The National Intelligence Bulletin is a weekly look at threats to social, political, economic, and financial stability in the United States, and provides early warnings and indications of America’s volatile future. This report is available each week for Intelligence subscribers.
In this National Intelligence Bulletin…
- InFocus: Economic Instability Matrix
- Trump administration fomenting ‘constitutional crisis’?
- Supreme Court hears case on 2020 Census citizenship question
- President Trump threatens to send ‘armed troops’ to border
- NYT nails the Democrats’ dilemma
- New Mexico’s state of emergency
- Far Left Roll-Up
- Economic Financial Watch
InFocus: Here’s the first draft of the Economic Instability Matrix. These are the investors and analysts I’ve quoted in the last six months, along with their updated outlook for recession. “No Forecast” means that they’ve gone on record as saying there’s no forecast recession yet. Red means they’ve used determinate words like has, is, will, or likely. Orange means they’ve ascribed some level of likelihood or expectation. I’ll be updating this chart and including it in the National Intelligence Bulletin at the beginning of each month.
(As an aside, today’s Bureau of Economic Analysis numbers put Q1 GDP growth at 3.2 percent, which could be revised downward. And it’s going to cool talk of recession in 2019. Still, this beat nearly everyone’s expectations, except for White House economic advisor Larry Kudlow. I read numerous social media posts from economists and financial pundits deriding Kudlow’s prediction of 3 percent GDP growth back in Feb/March.)
We can see there’s a general consensus, at least among these individuals, that 2020-2021 is when the real risk of recession starts to appear, pending a black swan event before then.
The next question we have to answer is “Just how bad will the next recession be?”
There are investors, like hedge fund founder Kyle Bass, who expect a “mild” recession in 2020.
There are billionaire investors like Paul Tudor Jones, who expects things to get really bad: “Just imagine the next recession comes. Oh my God! It’s going to be interesting. The next recession is going to be really frightening because we don’t have any stabilisers,” Jones said last year.
There are those like Ray Dalio and Greg Jensen, both from Bridgewater, who expect ‘secular’ — long term — weakness that’s likely to begin with the next recession; which Dalio said is now more likely in 2021 than in 2020.
Another billionaire — Stanley Druckenmiller — warned earlier this year that bubbles were forming in the economy and that, “The highest probability [for the U.S.] is we struggle [economically] going forward.”
One thing that most of these individuals have in common is that they do see some warning signs for the future.
What really worries me are those like Druckenmiller, Dalio, and Jensen, who warn not only of longer term weakness, low returns, and low growth; but also of the accompanying social and political turbulence. Dalio is roughly worth $18 billion, which he made running his hedge fund.
Two weeks ago, he appeared on 60 Minutes to warn: “Capitalism needs to be reformed. It doesn’t need to be abandoned… We’re at a juncture. We can do it together or we will do it in conflict. There will be a conflict between the rich and the poor. I play probabilities. And I would say it’s probably 60-40, 65-35 that it will probably be done badly, and it will be a bad path.” (The real problem, in my estimation, isn’t actually capitalism, but the Fed’s cheap money policies that overwhelmingly benefit the uber wealthy and harm the middle and working class through low interest rates, which fuels more cheap debt and also hurts savers.)
Will the next recession in 2020/2021 kick off this period of social turbulence?
More importantly, will this period usher in a left wing government (by 2024) that promises to assuage the damages done by ‘late-stage capitalism’?
Right now, I tend to answer, yes. We certainly run that risk, and the more painful the next recession is, the more likely it is that Americans will be more responsive to politicians who promise government solutions to cure the citizens’ problems. – S.C.
Priority Intelligence Requirements:
PIR1: What are the new significant indicators of disruptive political, social, or cultural conditions or events?
PIR2: What are the new significant indicators of threats to economic or financial stability?
Trump administration fomenting ‘constitutional crisis’?
The Trump administration is set to go toe-to-toe with Congress over subpoenas. In an interview with the Washington Post this week, President Trump said, “There is no reason to go any further [cooperating with investigations], and especially in Congress where it’s very partisan — obviously very partisan.” On Tuesday, the House Judiciary Committee issued a subpoena for former White House counsel Don McGahn, but the White House invoked executive privilege to avoid his appearance.
The House Oversight Committee issued a subpoena for another Trump administration official, Carl Kline, which White House officials also pushed back on. Kline was later held in contempt of Congress for not appearing. Treasury Secretary Steve Mnuchin has repeatedly said that he’ll follow the law when dealing with the Congressional subpoena of Trump’s tax returns, although there’s been little movement on that, too.
House Oversight Committee chairman Rep. Elijah Cummings (D-MD) accused the Trump administration of lawlessness, saying, “Based on these actions, it appears that the President believes that the Constitution does not apply to his White House, that he may order officials at will to violate their legal obligations, and that he may obstruct attempts by Congress to conduct oversight.” House Speaker Nancy Pelosi piled on, accusing the Trump administration of “stonewalling of the facts coming to the American people.”
And Virginia Democratic Congressman Gerry Connolly warned this week that Congress and the White House were headed towards a constitutional crisis over the Trump administration’s unwillingness to comply. “I think we are about to enter a constitutional crisis. When the president of the United States says, ‘I’m not going to comply with any subpoena request of the legislative branch,’ you are in a constitutional crisis… “We will do whatever it takes to compel compliance. We will put them in jail, we will fine them, we will hold them in contempt. There is apparently a little room in the Capitol where somebody can be held. It looks like we’re going to need a bigger room.”
(Analyst Comment: It’s difficult to say just where this is headed. The Trump administration’s plan is widely considered to be to ‘run out the clock’ on Trump’s financial records and tax returns, until the 2020 elections.
Speaker Pelosi and others have correctly framed the fight against Trump as an electoral issue heading into 2020; essentially saying, ‘Let the American People decide in November 2020.’ Pelosi also fears the unpopular move of impeachment and how it might harm the Democrats’ chances in 2020.
Earlier this week, President Trump said that he was ‘not at all’ worried about impeachment, and several key Democrats have publicly soured on impeachment, as well. Still, it could be that President Trump is worried about renewed obstruction charges as the White House continues to stonewall House Democrat investigations. Expecting that the administration would ignore subpoenas of current and former White House officials, Rep. Jerry Nadler (D-CA), chairman of the House Judiciary Committee, reportedly suggested imposing fines on those officials who didn’t comply. One number floating around for fines is $25,000 per day for noncompliance. The House could also take the Trump administration to court and allow a judge to either fine or jail officials who don’t show up for their subpoenas. Alternatively, the House might be able to cut appropriations for the departments whose officials aren’t showing up, including withholding pay for those specific officials. New rules like these would give the Congress some teeth in its relatively toothless efforts to enforce subpoena appearances.
Meanwhile, unfortunately for the GOP, the Trump administration is reinforcing a precedent and proving that Congress has little power to enforce subpoenas of administration officials. And, like many other things, Democrats will remember that once they get back into power. That said, there will be Congressional subpoenas for special counsel Robert Mueller and Attorney General Bill Barr, and they’re expected to appear in May.)
Supreme Court hears case on 2020 Census citizenship question
The Supreme Court heard arguments over the 2020 Census question that requires respondents to provide citizenship information. Commerce Secretary Wilbur Ross was accused by a District Court judge of making several legal and ethics violations in order to ask census recipients about their citizenship status, after numerous states sued the Commerce Department to prevent the question from being asked.
Left wing ThinkProgress justice editor Ian Millhiser was disappointed after he attended the hearing. In a sign that the Supreme Court will again be split 5-4 in favor of upholding the citizenship question, Millhiser writes, “[Chief Justice] Roberts appeared unsympathetic to the challengers’ arguments — and he asked a handful of questions that suggest he will also back the Trump administration’s play.” (Analyst Comment: Last year, the Supreme Court upheld President Trump’s travel ban in a 5-4 vote. And in a sign that the court again rules by ideology, three Supreme Court Justices (Gorsuch, Thomas, and Alito) said they would have halted this case in the District Courts. That leaves Chief Justice Roberts and the most recently appointed Justice Brett Kavanaugh who will likely control the decision. Although three lower courts rejected Commerce Secretary Wilbur Ross’ attempt to have the citizenship question added, the Supreme Court could well vote in favor of allowing it for the 2020 Census. This is one of the biggest developments for the Trump administration’s domestic policy, and will likely result not only in several blue states losing House seats during 2020-2021 redistricting, but also funding cuts to blue states. But this does come with the potential to generate protests and civil unrest. Democrats are angry that the government would inquire about citizenship status, warning that it will result in an inaccurate count because, as they say, many immigrants — some of whom are here legally — will refuse to answer the Census. And some progressive activists have called for illegally boycotting the Census. This will have profound implications for the country and add to Democratic fury against President Trump. Left wing pundits already acknowledge that court cases against the next Democratic administration could wind up in the conservative Supreme Court. That makes Democrats all the more willing to ‘re-balance’ the courts through a court-packing scheme.)
President Trump threatens to send ‘armed troops’ to border
President Trump claimed that he’s sending ‘armed soldiers’ to the Mexican border in tweet on Wednesday. “Mexico’s Soldiers recently pulled guns on our National Guard Soldiers, probably as a diversionary tactic for drug smugglers on the Border. Better not happen again! We are now sending ARMED SOLDIERS to the Border. Mexico is not doing nearly enough in apprehending & returning!”
(Analyst Comment: After the 13 April incident, Mexico’s Foreign Ministry admitted that “a group of Mexican soldiers came across two U.S. soldiers who were performing support operations in an unidentified vehicle located south of the border fence” but still north of the border on U.S. soil.
In a related development, Mexican authorities broke up a caravan of around 3,000 Central American migrants on Monday. The caravan dispersed into smaller groups and are still heading north to the U.S. border. Mexican authorities have done more to break up the caravans and not allow them to travel by bus through Mexico, but many say they’re still not doing enough. One migrant rights activist claimed, “If the migrants move quietly like a stream of little ants, [Mexican authorities will] allow them to [travel], but they are not going to allow them to move through Mexico publicly or massively… Nobody is ever going to be able to stop the flow of migration.”)
NYT nails the Democrats’ dilemma
Joe Biden entered the presidential race this week, just as the New York Times asked if the Democrats will nominate another white man. “Is a white man the best face for an increasingly diverse Democratic Party in 2020? And what’s the bigger gamble: to nominate a white man and risk disappointing some of the party’s base, or nominate a minority candidate or a woman who might struggle to carry predominantly white swing states like Wisconsin, Michigan and Pennsylvania that both Barack Obama and President Trump won?” [source]
New Mexico’s state of emergency
A New Mexico county near El Paso, Texas, has declared a state of emergency due to an influx of illegal aliens seeking to declare asylum and has appealed to state leaders and the governor’s office to deploy National Guard troops in assistance. The Otero County Board of Commissioners voted unanimously in an appeal to Democratic Gov. Michelle Lujan Grisham after migrant surges beginning in January have finally overwhelmed the county’s ability to deal with them. County Commission Chairman Couy Griffin also said during a meeting of the panel that legal action against the state was being considered for “failing to follow its constitutional duties towards the people of Otero County. (Analyst Comment: It should be noted that in February, shortly before President Trump’s State of the Union Address in a move seen by critics as entirely political, Gov. Grisham pulled most of New Mexico’s Guard troops from the border that were deployed by her Republican predecessor.)
Far Left Roll-Up
“Masters insisted that slavery would last forever. It didn’t. Lords insisted that feudalism would last forever, and kings insisted the same about monarchy. Neither did. Employers act like capitalism will last forever. Don’t be fooled.” – Economist Richard Wolff, writing about the “cure for capitalism”
“There is no question that there is good reason to believe that there was an obstruction of justice by this president. There is no question.” – Sen. Kamala Harris (D-CA)
“It may be that we undertake an impeachment nonetheless. I think what we’re going to decide as a caucus is what is the best thing for the country… That’s going to be a very consequential decision and one that I’m going to reserve judgment on until we have a chance to deliberate about it.” – Rep. Adam Schiff (D-CA)
I will give Congress 100 days “to get their act together and have the courage to pass reasonable gun safety laws, and if they fail to do it, then I will take executive action.” – Sen. Kamala Harris (D-CA)
“I can’t wait to tax Howard Schultz back into the middle class.” – Ian Milhiser, ThinkProgress
“If we don’t take up impeachment, what we will do is wave the flag of surrender. We will say to a reckless, ruthless president do what you may. We’re not going to take up the calls of impeachment. It is — it is to deter a president as well as to start the process of removal from office. And if this president understands that we won’t impeach him, watch and see what he will do.” – Rep. Al Green (D-TX)
“We are now rapidly approaching Election Day 2020. In this age of cyberwarfare, we owe it to the American people to make sure that the election is decided by the will of the voters, not foreign governments… Under my leadership, the Democratic National Committee will not encourage the theft of private data, nor will we seek out or weaponize stolen private data for political gain. And I’m calling on you to put country above party and publicly pledge that the Republican National Committee will do the same.” – DNC Chair Tom Perez, in an open letter to RNC Chair Roana McDaniel
“For political reasons the Trump administration does not want a fair, accurate Census count. 3 federal courts have said so. 6.5 million people may go uncounted if Trump/Ross prevail-redistricting impacted. The Supreme Court must affirm the 3 lower courts” – Eric Holder
“If it ain’t broke, don’t fix it... [The VA] provides some of the highest quality [healthcare]… If you ask me, I would like VA for all.” – Rep. Alexandria Ocasio-Cortez (D-NY)
“What’s clear from this administration and frankly what’s clear throughout the entirety of his business practices is that they will lie, cheat, and steal. They will do anything to win. They have so eroded institutions of democracy… We won in 2018 across this country in historic manners, but I am very sober about the realities of the upcoming campaign.” – DNC Chair Tom Perez
“If liberal billionaires like Tom Steyer want to get more bang for their political bucks, they should consider taking a note from Rupert Murdoch and friends: Buying up media outlets and then sprinkling ideological propaganda into their regular programming is an effective way to influence political outcomes while turning a profit!” – Eric Levitz, writing at The Nation
“I think [President Trump’s] made it pretty clear that he deserves impeachment.” – Mayor Pete Buttigieg, running for president
“What’s the reason NOT to let incarcerated people vote? Shouldn’t the people most affected by unjust laws have some say in electing people to change them?” – AOC chief of staff Saikat Chakrabarti
“We want a federal jobs guarantee. We want to expand labor rights. We need to expand indigenous peoples’ rights. We need to give workers consistent access to healthcare. We need to provide childcare. We need to introduce regenerate agricultural practices.” – Aracelly Jiminez, Sunrise Movement spokesperson
“Racism and sexism are part of the fabric and the fiber and the founding of our country, and the way that the [Democratic] candidates are being treated, it just reminds you of that. We’re not past it.” – Leah Daughtry, former DNC official, complaining about white presidential candidates
“A respect for the limits of your branch of government, a respect for the role of other branches of government, is sort of the oil that makes the machinery work. … Absent that this breaks down. And I think we’re definitely seeing that.” – Rep. Gerald Connolly (D-VA)
“The carpenter can’t run out of inches. The stadium can’t run out of points. The airline can’t run out of [frequent flyer] miles. And the USA can’t run out of dollars.” – Economist Stephanie Kelton, who supports Modern Monetary Theory
“It’s weird to see Democrats running for president who think that, once Trump is defeated, Mitch McConnell will be so grateful that the black stain is cast out of our land that he will reward Trump’s vanquisher by allowing them to confirm even a single cabinet secretary or judge.” – Ian Millhiser, ThinkProgress
“[The Southern District of New York] is very aggressive and independent, well-staffed… So, it’s not over. But for the moment, this phase is over.” – Bob Woodward, speaking about the SDNY’s investigations in the Trump Organization
“Biden’s gonna get bad press coverage because the mainstream media thinks he’s a boring story and the left-leaning media doesn’t think he’s woke enough. Not entirely unlike Clinton in 2016 although she had other factors that made it worse for her (including her gender).” – Nate Silver, 538 Project
“Yes [ICE will exist under a O’Rourke administration], but it will not employ those [deportation] practices that we’ve seen not just under this administration but under the previous administration.” – Robert Francis “Beto” O’Rourke, saying he will not deport illegal immigrants
PIR2: What are the new significant indicators of threats to economic or financial stability?
Sen. Mike Lee (R-UT), chairman of the Joint Economic Committee, released a statement this morning, following a very good 3.2 percent growth estimate from the Bureau of Economic Analysis. “This first quarter estimate of 3.2% GDP growth beat expectations and places the U.S. economy on solid footing for the beginning of 2019. Accelerating exports and decreasing imports led growth in the first quarter, along with increases in business inventories. This puts us ever closer to the longest U.S. economic expansion on record.” [26 Apr]
Bridgewater’s Greg Jensen warns in a new paper that corporate profits face a greater risk. Explaining that the end of expanding corporate profits is ending, Jensen writes, “We think there is a decent chance that we are at a major turning point for corporate margins, and if that is correct, U.S. equities have a major valuation problem.” He continues: “If margin gains can be extrapolated, then valuations look reasonable; if margins stagnate, then valuations are a bit expensive but not terrible… if margins revert toward historical averages, then equities are highly overvalued… [I]t will be hard for companies to maintain the current level of profitability over the coming decade, let alone increase the margins further from here.” Jensen is the chief co-investment officer for Bridgewater Associates, the world’s largest hedge fund, and has previously warned of a secular low growth period for the United States. [23 Apr]
In this week’s note, JPMorgan’s Chief Global Strategist David Kelley has a similar warning to that previously expressed by Bridgewater’s Jensen. “However, in planning from here,” Kelly writes, “it’s important to recognize the limits that slow growth and high valuations put on future returns, even in a relatively benign environment… For investors, the timing of the downturn is less certain, but it is just as necessary to be positioned for slower growth and to be prepared, just in case it turns into something worse.” [23 Apr]
Blackrock’s Larry Fink also weighed in recently on his recession expectations. “I see no signs of a global recession in the coming 12 months… We will go through a phase in which things are not great but also not bad… But we are naturally in a late phase of the economic growth cycle.”
(Analyst Comment: JPMorgan CEO a short time ago stated his belief that the U.S. economy has two years of growth ahead. Still, there does seem to be a growing amount of concern about what happens in 2020-2021 and beyond.) [23 Apr]
* A caveat on recession: Spikes in oil prices have long been associated with economic recessions. High oil prices raise the cost of doing business and force consumers to make choices about their spending. Yesterday, the Trump administration announced that they were ending sanctions waivers for countries who purchase Iranian oil. There’s also a bill on the books — the No Oil Producing and Exporting Cartels Act, or NOPEC — that would allow the U.S. to bring an anti-trust lawsuit against the Organization of the Petroleum Exporting Countries (OPEC). Oil watchers are warning that higher oil prices could become a political issue, and OPEC lobbyists are warning Wall Street about the effects if NOPEC is passed by Congress. And yesterday, an Iranian admiral threatened to close the Strait of Hormuz. This threat has been made before, however, if Iranians follow through, then we could see oil prices spike and a potential conflict between the U.S. and Iran. [23 Apr]
Earlier this month, Goldman Sachs revised its 12-month recession risk to 10 percent, which was down from 20 percent. Analysts credited the Federal Reserve with decreasing downside risk. But in a new investment note from Goldman chief economist Jan Hatzius, the Fed is criticized for losing its forecasting edge to a wider array of private analysts, who make it more difficult to beat the “wisdom of the crowd.” [22 Apr]
That said, the latest Atlanta Fed GDPNow forecast is at 2.8 percent for Q1 2019. That would really be something, especially considering that at the beginning of last month, the GDPNow forecast was just 0.3 percent. Q1 GDP growth is typically weak, but a Wall Street Journal survey found a consensus expectation of 2.4 percent economic growth for the quarter. Something like 2.5 percent is going to stave off recession fears for the foreseeable future. [22 Apr]
These economic/financial briefs appear each morning in the Early Warning intelligence report. You can sign up for this email on your My Account page.