America 2022: Changing Political Landscape
June 5, 2022 Issue: 20
America is in the process of a profound changes in its politics that will be felt for generations to come. Few people realize the seismic shift that is occurring and almost no one can predict the effects on the economy. There are significant risks ahead but if the American people are wise, the nation may enter another period of growth and prosperity albeit after a tumultuous period. The changes affecting America will reverberate throughout the world as the globe's foremost economic and military superpower goes through change.
After the Civil War, the two political parties became somewhat regional looking after the interests of their geographical constituents. The Democrats were effectively a party of white Southerners and working class Northerners. The party relied on patronage in an era with much smaller government, The winners of the Civil War, the Republicans, were the party of the establishment. From Lincoln's election in 1860 to the election of Woodrow Wilson in 1914, the U.S. was effectively a one party nation at the Presidential level. States had more effective power than they do now as Southerners elected socially conservative and racist Democrats at the local level.
Woodrow Wilson's election changed America fundamentally as a progressive Southerner who was one of the most racist presidents in U.S. history came to power. Wilson begat the Federal Reserve, a permanent income tax and turned the nation into an empire with America's involved in the Great War.
The parties eventually evolved into a more standard left/right political split. The Democrats became the left of center party like Labor in the UK and the Liberal Party in Canada while the Republicans essentially become the American Conservative party. The last vestiges of hard regionalism ended with the Civil rights movement, LBJ's the Great Society and the decline of the Dixiecrat segregationists.
One thing that made and kept America great was the cohesion of the political culture. Both parties were centrist and many times Senators and Congressmen would vote against their own party's majorities. For example, in percentage terms, more Republicans in the House supported the Civil Rights Acts than did Democrats. A fact conveniently forgotten by leftist academia and the the corporate media. America avoided the class, ethnic and/or religious division of other economic competitors. Another example of how the parties have evolved was JFK's hardline against communist expansionism. Before the 1990's, it could be said that the Democrats were to the right of the Canadian Liberal Party and that the Republicans were to the left of the U.K. Conservative Party, as least in terms of social liberalism. Both parties believed in capitalism albeit not in purely libertarian terms.
The Democrat gradually shifted left during the feckless presidency of Jimmy Carter. President Clinton was less left than he was pragmatic and like his wife, he was corrupt, Machiavellian and narcissistic. His administration was almost a throwback to the Dixiecrat days without the blatant racism. The Clintons were from Arkansas, after all.
This all changed under Barack Obama who precipitated the Democrats shift to a hard left party, probably to the left of Tony Blair's U.K. Labour Party. He did so in a slealthy and disingenuous way; masquerading as a moderate. The current House of Representatives are made up of 220 Democrats, 208 Republicans and seven vacant seats. Vegas, which unlike partisan political pundits have money on the line and little interest in self or public deception have the Republicans retaking the House at about 80% odds. Some betting sights favor the GOP by an even higher margin. If we look at recent mid-term elections, especially when there is an unpopular president in office, his party can expect to lose anywhere from forty to seventy seats. Given Biden's approval rating is at about 33% which is near record lows in honest polls, Dems are in trouble. This is why they are desperately attempting to politicize the Uvalde Texas tragedy to vilify Republicans, even going so far as to accuse the GOP of having the blood of children on their hands. This has largely backfired as Dems have made themselves look like Machiavellian sociopaths. They have been like this for a while. It is just that more people are realizing how sick these people are.
A lot can happen between now and November. The Dems need an economic turnaround. The Biden administration will do anything it can to make the economy look as good as possible, even adopting policies that prop up the economy for a short time with dire consequences.
Many times in history, a trend looks inevitable and unstoppable. As time passed, American voting patterns changed. Every four years Americans go to the polls to pick the President approximately 2% of voters die of natural causes in a four year period and are replaced by people who were fourteen to just under eighteen. The Silent Generation passing and are being replaced by Generation Z. This is too the advantage of the Democrats as the most older people are white and conservative. New voters are less white and far more leftist thanks to demographics and indoctrination by radical teachers and professors. The young presently have a sense of entitlement, a weaker work ethic and an ignorance of how the world actually works.
Consequently, the Republicans were seemingly doomed to irrelevance and being the permanent opposition party. The Democrats were destined to accent to being the “natural governing party" much like when the Republicans once controlled the Presidency from the Civil War to the Great Depression or Canadians Liberals dominated Canadian politics from 1924 to 1984.
Many times in history something unforeseen happens and trends change. We are in such a period. It probably began with the Covid lockdown fiasco and the subsequent effects on the economy. The Dems not only could not take advantage of this with their promises to “build back better" and bring about a “new world order. They have dug a hole for themselves. The Dems do not seem to have heard the old expression: “If you're digging yourself into a hole, the first thing you need to do is stop digging.
The maniacal shift to the radical left by the Dems is not yielding new converts to the party. It’s beginning to turn people off. Everything from openly supporting the BLM/Antifa riots, clinically insane gender identity politics, scapegoating Whites and economic policies that resemble those of corrupt and poor Latin and African dictatorships have alienated moderates which are the largest group in America.
Unless the Dems are tossed a miracle, they will lose 50 to 80 seats in November to be conservative. Losing only 40 would be a major victory at this point. Regardless, the House will fall to the GOP. This is no big deal as politics always shift. What is significant is that 124 members of the House identify as persons of color. Most of them are Black and 83% are Democrats. Given the tribalism that has infected America like a cancer, the vast majority of these seats will remain Democrat. They currently make up almost half their caucus. Most seats that will be lost by the Democrats are currently held by Whites. The Democrat caucus after the election will be mostly made up of people of color effectively making the party ethno-national. White Democrats will make up significantly less than 20% of the new Congress rendering them effectively powerless. Will the far left banshees of the Squad or the patronage loving Black caucus be wise enough to move the party to the center? Not a chance. They are both too radical and too foolish. No not expect the like of AOC, Ilhan Omar or Cory Booker to suddenly acquire reason.
This will push the political winds in the favor of Republicans for at least a generation. Sadly this will shift America from being mostly a civic nationalist nation to an ethno-nationalist one in some respects. Dems will rely on guilting enough effeminate white men and histrionic feminists to win elections. This strategy is doomed to failure. In the province of Quebec during the height of the French nationalist movement, almost no one who was not a pure French-Canadian by blood voted for the separatist Parti-Quebecois despite being shamed as racist. Francophones attempted to address this demographic problem and win elections and separatist referendums by making life irritating for minorities and denying them economic opportunities. As a result, an estimated 500,000 English speakers, many of the provinces best and brightest left. As a result Quebec has one of the lowest standards of living in North America, equivalent to that of Mississippi, America's most impoverished state.
If the Democrats allow themselves to become an ethno-centric party that relies on the radical left to win elections they are making a mistake. There are simply not enough BIPOCs (Black, Indigenous, and people of color; the current term de jour used by the chattering classes) to ever win elections, even with the support of white radicals. This strategy will fail if they continue to be radical. The Covid lockdown, inflation crisis, impending debt crash and other societal changes are creating a strong headwind against the Dems. Geographically, their areas of support will be confined to crumbling cities that are losing their tax bases faster than Biden is losing brain function. The working class has already left and Latinos, who tend to be socially conservative are leaving.
The Federal civil service, also known as the Deep State by conservatives and libertarians who loath them, will fight the new Republican majority. Given the economic and fiscal situation, this will afford political leaders the opportunity to drastically reduce the government work force and give power back to the state legislature and citizens. They will give many tens of thousands if not hundreds of thousands of government workers, who overwhelmingly vote Democrat, their walking papers. The local economies of Virginia and Maryland which depend on overpaid government workers and lobbyists will be crushed. Smaller government, less regulation and lower taxes always results in increased prosperity in developed economies. The decline of the corporate media is effectively ending the left’s monopoly of the narrative. The gaslighting will lose it’s effectiveness. Remember that in the movie Gaslight, Ingrid Bergman’s character eventually realizes she is sane and that Charles Boyer is the villain. He is eventually punished for his crimes.
This change is overwhelmingly bullish long term for the U.S. economy. It could mean another period of prosperity like we enjoyed from 1982 and 2008. Hopefully, this time we will avoid the excesses and ruinous wars of that period. There will be a lot of strife as America transitions back to a nation where liberty is valued over political power; from an empire to a true federation. The juice will be worth the squeeze especially as things continue to deteriorate. Sadly, Blacks will lose political power returning to being a marginalized minority after being part of the ruling establishment. (For the Black elites, anyway.) Hopefully, Blacks will abandon the Dems and their community’s corrupt leaders. Eventually we will return to a two party system with both parties being big tent parties even if they disagree on some issues.
ASSET ALLOCATION:
Equities: Underweight
The market was choppy this week as last week’s rally fizzled out. As we pointed out all bear markets have “sucker’s” rallies and “dead cat bounces.” Many investors are still optimistic. Traditionally, bear markets end only when the vast majority of investors are despondent and valuations become cheap. That is not the case now. However, given the mid-term elections are five months from this Wednesday the Biden administration will do everything it can to stimulate the economy even if the longer term repercussions are disastrous. Investors are also waking up to the fact that the Russo-Ukrainian War is seriously affecting the world economy. Gas prices continue to rise, there are food shortages in nations from Sri Lanka to Lebanon to Peru. Wheat prices are still 60% higher than a year ago. The Chinese economy is struggled and may be entering a recession. Unlike, 2008, our Chinese “friends” won’t be coming to the rescue of the word economy.
Rallies should be used as opportunities to reduce exposure. Particularly sell higher risk, more cyclical stocks.
Equity positions should be in stocks that:
Having pricing power. Produce necessities
Avoid Zombie companies and those that have junk bond credit ratings. Focus on companies with high cash to debt ratios. Avoid companies with negative cash flow. If they couldn’t make money during a boom, they won’t make money in a downturn.
Avoid woke corporations that eschew meritocracy and embrace ESG. They are not working for their shareholders. Also, corporations are waking up to the harm the ESG movement is doing to our economy and society. ESG is Marxism by stealth.
Bonds Neutral:
U.S. ten year Treasury yields rose 0.20% to 2.94%. We are likely in a trading range with a bias toward increased interest rates. Our view remains neutral weight with an emphasis on shorter bonds.
Cash: Overweight.
Money market rates will continue to rise. Those who hoard cash now will be able to buy oversold assets in the future.
Real Estate: Overweight *
Overweight farm land, apartment buildings in high demand areas. Warehouses.
Underweight: Office buildings, retail, and expect a housing crash especially in hellacious urban areas or those that are wildly expensive relative to average income. The key is the average home price to average household income ratios. Cities like Toronto are accidents waiting to happen.
Cryptocurrencies:
Cryptos continue to struggle. People do not seem to care anymore. Bitcoin will not replace the U.S. dollar as the world reserve currency. The crypto market is a casino without the cheap drinks and all-you-can-eat buffets.
Personal Finance:
Pay off credit cards. Then cut up all but one of them to keep in an emergency.
Lock in long mortgages
Minimize debt, especially low duration (floating rate)
Stock up on non-perishable foods. Dry and frozen..
Personal Note:
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Next Issue: Wednesday June 8, 2022