.

2.   A Memorandum of Understanding (MoU) is not a binding legal agreement. It is more like a statement of the starting points the two sides in the negotiations are taking. Don’t get hung up on the words in the MoU. The 14 points are not all agreed upon. They are where the next stage of negotiations will start.

3.   The US midterm elections now handicap as a zero or one seat R gain in the Senate and neither party making more than a small gain in the House.

4.   Even if the Iran War resumes, the US economy is on an even keel and is now gaining momentum. That is unlikely to change. The same thing is not true for many other countries’ economies. They have been seriously hurt by the war shutting down commerce through the Persian Gulf.

5.   Ukraine is now winning its war against Russia. The evidence for Russia being forced into a negotiated settlement is increasing.

6.   China’s economy is weak in many areas and strong only in its exporting and positive balance of trade.  

The Current Situation in the Iran War 

Iran and the US have 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.

Many “experts” are treating the MoU as if it is a tentative agreement between Iran and the US. MoUs are NOT binding legal agreements. The current MoU is more like a statement of the positions from which the two sides will start the next stage of negotiations.

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.

But 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.

Including them would put much more political, economic, and financial pressure on the Iranians to cut a deal to end the war. That seems to be what Trump is counting on. But the hardliners in Iran seem to believe that Trump will cave. We’ll see what comes next.

FACTS & REALITIES 

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

·      The primary election results over recent weeks from most states did not change anything fundamental in my handicapping of the midterms.

·      Recently there was an important primary in Maine for the D Senate nomination. Graham Platner was the prohibitive favorite to win that nomination and did so. He is a self-proclaimed communist and is a political “kook.” Revelations in recent days also suggest he has a very checkered background with women. More on the implications of that race in future weeks, but his problems suggest the incumbent R Senator, Susan Collins, will hold the ME seat.

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 is 46% approve and 52% disapprove – a net of minus 6%. The R party is at 45% approve and 55% disapprove – a net of minus 10%. The D party is 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 the 2024 elections, the Democrats strategy of completely focusing on Trump failed. Many voters disliked Trump and still do, but that is not enough for most to vote D. Voters want to know what the Ds are going to do for them and what problems the Ds are going to solve. In 2024, the Harris-Walz campaign never provided a good answer. Notice that the Ds are making the same mistake this year.

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. 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.

·      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 (IT CANNOT) 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 D 2024 postmortem of those elections noted the importance of reconnecting with the voters in the South and Middle America. The Ds are again ignoring those groups this year, focusing on left-leaning radicalism, and abandoning the center.

·      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 Hillary and Bill Clinton.

·      A month or two ago, it looked like the redistricting wars would end up close to a draw. But recent changes such as the Louisiana v. Callais decision and the VA Supreme Court throwing out the VA gerrymandering now suggest the Rs will have a net gain solely due to redistricting of 10 to 14 seats, up from 8 to 12 seats a month ago.

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 that the Rs will gain zero or one seat in the Senate, down from zero to two seats previously.

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 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.

·      Last week the S&P500 was up 0.9%, the NASDAQ was up 2.4%, and the Dow was up 0.7%. Gasoline was down 1.7% and crude fell almost 10%.

·      An unexpectedly high 172,000 new jobs were added in May. The unemployment rate stayed at 4.3%.

·      The federal job openings report showed a big increase from 6.9 million job openings to 7.6 million job openings. Multiple stats suggest that labor demand is increasing.

·      Retail sales rose a strong 0.9% month over month, a very positive sign of a growing economy.

·      NEW - The latest estimate for Q2 GDP from the Atlanta Fed GDPNOW is a strong +3.0%.

·      NEW – Earnings reports for Q1 continue to look very strong.

·      NEW – New claims for unemployment insurance last week fell slightly to 226,000. 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 30 basis points (.30%) from the first of the year, before the war started. That hurts but not seriously.

·      The major stock market indices are at or near record highs. The huge SpaceX IPO was a success.

·      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 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 bigger 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.

Is the Ukraine War Headed to an End? … Probably

CHANGES:

·      Recently, President Zelenskyi of Ukraine proposed he and Putin meet to negotiate a peace deal. Putin rejected the offer.

·      President Putin and other Russian officials continue to demand maximalist Ukrainian concessions which Zelenskyi could never accept.

·      During a major international economic conference recently in St Petersburg, the Ukrainians attacked military and energy sites near the city to send a message to the Russian people and the world that Russia can no longer protect its own territory. Many such attacks are being launched by the Ukrainians and still more are certain as they produce thousands of new drones every day. The Ukrainians are now hitting Moscow with missiles and drones on a regular basis, and they are doing serious damages and disrupting life in Russia’s capital. 

·      Similarly, 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 Ukraine 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.

Additional factors have shifted dramatically to a Ukrainian advantage.

·      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. So far in 2026 the Russians have lost more territory in Ukraine than they have gained.

·      Russian casualties have been unsustainably high, higher than their ability to replace lost troops with new recruits. New Ukrainian drone technology and tactics are substantially increasing Russian casualties, while limiting Ukrainian casualties. 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.

·      Extensive hard evidence now shows that new drone technology and tactics developed by the Ukrainians have crippled many of the tactics which previously worked for the Russians. In the land war, the stalemate continues. But the Ukrainians have gained control above the battlefields. Their new drone tech and tactics are stymying the Russians at the front and for many miles into the Russian rear. Depots, barracks, weapons systems, command centers, and even road traffic there are now in Ukrainian range and are targets.

·      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.

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

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

TuchfarberReport.com

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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