The CAPE Crusader Unveils a Bubble

Posted on June 13, 2025 by MN Gordon

On May 12, the professional tea leaf readers at Goldman Sachs Research predicted the S&P 500 would increase by about 11 percent to 6,500 over the next 12 months. We’re one month into the forecast, and the S&P 500 has increased from 5,844 to 6,045 – or by about 3.4 percent.

Goldman’s optimism was based on reduced U.S.-China tariff anxieties, and better than expected economic growth forecasts. The bank’s economists put the chance of a U.S. recession at just 35 percent over the coming 12 months, with GDP expected to expand by 1.6 percent.

The big question David Kostin, chief equity strategist at Goldman, wants answered is “who is going to pay the increased tariffs?”

Will Chinese producers eat the costs? Will Walmart take it out of its already razor thin profit margins? Will consumers get stuck with higher prices?

These questions will not be answered for another quarter or more. First quarter earnings showed a healthy 12 percent year-over-year growth. But this was before the trade war kicked in. Second quarter results are when we’ll likely start seeing impacts from reduced demand and diminished profit margins. Continue reading →

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The DogeFather in Exile

Posted on June 6, 2025 by MN Gordon

We wanted Elon Musk to succeed. We were pulling for his full triumph. He’s blasted countless satellites into orbit. He put EVs on the road. He saved free speech on social media. If anyone could cut $2 trillion in annual waste, he’s the guy.

The task for DOGE was simple enough. Musk would apply the disruptive magic of Silicon Valley to the grim halls of Washington. He’d shutter all the useless agencies that specialize in pointless minutia and archaic laws and regulations. He’d eliminate waste and make the government more efficient. Why not?

All in all, from our observations and experiences, ambition and reality generally do not line up. What little boy doesn’t dream of being an astronaut or a starting pitcher for the Los Angeles Dodgers when he grows up? How many live this out?

Nonetheless, we believe the best personal and professional endeavors are those that are nearly impossible to attain. There are others, however, that are absolutely futile. Sending people to Mars, for example, is on the spectrum of nearly impossible. Making the federal government efficient is absolutely futile. Continue reading →

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Going Full OBBBA

Posted on May 30, 2025 by MN Gordon

President Donald Trump campaigned on promises of economic nirvana…

He vowed to slay the dragon of inflation. He pledged to turn the tables on our trading partners and bring manufacturing back to American shores. He promised to shower tax cuts upon the populace and put fresh cash in the pockets of consumers so they could spend it.

Now, just four months into Trump 2.0, our blustering 47th President is aiming to close the deal on what he says will be the “largest tax cuts in American history.” His legislative masterpiece, the One Big Beautiful Bill Act (OBBBA), throws in everything and the kitchen sink of economic pledges.

There’s the glorious extension of his 2017 tax cuts, which reduced individual income and estate taxes. There’s a tax break for tips, overtime pay, and even interest on auto loans. There are incentives for domestic research and development expenses.

Also, because it’s never too early to start speculating on the U.S. stock index, the OBBBA includes ‘Trump Accounts’ for children, which come with a $1,000 deposit from the federal government. This is in addition to the $500 in child tax credits. To top off the economic spread, there’s a $46.5 billion package to restart immigration action. Continue reading →

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Warming Up the Printing Presses

Posted on May 23, 2025 by MN Gordon

The Federal Reserve is up to its old money printing games once again…

Earlier this month it quietly purchased a cool $43.6 billion in U.S. Treasuries. This included $8.8 billion in 30-year Treasury bonds on May 8. Several days before that, it bought $20.4 billion in 3-year Treasury notes and $14.8 billion in 10-year Treasury notes.

What’s going on? Isn’t the Fed supposed to be tightening – not easing – its balance sheet?

If you recall, after creating roughly $5 trillion in credit out of thin air to paper over the coronavirus fiasco, the Fed’s balance sheet peaked at over $8.9 trillion in April 2022. Since then, through quantitative tightening, the Fed slowly reduced its balance sheet to $6.709 trillion on April 28. But so far in May, the Fed’s balance sheet has ever so slightly increased to over $6.713 trillion.

According to the May 7 Federal Open Market Committee statement, “The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage?backed securities.”

However, if the Fed’s balance sheet is increasing – not decreasing – isn’t the Fed acting in conflict with its policy statement? Continue reading →

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