As it Was in the Days of Noe, Q4, 2024

What did Noah see?

Last time, I promised that this report would be focused on Congressional fiscal policy. I decided to defer that forward again because I felt the obvious cultural shift underway merited its own commentary. Economics is ultimately a function of culture. Culture is the story of human behavior. Whenever human behavior shifts broadly and noticeably, such as in a surprise upset election, it will have economic effects. What will those effects be?

Have you ever wondered what it must have been like for Noah stepping off the ark? At just over 600 years old, he opened the door to peer around at a world that had changed so much that the wooden boat behind him might as well have been a space ship that launched him to another planet. The old world was lush, misty, and warm. The new one was surprisingly cold and harsh. Where once stood gentle, green hills, now stood sharp edged mountains. Where once there were vast populations, now there were only corpses and destruction. Children’s story books tend to paint this new world as though it were some kind of fresh washed paradise. The reality was likely a bit grim. Although Noah stepped off that ship into a literal world of opportunity, the new paradigm also contained unbelievable risk. Not much had to go wrong for what was left of humanity to be wiped off the face of the earth. No doubt the after-flood world required as much faith on Noah’s part as did building the ark in the first place. Perhaps, we are standing in a somewhat parallel moment. 

In our Q1 2023 report we wrote: “We believe the national mood is one of a return to reality. People are sensing that something is profoundly wrong and are ready for something different. They are becoming convinced that many of our wounds are self-inflicted. They are beginning to believe that central planning is becoming more prominent and less effective.”

In our Q2 2023 report we wrote: “We believe the national conversation and indeed the national investment landscape in the coming decade, will be dominated by one word in two forms. Energy.”

In our Q4 2023 report we wrote: “Therefore, a return to fiscal reason will likely coincide with a president who successfully convinces the country that we are acting insane.”

In our Q2 2024 report we wrote: “The recent choosing of J.D. Vance, author of Hillbilly Elegy, as Trump’s vice-presidential candidate makes me wonder if we are edging closer to a fulcrum moment where the nation’s attention will focus on shrinking our debt and becoming more collectively productive.”

Taken together, over the course of a year, it looks like we predicted the  historic political upset that Trump pulled off. Nothing could be further from the truth. We had no idea whatsoever what the outcome of the presidential election would be. Predicting political outcomes is an entirely different proposition than discerning the cultural shifts from which politics are derived. Having said that, the earthquake in Washington does indeed confirm that a national cultural shift is underway. Also, since the U.S. happens to be a superpower, the seismic effects are global.

By almost any measure, Trump won a decisive victory against steep odds. If you are inclined toward his views, you might say common sense won the day. If you lean differently, you might say crazy won the day. History may say both are true. Yet regardless of how history will view Trump, future textbooks will record this moment as significant, and for more than just political reasons. We’ll explore the broader cultural shift below, but first, politics itself. 

As stated above, the MAGA team won decisively. A single look at majorities by county nationwide demonstrates that the folks painting red left a shockingly small number of them blue. Winning the popular majority, while significant, pales in comparison to the breathtaking width of the coalition he assembled. Simply stated, folks voted for the brand from every conceivable demographic in large numbers. This, along with the forceful personality behind it, combines to create a movement to be reckoned with. Never in my life has the lame duck stretch of a presidency better defined the term. For all intents and purposes, both domestically and abroad, there is already a new president.

In an environment like that unexpected things happen. Powerful people who formerly opposed him are suddenly showing up at Mar-a-lago and acting like long lost friends. People, who in other times would have never been a consideration, are being nominated to powerful positions on the Executive team. Some of them will be confirmed. The president elect is making no secret about weighing in early on important foreign policy decisions. No one seems inclined to point out his breach of protocol. He casually states that he wants the Panama Canal back. The only person likely to argue about it is the man who gave it away in the first place, former president Jimmy Carter, and he just passed away. Trump states unapologetically that he wants to take over Greenland. When he brought that up during his first term, everyone laughed in his face about it. No one seems to be snickering now. He suggests adding Cuba to the United States. No one thinks he is kidding. He brashly suggests the same about Canada to the prime Minister of Canada – to his face no less. Everyone figures he’s kidding on that one, but Trudeau’s government promptly collapsed. Everywhere you look, the party of the elephant has become the undeniable elephant in the room. 

Nevertheless, nothing about this transition of power is likely to be simple, elephant notwithstanding. We will return to that shortly.

Beyond and preceding the realm of power brokering in D.C., there is an increasingly visible grassroots shift in culture. There are many lenses through which it can be viewed. 

Through a religious lens, a couple things are notable. Bible sales have gone up remarkably in 2024. In October alone, bible sales rose 22% against a backdrop of 1% increase in book sales overall.* Orthodox churches are reporting a strong trend of increasing interest from young people. Taken together, these factors point toward an emerging counterculture move toward structure. It’s too early to say, but we might be seeing the beginning of the 60’s in reverse. Sounds crazy? Read on.

Increase in suit sales

In fashion, designers and tailors are reporting a strong trend toward traditional formal wear. Suits are making a reappearance, and not just any old suit, but suits meant to project structure and values. Here is a recent quote from Dimitry Toukhcher who is Jordan Peterson’s tailor. “Today’s counterculture is not liberal. Today’s counterculture is a reawakening. It’s a renaissance. Today’s counterculture is seeking iconography. Today’s counterculture is seeking baptisms. Today’s counterculture is seeking rules and hierarchies based on competence. It wasn’t that I set out to purposely design anything that would invoke society into some kind of a conservative movement. I just happen to work in suits. The central figures of today’s social movements, like Jordan Peterson for example,... tend to be looking for a restoration to a greater society. Looking for something better.” Those who are old enough to remember the fifties and have mourned the decline of “decency” in their lifetimes, may yet live long enough to see society swing back the other direction. Sounds unlikely? Read on.

In a recent press release, the University of Iowa announced that it would close a department as “public universities in the state continue to respond to a changing DEI (Diversity, Equity, and Inclusion) landscape.” “Under the proposed plan, the college would close the departments of American Studies and Gender, Women’s and Sexuality Studies, as well as the current majors in American Studies and in Social Justice, which have fewer than 60 students combined, and create a new major in Social and Cultural Analysis.”  

This is a trend across the nation and not just with DEI programs. Classic liberal arts universities at all levels have been struggling for financial survival for some time despite record high tuition and government guaranteed payment. Simply put, college age students are losing interest in what these institutions have to offer. Beyond the long overdue good riddance to bad rubbish, it is worth noting that the University of Iowa made the decision because enrollment in the program simply cratered. Those are decisions driven by young people, not faculty.  Need more? Read on.

Through an economic lens, here is a recent quote from Michael C. Creedon Jr., Dollar Tree’s chief executive in a recent earnings call. He stated that in the last year, people pulled back on big purchases such as TV’s; earlier this year they stopped eating out and started cooking at home more often. This holiday season, they are saving by cutting back on the size of holiday parties. “They don’t invite as many people as they did.” 

Because he is the executive of a retail brand, Creedon saw this as a market negative. Dollar Tree’s stock performance over the last year proves that to be correct. However, from a cultural point of view, it might be a positive sign that people are making common sense decisions with their pocket books. Did you notice the broad market categories Creedon said were retracting are discretionary items?  Perhaps people are finally deciding they should not indulge until they get their credit card debt back under control. While people from lower middle class on down are certainly hurting financially, many of them are making the right decisions by curtailing their spending to match their reality. They are choosing instead to enjoy the simple pleasures of family and home. What’s not to like about that?

Here is a further quote from our Q1 2023 report. “Historically, if people, in response to these questions, decide that the “system” cannot be depended on for their best interest, they will revolt, either peacefully or violently, seeking to replace or circumnavigate the system. A new mentality begins to emerge. A renewed enthusiasm develops for concepts such as communities of integrity, quality, and durability in goods and services, and a focus on the real and tangible.”

All the above demonstrates that a cultural shift is underway, whether viewed through a political, fashion, educational, or even an economic lens. However, we are missing other important factors if we take these indicators to mean that we are entering some sort of Puritan utopia. We do well to remember that every cultural shift is a “return to common sense” as viewed by the majority. Or put another way, one man’s common-sense treasure is another’s unreasonable trash. A majority just means more than 50%. That leaves the possibility that there are many people decidedly uninterested in being coerced into thinking or behaving any differently. As a result, such transitions are rarely smooth. You can find evidence for that fact in almost any epoch of human history. If we return to Washington D.C. for a moment, we will see how fragile political movements are historically.

We could get data intensive here, but I think anecdotal evidence will more than suffice. We’re old enough to remember a few cycles in political fortunes on both the left and right. Almost no one has ever sustained dominant power for very long. Presidents and congressional majorities have their day in the spotlight. Sometimes those majorities seem almost future proof. Remember Reagan’s landslide victory to his second term? By the time he left office, his staff had seriously discussed invoking the 25th amendment which removes the president from power if they agree he has lost his mental faculties.  Remember Clinton’s almost unstoppable charisma? His appeal was so compelling that he won a second term even in the face of public embarrassment, yet he was shackled by another political powerhouse, Newt Gingerich. Gingerich helped engineer the “Contract with America” era in congress and ended a decades-old Democratic majority in the House. Following which, even Newt could not hold onto his power forever, as demonstrated by his failed attempt to secure the presidential nomination. Remember the sense of overwhelming mandate that Bush Jr. carried with him upon his return to a second term in the White House? With a war on terrorism going on, he was a man with a mission, yet by the time he left office he was fighting just to protect his legacy from folks questioning his premise for invading Iraq. We could go on and on. Trump’s own rise and fall and rise again are a case study unto themselves. This time around, he has assembled a very broad coalition of support, but does anyone believe for a second that all those folks are remotely on the same page? How many of them were simply voting against what they viewed as ludicrous?

For everyone who has been around long enough to have memories, it is worth noting that the lenses of religion, fashion, and economics and plenty of other indicators also give us a view of constant cycles. Tides come in, they go out again. The moon is full, it wanes again. The fact is so ubiquitous we don’t even question it. Really the only thing notable about the current shift is the fact that folks are aware we are in one. While this is exciting for some, I think everyone has an intuitive sense that it can also be a dangerous time. Two attempts on Trump’s life. Will there be more? Two attacks on the public using pickups in the last few days, both by military men no less. Who can be trusted? 

If we return now to economics, we get a better idea of how the many factors could have an impact on our businesses. 

To again quote from the Q1 2023 report: “The failure of major banks and a historic first indictment of a former president are contributing to a sense of unease that is leading to questions such as: “Is our monetary and political system sound and sustainable?” “Do the “experts” know what they are doing?” “Can the Federal Reserve print our way out of crisis after crisis forever?” “Is it possible for Congress to continue its unrestrained fiscal policy without consequence?”

It is probably safe to say that stock market volatility will be a prominent feature in the next twelve months or so. Markets hate uncertainty and if Trump does even half of what he says we will certainly see some uncertainty. Aside from all the political factors listed above, his appointment of Vivek and Elon as a dedicated task force for cutting government waste has a lot of people sitting on the edge of their seats. No doubt some of them richly deserve to be nervous, but that does not change the fact that there will be knock on effects in both employment numbers and stock valuations. Certainly, we don’t need to be buying and selling stocks in order to feel the effects of billions of dollars bouncing around as corporations seek safety. Exacerbating the volatility will be the growing problem of unreliable data. Market analysts rely heavily on government supplied data as part of their decision-making process. Increasingly over the last few years, it has become apparent that the data supplied is routinely being skewed for political purposes. This leads to panic selloffs and greedy buying. That’s not a new phenomenon but the manipulation of data is likely to get worse in the new administration. The Washington establishment, to put it mildly, is not happy about Donald’s return to the White house. One of the best tools they have for undermining his administration is to manipulate data to paint a picture of under performance. A recent quote from Danielle Dimartino Booth of Quill Intelligence: “Bureaucrats are left leaning. They will play defense with DOGE with the data.” Paired with the fact that the opposite manipulation has been happening for the last four years, you have a recipe for swooning data. The fact that Washington and market insiders know what is happening does not dampen the effects. Unreliable data leads to volatility. Let me hasten to add that the liberal left is not the exclusive purveyor of dishonesty. It’s just the nature of the beltway beast. 

A second factor to touch on is the everlasting fight in Congress over the budget. Here again, volatility is the word of the day. Trump at heart is a fiscal (government spending) conservative. One of the most damaging moments during his first term was his no compromise approach to the budget question. He famously drug Pelosi and Schumer in front of the camera in an attempt to make them buckle in the face of a government shutdown. It was a high stakes gamble which he lost. He clearly has no intention of making that mistake twice. Already he has signaled his willingness to go along with almost any budget approved by congress. Congress as a whole has no stomach for fiscal austerity. The fight over the budget is rarely about saving money, no matter what they are saying to the camera. Which party happens to be in power is irrelevant. Rather, it is about what the money will be spent on.  Further, while Trump may be a fiscal policy conservative, he is a monetary policy (interest rates and money printing) liberal. Personally, I think this is the logical conclusion his pragmatic mind has come to. Trump’s willingness to allow Congress to go almost anywhere with the budget, up to and including a total suspension of the debt ceiling, is his concession to two undeniable facts. One, fighting with Congress over the budget has proven to be a dead-end street and will remain so. Two, the U.S. economy at this point is entirely consumer and credit driven. Perhaps he hopes to change that, but until then, he must work with those two realities. The only logical way to contain the fallout from a society and Congress high out of their minds on debt is to implement ultra-liberal monetary policy. That probably means that Jerome Powell over at the definitely-not-independent Federal Reserve will shortly be faced with a choice. Either he can switch back to his dove costume, or he can resign.

The monetary policy question is probably the biggest outstanding question in the economy right now aside from whether Trump will even survive until inauguration day. Assuming he does, the boxing match between Powell and Trump will likely go from its current behind-closed-doors status to a very public brawl. If history is anything to go by, Powell will quickly concede the match and use his genius level sleight-of-hand to make the hawk costume disappear. As discussed in our article about the Federal Reserve, monetary policy and politics are always on a collision course. What is best for the economy from a long term monetary policy standpoint is almost always different from what is best for politicians seeking reelection. Almost no president, aside from Ford and Clinton, has been able to resist the urge to use their appointment power to gently persuade the Fed chair to err on the side of political expediency. In fact, we’ll go out on a limb and say we think the reason Powell came out much more hawkish than expected at the last Federal Reserve meeting was a preemptive strike against a future inevitability. He’s buying himself a little wiggle room for when he faces a new circus master on January 20. Either way, we’d be shocked if interest rates don’t come down and reserves go up over the next couple years. It is the only way, short of a Congressional overhaul, to keep the government from becoming an insolvent death trap. 

Increasing opportunities on Main street

For you and I, this likely means, on the one hand, Main Street business opportunities could be booming, while on the other inflation is simultaneously ramping up again. We’ve said it before and we’ll say it louder now. Resist the urge to take advantage of a new wave of cheap money and to get into unhealthy debt levels. The traps in this economy will be everywhere. Stay solvent. Stay alert.

There are many more factors, both global and domestic, that will play into our economic reality in the near to medium range. 

We think the shrinking populations worldwide will become more and more dominant. Because of this dangerous decline, future presidential campaign platforms are likely to contain more about mass immigration than the current deportation rhetoric. These demographic numbers will have very direct implications on future business decisions on many levels.

Energy will continue to be a dominant economic agent of change, but probably not in the way most people expect it to be. We believe the foreseeable future, while bumpy, will trend toward energy abundance, not energy scarcity. This will have a positive and deflationary counter effect to the overall inflationary environment. 

The EV and Full Self Driving phenomena are about to flood the world. Many people in the western world are unaware or in outright denial, but it is coming sooner than most people think. When it does, it will change every single equation in every single business worldwide. It is that big of a deal. Imagine the implications if the cost of transportation of goods and people were to be cut by one third, which we think is a distinct possibility. Shipping companies are willing to trade out entire fleets for a gain of only a percentage point or two in efficiency. Here again, this will have a positive and deflationary effect. 

Global shipping disruptions, which we thought were just a temporary feature of the pandemic, are steadily increasing. This is not necessarily a direct result of the virus at all. More likely, it is the indirect result of a complete break in trust between the West and their Eastern trading partners. Yes, the mutual lies about Covid started it. However, the unprecedented seizure of dollar reserve assets from Russia since the war began also played in. The global realignment taking place will have massive implications in the long range for everyone in the whole world attempting to transact. That’s pretty much everyone!

Speaking of global realignment, we should keep the BRICS nations on our radar. This is an international coalition (Brazil, Russia, India, China, South Africa with many more joining or seeking to join) with the stated agenda of building their own reserve currency status apart from the U.S. dollar. Naturally, the United States would like to put a stop to this, but as the voting bloc in the Western world swings toward a more populist viewpoint, these nations are taking the opportunity to move away from a system that has dominated geopolitics since the end of the second World War. If they achieve their objective, it will have real consequences, especially for our bond markets, which will put fiscal restraints on Congress they’ve never thought of in their lives before.

There are many interesting ways to view or measure the culture shifts happening around us. Those presented here are just a few examples. Likely you can think of many more. We believe it is more important than ever to stay aware of those changes and adjust our business models to take advantage of them. We also caution against euphoric assumptions based on political outcomes. Human nature has not changed. 

In conclusion, we point you back to the scripture. 

Gen. 8:22-9:1 While the earth remaineth, seedtime and harvest, and cold and heat, and summer and winter, and day and night shall not cease. And God blessed Noah and his sons, and said unto them, Be fruitful and multiply, and replenish the earth…

Noah’s faith is still our mandate!

The Arrow Team

 *According to Circana.