Authored by Guy Ciarrocchi via RealClearPennsylvania,

Gov. Josh Shapiro was almost selected as Kamala Harris’s running mate, and he wants to be president more than Phillies fans want to win the World Series. As he reflects on the 2024 election, what does he see? How will the lessons he draws affect his governorship, his budget, and how he leads the state?

Donald Trump carried Pennsylvania, all of the “blue wall” states, and a majority of the popular vote. Incumbent Vice President Kamala Harris – with over $1 billion in campaign cash and the open support of most of legacy media and Hollywood – got less votes than her boss did in 2020.

Pennsylvania Republican Dave McCormick defeated 18-year incumbent U.S. Sen. Bob Casey. Every other statewide Republican won election, too. The GOP now holds more statewide offices than the Democrats for the first time in a generation.

Two Pennsylvania Republican challengers defeated Democratic incumbent members of Congress, while the top Republican incumbent targeted by Democrats – Scott Perry – survived.

The 50-seat Pennsylvania State Senate remains in the GOP’s possession at 28-22, with a new, 29-year-old member from Philadelphia, of all places. The Pennsylvania House stands at 102-101, Democrats. They owe this narrow advantage to spending nearly $5 million to hold on to a statehouse seat in rural Cambria County, a campaign in which they alleged that the 16-year incumbent Democratic member loved Donald Trump more than the Republican challenger.

We’re getting a sense of what Shapiro thinks he needs to do to become president. The normally gregarious, loquacious governor has lately been quieter than Calvin Coolidge. Thirteen days after the election, after the Democrat-controlled Pennsylvania Supreme Court unanimously ruled that Casey’s legal arguments – and the actions of Democratic county commissioners – were in violation of state law, Shapiro issued a written statement. He advised county officials to follow the law but did not ask Casey to concede.

Most national Democrat leaders and elected officials – and the ladies on The View – argue that Harris lost because most Americans are misinformed or are bigots or misogynists. (That would be news to the millions of blacks, Hispanics and Jewish voters who voted Republican, and the white voters who don’t see themselves as morally bankrupt, either.) Governor, is it the voters’ fault that Harris lost?

Pennsylvania Sen. John Fetterman and Vermont Sen. Bernie Sanders have suggested that national Democrats forgot working-class people. Any thoughts, governor?

National activists and television commentators have suggested that the Democrats need to recommit to progressive policy positions. Maybe Democrats did a poor job of explaining why these polices are desirable. What do you think, governor?

Most Pennsylvanians don’t care much about post-election analysis at this point. We’re more interested in what Shapiro will do next as governor. Several upcoming decisions will show where he stands. Will he appease the far-left activists in his party, or build bridges to the GOP? Will he refocus on working-class families?

His 2024 budget grew faster than inflation. Will he try to spend his way to reelection – and perhaps to the White House – or will he be more fiscally conservative in 2025?

Will 2025 be the year that Shapiro includes scholarships/family-tax-credits in his budget, or will he leave them out – again? In 2024, he cut cyber charter school funding. In the battle of students versus the teachers’ union, who will he support?

Pennsylvania’s business taxes are among the nation’s highest. Shapiro has pledged to cut them. Will he follow through?

Small businesses need regulatory reform and tax relief. Will Shapiro move beyond press conferences and embrace true regulatory relief – like “deemed approved” swift green-lighting of applications for licenses and permits? Will he go further to help start new businesses by eliminating licensing for entrepreneurs? Or will he try to buy off would-be entrepreneurs as Harris did, by offering “free” taxpayer money?

Pennsylvania is home to more natural gas reserves than Saudi Arabia has in oil. Harris talked about banning fracking, then retracted that pledge, then seemed to backtrack again. What does Shapiro think? Will he enforce policies to get our low-cost, clean-burning natural gas out of the ground and into Pennsylvania homes and businesses? Will he support President-elect Trump’s plan to let Pennsylvanians sell liquified natural gas to our European allies, creating jobs and generating tax revenue, while keeping Russian gas out of Poland, Germany, and France?

Will he give up on his unnecessary, wasteful “green energy” dreams (“PRESS” and “PACER”) – using taxpayer money to subsidize unreliable energy sources, forcing Pennsylvanians to import Chinese materials and green energy products, and thus increasing the cost to heat our homes and operate our factories? Or will he choose common sense, realizing that his green initiative is too costly and creates a disincentive to use the almost-limitless supply of natural gas that lies beneath our feet?

Will he govern and run for reelection – and eventually for president – as the governor who rescued children from failing schools, helped small businesses grow, and unleashed Pennsylvania’s energy assets? Or, does he see himself as the savior – the superior messenger – of the same left-wing policies that led his party to defeat?

What message did Shapiro hear from the 2024 election results? Pennsylvanians want to know.

While folks across the Mid-Atlantic and Northeast are still recovering from the snow and rain storm that swept through the region late last week, another storm might impact the Interstate 95 highway network between Washington, DC, and New York City just ahead of the Thanksgiving travel holiday. 

Private weather forecaster BAMWX wrote on X that over 100 blended weather model ensembles show a potential winter storm traversing the Mid-Alantic area into parts of the Northeast around Thanksgiving.

“Right now a multi model probability % forecast for #thanksgiving is starting to indicate a risk for 4″ + snow Wednesday into Thursday,” BAMWX said. 

Here at BAM our data in Clarity takes a blend of well over 100 different weather model ensembles.

We then create probability maps to look at possible threats and the odds of them.

Right now a multi model probability % forecast for #thanksgiving is starting to indicate a risk… pic.twitter.com/hdueFUdPuv

— BAM Weather (BAMWX) (@bamwxcom) November 23, 2024

In a separate note, FOX Weather meteorologist Cody Braud told NYPost, “There is 100% going to be a system knocking on our door, we just don’t quite know the timing yet.” 

“I would plan for a really bad travel day Friday, because that low is likely going to be just offshore, bringing strong winds, rain, probably snow,” Braud noted.

Trans-Siberian Express?? 

00z EPS is “orchestrating” a Trans-Siberian Express as we head into the post Thanksgiving Day timeframe and into the 1st week of December. Early #winter weather for the East?? Haven’t seen that in awhile!! @weatherchannel @spann @JimCantore pic.twitter.com/1ML9f4zOo4

— Tom Niziol (@TomNiziol) November 23, 2024

Great news for NatGas prices.

NatGas Hits Highest Price In Year On “Very Cold Pattern Developing” Across Lower 48 https://t.co/zxmJIbJVac

— zerohedge (@zerohedge) November 21, 2024

The threat of winter weather across the Mid-Atlantic and Northeast coincides with AAA’s forecast that 79.9 million people will travel at least 50 miles from their homes during the Thanksgiving holiday travel period.

“Thanksgiving is the busiest holiday for travel, and this year we’re expecting to set new records across the board, from driving to flying and cruising,” Stacey Barber, Vice President of AAA Travel, wrote in a note last week.

Keep an eye on the weather models as we approach the travel holiday week.

Authored by Lawrence Wilson via The Epoch Times (emphasis ours),

President-elect Donald Trump has said he intends to cut government spending by reasserting the presidential power of impoundment, a move certain to spark a court battle and one that could redefine presidential power for decades to come.

Impoundment occurs when the president chooses not to disburse funds authorized by Congress; instead leaving them unspent in the U.S. Treasury.

This power is not mentioned in the Constitution but has been employed by presidents since Thomas Jefferson. Congress enacted limits on the practice 50 years ago.

Now, Trump intends to challenge the Impoundment Control Act of 1974 (ICA), which he believes is unconstitutional.

“I will use the president’s long-recognized Impoundment Power to squeeze the bloated federal bureaucracy for massive savings,” Trump said when announcing his plan in June 2023.

Others say the ICA was needed to prevent the misuse of impoundment to alter congressional spending priorities, not merely eliminate waste.

Expanded use of impoundment power seems certain to be challenged in court.

Resolution is likely to hinge on two constitutional questions that define the balance of power between the executive and legislative branches of the federal government.

Jefferson appears to have been the first to use impoundment.

In 1803 he delayed purchasing gunboats to patrol the Mississippi River because they were no longer needed after the United States acquired the Louisiana Territory from France.

Since then, most presidents appear to have used the practice from time to time, and usually because the spending was no longer in the public interest.

President Ulysses S. Grant used impoundment to prevent federal funds from being used on river or harbor projects that would benefit private parties rather than the public.

President Franklin Roosevelt used it to limit spending on civilian construction projects to concentrate on wartime spending.

President Lyndon Johnson impounded some money to reduce inflation.

President Richard Nixon used the practice more frequently than previous executives, and his use of impoundment represented “a difference in kind, not simply in degree” from his predecessors, according to Joshua Chafetz a professor of law and politics at Georgetown University.

Nixon’s opponents argued that he was assuming the power to do away with certain government programs by simply starving them of funds, which violated the will of Congress.

His team argued that presidents have a duty to consider other factors, including inflation, when deciding if or when to release government funds.

Congress then passed the ICA, which, in addition to reforming the congressional budgeting process, strictly limited the executive’s ability to cut or delay spending the money appropriated by Congress.

Nixon signed the bill into law.

The ICA stipulates that presidents must ask congressional permission to impound funds. The president can ask Congress to permit either a recision or a deferral of spending.

A recision is a spending cut.

When the president asks Congress to cut certain spending, he may defer that spending for up to 45 days while Congress considers the matter.

If Congress does not grant the request, the president must release the funds.

A deferral is a delay in spending certain funds to a later point within the current fiscal year.

If Congress doesn’t respond to the deferral request, the president may defer the spending.

Robert Kravchuk, professor emeritus of public policy at Indiana University told The Epoch Times: “In one case, he’d have to hear positively from Congress not to spend money, and that’s the recision.

“In the second case, he hears nothing, then he could go through with his deferral, but he can’t defer it to the next year or the year after that.”

Trump’s Challenge

Article II of the U.S. Constitution states that the president must “take Care that the Laws be faithfully executed.”

Trump has said the ICA violates that clause because it strips the president of discretion in how best to achieve the government’s purposes.

“The [ICA] dramatically limited impoundment, the power of the president to choose not to unnecessarily spend taxpayer dollars, forcing the executive branch to spend every penny of congressionally appropriated funds,” Trump wrote in his statement.

A second argument in favor of impoundment is that congressional appropriations specify a maximum amount that may be spent, not a minimum.

“Congress has the ‘power of the purse,’ so its appropriations necessarily set a ceiling on federal spending for a particular purpose, but it should not set the floor,” Trump said.

That argument was made as early as 1876 when Secretary of War James Cameron wrote that “spending the full amount” of an appropriation “was in no way mandatory.”

Read the rest here…

Hungarian Prime Minister Viktor Orban has issued formal invitation for his Israeli counterpart Benjamin Netanyahu to visit his country, Orban’s office has confirmed. This follows immediately on the heels of The Hague-based International Criminal Court (ICC) issuing final arrest warrants for Netanyahu and ex-Defense Minister Yoav Gallant for overseeing alleged war crimes in Gaza.

“Today I will invite Israel’s prime minister, Mr. Netanyahu, for a visit to Hungary and in that invite I will guarantee him that if he comes, the ICC ruling will have no effect in Hungary, and we will not follow its contents,” Orban said Friday.

Hungary currently holds the European Union’s rotating six-month presidency, and this sets Orban up once again to clash with EU consensus, given EU foreign policy chief Josep Borrell has demanded that all member states execute the arrest warrant if Netanyahu or Gallant travel to their territories.

Orban on Friday told state radio that the ICC move is “wrong” and asserted that the Israeli prime minister would be able to engage in talks in Hungary “in adequate safety”.

The NY Times further cited Orban as saying the following:

Inviting Mr. Netanyahu to visit, he said that Hungary “will ensure your safety and freedom.”

Mr. Orban’s vow to protect Mr. Netanyahu from arrest made Hungary the first European Union country to openly flout the I.C.C. ruling.

Thursday’s ICC warrant issuance also got a swift response from the White House, which said it “fundamentally rejects” the move and won’t recognize it (though the US has never been a member state of the ICC).

“Let me be clear once again: whatever the ICC might imply, there is no equivalence — none — between Israel and Hamas. We will always stand with Israel against threats to its security” President Joe Biden said in reaction, agreeing with Israel that it is “outrageous.”

The reaction in Europe has been mixed. While all 27 member states of the EU are part of the ICC, and the majority have said they plan to enforce the ruling. However, Germany has said it is “examining” how to respond while signaling it’s unlikely to enforce it if PM Netanyahu visits the country.

But none have been so bold as Orban in quickly issuing an open invitation for Netanyahu to visit, in direct defiance of the ICC, despite Hungary being a signatory to the Rome Statutes.

Authored by Mike Fredenburg via The Epoch Times,

The Pentagon is facing a difficult decision regarding the F-35’s chronic, crippling problems with overheating brought on by its insufficient cooling capacity.

Should the U.S. taxpayers pay for a costly upgrade to the stealth fighter’s cooling that will handle its immediate needs, or should U.S. taxpayers pay for a far more expensive upgrade that theoretically could handle increased future cooling needs?

Before we briefly address the two options facing the Pentagon, let’s look at why cooling capacity is so important for the F-35 and why the most expensive weapons system program in world history produced a plane that was destined to have inadequate cooling from the very beginning.

Having adequate cooling is vital because a fighter’s avionics, radar, and other electronics-based systems generate heat. While air cooling is always part of the cooling solution, modern fighters cram so much heat-producing electronics into a relatively small space that air cooling alone is insufficient.

Various types of liquid cooling are necessary, especially for power-hungry radars. This is particularly true of the F-35, which is advertised as a flying supercomputer crammed full of heat-producing computers, communications, and avionics equipment. When it comes to heat production, its powerful AN/APG-81 AESA radar leads the way.

The bottom line is that it takes a whole bunch of electronics to produce a whole bunch of heat to give the F-35 its much-touted capabilities and make it the world’s preeminent fighter.

Regardless of the validity of the claims to preeminence, there is zero doubt that the F-35’s designers designed a fighter that, from the outset, had insufficient cooling. This nearly intractable problem has been exacerbated as new capabilities are added, requiring more computing power and generating more heat. In particular, the group of new Block IV capabilities that we are told are necessary for the F-35 to fulfill its long overdue promise of being a dominant fifth-generation fighter will require a whole bunch more cooling.

The underlying issue powering the cooling crisis is that the F-35 design team only designed the F-35 with 14 kilowatts (kW) of cooling power. Yet the F-35 was not declared fully operational until Block 3F capabilities were incorporated—capabilities that required roughly 32 kW of cooling and have only recently been rolled out, some 30 years after development began on the F-35 Joint Strike Fighter. The Block 3F upgrade necessitated modifying the F-35’s cooling system. It negatively impacted the longevity and reliability of the F-35’s F135 engine, which was already struggling with reliability issues.

So why was the F-35’s cooling capacity initially so under-specced?

The answer to this question is also the answer to most of the problems that have plagued a plane that came out of a design-by-committee process—a process that took what was supposed to be a low-cost, relatively lightweight replacement for the F-16 and the F/A-18 A and C Hornet that would complement bigger, more expensive fighters like the F-22 and the Navy’s F/A-18E/F Super Hornet.

Ultimately, what was supposed to be a relatively low-cost, lighter complement to large twin-engined fighters like the F-22 and F/A-18E/F became a single-engine fighter heavier than many twin-engined fighters.

The massive weight of the F-35 meant that Pratt & Whitney had to design an engine with a far higher power-to-weight ratio than the F-22’s still cutting-edge F119 engine. It also meant that the F-35 had to undergo a draconic weight reduction program where every ounce mattered. Pratt & Whitney succeeded in getting the power by ramping up the operating temperature far beyond what had ever been done for a production fighter engine.

Still, as time has proven, the massive increase in turbine inlet temperature to an insane 3,600 degrees Fahrenheit—900 to 1,100 degrees more than most other jet fighter engines—ensured that the engine would suffer from reliability and longevity issues. The fact that engine power is required for cooling only exacerbated the problem as power requirements for each F-35 capability upgrade added the need for more cooling, which meant the F-35 engine was subjected to more stress.

That this would be the case had to be understood by the F-35 design team, but they also understood that without the massive increase in engine power only possible by pushing the F-35 engine operating temperature far into bleeding edge territory, the F-35 program was dead in the water and that adding any weight for anything would also seriously jeopardize the program.

Consequently, the decision to under-spec the F-35 cooling capacity happened because incorporating enough cooling capacity into the F-35’s design to allow for reasonable growth would have added weight that would have reduced the range and payload of all the F-35 variants, but in particular, the Marine’s VTOL capable F-35 where any additional weight threatened to lower its range and payload combination below minimum acceptable performance parameters.

If truth be told, the capabilities crammed into the F-35 would have made sense for a two-engine design. However, changing the F-35 to a twin-engine design was a no-go because it would have immediately dispelled the illusion that the F-35 was going to be a low-cost replacement for the F-16. Just as importantly, there was no twin-engine vertical and take-off landing (VTOL) F-35 design for the Marine Corps.

So, in the end, the F-35 was released with an engine destined to be unreliable with a cooling capacity that no experienced aerospace engineer could have credibly claimed would meet future cooling needs.

This brings us back to the question of whether it makes sense to go with an expensive short-term solution or a costly longer-term cooling solution. From a sales perspective, this is a choice of two positives that the Pentagon would like us to focus on. But before committing to the options being presented, let’s consider that the current F-35 engines are wearing out faster than promised. The engine control units that will supposedly make them reliable are not due to have their design completed until 2029.

Also, consider that the program cost, including sustainment, is now projected to be over $2 trillion, 400 percent more in inflation-adjusted dollars than its 2007 GAO estimate. Further, as has happened so many times before, the cost estimate could grow once again.

Finally, there is no guarantee that the desperately needed engine core upgrade from Pratt & Whitney, which is supposed to be delivered in 2029, will be delivered on time or that it will actually make the F-35 engine reliable.

Consequently, given that the level of risk and costs for the F-35 program only seems to be growing, maybe we should think of a creative way to get our existing  F-35s flying with some reasonable level of reliability. Before building new F-35s, a carefully chosen set of hardware and software capabilities that do not require increases in power and cooling should be considered.

Doing this would be a significant achievement!

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times or ZeroHedge.

At the height of the covid lockdowns and mandates a massive portion of the global economy was shut down, leading to supply chain instability, huge job losses and a stagflationary crisis.  However, climate change propagandists argued that the event was actually a positive for the planet when it was revealed that emissions fell by 5.4%.  They asserted that the covid lockdowns were a practice run for what they called “climate lockdowns” – Presenting a plan for scheduled disruptions to global economic activity as a means to slow the effects of climate change.  

Globalists also presented climate lockdowns as a kind of collective social punishment in the event that populations refused to cut carbon output on their own.  As World Economic Forum “Agenda Contributor” Mariana Mazzucato argued in 2020:

“Under a “climate lockdown,” governments would limit private-vehicle use, ban consumption of red meat, and impose extreme energy-saving measures, while fossil-fuel companies would have to stop drilling. To avoid such a scenario, we must overhaul our economic structures and do capitalism differently.

Many think of the climate crisis as distinct from the health and economic crises caused by the pandemic. But the three crises – and their solutions – are interconnected…”

After a public uproar over the notion of extending pandemic lockdowns into climate lockdowns, the establishment media would go on to “Fact Check” the issue and assert that it was a “conspiracy theory.”  They lied.

The pandemic lockdowns would eventually be exposed as pointless; a disastrous drain on the global economy that did nothing to prevent the spread of the covid virus.  But as we witnessed with most of the restrictions instituted during covid, the goal was never to protect the health of the populace.  Rather, the goal was to acclimate the populace to an exponentially increasing list of violations of their basic freedoms.

One organization that has a distinct interest in diminishing economic activity for the sake of preventing global warming is the International Monetary Fund (IMF).  In a recent ‘call for global climate action’ the IMF states that restrictions on economic activity and general emissions activity would have to far surpass those enforced during the pandemic in order to get to their stated temperature target of less than 1.5°C. 

Open lockdowns of developed nations might not ultimately be the tool that globalists use to reach net zero, but carbon taxation on an oppressive scale could end up having the same effect.  Carbon taxes could act like steep interest rate increases commonly used by central banks to slow economic activity during inflation.  An indirect economic shut down of this magnitude would be absolutely devastating for western nations in particular, resulting in crippling energy shortages, food shortages, job losses, and eventually total collapse and a population plunge. 

Net zero is not possible otherwise.

The IMF and other globalist organizations suggest that all nations must achieve a net zero carbon goal by 2030 in order to avoid the “climate cliff” – The theory that once the Earth hits warming of more than 1.5°C, there will be a domino effect which will lead to environmental catastrophe and even more carbon emissions and warming.

To be clear, there is no evidence whatsoever to support the idea of the climate cliff, primarily because there is no evidence of a causation relationship between carbon emissions and global warming.  In fact, there is no evidence that that human industry has a warming effect on the climate whatsoever.

Temperature records for hundreds of millions of years prove that warming periods are a mainstay of the Earth’s climate history.  In comparison, our current era is one of the coldest, not the warmest.  Climate scientists ignore this data and use temperature records going back to the 1880s.  Meaning, their data is based on a mere 140 years of the Earth’s history.

The current warming rate is not significant to other periods, nor is there any evidence that human activity is causing it.  Data on carbon levels of the past show that temperatures do not necessarily rise in tandem with carbon activity.  Carbon emissions are also far lower today than they have been in the past. The claim that carbon concentration due to human activity has a drastic influence on global temperatures (or weather) is absolutely unfounded.

The real reason for climate controls and carbon taxes seems to have far more to do with wealth redistribution from developed nations over to developing nations.  The agenda is about centralizing the control of national wealth as well as individual liberties and private property.  And the IMF, of course, would like to be one of the institutions at the helm of that wealth management empire.

Authored by Lance Roberts via RealInvestmentAdvice.com,

A Holiday Rally Is Likely

Last week, we discussed the impact of the Trump Presidency on the financial markets based on expectations of tax cuts, tariffs, and deregulation. Since then, the “Trump Trade” went into full swing, pushing the markets higher; however, as we noted, that the trading had gotten a bit ahead of itself, and we saw some consolidation and profit-taking that reverted the market to the 20-DMA. Such is unsurprising given the overbought conditions with a more extreme deviation from the 50-DMA. However, the market recovered somewhat this past week, with buyers entering and reversing early morning market declines.

Notably, after holding support at the 20-DMA for several days, the market gained some traction late in the week. That buying pressure will likely reverse the short-term MACD sell signal, allowing the market to rally further next week.

That action aligns with Friday’s Daily Market Commentary, wherein we noted the market seemed to be setting itself up for a pre and post-holiday trading bump into the end of the month. To wit:

“The good news is that we just past the normal “weak” period for the market in November. While not always the case, on average, the market trends to trade better the week before and after the Thanksgiving holiday. If that turns out to be the case again this year, a retest of recent highs at 6000 seems likely.”

While the trade into month-end tends to be positive, we expect to see another patch of weakness in early December as mutual funds complete their annual distributions. However, post that weakness, the bullish bias remains into year-end as professionals window dress their portfolios for year-end reporting.

If you are underweight equities, consider minor pullbacks and consolidations to add exposure as needed to bring portfolios to target weights. Pullbacks will likely be shallow, but being ready to deploy capital will be beneficial. Once we pass the inauguration, we can assess what policies will likely be enacted and adjust portfolios accordingly.

While there is no reason to be bearish, this does not mean you should abandon risk management. As we will discuss this week, the market forecasts for 2025 are exceedingly optimistic.

Market Forecasts Are Very Bullish

It’s that time of year when Wall Street analysts begin trotting out their predictions for where the S&P 500 index will be by the end of the coming year. As is always the case, these market forecasts are ALWAYS higher, and this year is no expectation.

Goldman Sachs and BMO have already forecasted that the market will rise to 6500 and 6700, respectively, by the end of 2025. However, one of the more interesting market forecasts came from long-time bear Michael Wilson of Morgan Stanley. This past week, he matched Goldman’s forecast of 6500 as a base case with a bullish case of 7400. That is interesting because Michael Wilson has been a long-time market bear.

His basis for that call was quite interesting:

“A potential rise in corporate animal spirits post the election (as we saw following the 2016 election) could catalyze a more balanced earnings profile across the market in 2025.” 

If you don’t understand the importance of “animal spirits,” we discussed this in detail concerning Yardeni’s recent prediction of S&P 10000 by the end of the decade:

“The term Animal Spirits” comes from the Latin term “spiritus animals,” meaning “the breath that awakens the human mind. Its modern usage came about in John Maynard Keynes’ 1936 publication, “The General Theory of Employment, Interest, and Money.” He used the term to describe the human emotions driving consumer confidence. Ultimately, the financial markets adopted the “animal spirits” to describe the psychological factors that drive investors to take action. This is why human psychology is essential in understanding the close linkage to short-term valuation measures.

Note that this has nothing to do with underlying fundamentals; it is purely “sentiment” or “hope” that things will improve. However, as investors, we must focus on the ultimate driver of market prices over time: earnings. Three very obvious facts about earning growth currently should concern investors heading into next year.

First, as noted in last week’s Bull Bear Report, valuations on both a forward and trailing basis are significantly elevated. While this does NOT mean the market is about to crash, it does suggest that earnings have not kept up with investor’s expectations. The problem with elevated valuations is the risk an event occurs that causes investors to realign expectations with actual reality.

Secondly, earnings expectations, which support Wall Street’s market forecasts, are very optimistic.

Lastly, the equity risk premium currently suggests that investors are not getting “paid” for the risk they are taking. We last saw equity risk premiums at these levels heading into the “Dot.com” bubble.

Let me reiterate that none of this data suggests a market crash is imminent. However, investors should be aware that given the current market conditions, the risk of disappointment in the future is much greater today than it was just two years ago.

The Historical Problem Of Analyst Market Forecasts

Here is the critical question for investors: “If the market is priced based on future earnings expectations, then how reliable are those estimates?” The chart below is from Yardeni Research and shows the evolution of earnings forecasts over time. You will notice that analysts’ initial forecasts were wrong in almost every case.

In other words, if you bought stocks at the beginning of virtually every analyst’s annual forecast, based on the assumption that earnings would grow, you overpaid for investments virtually every given year. However, in most cases, you make money anyway, so why worry about it?

The reason to worry is that over-estimation eventually leads to reverting events.

The biggest single problem with Wall Street today and in the past is the consistent disregard for the possibilities of unexpected, random events. In a 2010 study by the McKinsey Group, they found that analysts have been persistently overly optimistic for 25 years. During the 25-year time frame, Wall Street analysts pegged earnings growth at 10-12% a year when, in reality, earnings grew at 6%, which, as we have discussed in the past, is the economy’s growth rate.

This is why using forward earnings estimates as a valuation metric is so incredibly flawed—the estimates are always overly optimistic.

As the McKenzie study noted, on average, “analysts’ forecasts have been almost 100% too high,” which leads investors to make much more aggressive bets in the financial markets. 

With valuations elevated, why are analysts once again pushing more optimistic forecasts?

Why Are Analysts Always So Optimistic?

It’s a great question.

Wall Street is a group of highly conflicted marketing and PR firms. Companies hire Wall Street to “market” for them so that their stock prices will rise, and with executive pay tied to stock-based compensation, you can understand their desire. The chart below is from the survey conducted by WSJ researchers, showing the main factors that play into analysts’ compensation. What analysts are “paid” to do is quite different from what retail investors “think” they do.

If analysts are bearish on the companies they cover, their access to information about them is cut off. This reduces fees from the company to the Wall Street firm, hurting their revenue. Furthermore, Wall Street has to have a customer to sell their products to—you.

Talk about conflicted. Just ask yourself why Wall Street spends billions of dollars each year in marketing and advertising just to keep you invested at all times.

Since optimism is what sells products, it is not surprising, as we head into 2025, to see Wall Street’s average expectation ratcheted up another 7.5% this year. Of course, comparing your portfolio to the market is often a mistake anyway. Unsurprisingly, earnings have grown at 7.5% over the last 70 years because the companies that make up the stock market reflect real economic growth. Stocks cannot outgrow the economy in the long term. 

“Since 1947, earnings per share have grown at 7.7% annually, while the economy expanded by 6.40% annually. That close relationship in growth rates should be logical, particularly given the significant role that consumer spending has in the GDP equation.”

This correlation is more apparent when looking at corporate profits as a percentage of GDP versus stock prices.

With future earnings already being revised lower for 2025, as seen below, and corporate profitability at risk due to less government stimulus and fiscal support, the risk of current market forecasts being overly optimistic is likely elevated.

The Headwinds In 2025

The problem with current forward estimates is that several factors must exist to sustain historically high earnings growth and record corporate profitability.

1. Economic growth must remain more robust than the average 20-year growth rate.

2. Wage and labor growth must reverse (weaken) to sustain historically elevated profit margins.

3. Both interest rates and inflation need to decline to support consumer spending.

4. Trump’s planned tariffs will increase costs on some products and may not be fully offset by replacement and substitution.

5. Reductions in Government spending, debt issuance, and the deficit subtract from corporate profitability (Kalecki Profit Equation).

6. Slower economic growth in China, Europe, and Japan reduces demand for U.S. exports, slowing economic growth.

7. The Federal Reserve maintaining higher interest rates and continuing to reduce its balance sheet will reduce market liquidity.

You get the idea. While analysts are currently very optimistic about economic and earnings growth going into 2025, there are risks to those forecasts. For example, on December 7th, 2021, we wrote an article about the predictions for 2022.

“There is one thing about Goldman Sachs that is always consistent; they are ‘bullish.’ Of course, given that the market is positive more often than negative, it ‘pays’ to be bullish when your company sells products to hungry investors. It is important to remember that Goldman Sachs was wrong when it was most important, particularly in 2000 and 2008.

However, in keeping with its traditional bullishness, Goldman’s chief equity strategist David Kostin forecasted the S&P 500 will climb by 9% to 5100 at year-end 2022. As he notes, such will “reflect a prospective total return of 10% including dividends.”

The problem, of course, is that the S&P 500 did NOT end the year at 5100.

While analysts are currently rushing to “out-predict” the other guys, it is worth noting:

• Markets are pushing historic levels of extreme overbought conditions,
• 2nd highest level of valuation on record,
• Extreme deviations from long-term growth trend lines,
• Investor sentiment and confidence pushing extreme bullishness, and
• Investors fully committed to the market with low levels of cash.

In other words, after 15 straight years of a bull market advance, The “risk” of something derailing continued optimistic expectations has risen significantly.

While the odds of a positive year in 2025 are more or less balanced, one should not dismiss the potential for a decline. With the current market already well advanced, pushing more extreme overvaluations, and significant deviations from long-term means, the risk of a decline is not minuscule.

How We Are Trading It

With this in mind, we suggest focusing on what is important to you: your specific goals, risk tolerance, and time frames, and conservatively growing your savings to outpace inflation.

This is why we always focus on risk management. Greater returns are generated from managing “risks” rather than attempting to create returns. Although it may seem contradictory, embracing uncertainty reduces risk while denial increases it.

Another benefit of acknowledging uncertainty is it keeps you honest.

“A healthy respect for uncertainty and focus on probability drives you never to be satisfied with your conclusions.  It keeps you moving forward to seek out more information, to question conventional thinking and to continually refine your judgments and understanding that difference between certainty and likelihood can make all the difference.”  – Robert Rubin

We can’t control outcomes; the most we can do is influence the probability of specific outcomes. Thus, managing risks daily and investing based on probabilities rather than possibilities is vital to capital preservation and investment success over time.

I read most mainstream analysts’ predictions to gauge the “consensus.” This year, more so than most, the outlook for 2025 is universally, and to some degree exuberantly, bullish.

What comes to mind is Bob Farrell’s Rule #9, which states:

“When everyone agrees…something else is bound to happen.”

The real economy is not supportive of asset prices at current levels. The more extended prices become the greater the potential for a future market dislocation. For investors close to or in retirement, some consideration should be given to capital preservation over chasing potential market returns.

Will 2025 turn in another positive performance? Maybe. But, honestly, I don’t know.

As noted last week, the stock market reflects both challenges and opportunities. Therefore, we can take action to participate if the market continues its bullish trend but hedge against the risk of something going wrong.

1. Build a diversified portfolio and adjust based on evidence, not fear.
2. Keep perspective,
3. Focus on your financial goals and;
4. Communicate with your financial advisor to remain steady amid uncertainty.

While there is no reason to be bearish, this does not mean you should abandon risk management.

China’s military has once again blamed Washington for the breakdown of talks, with the Chinese Defense Ministry blasting US support to Taiwan as the reason for Chinese defense chief Dong Jun rebuffing a direct request for dialogue from US Secretary of Defense Lloyd Austin this week.

Both leaders were in Laos for meetings with Southeast Asian officials on Thursday. “The responsibility lies fully with the American side,” said Chinese Defense Ministry spokesman Wu Qian.

“The US side cannot undermine China’s core interests on the Taiwan issue, yet at the same time try to conduct exchanges with the [mainland] Chinese military as if nothing had happened,” the statement said.

Wu explained that the US must “immediately correct its mistake, earnestly respect China’s core interests, and strive to create favorable conditions for high-level exchanges between the two militaries.”

Austin’s reaction was as follows: “It’s unfortunate. It affects the region because the region really wants to see us, you know, two significant players in the region, two significant powers, talk to each other,” he told reporters.

Just weeks ago, late last month, the Biden administration unveiled $2 billion more in approved arms sales to Taiwan, including an advanced surface-to-air missile defense system, which drew Beijing’s swift rebuke and anger.

CNN reported earlier that the package “includes three National Advanced Surface-to-Air Missile Systems (NASAMS) and related equipment valued at up to $1.16 billion, according to the US State Department’s Bureau of Political-Military Affairs.” Radar systems were also listed, at over $800 million.

While high level military-to-military contacts between the US and China resumed earlier this year, having been off since then House Speaker Nancy Pelosi’s ultra provocative visit to Taiwan, the official dialogue appears on ice again.

Taiwanese President Lai Ching-te is meanwhile planning to visit the self-governing island’s allies in the South Pacific in the opening week of December, including the Marshall Islands, Tuvalu and Palau.

He might pause in the US while on the tour, which China will watch closely. “Taiwan’s government has yet to confirm whether Lai will make a stop in Hawaii, although such visits are routine and unconfirmed Taiwanese media reports say he will stay for more than one day,” The Associated Press writes.

In another appointment with potential to shake up the federal health regime, Donald Trump on Friday nominated Dr. Martin Makary to lead the Food & Drug Administration. Makary, a Johns Hopkins University pancreatic surgeon and author of three New York Times bestsellers, has been critical of the government’s role in health care. The role requires Senate confirmation. 

Declaring that the FDA has “lost the trust of Americans,” Trump said Makary will “course-correct and refocus the agency,” to include “properly evaluat[ing] harmful chemicals poisoning our nation’s food supply  and drugs and biologics being given to our nation’s youth, so that we can finally address the childhood chronic disease epidemic.” 

Makary grew to national notoriety as one of several highly-credentialed physicians who pushed back on many elements of the federal response to the Covid-19 pandemic. Testifying before Congress, Makary said:

“The greatest perpetrator of misinformation during the pandemic has been the United States government.  Misinformation that Covid was spread through surface transmission, that vaccinated immunity was far greater than natural immunity…that myocarditis was more common after the infection than the vaccine…that young people benefit from a booster…”  

Medical science experts from Harvard, Johns Hopkins, and Stanford testifying before Congress: “The greatest perpetrator of misinformation during the pandemic has been the United States government.” pic.twitter.com/Mjl789BcMw

— Robert F. Kennedy Jr (@RobertKennedyJr) March 2, 2023

While not broadly opposing Covid-19 vaccines, Makary condemned the Biden administration for pushing boosters on young patients for whom the virus presented a far lower threat, and has declared that heavy-handed vaccine mandates “created never-vaxxers.” He co-wrote a study that concluded that Covid vaccine booster mandates for college students created net harm, with adverse reactions like myocarditis in young men outweighing slim benefits from vaccination.

Makary also ridiculed fear-mongering about the Omicron variant as “fueling…a pandemic of lunacy,” and urged a rollback in Covid testing in low-risk situations, saying, “If you test everyone in the United States, you will find a virus particle in the nose of some fraction of Americans forever.”  

“It’s a no brainer that COVID came from the Wuhan lab.” – Dr.Makary, John Hopkins University pic.twitter.com/ePpuVUr6ih

— Aaron Ginn (@aginnt) February 28, 2023

That said, some feel Makary was too slow to question some elements of the Covid regime, and was initially too credulous about the benefits of vaccination. In June 2020, he touted the “liberating” qualities of “universal masking.” In March 2021, he tweeted, “The data show that vaccines confer near perfect protection against death and hospitalization from Covid.” 

With a $7 billion budget and 18,000 employees, the FDA has enormous influence over Americans’ lives, with regulatory influence over products that account for about a fifth of all US consumer spending. Makary, who has degrees from Bucknell University, Thomas Jefferson and Harvard, would report to Robert F. Kennedy, Jr — if the controversial Kennedy is confirmed by the Senate or manages to achieve a recess appointment to lead the Department of Health and Human Services.

President Trump just nominated Dr. Marty Makary for FDA Commissioner…

So I just went and watched the first interview I found and this guy sounds awesome!

Watch this clip. He’s talking about all the same stuff as RFK Jr…

Chronic diseases, chemicals & pesticides in our foods,… pic.twitter.com/JPC1Oo3Wrz

— TheStormHasArrived (@TheStormRedux) November 23, 2024

Kennedy has said the FDA is in need of a major trimming. “There are entire departments, like the nutrition department at the FDA … that have to go—that are not doing their job. They’re not protecting our kids,” Kennedy said earlier this month. In a more aggressive post to X in October, Kennedy said “FDA’s war on public health is about to end,” and said that, for employees who were part of corruption that serves the pharmaceutical industry to the detriment of the public’s health, “I have two messages for you: 1. Preserve your records, and 2. Pack your bags.”

The Washington Post reports that Kennedy was influential in Makary’s selection, as Kennedy urged Trump to favor candidates that are not tightly linked to either the health care industry or government. Kennedy is said to consider Makary as a likeminded reformer. Much like Kennedy, Makary has harshly criticized the federal government’s approach to food and health, saying root causes of serious conditions are ignored in favor of simply prescribing drugs: 

“We are right now witnessing the largest uncontrolled experiment in modern health history…we have introduced tons of chemicals, pesticides, micro-plastics, ultra-processed foods, seed oils into the modern diet, altering the microbiome and no one talks about it. They’re too busy demonizing saturated fat and trying to defend the old food pyramid. They just replaced it with a food compass that’s almost worse…it says Lucky Charms is healthier than a steak.”

Makary’s new book is “Blind Spots: When Medicine Gets It Wrong, and What It Means for Our Health.” Makary makes a case that government malpractice has been at the root of many modern health crises, from opioid addiction to peanut allergies to obesity and drug-resistance bacteria. Here he is recounting how the National Institutes of Health, on the basis of its own profoundly flawed study, wrongly discouraged doctors from prescribing hormone replacement therapy for menopausal women, creating a reluctance that still persists today: 

However tardy Makary may have been in challenging some public health approaches to the Covid-19 pandemic, it seems clear he is poised to shake things up at the all-too-powerful FDA. January 20 can’t come quickly enough.