Latest / Trend Watch / Episode 99: Maximum Warfare, Everywhere, All the Time

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Episode 99: Maximum Warfare, Everywhere, All the Time · Trend Watch

• 0:04
  SPEAKER_01: I'm your host, Neil Howe, and this is Trend Watch.
• 0:20
  [music]
• 0:30
  SPEAKER_01: Today is July 16th, 2026, and this is Trend Watch.
• 0:35
  SPEAKER_01: Welcome back, everybody.
• 0:36
  SPEAKER_01: As usual, I have on my fellow analyst, Christian Ford.
• 0:40
  SPEAKER_01: Christian, how are you doing up there in Maine?
• 0:43
  SPEAKER_00: I'm doing great, Neil.
• 0:45
  SPEAKER_00: You know, last weekend I went with my family to do some hikes up in Baxter State Park.
• 0:50
  SPEAKER_00: That's where the Appalachian Trail ends, and it was beautiful.
• 0:54
  SPEAKER_00: It went to some waterfalls and good to be out in nature.
• 0:59
  SPEAKER_01: That's where it ends.
• 1:01
  SPEAKER_00: Yeah, on Mount Katon.
• 1:03
  SPEAKER_00: We were on part of the AT for a little bit, but yeah, it ends up the big mountain.
• 1:08
  SPEAKER_01: At the other end, it ends in what?
• 1:10
  SPEAKER_01: Georgia?
• 1:11
  SPEAKER_00: Yes.
• 1:12
  SPEAKER_00: Yep.
• 1:13
  SPEAKER_01: So, yeah, I got that.
• 1:14
  SPEAKER_01: It's a long ways.
• 1:17
  SPEAKER_01: It's a little bit on the West Coast.
• 1:19
  SPEAKER_01: We have, you know, walking the Muir Trail all the way up through the Cascade Trail.
• 1:22
  SPEAKER_01: I mean, you can go.
• 1:23
  SPEAKER_01: I mean, it must be 1,500 miles.
• 1:25
  SPEAKER_01: Right.
• 1:25
  SPEAKER_01: Yeah.
• 1:29
  SPEAKER_01: A bit more rugged, I would say.
• 1:32
  SPEAKER_01: But then again,
• 1:32
  SPEAKER_01: you know,
• 1:33
  SPEAKER_01: I guess they're,
• 1:34
  SPEAKER_01: I don't know, the Sierra Nevada are probably 150 million years younger.
• 1:41
  SPEAKER_01: The Appalachians is probably the reason.
• 1:43
  SPEAKER_01: Anyway,
• 1:47
  SPEAKER_01: here we are, and we got some interesting news this week, and we want to get into it.
• 1:56
  SPEAKER_01: Obviously, the Iran War.
• 2:02
  SPEAKER_01: What Trump's going to do, you know, is the war back on or not?
• 2:06
  SPEAKER_01: We're going to talk a little bit more about the elections.
• 2:09
  SPEAKER_01: We're certainly going to talk about a bit about Lindsey Graham,
• 2:13
  SPEAKER_01: who passed away very suddenly,
• 2:16
  SPEAKER_01: and something about the current hearings with Todd Blanch and other related matters.
• 2:22
  SPEAKER_01: I guess we could start.
• 2:24
  SPEAKER_01: With the economy, we did have the, I know the CPI was Tuesday morning, right?
• 2:33
  SPEAKER_01: Why don't you go down the highlights?
• 2:35
  SPEAKER_00: All right, Neil, we'll start with the markets.
• 2:37
  SPEAKER_00: You know,
• 2:37
  SPEAKER_00: this is midday when we're recording,
• 2:39
  SPEAKER_00: so not the final numbers, but the S&P is down right now, 0.54%.
• 2:45
  SPEAKER_00: And over the last five trading days is down 0.16%.
• 2:49
  SPEAKER_00: As for the global Dow, Yeah, absolutely.
• 3:16
  SPEAKER_01: Why don't you talk a little bit about the CPI report?
• 3:20
  SPEAKER_01: I know it's already in our rearview mirror, but... We got the...
• 3:26
  SPEAKER_01: Yeah.
• 3:27
  SPEAKER_00: So we had the CPI month over month for June fell 0.4%.
• 3:33
  SPEAKER_00: That was the first monthly decline, Neil, we've seen since May 2020.
• 3:37
  SPEAKER_00: Year over year, it eased from 4.2% to 3.5%.
• 3:40
  SPEAKER_00: If we look at only core inflation, month over month was flat.
• 3:45
  SPEAKER_00: And year over year, it eased from 2.9% to 2.6%.
• 3:47
  SPEAKER_00: Right.
• 3:47
  SPEAKER_00: Yeah.
• 3:47
  SPEAKER_00: Well, look, I mean...
• 3:56
  SPEAKER_01: Maybe let's deal with the inflation first.
• 4:00
  SPEAKER_01: Kevin Horsch just gave his testimony before the Senate.
• 4:03
  SPEAKER_01: I guess that was what?
• 4:04
  SPEAKER_01: Later on the same day, right?
• 4:05
  SPEAKER_01: That was Tuesday.
• 4:06
  SPEAKER_00: Yep, Tuesday.
• 4:08
  SPEAKER_01: And he said all the right things.
• 4:11
  SPEAKER_01: He told the senators that the FOMC has, quote,
• 4:20
  SPEAKER_01: No tolerance for persistently elevated inflation,
• 4:24
  SPEAKER_01: you know, as though anyone thought that they might.
• 4:28
  SPEAKER_01: And going on from there,
• 4:32
  SPEAKER_01: I thought that what was interesting,
• 4:34
  SPEAKER_01: of course,
• 4:35
  SPEAKER_01: and what caused a lot of commentary is his stance,
• 4:40
  SPEAKER_01: which you know is very well known.
• 4:42
  SPEAKER_01: He's keeping with it that he's just not going to talk too much about inflation.
• 4:47
  SPEAKER_01: What the Fed's going to do or any dot plots or anything like that.
• 4:51
  SPEAKER_01: We know that Kevin Warsh thinks that it's better off if the markets adjust for themselves.
• 4:56
  SPEAKER_01: The problem,
• 4:57
  SPEAKER_01: of course,
• 4:58
  SPEAKER_01: is that markets inevitably are going to make some assumption about what
• 5:02
  SPEAKER_01: the Fed is going to do.
• 5:03
  SPEAKER_01: In other words, I'm not sure I quite understand.
• 5:09
  SPEAKER_01: What Warsh is trying to do?
• 5:12
  SPEAKER_01: Of course, there's a Fed, right?
• 5:15
  SPEAKER_01: And of course,
• 5:15
  SPEAKER_01: the markets are going to think,
• 5:17
  SPEAKER_01: gee, if this happens, then the Fed's going to react that way, right?
• 5:21
  SPEAKER_01: And when the Fed says nothing,
• 5:24
  SPEAKER_01: it doesn't mean that the markets aren't going to make an assumption.
• 5:28
  SPEAKER_01: It's just they're going to make an assumption on less information.
• 5:33
  SPEAKER_01: Now,
• 5:33
  SPEAKER_01: it is true that back in the days of the Jerome Powell Fed or the Yellen Fed or all
• 5:41
  SPEAKER_01: the feds going back,
• 5:44
  SPEAKER_01: that their sort of mealy-mouthed statements about how they were going to behave
• 5:51
  SPEAKER_01: or how they inclined didn't say a lot about what they would do
• 5:55
  SPEAKER_01: if something huge happened.
• 5:56
  SPEAKER_01: It was kind of limited.
• 5:59
  SPEAKER_01: But I'm not sure that it really helps for the Fed simply to say
• 6:04
  SPEAKER_00: absolutely nothing, right?
• 6:07
  SPEAKER_01: What I think that does is it just creates a greater
• 6:13
  SPEAKER_01: diversity of opinion in
• 6:15
  SPEAKER_01: the futures markets for the Fed funds, right?
• 6:17
  SPEAKER_01: I mean, if you go ahead now for 18 months, you just have a bigger spread, right?
• 6:21
  SPEAKER_01: I mean, who knows, right?
• 6:24
  SPEAKER_01: I really don't know.
• 6:26
  SPEAKER_01: You know, which may have already have it in his head that he's not going to raise rates at all.
• 6:30
  SPEAKER_01: Or maybe he's going to raise rates very freely.
• 6:33
  SPEAKER_01: Maybe he's about to raise.
• 6:34
  SPEAKER_01: I mean, we would not know.
• 6:36
  SPEAKER_01: I guess that's my point.
• 6:38
  SPEAKER_01: I'm not sure how that helps him.
• 6:41
  SPEAKER_01: He also said that a lot of what he's doing to overhaul Fed policy is needed because
• 6:49
  SPEAKER_01: the Fed's past policies were responsible for current inflation.
• 6:57
  SPEAKER_01: He said,
• 6:57
  SPEAKER_01: and I quote him here at the hearings,
• 6:59
  SPEAKER_01: the Fed changed its academic framework and its operational framework and it led
• 7:03
  SPEAKER_01: to higher prices,
• 7:05
  SPEAKER_01: which did more harm to the least well-off among us and so on and so on and so on.
• 7:10
  SPEAKER_01: That's why we have to reform it.
• 7:13
  SPEAKER_01: I actually think that the reason why the Fed's past policies,
• 7:18
  SPEAKER_01: particularly if you're talking about COVID, I think it was politics.
• 7:23
  SPEAKER_01: We've talked about that before, right?
• 7:27
  SPEAKER_01: It was President Biden that kept
• 7:32
  SPEAKER_01: Powell's renomination in limbo for practically
• 7:36
  SPEAKER_01: a year before he clearly had the support of the president to be renominated
• 7:43
  SPEAKER_01: And they finally broke the logjam in the Senate.
• 7:45
  SPEAKER_01: I remember that.
• 7:47
  SPEAKER_01: That was March of 2022.
• 7:49
  SPEAKER_01: And they had this whole furor over Sarah Bloom Raskin, who was going to be a climate conscious.
• 7:56
  SPEAKER_01: It's amazing to look back and think about what we were worried about back then.
• 8:00
  SPEAKER_01: We were worried about Fed policies for the poor.
• 8:04
  SPEAKER_01: We were worried about climate change.
• 8:05
  SPEAKER_01: I mean, inflation was soaring, right?
• 8:09
  SPEAKER_01: And for a while, President Biden wanted to have Lael Brainard, perhaps, instead of Powell.
• 8:20
  SPEAKER_01: And I think Powell rightly sensed that his only chance of being reappointed was Was
• 8:26
  SPEAKER_01: to soft pedal higher rates because if he started sounding hawkish,
• 8:34
  SPEAKER_01: the Democrats would,
• 8:35
  SPEAKER_01: you know, flack him even worse and Biden would choose another candidate.
• 8:41
  SPEAKER_01: I think that's why it happened.
• 8:43
  SPEAKER_01: Because as soon as that logjam broke in March and it looked like he was going
• 8:48
  SPEAKER_01: to be reconfirmed, boom,
• 8:50
  SPEAKER_01: suddenly Powell stopped mentioning transitory inflation
• 8:53
  SPEAKER_01: and suddenly you had all these hikes in the Fed funds rate.
• 8:56
  SPEAKER_01: You know what I mean?
• 8:57
  SPEAKER_01: It was like it just took off like a rocket, right?
• 9:00
  SPEAKER_01: It's like Powell had been liberated to do what he always knew he was going to do.
• 9:06
  SPEAKER_01: And I guess the reason I say that is because word seems to think
• 9:10
  SPEAKER_01: that Powell's problem is relying on,
• 9:14
  SPEAKER_01: you know, the wrong information and the wrong data.
• 9:17
  SPEAKER_01: I don't think that was it at all.
• 9:19
  SPEAKER_01: I think it was politics that hamstrung him and that paralyzed him and paralyzed
• 9:24
  SPEAKER_01: the Fed during that period.
• 9:27
  SPEAKER_01: And the public wasn't terribly concerned because everyone is getting...
• 9:31
  SPEAKER_01: Everyone was getting subsidized, you remember?
• 9:33
  SPEAKER_01: I mean, all the households were getting paid.
• 9:36
  SPEAKER_01: All the businesses were getting paid.
• 9:37
  SPEAKER_01: Yeah, we're worried about climate change.
• 9:39
  SPEAKER_01: We weren't worried about inflation.
• 9:41
  SPEAKER_01: It was a different era.
• 9:43
  SPEAKER_01: But that's what happened.
• 9:44
  SPEAKER_01: And I think Warsh is naive about the role of politics.
• 9:50
  SPEAKER_01: I think he is soon to be taught.
• 9:54
  SPEAKER_01: I think that his experience will soon teach him to be a
• 9:57
  SPEAKER_00: lot less naive.
• 9:59
  SPEAKER_01: The only other thing I can see in his statements,
• 10:01
  SPEAKER_01: he's still sanguine about AI impact on productivity.
• 10:06
  SPEAKER_01: And this, I think, is his closet agenda.
• 10:09
  SPEAKER_01: He's hinted at this.
• 10:09
  SPEAKER_01: He said, well,
• 10:10
  SPEAKER_01: because AI is going to do all this increase in productivity,
• 10:14
  SPEAKER_01: we may not have to raise rates because with all this new productivity,
• 10:19
  SPEAKER_01: right, we can keep rates low and be
• 10:27
  SPEAKER_01: And whatever money supply we have will be eaten up by all this new product we have.
• 10:33
  SPEAKER_01: You know what I mean?
• 10:34
  SPEAKER_01: I guess that's the idea.
• 10:35
  SPEAKER_01: I guess this has been shot down in multiple forums.
• 10:40
  SPEAKER_01: I think most people would agree that if we genuinely have a technology revolution,
• 10:46
  SPEAKER_01: we should expect higher real rates, not lower.
• 10:49
  SPEAKER_01: Right.
• 10:50
  SPEAKER_01: Right.
• 10:53
  SPEAKER_01: The increase in productivity is going to be a much longer-term phenomenon.
• 10:57
  SPEAKER_01: Every single technological revolution we're talking about is usually years,
• 11:03
  SPEAKER_01: not quarters, before we see that productivity payoff.
• 11:07
  SPEAKER_01: And it's usually,
• 11:08
  SPEAKER_01: on the other side,
• 11:09
  SPEAKER_01: we're talking about an enormous productivity boom like we're seeing with
• 11:15
  SPEAKER_01: the market soaring in these high-productivity sectors.
• 11:19
  SPEAKER_01: This vaunted new technology thesis that we now have,
• 11:23
  SPEAKER_01: like AI,
• 11:25
  SPEAKER_01: together with enormous investment in that sector,
• 11:28
  SPEAKER_01: this usually is accompanied by a boom and then a bust in financial prices, right?
• 11:34
  SPEAKER_01: We overinvest.
• 11:36
  SPEAKER_01: We overproduce a lot of these assets.
• 11:39
  SPEAKER_01: Eventually, we reach a new equilibrium.
• 11:41
  SPEAKER_01: And then ultimately, as time goes by, we have higher productivity levels.
• 11:46
  SPEAKER_01: This is completely the wrong timescale for the current inflation we're looking at.
• 11:50
  SPEAKER_01: Do you see what I mean?
• 11:51
  SPEAKER_01: I mean, we're looking right now at something about inflation now,
• 11:55
  SPEAKER_01: you know, the rest of the year.
• 11:57
  SPEAKER_01: I mean, talking about AI productivity that we might have by,
• 12:03
  SPEAKER_01: I don't know, 2029 and 2030 and the early 2030s, right?
• 12:07
  SPEAKER_01: I mean, think about the internet revolution.
• 12:09
  SPEAKER_01: Think of the dot-com.