An Enigma, Wrapped in a Mystery

I wrote the essay below a week ago before the recent “correction”. Now even the President is using the “R word”. Things change fast in this business. My performance has mirrored the indexes over the last 7 days. I think I have a reasonable mix of cyclical and defensive stocks. Stay tuned.

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There has never been a worse time to be a “top-down” investor. Anyone trying to make a economic forecast for the next 24 months is just flat lying to you. We are smack at the beginning of a giant experiment that is truly unprecedented in human history.

At first, it seems we are inside a Libertarian hallucination. If the President actually goes to Ft. Knox to check on the gold, I might break down and cry for days. Never ever in my lifetime did I expect any of Dr. Paul’s ideas to actually happen. The problem is my Libertarian fantasy is being conducted by a semi-insane real estate huckster and his dope smoking, subsidy sucking, court jester. What, actually examine every line item of the budget? God bless you guys you guys for trying, but if we eliminate government grifting, 10% of the economy might just disappear.

Simultaneous with the government shrinking fantasy, is a horrifying assault on Dr. Friedman’s immutable principles of free trade. Anyone who ever read Jude Wanniski’s “The Way the World Works” and his explanation of the Smoot-Hawley tariffs, has not slept well for months. Are tariffs real, or are they just a negotiating ploy?. The semi-insane huckster is playing with very unstable dynamite. Do we really need to bring back truck driving jobs in Peoria? That is a the question being asked by the over-educated elitist writing this essay. Did Friedman or Wanniski ever anticipate a global super power, China, with a banking system built by Chuck Ponzi?

Throw into the mix the first land war in Europe in 80 years, and the proposal to turn part of the Middle East into a golf course.

On top of that add a Federal Reserve system run by a private equity lawyer that is in way over his head. Plus, there is a commercial real estate crisis the accountants are hiding from us. The world is out of control.

All I want to do is decide when to buy my beloved cyclical stocks. Companies like Brunswick, Thor, RXO, and Gentex are standing on a soapbox screaming Buy, Buy, Buy, you sniveling, frightened, cowering, mass of useless protoplasm.

I was there. Few Americans can tell you where they were standing when it was announced the Economic Recovery Tax Act of 1981 passed a vote in the Democratically controlled US House of Representatives on August 4, 1981, but I can. This is not the Reagan Revolution, I lived the Reagan Revolution. Maybe the Trump/Musk rodeo is even better, Reagan was not able to get control over spending.

The Reagan Revolution was built on the scholarship of Robert Mundell and Art Laffer, nurtured by careful writing on Bob Bartley’s editorial pages, and enacted by the steady consensus building of Jack Kemp and Phil Gramm. There was a clear, intellectual, understanding of the issues. All we have today are some vague campaign promises made by an eccentric billionaire that helped a shaky political operation beat a historically weak Democratic opponent by 2%.

I am cheering for this unlikely combination of misfit politicians. Maybe Bessent, Vought, and Vance can steer this crazy ship. They are the “adults in the room”. The spirit of Trump/Musk cyclone is correct, but long can it be sustained? When Bannon said “deconstruct the administrative state” years ago nobody took him seriously, now it is starting to happen. Maybe it can work, but where will the Court come down. Roberts and Coney Barrett might not be up for the fight.

All I want to do is make an economic forecast, but in good faith I cannot do so. My only forecast is continued confusion. The economy is an enigma, wrapped in a mystery.

I continue to recommend Brunswick, Thor, and RXO. I own no technology or financials. You could argue that Teck Resources, Halliburton, Matador, Middleby, Nexstar, and even Restaurants Brands have some economic sensitivity, buy each of those six companies has a unique growth strategy I believe in. I cannot crawl under a rock and only own utilities and healthcare.

I am struggling to understand if we are entering a “Golden Age”, or whether Washington is too corrupt for anyone to fix.

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