Last month job growth rebounded to 162,000, temporarily calming fears of a “no-hire, no-fire” economy squeezed between wartime oil prices, slowing growth and, of course, the ever-popular AI eating all the jobs.

Even happier was the federal workforce number: down another 5,000 in August, bringing the total cull to 350,000 since Trump took office a year and a half ago.

So one federal worker in nine.

Unfortunately, it turns out slashing the federal workforce apparently had no effect on Leviathan itself. The federal deficit is running at a $2.2 trillion annualized pace, compared with $1.8 trillion before Trump took a chainsaw to Washington.

This is particularly depressing since we just ran the closest thing America may ever get to a controlled experiment in shrinking government.

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The Perfect Storm

After the 2024 election, we had the perfect storm to shrink Leviathan.

Republicans held the White House and both houses of Congress. Donald Trump is the most government-hostile president since Reagan. And he came in hot, to take an axe to the administrative state.

Elon Musk, a force of nature fresh off firing 80 percent of Twitter, was turned loose inside Washington with a mandate to cut trillions.

All this and the fiscal trajectory didn’t budge.

Because while DOGE could slash personnel, cancel contracts and target entire agencies, it could never reach the machinery producing trillion-dollar deficits.

And now we’ve got a national debt that just hit $40 trillion on August 18, less than five months after it crossed $39 trillion.

This is more disturbing than another round-number debt milestone. Because if unified Republican control, Trump and Elon Musk could not bend the curve, what combination could?

In fact, we’re close to the point that elections no longer determine the size of government. They merely determine who manages its growth.

Want it to grow fast and elect Democrats. Want it to grow slightly slower and elect Republicans. But nothing stops this train.

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Who Feeds Leviathan

The reason Leviathan won’t shrink is the forces that grow government are fundamental.

Taxable prosperity supplied the kindling. Government schooling, left-wing academia, and media brainwashed the electorate. The income tax and Federal Reserve insulate voters from the bill — it’s always somebody else’s money on election day.

Walking through, the first kindling was taxable surplus. In the nineteenth century, most household income went to food, clothing and shelter. Taking half of income would’ve put torches and pitchforks in the street.

But industrialization changed the constraint: Government could now absorb an increasing share of national income while households still became richer in absolute terms.

This economic kindling then combined with political kindling in the form of giving the vote to more people.

Property qualifications once tied voting power, however imperfectly, to ownership and taxation. As those restrictions disappeared, political participation became less connected to being a net taxpayer. Public-choice theory predicts this increases support for programs whose benefits are concentrated while their costs are broadly distributed.

Women’s suffrage represented another major electorate change.

Studies across countries and states find enfranchising women massively expands the size of government -- roughly 4-fold within a generation. With long-run effects three to eight times larger.

This shifted the median voter, especially on health, education and social insurance — the categories that eventually dominated domestic spending.

The final kindling is mass government schooling. This is more recent than people imagine: Only in 1950 did most 18 year-olds graduate from government schools.

And not until 1968 were most voters educated at government schools.

You can almost perfectly trace the size of government to the spread of government education.

Finally, the income tax and Federal Reserve, which both arrived in 1913 when government was roughly 10 times smaller.

Both insulate voters from spending. The income tax concentrated visible tax costs on a minority of voters who actually pay substantial tax.

Central banking and federal borrowing made it easier to separate current spending from current taxation.

Payroll withholding, introduced during World War II by Milton Friedman (of all people) reduced tax salience by siphoning trillions before workers ever saw it. Replaced with giddy celebration when they get a sliver back as their annual tax refund.

Corporate taxes obscure whether the economic burden falls on shareholders, workers or consumers. Deficits shift costs toward future taxpayers who cannot vote today. Inflation siphons purchasing power without a tax increase.

Each mechanism weakens the connection for voters between demanding a program and paying for it.

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Sparks to the Kindling

Kindling still require sparks. And wars, depressions and pandemics supplied them.

Emergencies ratchet borrowing, taxation and administrative controls that would have faced greater resistance in normal times. Some emergency measures disappear, but most of the revenue capacity and bureaucracy survive. Because every emergency expansion grows an ecosystem of beneficiaries with strong incentives to defend it.

When the smoke clears, elections stop mattering. One administration expands programs. The next cuts marginal tax rates, relaxes regulations or closes selected offices. But the entitlement system, tax machinery, central bank, public schools and beneficiary coalitions remain.

Ronald Reagan illustrates the limitation. His administration cut marginal tax rates from 70% to 28% and pursued massive deregulation. But federal outlays as a % of GDP barely budged.

None of this proves that reversal is impossible.

Greater tax transparency. Federalism so states pay for their own highways and Learing Centers. Institutional spending limits like a balanced budget amendment. Leveling marginal tax rates so more voters have skin in the game.

But ordinary elections face a structural obstacle: brainwashed voters receive benefits and see only a sliver of the ultimate cost.

Having just come off the perfect storm with nothing to show, unless that changes it may be unfixable until a crisis concentrates minds enough for fundamental reform.

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Especially for young people who can’t afford a house while Fed-enriched Boomers live like kings.

Could America Grow at 20%?

President Trump was in the Oval Office this week explaining why the Federal Reserve should stop strangling the economy when he dropped a vintage Trump number:

“We could have a GDP of 14, 15, 16 and 20” percent growth. If only the Fed got out of the way.

By which he means the Fed printing money with low rates.

Trump’s 20% is definitely a stretch goal; the Congressional Budget Office is currently projecting long-term growth of just 1.8%. Ten times less.

In fact, since quarterly GDP records began in 1947, America has exceeded 20% only once: the artificial 34.9% Covid reopening bounce in 2020.

But the broader point—that America could grow dramatically faster -- is absolutely correct. In fact, there was a time when America enjoyed durable 7% growth. At that rate, real wages grow roughly sixfold in a generation.

Unfortunately, that was the 1870s. Meaning we would have to End the Fed -- End it, not money-print a fake boom. We’d also have to End the Income Tax and DOGE the entire administrative state built by cronies in the Progressive Era through the New Deal to straitjacket the economy into, apparently, 1.8% growth.

So, practically speaking, it’s probably easier to invent cold fusion.

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America’s Forgotten Boom

In his epic History of Money and Banking, Austrian-school economist Murray Rothbard highlighted the extraordinary period from 1869 to 1879 — the very decade mainstream textbooks traditionally call the “Long Depression.”

Using estimates from Milton Friedman and Anna Schwartz, real national product grew 6.8% per year, while prices actually fell by nearly 4% a year.

In other words, the economy nearly doubled while everything got cheaper. So it was prices that depressed, living standards soared.

Unfortunately, the Fed would never allow this today -- it lives to fight deflation, which it erroneously blames for the 1929 Great Depression and which pleases the Wall Street banks who bribed the Fed into being.

Today’s Fed would print $8 trillion to rescue us from affordable groceries.

So where did the growth go? How did we go from a 7% economy to a 2% economy.

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Where the Growth Went

Start with government spending, which knocks off roughly 1.25%. Federal, state and local spending approaches nearly half of everything we produce -- a parasite dangerously close to taking over the host.

That capital goes where lobbyists want it, where it buys the most votes, and a good chunk goes to employing regulators and bureaucrats who dream up new ways to harass entrepreneurs and producers on top of the taxes they take.

Next is regulation. The federal rulebook contains roughly 190,000 pages filling 244 bound volumes. State codes can double this: New York state’s regulatory code runs to 18 million words and 300,000 restrictions. Ohio is 22.6 million words.

Counties can add thousands more restrictions: Los Angeles County publishes an 8-volume set of restrictions. Then cities pile on yet another layer: New York City has over 10,000 pages of mandates and restrictions spanning 21 volumes.

This mountain of rules cripples entrepreneurs. It sends jobs overseas where China winks and nods away rulebooks. It crushes or delayed for decades housing, factories, mines, pipelines, power plants and transmission lines.

Next is the Fed, who drains growth by manipulating interest rates -- or even direct money-printing, called QE. Cheap money sparks artificial “tissue fire” booms followed by busts and bailouts. Each time the economy moves 2 steps forward, it goes 1 step back in a recession, and you pay the inflation.

Then the welfare state, which literally pays millions of able-bodied people not to work, consuming now half of all government spending to, ultimately, buy votes to install socialism on what’s left.

We lose those millions of workers -- or have to import replacements from the third world. And their bought votes feed Leviathan year by year.

Toss in the $40 trillion debt crowding out productive investment. The crony corporate subsidies and tariffs that, unlike Trump’s tariffs for negotiating leverage, live forever as corporate handouts, and it’s a wonder we even manage 1.8% growth.

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What’s Next

Trump is right that America can grow much faster -- probably 4 times faster. Enough that the next generation could be looking at six-figure starting salaries. And their kids would be looking at $250,000 out of high school.

But the way to do it isn’t flooding easy money from the Fed. It’s systematically deconstructing the leviathan government crushing the productive economy.

Unfortunately, Ending the Fed, Ending the Income Tax, and Ending the Administrative State means going up against the entire lobbying industrial complex armed with, of course, tax dollars they steal from you.

Meaning that it won’t happen unless we get a crisis that concentrates voters’ minds enough that, like Argentina and Milei, Americans are ready for radical change.

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We dig into the migrant invasion of Ceuta, whether Europe can preserve open internal borders while losing control of its external ones, and the vicious cycle linking the welfare state, collapsing birth rates, mass immigration, and still more government.

We also examine why Europe has fallen so far behind America in productivity, technology, and living standards; what to fix first if Brussels handed him Milei’s chainsaw; and whether Javier Milei’s dramatic turnaround in Argentina offers Europe a path back -- or a warning Europe will ignore until it goes over the cliff.

See you next week!

After last month’s 22.5% AI bear market, my semiconductor picks recovered 2.4% in August. That brings the winners to 34.0% year-to-date — 55% annualized.

The AI-disruption shorts went the wrong way, rising 6.2%. Still, their year-to-date profits stand at 24.6%, or 39% annualized.

But this month inflation hedges stole the show: Bitcoin rose 23.3%, silver 14.6%, and gold 10.1%, for a basket average of 16.0%.

Together, the Adrenaline portfolio is up 26.7% year-to-date and the Market Neutral portfolio is up 24.6%, compared with 12.8% for the S&P 500.

In dollar terms, $100,000 invested at New Year is tracking at $126,700 in Adrenaline, $124,600 in Market Neutral, and $112,800 in SPY.

Where the Economy Stands

Second-quarter GDP grew at just 1.5% annualized, down from 2.1% in the first quarter. That is remarkably weak considering federal deficits are running at 11.1% of GDP—nearly three times the 3.8% average since Nixon closed the gold window in 1971.

In other words, Washington is borrowing at emergency levels to produce growth that rounds down to stagnation.

Jobs sent an even stronger warning. Employers cut 23,000 payrolls in July, yet unemployment somehow improved to 4.1%.

Part of the paradox is that payrolls and unemployment come from separate surveys. One counts jobs; the other counts people. But the bigger explanation is that 2.5 million Americans have left the labor force since November.

Roughly half may reflect retiring Baby Boomers and statistical noise. Perhaps one-fifth comes from lower immigration. That leaves roughly one-third unexplained—and disproportionately concentrated among Americans aged 55 to 64.

They could be discouraged workers, people suffering chronic illness, people shifting onto government benefits, or affluent early retirees. The average household headed by somebody aged 55 to 64 holds around $1.57 million in wealth, enough to generate $94,000 per year at a 6% return.

All four groups disappear from unemployment when they stop looking. So a 4.1% unemployment rate does not necessarily mean Americans found jobs. It may mean they stopped searching.

Inflation is equally muddy. Year-over-year inflation is around 3.5%, but much of the increase reflects wartime energy prices. Before the Iran war, monthly inflation was nearly flat, while some private measures were below 1%.

The Fed must decide whether to fight today’s energy shock or assume it fades. So both halves of its mandate are malfunctioning: jobs fell while unemployment improved, and inflation rose while underlying domestic price pressure cooled.

Jackson Hole Meets the $40 Trillion Debt Bomb

That made Kevin Warsh’s first Jackson Hole address the month’s main event.

Markets hoped Warsh would validate rate cuts. Instead, he said inflation remains above the Fed’s 2% target, financial conditions remain loose, and the central bank still has “work to do.”

Traders pushed the probability of a September hike from roughly 35% before the speech to 56% afterward. The two-year Treasury yield jumped nearly 12 basis points to 4.35%, its biggest one-day post-Jackson Hole increase since 1996. The ten-year rose to 4.72%.

More important, Warsh said forward guidance has “outstayed its welcome.” That could end the post-2008 regime where the Fed became Wall Street’s portfolio manager, telegraphing cheap money so large institutions could pump stocks, real estate, leveraged buyouts, and financial engineering.

The Fed–Wall Street machine also squandered America’s reserve-currency privilege. Global demand for dollars should have been a national windfall. Instead, Washington, Wall Street, and the Fed siphoned it into bailouts, asset inflation, and government consumption.

Regular Americans never got the windfall. Instead, they got an overpriced currency that hollowed out manufacturing.

The other big news this month was the national debt crossing $40 trillion, up $2.4 trillion in less than eight months. And it’s driven by transfers — welfare, benefits, and pensions — that not only make up nearly half of all spending, but cannot politically be cut going by last year’s Battle Royale over SNAP fraud.

Interest expense along is approaching $1 trillion per year, on its way to $2.1 trillion by 2036 according to the CBO — and that’s assuming no recession, war, bailout, or new emergency.

Higher yields increase interest costs, which hit companies and consumers, but also increase the debt. That is the architecture of a fiscal doom loop. And the bond vigilantes finally noticed, bidding up interest rates on the national debt on fears they’ll either pump inflation to melt the debt or, if it comes to it, just default like several states did in 2008.

Markets Review

On to the money. Broad stocks survived the bond turmoil, with the S&P 500 reaching a 12.8% year-to-date gain—roughly 20% annualized. But with the ten-year Treasury paying about 4.7%, every S&P 500 sector now offers a dividend yield below government bonds. Stocks finally have competition.

AI infrastructure recovered unevenly from last month’s crash, while AI-disruption tempered some of their misery all year.

But hedges were the month’s clear winner. Bitcoin gained 23.3%, silver rose 14.6%, and gold added 10.1%. Driven by investors confronted $40 trillion of debt, trillion-dollar interest costs, wartime inflation, and the possibility that the Fed will continue debasing rather than force Congress to cut spending.

With that, updates on portfolio holdings, performance, and what’s next — especially for AI stocks. If you’re not subscribed, it’s 8 bucks a month to cover the time it takes, and your subscription includes the weekly articles and access to all archives — more than 80 articles and growing.

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Read more

The national debt just crossed $40 trillion.

Congratulations, Congress -- you stole every penny.

That’s up nearly $2.4 trillion in less than eight months. It’s also roughly double the debt America carried just nine years ago.

What’s driving it? Simple: The welfare state is eating America.

Including welfare, benefits, and pensions, nearly half of all federal, state, and local spending now goes to transferring money from one group of people to another.

That’s roughly six times what America spends on defense. And it comes to nearly $5 trillion a year. Going by recent revelations on fraud rates -- or welfare usage in previous decades -- at least 80% of that is fraud or unnecessary vote-buying.

Implying that the entire deficit is, in fact, waste and fraud.

In other words, America is no longer a limited government with a safety net. It’s a transfer state where the main purpose of your taxes is largely buying votes.

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Emergency Deficits Without the Emergency

Federal deficits along are now running 11.1% of GDP, compared with an average of 3.8% in the half centry since Nixon killed the gold standard. Note that half-century included the cold war, multiple recessions, bailouts, wars, and a pandemic.

And here we are tripling it with no emergency on sight.

Interest on the debt alone is approaching $1 trillion per year—roughly as much as national defense. In a few years it will be higher than Social Security, which naturally is now “bankrupt” — meaning even the IOU’s ran out — thanks again to a Congress with no guard rails.

In other words, we’re borrowing the money not for new roads or schools. Not even for social security checks. We’re borrowing it to pay for yesterday’s vote-buying.

By 2036, the Congressional Budget Office now expects annual interest costs to reach $2.1 trillion. And it expects debt held by the public to surpass the World War 2 peak.

Note that assumes no recession, no major war, no new emergency.

This is vanishingly unlikely given the Federal Reserve now has a 113 year record of delivering recessions like clockwork, thanks to boom-bust manipulation of interest rates that deliver tissue-fire booms followed by wipe-out recessions.

And when the next recession comes, going by history, the deficit will soar by yet more trillions as tax collections collapse and demands for welfare spending soar.

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Why Nobody Stops It

This is obviously unsustainable. Yet nobody tries to end it. Elon Musk tried moving heaven and earth, aided by unified control by the “small government” GOP. We had a President who thinks the Federal government is a leech.

And it all bounced off.

Because every transfer program creates a constituency that snowballs pressure for more transfers.

We saw this last year with SNAP cuts, where even Republicans were afraid to couch a program that is overwhelmingly fraud and unnecessary grift.

Because while a program like SNAP matters to regular voters, it’s existential for the tens of millions who take your money.

In other words, the benefits are concentrated and visible: a monthly check, a subsidized premium, or a government-funded service.

But the costs are dispersed among millions of taxpayers—and increasingly pushed onto future taxpayers who cannot vote yet.

That makes the transfer state nearly impossible to reform.

The end result is politicians can survive another trillion dollars of debt. They may not survive trimming a benefit.

So each election brings new promises, outpacing the productive economy squeezed to pay for them.

All while the debt -- and the eventual crash -- compounds against us.

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Rome’s Warning

Rome faced the same basic arithmetic: Political promises outrunning production.

The empire maintained an expanding army, a sprawling bureaucracy, public grain distributions, and increasingly expensive efforts to purchase political stability.

But conquest slowed, the tax base weakened, and emperors discovered that cutting promises was dangerous.

Their first move was to buy time with inflation, debasing the currency just as the Fed debases the dollar today.

Under Augustus, the Roman denarius was 98% silver. By Gallienus it was 2%.

The Fed’s actually done it faster, sending the dollar from 1/20 ounce of gold to, today, 1/4700. A 99.6% debasement that would put Nero to shame.

What’s Next

For Rome what came next was ugly.

Prices rose by 1,000% in parts of the empire. Good coins disappeared into hoards. Trade shifted toward barter, gold, and payment in kind.

Inflation made contracts unreliable and trade dangerous. Heavy taxes pushed small farmers off their land. Merchants withheld goods rather than accept rapidly depreciating coins.

As commerce shrank, the tax base shrank with it—forcing heavier taxes on what was left and further debasement on whoever remained productive.

Ultimately Rome was too poor to pay off neighboring barbarians. And too corrupt to mount a defense when the time came

The only way America avoids this fate is the one thing Congress will never do: Cut spending.

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We cover gold as a lifeboat, whether AI can save this economy — or accelerate the crash. And whether stocks are pricing in the risks or are we headed for a crash.

J.D. Vance is taking heat for questioning whether the strong dollar is actually good for America. One critic went after Vance for “explicitly arguing to make America poorer.”

There’s a grain of truth there. Losing the strong dollar reserve-currency status would make Americans poorer—potentially much poorer. But that’s only half the story.

Because reserve-currency status handed America an extraordinary windfall that Washington, the Federal Reserve, and Wall Street siphoned off. Leaving regular workers to pay the bill for an overpriced currency that exported our manufacturing base.

What is Reserve Currency Status

So, first, what is reserve currency status. The idea is that your currency is so strong or dominant that the entire world has to use it to underpin their own currency. This has been the US dollar since the British torpedoed the pound after the Great Wars.

The upside is you can print pallets of green paper and trade it for toasters and semiconductors. The downside is it also makes your currency more expensive.

The expensive currency is still a good deal if you’re pocketing free toasters. But the problem is the Fed takes that freebie and inflates it away with low rates, which benefit corporations, rich borrowers, Wall Street who gets a cut on every loan, and the biggest borrower on earth, the Federal government.

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When the smoke clears, regular Americans did not get the free toasters. But we did get the expensive currency that devastated the Rust Belt.

Worse, if you now end reserve currency status -- say, by running $2 trillion deficits in relative peacetime so the world loses faith in the dollar -- it means the dollar could collapse by double digits as foreigners dump their dollars.

This erodes the wealth of every dollar holder -- which is overwhelmingly the regular Americans who never got the free toasters in the first place.

That is the reserve-currency trap.

So gaining reserve currency status rewarded corporations, Wall Street, and the biggest borrower on earth, the Federal Government. But losing it hits regular Americans buying groceries, gasoline, medicine, clothing, electronics, and everything else tied to global markets.

So we got suckered. But the scam is obvious only when we lose it.

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What Should Have Happened

The reserve-currency dividend could have been used to build the world’s most productive economy: infrastructure, energy, factories, research, capital equipment, and a government balance sheet strong enough to survive wars and recessions.

Instead, it financed federal consumption, financial engineering, trillion-dollar bailouts, and trillion-dollar deficits.

And it’s not just the strong dollar they squandered.

Chinese industrialization delivered cheap manufactured goods. The internet slashed the cost of information and coordination. Container shipping and global supply chains transformed the cost of moving goods. Automation made each worker dramatically more productive.

Yet none of these productivity miracles lowered prices. Because Washington spent every dividend.

Entrepreneurs keep performing miracles. The political class keeps converting those miracles into larger government, higher asset prices, and more debt.

The difference is that we’re not going to uninvent shipping containers. But we can certainly lose reserve-currency status.

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What’s Next

Vance is correct that the strong dollar and global demand for American assets have subsidized imports, encouraged financialization, and weakened parts of the industrial base.

But his critics are also correct that deliberately weakening the dollar means deliberately reducing Americans’ wealth. A manufacturing revival, if it comes at all, would take years. The higher prices would arrive immediately.

The answer is not to throw away the privilege.

It is to stop squandering it. Cut the deficits. End the Fed’s serial bailouts. Stop using cheap foreign capital to finance government consumption. Make America the best place on earth to build factories, generate energy, invest capital, and hire workers.

Use reserve-currency status to rebuild the productive economy that supports it.

Vance is right to recognize that reserve-currency status has become a resource curse. But you do not cure a resource curse by destroying the resource.

You cure it by taking it away from the people who are wasting it.

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Last month jobs in the American economy fell by 23,000 yet the unemployment rate improved to 4.1%.

This gave ammunition to both sides: The doomers point to falling jobs, the optimists point to an unemployment rate that matches or beats 90% of months over the past 50 years.

So which is it: Are we in a jobs recession? Or is a falling labor force a good thing?

Mixed Signals

Part of the paradox is even though both jobs and unemployment rate come from the notorious Bureau of Labor Statistics, they’re different series.

Payroll growth is estimated through a survey of employers -- which has pathetically low response rates, so it’s mostly guesstimates. While the unemployment rate comes from a separate survey of households.

So the first counts jobs; the second counts people. Since one person can hold two or three jobs, while payrolls excludes unincorporated self-employed, unpaid family members, and many agricultural workers, the number of jobs and the number of people working do not necessarily move together.

But the bigger issue is the main driver of the paradox right now is millions of Americans are dropping out of the workforce.

As in there’s fewer jobs, but there’s even fewer people in the workforce. Which mechanically reduces the unemployment rate because the unemployment rate doesn’t measure everyone without a job. It measures people without jobs who are actively looking for work, divided by the total labor force.

In other words, if somebody loses a job and looks for another one, that person is unemployed. But if he gives up searching, retires or otherwise leaves the labor force, the government no longer counts him as unemployed.

That creates the strange result we just saw: fewer jobs, but an even sharper decline in the number of people participating in the workforce.

So the falling unemployment rate may not mean that Americans are finding jobs. It may mean Americans have stopped looking for them.

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Falling Labor Force

In raw numbers, since the labor force peaked in November of last year, 2.5 million people have dropped out of the labor force.

About half of that is statistical noise and natural aging -- millions of Baby Boomers reaching retirement age every year.

Roughly a fifth is reduced net immigration -- fewer arrivals and more deportations.

Leaving a mysterious third -- which appears to be concentrated among Americans aged 55 to 64.

That group is especially interesting because most are still below the traditional retirement age. They are old enough to leave the workforce but generally young enough that their departure is not automatic.

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One possibility is discouraged workers. Older employees who lose a job can have a hard time finding another position with comparable pay and status. After months of unsuccessful applications, some may simply stop searching and live on savings. Or on their spouse.

They disappear from the unemployment statistics, but they have not disappeared from the economy.

The second possibility is health. Chronic illness, disability and lingering health problems could be pushing more people out of the labor force before they planned to retire. Turning them from a potential producer to a long-term economic burden.

A third possibility is more people living on government benefits, including fraud. During the spending orgy of Covid, government spending on welfare, benefits, grants, and social services rose by over 60% — hitting almost a trillion dollars in handouts.

Finally, the fourth possibility, which is much brighter: Americans may be retiring early because they can afford to.

Older households own a disproportionate share of stocks and real estate, which have been dutifully pumped by 40 years of easy money from the Federal Reserve.

According to the Fed’s own Survey of Consumer Finances, the average 55-64 year old household is worth approximately $1.57 million. Invested at 6% per year, that’s over $90,000 a year without runing down a dime of principal.

All three explanations produce the same government statistic. But they describe very different economies.

Because a discouraged 60-year-old who has given up looking for work is evidence of labor-market weakness. A sick 60-year-old leaving work is evidence of a health and productivity problem. A 60-year-old retiring because his 401(k) doubled is evidence of rising wealth.

For now, we do not have enough information to say confidently which explanation dominates.

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What this Means for the Fed

The modern Fed trades off two numbers: jobs and inflation.

On inflation the Fed’s already swimming in muddy water: Year-on-year inflation’s running 3.5%, but everybody knows that’s energy talking from the Iran war. Before the war started, monthly inflation was nearly flat, and private-sector analyst Truflation had inflation under 1%.

Meaning the Fed’s not sure where to go from here: Respond to today’s headlines, or assume the war will be over soon, as markets and the general public assume.

But now it’s jobs that are also getting muddy: Falling payrolls and falling unemployment leaves the Fed confused until it can figure out what’s happening.

And the usual suspects aren’t much help: Temporary-help employment, which leads the broader labor market, has recently been improving. Weekly unemployment are historically low. Corporate earnings forecasts are rising, which is usually where they hoard workers. Layoffs are historically low, despite the supposed AI job armageddon.

What’s Next

Even in the best of times the Fed’s a speeding car at night with no headlights, responding to last month’s report to make decisions that won’t impact the economy for 18 months given monetary lags.

Right now, even those headlights aren’t working. Which makes it a splended time for Kevin Warsh to announce a true “regime change” -- get the Fed out of the business of manipulating interest rates.

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Also, check out my interview with Tho Bishop of the Ludwig von Mises Institute on the rise of Socialism in the Democrat Party and what it means for Democrats, Republicans, and the future of the Republic.

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Peter

35 years after the Soviet Union collapsed, the Communist bread line is poised for a comeback in the Big Apple, as Zohran Mandani announces his government grocery stores will be undercutting real groceries by 30%.

Socialism will work this time.

Zohran’s Cheap Eats

The announcement came in a press conference earlier this week, where Comrade Mamdani promised 30% discounts for “essential products” at his new city-run grocery stores.

The problem, of course, is grocery is a razor-thin industry, sporting profit margins of roughly 2%. And that’s with competent management, which New York City is decidedly not famous for.

So even if the socialists somehow manage to run a grocery as efficiently as Aldi or Walmart, the city will be losing an ungodly amount of money -- at least 28 cents on the dollar.

Throw in typical efficiency of New York’s Smartest and taxpayers probably lose closer to 40 cents on the dollar.

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And that’s where the fun begins. Because if city groceries are actually selling food 30% cheaper, that robs enough market share from real groceries that they start going out of business.

After all, private stores must pay rent, property tax, insurance, labor, utilities, security, and New York’s regulatory army.

While Mamdani’s stores get city property, tax exemptions, and apparently an unlimited allowance from mom who’s willing to lose 28 cents on the dollar -- or 40.

So marginal supermarkets close. Others will cancel plans to open.

City Hall will point to packed municipal stores as proof of success — as if it’s hard to attract customers when taxpayers are footing the grocery bill.

Shoot the competition, then congratulate yourself for winning the race.

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Socialist Food Deserts

And then the third act: What happens when taxpayers get tired of the money hole.

Every time New York has seized an industry it turns into a money hole. New York’s city-run transit system -- MTA -- replaced private sector alternatives that used to make money with a government-run system that loses $11.7 billion a year -- roughly $3,000 per household in New York City.

If city groceries approach that number, there will inevitably be calls for subsidy cuts. Given the mandate to keep groceries cheap combined with the costs of government efficiency, that means the groceries will have to cut back on quality.

Meaning they turn from a giant money hole into a slightly smaller money hole full of rotting food.

When the smoke clears, New Yorkers get a couple years of cheap bananas.

Tens of billions of new debt.

And with real groceries fleeing, now they have to take 2 trains and a bus to get to a real grocery store.

In fact, this is exactly what’s happened in dozens of government grocery experiments across the country, from Kansas City which lost $18 million on a grocery that sold rotting food to Chicago, which blew $26 million running 7 stores into the ground.

But socialism will work this time if Mamdani smiles hard enough.

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How to Actually Fix Grocery Prices

Instead of recreating Soviet bread lines on the taxpayer dime, Mandani should sit down with functioning grocery stores and ask how to expand.

For example, cutting property taxes, permitting costs, and construction costs. Relaxing parking rules. Leasing disused public space at a discount to real grocery stores. Re-zoning so groceries don’t have to wait years in limbo for the ministry of red tape to green-light their bananas. Perhaps even arresting shoplifters once in awhile.

The hallmark of socialism is it breaks things, then uses the debris as a battering ram to break more things.

New York already has a distinct absence of proper grocery stores thanks to dysfunctional local goverment. Handing that dysfunctional local government the entire food supply will turn an annoyance into a crisis.

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Peter

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And without further ado, the Numbers that Mattered last week, also available on Youtube:

After a spectacular run all year, my growth picks took a big break this month. And it was a doozy, with longs down 22.5%. That brings year to date returns to 30.9% — a still-spectacular 59% annualized.

The shorts picked up some of the fallout, rising 4.1% on the month (which hurts results — you want shorts to go down). This trimmed year to date returns on the shorts to 29% — nearly as good at 55% annualized.

Together, these took the tracking portfolios to 19.0% year to date on the “Adrenaline” Growth portfolio and an even better 20.4% on the “Market Neutral” portfolio. Both good for 35-37% annualized returns.

All of these massively beat the benchmark S&P 500 (SPY), which was flat on the month bringing year-to-date returns to 9.5% — about 17% annualized.

Where the Boom Stands

New GDP numbers came out right in time for this newsletter. Growth moderated to 1.5% in Q2 (April-June), although the Fed thinks we’re accelerating to a current 2.2% on GDPNow and projecting 5% growth for Q3.

5% would be among the strongest growth rates in decades.

Even the Q2 slowdown isn’t as bad as you’d expect with the war and oil prices. And most of it was actually an import surge ahead of expected new tariffs, with a slight ding from lower government spending, which is a fantastic way to lose GDP that wasn’t making us any richer.

Jobs, meanwhile, keep chugging along with 4.2% unemployment all year. The main point worth noting here is the AI jobs armageddon is a no-show for the 12th year running.

The other important number is inflation, where we actually got deflation last month at an impressive 5% annualized clip. That’s entirely oil coming down from its wartime highs, so it’s still noise for now. The rubber hits the road when oil prices return to the pre-war 60’s.

Then we see if the pre-war benign inflation trend returns. If it does, the Fed could do a whipsaw to rate cuts. Which will be spectacular for jobs and growth considering every 1% cut in rates is worth roughly 1 million jobs.

Zooming Out

When I started this newsletter in January I figured 2026 was going to be solid growth from tax cuts and deregulation, along with investment growth from AI infrastructure and tariff re-shoring. All with an assist from Fed rate cuts.

It was looking beautiful, with recession odds hitting fresh lows.

The war got in the way, doubling oil prices — which is bad for business. And flipping the Fed to inflation-fighting hikes, which normally slow the economy. All while tariff re-shoring got torpedoed when the Supreme Court hobbled Trump’s tariffs.

On the other hand, the AI infrastructure story picked up the slack, accounting for up to a third of GDP growth as hundreds of billions pour into data centers. PriceWaterhouse recently estimated 4.7 million blue collar jobs are building data centers, and data center construction passed office construction — a dark juxtaposition, but spectacular if you own Micron or AMD.

More important, even with the Fed flipping to rate hikes, it remains very accommodative, pumping money into the financial system after it learned its lesson in the 2010’s that you never take away the punch bowl.

Good growth and liquidity is literally the poster-child of bubble stage. So the music will eventually run out, but this newsletter is monthly so I feel confident the next 30 days we’ll remain out of recession.

Markets Review

Broad markets were flat this month, but year to date the SPY’s up 9.5%. That’s actually solid historically at an annualized 17%. Even more impressive considering the war — stocks don’t like war, and they certainly don’t like doubling oil prices.

But the big story this month was AI stocks crashing 20%, nearly cancelling the previous month’s rise. This still leaves AI stocks (SMH) up an impressive 45% year to date. But any AI speculator shopping for a vacation pad in Miami last month is looking at Jacksonville now.

The AI Semi crash was driven by some big stars aligning:

• Previous parabolic gains that made over-leveraged traders quick to take money off the table.

• A resumption in the Iran war that was looking almost over.

• A half-trillion dollar IPO by a Chinese chipmaker — ChangXin — that’s years behind on tech but reminded everybody China makes chips, too.

• And, also from China, a new open-source AI model (Kimi) that apparently matches Claude Fable on many metrics. This is apparently because they scraped Fable using “distillation” where you ask Fable everything you can think of and use that as reference. Still, it reminded the world China makes AI, too.

The more important question is what’s next for AI semis — which I’ll talk about in the investment section below.

As for the rest of assets I track, my shorts made of companies I think AI will crush were up on the month but down an impressive 29% on the year. That helped the “market neutral” portfolio that blends AI picks with disrupted shorts.

Finally, hedges — gold, silver, and bitcoin. Bitcoin finally caught a break this month, up 7% on the month. Gold and silver basically held even. Still, across the 3, year to date returns are minus 14%.

Hedges sucking might seem odd considering we’re debasing the currency with $2.5 trillion deficits in the middle of a war — which normally makes gold sing. But my best guess is it’s a reversion after the strong runs in gold and silver last year, while the speculators who usually boost Bitcoin are playing in AI for now. Leaving the true Hodlers to keep Bitcoin side-walking.

With that, updates on portfolio holdings, performance, and what’s next — especially for AI stocks. If you’re not subscribed, it’s 8 bucks a month to cover the time it takes, and your subscription includes the weekly articles and access to all archives — more than 80 articles and growing.

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Note to Subscribers: Starting this week I’m doing a video round-up of the numbers that matter for the economy and liberty. Including the short-and-snappy version of today’s article, plus half a dozen numbers to shock, entertain, and occasionally horrify. Scroll to the bottom to watch.

New IRS data says the top 0.1% of taxpayers — one in a thousand — pays more than the bottom 80% of taxpayers.

Turns out we’re eating the rich after all.

That comes to 210 times their “fair share.” Essentially, 210 people drinking but the bartender hands one guy the check. With a lecture about privilege.

This comes from new IRS data finding the top 0.1% of taxpayers -- roughly 154,000 returns -- paid $440 billion in their most recent year.

That compares to just $350 billion for the bottom 80% of taxpayers -- which is pretty much everybody else.

It’s even more dramatic for the hated 1%, who pay nearly half of taxes despite earning just 1/5 of income.

Zoom out again and it gets downright comical: The top half of taxpayers cover 97% of the tab. The bottom half -- who alas vote -- paid just 3% of taxes.

So half the country is carrying the other half, plus Congress, plus 47,000 NGOs teaching sustainable Tesla dealership burning to sociology majors.

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The Progressive Tax Racket

Interestingly, despite years of mainstream-media disinformation, the income tax has become dramatically more progressive. In 1980, the top 1% paid roughly 19% of federal individual income taxes. Today they pay almost 40%.

And this happened even though the top marginal income-tax rate fell from 70% in 1980 to 37% today.

Which seems counterintuitive until you consider lower tax rates encourage high-productivity people to work harder -- they don’t have to hand 70 cents to the IRS. That creates jobs, growth, and — yes — income. Which raises the amount of tax they pay even at the lower rate.

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This is the famous Laffer Curve, named after one of Ronald Reagan’s favorite economists, Art Laffer. And the gist is tax 0% and you raise no tax, tax 100% and you raise no tax, there’s a sweet spot in the middle.

So going from 70% to 37% raised growth, raised taxes -- and dramatically raised the share of taxes paid by the rich. Suggesting perhaps we should try 20% tax. 10%. Perhaps no income tax at all, replaced with sales taxes that are far less destructive to growth and jobs.

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Trust Funders of the Welfare State

Aside from the fairness question of one guy paying 210 bar tabs, there’s the political question that if most voters pay no tax that’s methamphetamine to leviathan that lives for tax hikes.

Especially when the new taxes are funding welfare, food stamps, and medicaid that now cover 74 million people who also, alas, vote.

Counting the benefits means the bottom 80% actually pays negative income tax -- they get more benefits than they pay in tax.

And those benefits have positively soared: In 1979 means-tested benefits covered 32% of income for the bottom fifth. That’s now 75% of income taken from people who actually worked for it.

This allows the poor to live a life of gentlemanly leisure, trust funders of the welfare state. According to the CBO, the highest-income fifth of married couples work on average 42 hours per week. The lowest-income fifth chill with just 25 hours a week -- part timers coasting on other peoples money.

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What’s Next

We already have a tax system that places nearly the entire burden on the top earners, then hires tens of millions to sit on the couch and vote for more taxes, more welfare.

And more grift for the politicians.

And yet Progressives still beat the drums about making the rich pay their fair share.

Because it’s not about fairness, it’s about turning the rich into an endless ATM for the crony industrial complex, from bankers and military contractors to Learing centers, teachers’ unions, and NGOs.

The easiest solution is spread out taxes so every voter has a stake in the game. Ideally at a flat rate where everybody pays the same percent of income. Essentially, no representation without taxation. This keeps the rich paying more, but in a way that keeps Leviathan in check.

Of course both parties enjoy taking ever-greater shares of national wealth to squander. So Washington’s happy to play along that the prosperous will never pay their fair share.

And without further ado, the numbers that mattered this week

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Peter

A new study says humans could live healthy to 194.

Which seems oddly specific but it’s also a long time.

And lest that sound bonkers, on a recent Peter Diamandis’ podcast Elon himself said “aging is not that hard a problem,” with that faraway look Elon does when he’s thinking of starting another company.

Now, immortality has been on humanity’s to-do list for awhile. Isaac Newton chased immortality with alchemy. Han dynasty China experimented with mercury and arsenic. Gilgamesh searched in vain for the secret to living forever, which was sadly stolen by a snake.

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The kicker is biologically it’s absolutely possible. Lobsters, for example, essentially don’t age. Naked mole rates live 15 times longer than other rodents -- call it 1,000 years in human terms. Quahog clams are still charming the lady-clams at 500 years old.

The trick, of course, is figuring how they do it and translating that into humans. There’s about 8 mechanisms to reverse what’s essentially the body’s clock, including telomeres, mitochondria, chronic inflammation, so-called zombie cells.

These are the mechanisms the new study modeled, concluding they could buy lifespans of 200 years.

Population Growth

An environment-obsessed media’s first reaction will be overpopulation. But in fact population doesn’t increase as fast as you’d expect.

In rich countries today 1% of people die per year, falling to 0.7% in poor countries since they’re young. So population growth would essentially double in rich countries — 0.9% to 1.9% — but only go up a third in poor countries, from 3.4% to 4.1%.

Put differently, both would return to where they were in the 1970’s.

This is great for Japan or Italy, who are dying off. And it wouldn’t make much difference in Africa for decades.

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The Economy and Immortality

On the economy, you have 3 effects combining to dramatically raise wealth and growth.

First, the preservation of human capital. Ballpark a third of everything we do is thrown away for death, a treadmill that replaces experienced neurologists, engineers, and CEO’s with unskilled 18 year olds.

Second is more direct: Education and healthcare costs plunge, since the ratio of kids and frail elderly to workers crashes. That’s about 1 in 4 dollars we spend.

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And, finally, longer careers. After all, if you’re living to 194 you’re not retiring at 65. This may sound depressing, but remember your assets compound much longer. So you’d do grownup work til 65 then you do fun stuff for the next century.

Put it together and growth and incomes roughly double.

Meanwhile the political consequences are fascinating: People get smarter and more conservative as they age, so voters swing hard to the right. For young people it’s a mixed bag -- faster growth and wages, but tons of old people hogging the choice jobs. And, finally, inequality as those extra decades of compounding mean all boats may rise but rich boats are getting very rich.

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What’s Next

Nature has already solved living forever -- we just gotta find it. Science is hopping along, but the main barrier is regulatory -- governments getting in the way.

200 year lifespans may or may not come in time for Boomers and Gen X. But it’s almost guaranteed for our kids and grandkids unless government kills it.

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Peter

Trump wants to convert Social Security from a Congressional slush fund into real assets you own, like an IRA or 401k.

The difference could mean $60 trillion dollars for the American people — more than the national debt.

This matters because social security is going bankrupt, with trustees saying we’ve got just 6 years until benefits are cut up to 25%. Because Congress pissed away every social security dollar on recreational wars and NGO grants, leaving social security the mother of Ponzis with an estimated $29 trillion of unfunded liabilities.

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Two Ways to Plug a Ponzi

Democrats’ solution -- naturally -- is tax hikes and cutting off wealthier people who paid most social security taxes, Trump wants to shift it towards the 401k and IRA models where you actually invest the money -- and keep it.

That model has generated nearly $30 trillion of assets in IRA’s and 401k’s -- compared to $29 trillion of debt in social security.

Now the details are still coming since Trump accounts for kids were just launched, which seed $1,000 into essentially an IRA for kiddos, to which you can contribute another $5,000 per year.

That may not sound like much, but if you’d done that for today’s 18 year old they’d have $409,000 dollars -- not a bad way to start out.

In fact its enough to buy a house with cash to start a family. And it shows the power of compounding money rather than handing it to Congress to waste.

More important, starting with $409,000 gives young voters a stake in the free-market system Democratic Socialists are currently trying to replace with bread lines.

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Trump Accounts for Grownups

Trump wants to do something similar for the grownups modeled on Australia’s superannuation system where social security taxes go into an account you own and invest like IRA’s and 401k’s.

The idea is it would work like Social Security, but instead of taking your money for Congress to spend the money would go into your account.

In Australia it’s built up over $4 trillion Australian -- in US terms about $45 trillion US.

Translated per American household, that would be about $350,000 in assets intead of $200,000 of social security debt.

If this sounds like a lot, consider if social security was run like a 401k or IRA, replacing social security’s 1.5% returns with 4.5% from a 50/50 stock/bond portfolio (4.5%) or full stock portfolio (7%) the average social security check today would go from $2,084 to between $7,960 (stocks and bonds) and $23,615 per month.

That’s the average check.

Put differently, Congress has effectively stolen between 74% and 88% of your social security dollars. And will keep stealing it until we get private accounts.

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The Road to Private Accounts

Now, the devil’s in the details. First because Trump needs Congress, who enjoys blowing your social security on Leering Centers and wars. Especially Democrats, who’ve fought private accounts for decades since apparently they do not want workers to own the means of production.

Second, because the existing $29 trillion hole in social security means Congress would have a big hole so they’d have to slash spending for a couple decades.

This is certainly painful for Washington’s drunkest sailors, but keep in mind that $29 trillion hole is projected to increase to $72 trillion if nothing’s done.

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What’s Next

For 90 years Congress raided social security, leaving it with IOU’s that are about to run out. Shifting to an IRA type system would turn Social Security from a black hole to a respectable retirement.

And it gives young Americans a stake in the system that keeps us all from starving.

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It’s “Regime Change” at the Fed as Kevin Warsh carts the Jerome Powell legacy to the dumpster. Sadly, he’s not ready to dumpster the entire Creature from Jekyll Island.

Last week freshly minted Fed chair Kevin Warsh held his first big FOMC meeting, launching multiple salvos that change is coming to the Federal Reserve.

On interest rates it was pretty much what everybody expected, holding rates steady at roughly neutral given the past 40 years.

Fed members’ rate expectations crawled up, which isn’t surprising given inflation took off on oil prices. But the Fed’s not panicking into hikes, which is good.

But the big news was Warsh announcing five changes to how the Fed operates.

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Warsh’s “Regime Change”

As my based colleague EJ Antoni put it, Warsh wants to dismantle the Fed bureaucracy to reorient it to the job it’s supposed to do: fight inflation.

First, Warsh slashed the so-called policy statement the Fed puts out to manipulate markets, replaced with a repeated promise of “price stability.”

Next, he wants to improve the data the Fed uses, which is long overdue since the Fed’s step by step painted itself into inflation data nobody believes: A YouGov poll last year found over half of Americans with an opinion do not trust government inflation numbers.

Third, Warsh wants to slash the mission creep that took the Fed from inflation fighter to economic manipulator to, under Powell, climate change and DEI. Fiddling with systemtic racism while inflation burned at double-digits.

Finally, Warsh announced a review of the 7 trillion dollar Fed balance sheet, which is the accumulated assets -- mostly federal debt -- the Fed bought with freshly printed dollars since the 2008 crisis -- and especially during Covid.

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“Robin Hood” Monetary Policy

This $7 trillion was the main reason for Bidenflation, and Warsh has argued for years to pawn it, cancel the dollars -- which lowers infaltion -- and use that to let rates come down to boost growth.

In other words, take from Wall Street and give to Main Street. Warsh himself has called this Robin Hood monetary policy, and it squares the circle of Trump wanting lower rates without hiking inflation.

That plan got scrambled with energy prices, but Warsh apparently still believes. With the caveat that his hands could be tied since Wall Street long ago digested that 7 trillion and could have a seizure if it’s cut too fast -- which already happened in the so-called taper tantrums when Bernanke tried to drain the punch bowl.

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Don’t Fix the Fed, End It

This all may be helpful, but the larger issue is why try to fix the Fed when you can shut it down. Not as a legal entity -- Congress would have to do that -- but as an economic manpulator.

After all, the Fed is the cause of both inflation and recession, manipulating rates down until prices take off, then fighting that with hikes til you get recession.

The few legitimate things the Fed does like payment and banking oversight are already done by Treasury or OCC. The only thing a Fed adds is a counterfeiting cartel. And bank bailouts.

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Concretely, Ending the Fed as economic manipulator means letting markets set rates -- no forward guidance, no any guidance. Swearing off the money printing -- no QE.

And letting banks know if they over-lend there’s no bailouts coming -- they’ll go bust and get acquired at auction like any other business.

That would be true regime change.

Sadly, Warsh is not a revolutionary -- his regime change is closer to rearranging the silverware. So expect some improvements on the edges, less climate talk, maybe some better inflation data.

And hopefully a Fed chair restrained enough that his boom-busts don’t destroy as many million life savings as the other 16 Fed chairs.

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The Supreme Court just gutted one of the load bearing walls of the deep state, voting 6 to 3 to let Trump fire thousands of independent bureaucrats who effectively run the country with minimal oversight from the people voters actually elect to run the country.

Could we see the day when voters actually get to decide what happens to them.

Last week the Supreme Court decided the long-anticipated Trump v Slaughter case, which revisits a 90 year precedent called Humphrey’s Executor that insulated independent agencies from dismissal by the president.

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This matters because independent agencies control some of the most important policy levers in the federal government, including the FTC that was at issue in Slaughter, which can block corporate mergers.

The SEC, CFTC, and FDIC, which control financial markets and banking insurance. The FCC who controls free speech. FEC for elections. NLRB forunions. FERC for energy markets. EEOC for affirmative action. And USITC that controls much of trade policy.

That’s a substantial part of the federal government, all outside the control of the President. Meaning outside the control of voters, whose only influence is the president and Congress they elect. But with the Filibuster paralyzing Congress that boils down to only the President.

Slaughter put the ball back in voters hands.

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The Progressive Deep State

So the background is socialist Progressives waged a century long jihad to take the government away from voters and turn it into a self-licking ice-cream cone that serves the Progressive revolution.

The landmark moment was the 1883 Pendleton Act that established an independent bureaucracy insulated from political -- hence voter -- control. The excuse was to fight corruption -- which of course is as strong as ever. And the result was voters became spectators while federal workers became an occupying army.

The Deep State was born.

And that Deep State consolidated into so-called independent boards starting with the Interstae Commerce Commission in 1887 that unconstitutionally regulated business, then took off in FDR’s socialist New Deal, with dozens of agencies created to rule the country without voters.

By 1946 this occupying army won the right to effectively write law in the Administraive Procedure Act, then wrangled itself near-immunity from being fired in the 1978 Civil Service Reform Act.

Bringing us to today, where almost 90% of laws are written by bureaucrats, not by elected policians. And, until last week, there’s nothing you can do about it.

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Giving Power Back to Voters

Slaughter now joins a parade of recent decisions turning the tide, including Seila, Collins, and Loper Bright that give Presidents more control over bureaucrats while giving Congress a bigger role in actually writing the laws that, according to the Constitution, they alone are supposed to write.

But there’s miles to go: On the very same day the Court stayed Trump’s firing of Fed member Lisa Cook -- allegedly on a technicality but possibly revealing a reluctance to let elected presidents control the unconstitutional Federal Reserve that all but controls the economy.

Meanwhile, while Loper and now Slaugter dramaically reshuffle the cards, federal rulemaking, court deference, and federal worker protections remain stubborn and will need multiple decisions to root out.

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What’s Next

In the near term Trump can purge independent agencies so they stop sabotaging his agenda, while agencies like FTC and SEC are likely to pull back on major regulatory pushes to keep their heads down.

But zooming out we could see major reductions in the regulatory tax on the economy that studies imply could double or quadruple wages -- Starbucks and dog-walkers would be making six figures.

And assuming the firing of Fed member Lisa Cook firing is refiled with the technicalities fixed, we could even see a Federal Reserve that actually answers to the people it’s abused for 113 years and counting.

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The picks had a spectacular month, with longs up 22.9% on the month. Bringing them to 63.6% return year-to-date — a blistering 168% annualized.

Even the shorts killed it, making 7.8% return on the month. Bringing them to 29.5% year-to-date, or 68% annualized.

All in a month the benchmark S&P 500 (SPY) was down 1.3%. And is up just 8.7% on the year.

That brings annual returns to the following:

Markets Review

Broad markets are doing decent so far this year — not epic, but good considering the war. Even after the S&P’s tawdry performance last month it’s still up 8.7% year to date — 18% annualized. Which is about a third better than it’s done the past 15 years.

That’s been a surprise — you’d think with the war the S&P would be down for the year. But the reason is AI stocks, which are up so much they’re swamping everything else.

The darkest story this month — and this year — are hedges. Gold, silver, and Bitcoin had a brutal month, down 12% for gold, 22% for silver, and 20% for Bitcoin. Bringing year to date returns across them to minus 19%.

Some of the carnage in inflation hedges was reversion to the mean after a spectacular run-up due to runaway deficits. Bitcoin’s probably getting an extra hit since the hot money’s now playing in AI stocks and SpaceX.

But a lot was also rising inflation from the war, which scared the Fed off rates cuts, which hurts gold, silver, and Bitcoin since they don’t pay interest. This tempts investors into fiat today even they hate it in the long run since one pays the mortgage with today’s dollars.

With that, updates on portfolio holdings, performance, and what’s next for the economy. If you’re not subscribed, it’s 8 bucks a month to cover the time it takes, and your subscription includes the weekly articles and access to all archives — more than 80 articles.

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Alan Greenspan has died at the ripe age of a hundred.

Greenspan’s passing set off a tsunami of tongue-bath OpEds how the “Maestro” centrally planned the American economy for close to 20 years.

In reality, Greenspan turned the Fed into a permanent bailout machine that gets worse with each passing decade.

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The “Maestro” at the Helm

Just 69 days after taking office in 1987, Greenspan was blindsided by a market crash that he used to turn the Fed from alleged economic referee into a bailout machine where the bankers keep the wins and taxpayers -- and dollar holders -- eat the losses.

This became known as the “Greenspan Put” — put means insurance in finance. And it’s the reason Boomers — and bankers — own everything while 40-something Millennials live in Mom’s basement.

Greenspan ran that machine for 20 years, all the way through 2006 when Greenspan lit his last boom-bust bomb, ending in the 2008 Financial Crisis that nearly set off a Second Great Depression.

Unfortunately, the bailout machine Greenspan built is now a permanent feature, with every subsequent Fed chair forced to pump til it breaks then bail out what’s left at your expense.

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From Counterfeiter to Bailouts

So the Fed was created by bankers — the infamous Jekyll Island putsch — as a counterfeiting cartel that prints money, but not so fast the inflation puts voters on pitchforks.

Like a gasoline thief who siphons the neighbor a quarter-gallon at a time instead of draining tanks, which would get him caught.

The way central banks do this is guaranteeing bailouts for commercial banks — so-called “lender of last resort.” Which lets those banks lend money they don’t have -- they literally create type the loans from thin air. Which is why you need to open an account to get a mortgage — the bank created the money.

Then central bankers limit the printing to tidy quarter-gallon siphons using interest rates, which determine how much loans cost.

Lower rates mean cheaper loans — and more of them. Which artificially boosts growth, generates fees for wall street, and makes it cheap for the federal government to spend more than it has.

Everybody wins. Except pleb taxpayers and dollar-holders.

The problem is having a giant counterfeit machine is Frodo’s ring: It attracts pressure to cut rates too far -- which causes boom-bust inflation and recession.

And the even more insidious pressure from Wall Street to use that lender of last resort function to bail out not just boom-bust but speculation.

Because an iron law of finance is more risk is more return. If you tell gamblers they keep the wins but you’ll cover the losses they’ll go all in all the time.

And that’s where Greenspan comes in. Starting with that 1987 stock crash -- Black Monday -- Greenspan flooded the banking system with money, promising to keep flooding til every banker was solvent.

The Greenspan Put was born.

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The Wall Street Greenspan Built

Bankers went from conservative portly men in glasses to the 1980s sharks fueled by hookers and blow.

Sharks who went on to fuel near-annual financial crises under Greenspan, from the S&L crisis and Tequila crises to the dot-com bubble. The 1994 bond market massacre. The 1997 Asian financial crisis. The 1998 hedge-fund bailouts.

The mother of housing bubbles in the early 2000’s.

In every case, the sharks made billions. And in every case taxpayers and dollar holders got shafted.

When the smoke cleared finance quadrupled to become the third largest industry in America.

Worse, it put Wall Street on a risk house of cards that every Fed chair now must feed.

Our new Fed Chair Kevin Warsh has already bumped up against that, apparently ditching promises to reduce inflation by pawning Fed assets since Wall Street is now orchids in a greenhouse cannot survive in the wild.

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What’s Next

Greenspan may be gone, but the bailout machine he built keeps growing. Fixing it is easy: Just announce the Fed won’t bail anybody out, if a bank fails it’s sold for scrap to more prudent banks.

Of course that would set off an instant 2008 crisis. Meaning it won’t happen.

The best Warsh can do is try and limit bailouts. But he’s locked in a straitjacket Alan Greenspan wove.

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Washington now spends 2 dollars for every 1 it collects. As in taxes would have to double to cover what Congress already spends.

The DC credit card statement arrived last week courtesy of Treasury, who tallies $628 billion out the door in May compared to just $335 billion collected.

That’s a $293 billion hole in a single month.

$3.5 trillion annualized.

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Now, deficits this big -- 7% of GDP -- have happened before in American history.

For example World War II.

But what’s never happened is 7% deficits when unemployment’s low, the stock market is hitting highs, and with nothing resembling total war — nobody’s rationing rubber.

In other words, we’re running emergency-room deficits on a regular Tuesday.

And that matters because eventually we will get a recession. Because it’s what the Fed makes for a living. And when that happens, going by the last 40 years, it’ll blow out the deficit by another 6% of GDP — potentially $5 trillion of annual deficit.

For perspective, there’s just over $20 trillion in all the bank accounts in America.

The Feds will be borrowing one quarter of that per year.

In a recession.

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Where did it go Wrong

So where did it go wrong? The short answer is FDR then Nixon killed the gold standard that used to limit government borrowing.

Meaning every crisis, every problem makes spending go up like a ratchet but it never goes down.

To illustrate, in Covid they rubber stamped welfare and now, 6 years later, social spending is still $2 trillion above pre-Covid. Military spending keeps going whether or not we have any wars worth fighting. Green subsidies, crony infrastructure bills, NGO slush funds. Washington breeds mouths to feed.

We had the perfect storm with DOGE and unified Republican control including a GOP Congress who spent 50 years promising lower spending.

Instead, they hiked spending. True, they hiked a tenth Biden’s proposed spending. But if the perfect storm can’t make a dent, that leaves one last hope: Grow out of it.

Get economic growth fast enough that we outrun the deficit.

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Growing out of the Debt

Growing out of the debt is sound in principle -- and Treasury Secretary Bessent’s been pushing it. The problem is if you’re running a 7% deficit you’re got to grow 8%. Toss in the recessions and you need closer to 10% when the sun’s shining.

That’s China-level — in its very best days.

Now, it’s possible to grow 10% -- we did it in the 1800’s when we had no income tax, a tiny regulatory code, and a tiny federal government.

But today we’d need a miracle. Prediction market Kalshi’s got us pegged under half that thru twenty thirty -- and that’s with AI.

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What’s Next

When you see a crisis coming there’s two options. Start preparing today. Or let it hit and then fix it when minds are concentrated.

Washington’s obviously gonna let it hit.

Faster growth will buy us time. Republicans vs Democrats buys us time. But spend twice what you make and the music eventually runs out.

And when it does, you’ll see it first in bond markets -- yields in the double-digits. Which freezes the real economy and crashes Wall Street and pensions.

Melting pensions are pitchfork-adjacent, so at that point you’ll see the Fed parachute in to convert it to inflation, printing the missing trillions to pour water into every dollar’s wine.

At which point anybody holding dollars -- or buying groceries -- gets wiped out. While the rich who own hard assets -- houses, stocks, hedges like bitcoin or gold -- get to inherit the rest of the economy.

Courtesy of the Federal Reserve and the federal spending it feeds like an addict.

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All year asteroids have been bouncing off this economy.

• Tariffs that Paul Krugman promised would crush the economy

• The biggest shooting war in 20 years

• Hundred dollar oil

• And an AI jobs apocalypse that’s supposed to turn our labor market into a Doordash circle jerk.

Yet growth and jobs just keep going.

The Atlanta Fed’s GDPNow says we’re at a robust 3% growth. Jobs are coming in double expectations, with job openings soaring the second-biggest on record.

But there’s a very dark cloud: The Federal Reserve.

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Why The Fed Fears a Strong Economy

Last week the Wall Street Journal ran some Fed doom-porn warning of a “collision” between the Fed, the bond market, and Donald Trump, driven by oil prices, booming jobs, and the inflation they bring.

We’ve already got rebellion brewing, with Fed members calling for pre-emptive hikes, while markets went from expecting three cuts this year to expecting rate hikes as early as 6 months.

Now this matters because every point of Fed hikes are worth about one million jobs.

Which matters if you’re one of those million and happen to vote.

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So the background is the Fed is a licensed counterfeiter bribed into existence by Wall Street in 1913. The counterfeiting proceeds go mainly to borrowers who get cheap loans from artifically low interest rates -- in case you wonder why Americans don’t save money.

With a fat cut for Wall Street.

So it’s a permanent siphon from savers to Wall Street and deadbeats.

But the key is the swindle’s gotta be subtle. When you’re stealing gas from the neighbors, you gotta take a gallon here, a gallon there. Start draining tanks and the gig’s up.

For the Fed that means keep price inflation to around 2%. Not because of science, but because experience says at 2% voters don’t grab pitchforks and tell Congress to fix the Fed.

They definitly grab pitchforks at 10%.

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The problem at the moment is since the Iran war oil prices have driven inflation to 9.3% annualized -- right on the edge of pitchforkery.

And jobs are booming on top of that it’s great for 340 million Americans but terrible for the Fed jobs implies loans, Wall Street prints those loans out of thin air -- thanks to the Fed -- and inflation goes up even more.

In short, oil and jobs turn the Fed’s 2% siphon into a double-digit flood.

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What’s Next

I warned about the Fed when the war started, saying oil won’t crash the economy, but a Fed panic will.

Because historically, oil shocks only deliver recession when the economy’s already limping -- like in the 70’s, when the oil embargo came right after the Nixon Shock.

But before this crisis we were at 4% growth and -- 3 months in -- we’re still at a perky 3%.

If the war ends tomorrow, inflation drops, and Kevin Warsh gets back to finding excuses for rate cuts to goose jobs -- he’s already said he thinks AI will be epic deflation.

But if the war keeps going, Warsh has two options: purge the Fed’s balance sheet, selling the $7 trillion of bonds they bought with past money-printing.

That cancels the dollars and lowers inflation. But it’s also not happening, with prediction market kalshi predicting an increase of Fed holdings.

Leaving the path of least resistance if the war keeps going: Hike rates til you gobble enough jobs that prices crash and Americans are back to cat food.

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Latin America is going based as Colombia’s populist Abelardo de la Espriella -- nicknamed El Tigre, The Tiger -- won the first round of the presidential election.

Putting him at 80% odds of winning the presidency in 3 weeks according to prediction market kalshi.

This is interesting because Tiger’s an open admirer of Najib Bukele, El Salvador’s populist leader -- and Trump ally -- who famously cut the murder rate by 98%.

Taking Salvador from literally the most violent country in the world -- worse than Haiti -- to safer than New Hampshire.

This earning Bukele approval ratings in the 90’s according to independent polling.

Salvadoran children can now play in the streets -- unlike, say, Chicago. Grandmas can nap at the park. Young women can go out at night.

I was actually in El Salvador 2 years ago for Bukele’s inauguration and every working-class Salvadoreno I talked to beamed with pride. In the night-club district middle-class women in miniskirts were getting pupusas at 2am with no care in the world.

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The Spread of Latin American Populism

Salvador-style safety would be a welcome change for Colombia, which has a left-wing government friendly to cartels and street crime alike. The murder rate hovers around Baltimore levels -- 15 times Salvador.

More important for Latin America, it’s not just Colombia. Bukelismo is spreading across the continent, scoring 70 to 80% support region-wide.

Bukele is by far the most popular leader among across all Latin American countries, scoring a 6.8/10 according to regional poller Latinobarometro versus an average of 3.7 for the rest of the leaders.

Where the parade goes, the leaders are close behind. Chile’s new president is an open admirer of Bukele, as is Ecuador’s. Argentina’s Javier Milei is close to Bukele and they’ve been trading ideas.

Honduras already implemented Bukele reforms, and Costa Rica just jumped on the bandwagon. There’s even pressure on Mexico’s left-wing government after 20 years of carnage that’s finally turning the corner thanks to Trump’s border.

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Why the Left Fights Populism

The danger to populism is that lower crime’s just one part of populism, whether Bukele or Trump. It’s also smaller government, less corruption, cutting red tape to boost job creation. Handing economic power to small business instead of back-room cronies.

And that’s where the trouble starts. Because even if you convince the voters, you hit the wall of ideological judges and legislatures who are tools of the incumbent power structure.

Bukele himself was blocked by judges -- which may sound familiar to Americans. And by a hostile Congress -- which may also sound familiar.

He solved it by winning a landslide in Congress and using it to replace left-wing judges.

A solution that, alas, would require Trump getting two thirds of Congress.

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It was similar for Milei in Argentina, who still doesn’t have enough of Congress to over-ride left-wing judges who’ve blocked some of his major reforms.

And Brazil, where left-wing judges effectively mounted a coup, stealing the election then sentencing populist Bolsonaro to 27 years in prison for saying nice things about Jan 6 style stop the steal protests.

Put it together and Latin America is turning populist, led by crime and corruption. But even where the populists do win -- like in the United States -- they’re up against a gauntlet of left-wing judges.

Meaning Latin populists -- like American populists -- need to win bigly to fix it.

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What’s Next

The genius of democracy is it’s a pressure value. But when it’s blocked by censorship or ideological judges the pressure builds. The people get angrier.

Best case elections are fair enough that populists win supermajorities to remove the judges -- like El Salvador.

Worst case the judges keep blocking until Presidents just start ignoring them.

At which point the people will welcome Caesar.

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Last month was on fire – despite the war in Iran.

On the month, the benchmark S&P 500 gained an impressive 5.0%, while my two portfolios gained 10.1% in the “Adrenaline” growth portfolio, and 5.8% in the “Market Neutral” portfolio.

This brings year to date returns to 10.1% on the S&P 500, 22.7% on the “Adrenaline” growth portfolio, and 19.4% on “Market Neutral.”

In dollars, $100,000 invested in the S&P 500 at the start of the year would now be worth $110,112. That same money would be $122,745 in the Adrenaline portfolio and $119,428 in the Neutral portfolio.

So the alpha — additional gains vs the market — is about $2,000 per month.

Economy Update

The biggest surprise this month is oil prices bouncing off the economy, with the Atlanta Fed’s GDPNow currently running 3.8%. That’s about twice the 21^st century level.

This is very impressive given a near-doubling of oil prices. And I talked about it in this week’s free article.

Jobs are sitting pretty with unemployment at 4.3% and quit rates tame – meaning people feel like jobs are available.

Mass layoffs are at historic lows – so much for the AI jobs Armageddon.

Payrolls rose 115,000 in April, almost double expectations. March was revised up to 185,000. Private payrolls added 124,000.

Finally, inflation. It’s rising now as energy bleeds into food and services. But outside energy inflation’s tame thanks to solid fundamentals of slower growth federal spending and faster private-sector GDP growth.

For perspective, on the eve of Iran, real-time price aggregator Truflation had us at 0.7% inflation -- about as low as inflation gets with a central bank. Once the war ends, I suspect we’ll get back to that.

What’s Driving Growth

The growth story, as always, is an investment story. Gross private domestic investment rose a blistering 8.7% annualized in Q1. Some of that’s factory onshoring, with tariffs so far inducing nearly $3 trillion of investment according to Kearney.

Reshoring hasn’t shown up in manufacturing output or jobs yet because it takes time to build a factory – Taiwan Semiconductor’s Arizona factory is on a 6-year timeline. But they’re on the way.

Another hunk of growth is deregulation and tax changes — namely bonus depreciation in the Big, Beautiful bill, where you can write off 100% of your investment. This is cocaine for investment.

The AI Explosion

And the other driver is, of course, AI. Information-processing equipment alone added 0.83 percentage points to GDP last quarter. Equipment spending jumped 17.2%. Software and computing investment rose 24% year-over-year.

Data centers are the new interstate highway system. Steel, concrete, electricians, HVAC, transformers, turbines, substations, fiber, chips, cooling towers, backup generators, and enough copper to buy every Chilean miner a mistress.

That matters because the AI boom is not just teenagers asking a chatbot to write their sociology paper. AI already solved one Holy Grail, the protein-folding problem – winning the 2024 Nobel in chemistry for what’s basically a Google maps for drug development.

AI is accelerating drug development by years, compressing target discovery from years to months and potentially shaving 5 to 7 years off new drug development.

Like the reshoring boom, we haven’t seen the benefits of drug development in lives saved since regulatory approvals take years even if development goes fast. But they’re coming for every major disease, potentially for aging itself.

AI has discovered new antibiotics, including halicin, which MIT found could kill drug-resistant bacteria. Later MIT researchers used deep learning to find compounds against MRSA, a bacteria that kills more than 10,000 Americans a year.

AI weather models are now beating traditional systems on huge chunks of medium-range forecasting. Google’s GraphCast could produce global forecasts in under a minute and beat ECMWF’s gold-standard system on most tested variables. Microsoft’s Aurora later beat traditional models on more than 90% of tested variables and produced 10-day forecasts in less than a minute. That is hurricanes, crops, energy grids, insurance, shipping, and whether your flight gets turned into an overnight at the airport.

Google is using AI to design chip floorplans in under six hours, with results comparable or superior to human designs on power, performance, and area. AI is already doing industrial-grade coding, customer service, translation, fraud detection, logistics routing, medical imaging, legal search, drug discovery. AI already outperforms doctors on diagnosis and therapists on treatment, meaning Americans now have a free doctor and qualified therapist in their pocket.

In sum, the joke version is “ChatGPT writes your kid’s essay.” The real version is AI is already delivering more value than the internet did in its first decade. The early internet gave us dancing baby memes and shopping carts while early AI is delivering Nobel prizes and drug-resistant antibiotics.

AI and Jobs

And then there’s the jobs. AI doomers in media are panicking at useless sociology majors getting automated but ignoring tens of thousands of electricians getting hired.

Yes, AI will hammer entry-level white-collar make-work. It will absolutely eat the bottom tier of admin work, Indian call centers, compliance slop, HR boilerplate, junior copy, and people who write emails that “circle back.” As well as the journalists who write AI doom porn.

But they are ignoring the other side: the buildout. PwC estimates U.S. data-centers are already supporting 5 million overwhelmingly blue-collar jobs, of which roughly a million remain permanent for maintenance. Men in trucks, crews in hard hats. Welders, linemen, pipefitters, engineers to build it then keep it all running.

Summing it Up

Put it together and the economy is rotating from federal to private and from pretend cubicle jobs to roll-up-your-sleeves jobs, this time the jobs going to Americans instad of illegals.

The war is the final overhang. Once it ends — which Kalshi says is a coin-flip by September — oil comes down, inflation cools, rates can fall, and the investment boom goes into turbo.

With all that, on to the portfolios performance and picks!

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The Iran war broke the century long rule that war is bad for stocks, good for bonds, and rocket fuel for gold.

Instead, since America started rocking the casbah stocks rule, bonds drool, and gold got thrown off a roof.

So what changed. And should we be worried.

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The Oil Shock that Cried Wolf

When the Iran war kicked off, Wall Street predicted disaster, that we would repeat the 1970’s, when stocks dropped by half, inflation took off into the double-digits, and GDP plunged -- the dreaded stagflation that turned gold into the go-to late night infomercial.

Analysts called Iran “the worst nightmare we thought could ever happen, incomparably worse than any oil shock in history. Reuters’ poll of analysts predicted a hundred fifty dollar oil. An unnamed Saudi official said 180. Options markets said 200 or 240 oil.

Long-time markets guru Ed Yardeni warned of a stockmarket meltdown. Bond guru Mohamed El-Erian warned of “stagflation gripping the entire world economy.”

Moody’s Analytics pegged 50% odds of a recession.

Their script was the 70’s oil crisis, when stocks did plunge by half, bonds held up with 3% gains, and gold positively sang, up 70%.

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What Actually Happened

It turns out every bit of that was wrong. 3 months into the war the S&P 500 isn’t down half, it’s up 8 and a half percent -- 40% annualized.

The long bond is actually down annualized 20%. Gold is down 12% -- annualized 50%.

The Wall Street Journal was mystified, writing “It’s hard to overstate just how unusual this is.”

So what changed?

The first difference is oil didn’t get hit nearly as hard as expected -- we’re at 100, not 240. This is because new drilling -- above all in America. And a collapse in Asian demand -- above all from China -- means fully three quarters of the interrupted supply was cancelled.

But the other reason is the stockmarket in 2026 is not the stockmarket in the 1970’s.

Namely, AI and tech took over the stockmarket, and frankly they don’t give a damn about Iran.

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Not your Grandfather’s Stockmarket

To illustrate the change, in the 1970’s tech was 5% of the market but almost half was oil sensitive sectors -- industrials, utilities, materials, manufacturing. Today, tech is half the S&P and 70% of the Nasdaq, while oil-sensitive is less than a fifth -- healthcare and financials make up the rest.

So in the 70’s we were deeply dependent on oil we didn’t have. Today we don’t need oil yet we’re swimming in it -- exporting millions of barrels.

Put it together and recession risk is actually lower than when the war started: The volatility index -- Wall Street’s fear gauge -- is lower than when the war started even though oil futures say oil stays high into 2027. While prediction market kalshi is at just 15% odds of a recession — down from 22% when the war started and 40% during last year’s tariffs.

This final piece of the puzzle is why bonds and gold are sucking. And the most likely reason is fears the Fed will panic-hike on oil prices have overwhelmed the traditional safe-haven demand since higher rates directly lower bond prices while they gut gold prices since gold doesn’t pay interest.

When bonds are paying 5% risk-free it tempts even rock-ribbed gold-bugs into paper.

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What’s Next

For better or worse, the Iran war showed our economy is no longer made of stuff you can drop on your foot. It’s made of tech, healthcare, and Wall Street.

More important, it reinforced the pattern since Covid — really since Alan Greenspan — that reality no longer matters, the Fed matters. As in if things go bad the Fed will shoot money til everything goes up -- Covid. And in wartime, markets don’t care about the bombs or oil, they care about the Fed.

That may not be healthy.

But it’s reality.

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