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PRESIDENTIAL DEBATE: PAINFUL, PREDICTABLE… PERILOUS

Charles Sizemore


Chief Investment Strategist, The Freeport Society


June 24, 2024

Do you have something you love to eat… but that makes you regret it every time?

Yeah, me too!

For me it’s a massive pepperoni pizza. I’ll eat the entire thing… and then
regret it for days.

But while the pizza grease makes me miserable after the fact, at least I enjoy
it in the moment. I can’t make the same claim for a certain event scheduled to
take place this Thursday at 9 p.m. Eastern.

Seriously, I’m not sure why I watch presidential debates. 

They’re not entertaining. In fact, they’re usually cringeworthy. 

Maybe I do it to feel better about myself… Whatever my sins, I have to be better
than these guys, right?

Or maybe I committed some awful crime in a previous life and this is some form
of self-punishment.  

Regardless, I’ll be watching President Joe Biden and former President Donald
Trump duke it out on Thursday. 

It’s safe to say that I’m not expecting a reenactment of the famed
Lincoln-Douglas debates of 1858. I’m not even really expecting anything
resembling coherent thought. I fully expect we’ll see childish playground
insults from Trump and tone-deaf self-congratulatory pats on the back from
Biden.

And there’s no doubt that both of these weasels will squirm when asked to defend
their records on inflation.


A GRAIN OF SALT AND CHERRY PICKING

I don’t make a habit of listening to “Democrat economists” or “Republican
economists.” I take the words of all economists with a massive grain of salt.
But if I can identify one as a political hack, I generally dismiss them out of
hand. I have no need for cherry-picked data taken out of context to defend a pet
policy.

Still, when I hear economist and former Treasury Secretary Lawrence Summers
(he’s a Democrat) utter the words “mother of all stagflations,” I perk up. 

I’ve been writing for months in The Freeport Investor (subscribers can log in
here) about the risk of stagflation setting in. Stagflation is what brought down
both the Gerald Ford and Jimmy Carter presidencies, and it’s Hell on Earth to
live through. 

Our last bout of stagflation in the 1970s prompted entirely new economic stats
like the “Misery Index,” which was a combination of the inflation rate and the
unemployment rate. 

Like any “political” economist, Summers overly simplifies and generalizes. But
he’s not actually wrong about stagflation risk. And while his attack focuses
mostly on Republican Donald Trump’s policy proposals, Summers also bashes the
Democrats. 

In fact, he actually compares Trump to George McGovern, the Democrat
presidential candidate that Richard Nixon utterly destroyed in the 1972
election, winning 520 electoral votes to McGovern’s 17. 

So, what is it, exactly, that Summers believes will spur the mother of all
stagflations?

Tariffs. 


WE’VE SEEN THIS MOVIE BEFORE 

Trump has proposed hiking tariffs to 10% across the board, advocating 60%
tariffs for most Chinese imports. More broadly, he plans what Summers calls
“economic warfare.” In addition to tariffs, the second-term presidential hopeful
calls to lower the value of the dollar and strong arm the Federal Reserve into
lowering rates. Oh, and, of course, to deport 15 million illegal migrants, which
isn’t going to help the ongoing labor shortage.

Our politicians of both parties are a creative lot. Neither lacks new and
original ways to make the world a worse place. But mercantilism – the belief
that the government can somehow manufacture prosperity by putting up trade
barriers and limiting competition – is like socialism. It seems to be an undead
zombie policy that just keeps coming back no matter how many times it fails.

American companies are the best in the world. They don’t need to be protected.
And when they are, the results are predictable. Coddled and protected companies
get bloated and complacent, and the quality of their products suffers. 

As a case in point, my first car was a 1984 Pontiac Parisienne sedan. It was a
shockingly massive piece of junk that I sold for spare parts when it had barely
70,000 miles on it. Cars from the 1970s and 1980s generally conked out long
before they hit 100,000 miles. They were terrible cars… mostly devoid of any
style, originality, or personality. 

Compare that to today… 

It’s not unusual for cars to last for 200,000-300,000 miles with only minimal
maintenance. Even fairly basic models have bells and whistles that would have
been the stuff of James Bond movies a few decades ago. 

What changed?

Competition.

New entrants first from Japan and then later from South Korea and elsewhere
forced American automakers to up their game. It was a matter of building a
better product or going out of business. 

Here at The Freeport Society, we are unapologetically pro free trade, proudly
following the tradition of Adam Smith.

Yes, there are practical limits on free trade just as there are practical limits
on free speech. Death threats, for example, aren’t protected speech. We
understand that it may be necessary to restrict free trade in military hardware,
nuclear material, or other things critical to national security. But with those
precious few exceptions, Americans should be free to trade with whomever they
see fit and with minimal interference from Uncle Sam. 

Tariffs, by design, increase prices. That’s the last thing we need in a world
where inflation stubbornly refuses to die.


TARIFFS ALSO KILL GROWTH

The Great Depression didn’t start out as the Great Depression. It started as a
deep but relatively ordinary slump. 

It’s widely accepted today that protectionism – and particularly the
Smoot-Hawley Tariff of 1930 – pushed it into “great” territory by spurring a
collapse in international trade. 

Trade between the U.S. and Europe dropped by about two thirds over the four
years the tariff was in place, and the economic calamity that ensued helped lead
to the rise of Adolf Hitler, Benito Mussolini, and the Second World War. 

Trump’s tariffs likely won’t make it through Congress if he gets elected. He
isn’t exactly known for focus or follow-through. Besides, he’s already made it
clear that his priority upon taking office will be settling scores with
political rivals rather than advancing any actual policies. But the fact that
we’re having this discussion at all just goes to show that some ideas, no matter
how phenomenally awful, just refuse to die. 

And while we’re talking about terrible ideas that refuse to die, President Biden
has a few of those rattling around in his head as well. 

His Inflation Reduction Act of 2022 – which was essentially a funding bill for
green energy projects – may go down as the most deceptively named bill in
American history. It added a few hundred billion dollars in government spending…
and I can’t find a single historical example or even a theoretical construct in
which borrowing and spending reduced inflation. 

His insistence on eliminating student debt – but not my mortgage or credit card
bill! – threw a few extra logs on the inflation fire as well. And let’s not
forget that he continued to pour debt-fueled pandemic stimulus into the economy
long after the need for that had passed.

Now, in just four days’ time, we get to listen to the two old men in the back of
the Muppet Show argue about why each of their ideas are somehow less bad than
the other guy’s.

That said, it could be worse.

In fact, it may get worse…

There’s a very real possibility that the Democratic Party is just waiting for
that moment when Biden seals his fate and they are empowered to bring forward a
new candidate for president.

A shadow candidate that’s waiting in the wings for the right moment to step into
the spotlight.

If that happens, Trump and Biden will look like saints. 

We have a theory about who that shadow candidate is… and, if we’re right, the
damage he will inflict on us all. We prepared a video – which has gone viral
since we released it – that explains why we should all be doing everything in
our power to protect our wealth and grow it before it’s too late. Watch it here.

No matter how many cringeworthy moments we get to endure on Thursday, do
yourself and your family a favor…

Have inflation hedges in place. Think gold and crypto.

Invest in exponential progress. Consider the leaders but also the
pick-and-shovel companies without which progress would be impossible.

And find those companies that produce the currency of the super rich.

Shadow candidate or one of these two clowns… either way, we’re in trouble.

To life, liberty, and the pursuit of wealth.


WRITTEN BY CHARLES SIZEMORE

June 24, 2024
Learn more

Charles Lewis Sizemore is a market veteran of 20-plus years. He holds an MSc
Finance and Accounting from the London School of Economics and a BBA in Finance
from Texas Christian University in Fort Worth. He is a keen market observer,
economist, investment analyst, and prolific writer, dedicated to helping people
achieve financial freedom through smart investing.


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