The global bond market encompasses $160 trillion in debt that investors trade every day. The bond market is a better indicator of economic trends than the stock market, which is subject to bubbles and abrupt selloffs. And the bond market is beginning to signal that governments and corporations are issuing too much debt, at a time when inflations risks are uncomfortably high.

A brief bit of history provides helpful context. The Federal Reserve intervened in bond markets during the Great Recession in 2008, buying several trillion dollars’ worth of bonds in order to force long-term interest rates down. It worked, and probably prevented a nasty recession from being worse. The Fed did something similar during the Covid pandemic in 2020. That drove rates on loans such as mortgages to all-time lows.

Read more

The national debt hit $40 trillion. And it will eventually hit $50 trillion … and $60 trillion … and ….

It’s not news that the national debt is out of control. What would be news is if somebody did something about it. There are murmurs. Treasury Secretary Scott Bessent supposedly has a plan to turbocharge economic growth and pay down the debt. If so, what is he waiting for?

Other administration officials say President Trump plans to keep rolling out tariffs, and those import taxes will help lower the annual deficit. Okay, great, except tariffs stunt economic growth because they raise costs on everybody. Did anybody tell Bessent?

Up on Capitol Hill, meanwhile, lawmakers are “sounding the alarm” about the national debt, according to The Hill. That’s kinda funny, because those lawmakers are the same ones who have been cutting taxes, boosting spending, and generating all that debt in the first place. It makes one suspect they are not being completely sincere.

[Check out The Weekly Matterboard, Natalie Harp edition]

Does anybody remember the Simpson-Bowles Commission? Back in 2010, when the national debt was a mere $14 trillion, President Obama appointed a panel to make suggestions for stabilizing the national debt. The group’s roadmap called for eliminating most federal tax breaks for businesses and individuals, cutting spending, getting health care costs under control, raising the income threshold for the Social Security tax, and making a bunch of other changes.

Right, it never happened. But when there’s finally no choice but to deal with the debt, we’ll end up doing more or less what that Simpson-Bowles group recommended. Except everything will be 2x or 3x, since the national debt has tripled since then. Here’s the full report.

The debt crisis is finally arriving. Not because $40 trillion is some kind of tripwire, but because markets are struggling to absorb all the debt governments and corporations are flooding onto the market. The excess of debt is pushing interest rates higher and getting the attention of everybody who’s been worrying about this problem for years. The debt crisis won’t be an overnight cataclysm, but a slow-motion train wreck. Unfortunately, that means the politicians who caused the problem in the first place will probably be able to dither for a few more years.

More Trump fury. Trump said on social media that he’s targeting Iran with “the most crushing economic operation ever taken against any country.” The terrified Iranians read that post and immediately capitulated to every single Trump demand.

Ha. Of course they didn’t. Trump has become a paper tiger and everybody knows that if he can’t subdue Iran militarily, he certainly won’t be able to do it economically. The Islamic regime has faced western sanctions for decades and somehow managed to survive.

If you think Trump has a new strategy, recall that in May, he launched what the Treasury Dept. called “Operation Economic Fury.” So is the new scheme Economic Fury Pt. 2? Or are we at Pt. 5 or Pt. 6? Trump’s Iran war rebrands might eventually overtake The Fast and the Furious franchise in terms of silly sequels.

[Trump is missing his own economic targets]

What Trump ought to be paying attention to is American Fury. His Iran war has cost the average US household nearly $700 in higher costs for energy, food and other things. Trump’s approval rating is in free fall. “We’ve opened Pandora’s box,” Afshon Ostovar of the Naval Postgraduate School said on a recent podcast. “This is going to be a problem, I think, for months and maybe years.”

Trump 💖 Kim (still). Trump wants to meet again with his dictator-bro Kim Jong Un, the tyrant of North Korea. Nobody knows why, except that Trump seems like he is trying to punish South Korea for refusing to help with his Iran misadventure.

Trump has asked South Korea (and other countries) to send ships to help US forces negate Iran’s control of the Strait of Hormuz. None has agreed. Trump may have asked South Korea for other types of assistance, which he also didn’t get. Trump cites these grievances when explaining why he ordered the Pentagon to cut short joint US-Korean military exercises that have been an annual event for years.

[Trump’s biggest grift yet]

Meeting with Kim would be a further insult to South Korea. North and South Korea are still technically in a state of war, even though there hasn’t been full-blown combat since the 1953 ceasefire went into effect. North Korea has thousands of artillery launchers aimed at Seoul, and could wreak havoc if hostilities ever resumed. Some 23,000 US troops are permanently stationed in South Korea as a deterrent against northern aggression.

South Korea and Japan are America’s most important allies in Asia. North Korea is a Russian ally with nuclear weapons that can reach California. There can be good reasons to engage with an adversary. Dissing your friends isn’t one of them. Kim hasn’t responded, so maybe he’ll play hard to get with his American suitor.

Bessent battles the bond market. The Treasury Dept. surprised markets on August 19 when it said it would double the amount of long-term bonds it purchases as part of normal financing operations. It didn’t say why, but Treasury Secretary Scott Bessent is clearly hoping to lower long-term interest rates such as those consumers and businesses pay on mortgages and most other types of loans.

Rates have been rising since the beginning of the Iran war in February, and as we discussed above, the fiscal debt crisis finally seems to be materializing. It’s not just gads of government debt. Big companies are also issuing hundreds of billions of dollars in bonds to help finance the artificial intelligence buildout. An oversupply of bonds on the market means rates have to rise to coax enough investors to put their money into bonds instead of stocks or other assets.

[The myth of the prosperous worker]

Rates dropped back after the Treasury move. But economists doubt the gambit will have a lasting effect. “Treasury’s bond buybacks won’t work for long,” Joe Brusuelas, chief economist at RSM, wrote on August 20. “We expect traders to continue to push the benchmark 10-year Treasury yield higher.” He and others point out that Bessent is addressing the symptom—rising rates—rather than the cause, which is an annual federal deficit that now exceeds $2 trillion per year.

Can we live with higher rates? Sure. Rates right now are high compared with the modern era, which started during the Great Recession in 2008, when the Federal Reserve began deliberately lowering long-term rates. But if you go back further, rates are near historical averages.

The catch is that Americans have gotten used to cheap money and the benefits it brings. Higher rates, combined with a mountain of federal debt, would probably mean slower growth, fewer jobs, and lower living standards for millions. That’s what happens when you run up bills and finally have to pay them.

Enjoy a cartoon.

You can order this cartoon👆 and play cartoon-themed puzzles and word games at CartoonStock.com.

~ ~ ~ ~ ~ ~ ~ ~ ~

Here’s what’s new on The Matterboard:

PAY ATTENTION ⚠️

The Iran war has cost Americans $88 billion so far, including $48 billion in higher gasoline costs, according to a Brown University tracker. That’s about $670 per household for a war now in its sixth month. President Trump’s desperation to find a way out is becoming farcical. On August 18 Trump posted a schlocky map of the Strait of Hormuz with the label, “New US Territory.” Iran responded with a social media post claiming that California is now Iranian territory. This is all fake juvenile bravado. Trump can’t end the war and we are paying the price.

Trump’s latest self-dealing scheme is a plan to turn his crypto firm, World Liberty Financial, into a bank. That will allow it to manage institutional money and take fees from anybody seeking to curry favor with the president. No US president has ever owned a major stake in a bank or attempted graft so brazenly.

[More: Trump’s biggest grift yet]

Another Democratic Socialist beat a more mainstream candidate in a prominent Congressional race. Angie Nixon upset polling favorite Alex Vindman to become the Democratic Senate nominee in Florida. That energized liberals—but made it far more likely Republicans will hold the seat. The Brookings Institution points out that far-left candidates aren’t that numerous, even if they get an outsized amount of attention. The risk for Democrats is that a handful of candidates that seem extremist to centrist swing voters tarnish the whole party.

MIGHT GET SPICY 🤔

ABC and its parent Disney are suing the Federal Communications Commission for threatening the network’s broadcast licenses. The FCC, headed by Trump ally Brendan Carr, went after ABC last year after relentless mocking of Trump by late-night host Jimmy Kimmel. The FCC told the network it planned to review eight ABC broadcast licenses at least two years earlier than scheduled, a clear threat to use federal power to prohibit ABC from broadcasting. ABC and Disney are now suing to stop the FCC’s early reviews.

The upshot is that Trump is trying to punish the network for airing content he disapproves of, with ABC fighting for its free speech rights. ABC should win. It will be a gloomy day if it doesn’t.

Facebook parent Meta is facing a landmark lawsuit alleging it deliberately tries to addict kids to content on Facebook and Instagram. Duh? Twenty-nine states, both red and blue, brought the suit, with the trial beginning on August 18. It will last about six weeks. If Meta loses, it might have to pay damages and put new limits on how children interact with its content.

[A Subaru Capitalist takes on the “Subaru Socialists”]

Trump threatened South Korea because it won’t join his military effort to topple the Iranian regime. He said the Pentagon will “substantially reduce” US military participation in what have long been joint US-Korea exercises.

As a reminder, the Korean War is not over. There’s been a ceasefire in place since 1953, so you might think, what’s the big deal. Except North Korea remains an extremely hostile dictatorship, tightly aligned with Russia, that has nuclear weapons it has threated use against the United States. If war breaks out again, it could destroy much of Seoul with artillery launched from thousands of tubes just north of the demilitarized zone.

If you wonder why we should care about South Korea, there’s a simple one-word answer: Semiconductors. South Korea produces roughly 15% of the world’s chips, which are already in short supply. Disrupt that and there’d be an economic earthquake.

Russian drones have been entering European airspace with alarming regularity, and intelligence reports say Russia is building several new drone bases near its border with eastern Europe. Russian dictator Vladimir Putin’s war in Ukraine is going badly—but that doesn’t mean he’s backing down. Putin may actually get bolder and more reckless as his Ukraine war deteriorates. He also knows Trump has riven the NATO military alliance. He probably won’t mount attacks on NATO countries, but he may well push provocations right up to the line that warrants some kind of NATO response.

RESULTS MAY VARY 🤷‍♂️

$4 gas is likely to irritate voters at least through the midterm elections. It now seems like a safe bet that Iran will disrupt Strait of Hormuz shipping till at least then, hoping to punish Trump and his fellow Republicans with election losses tied to war-related inflation. There’s no reason to think Trump can do anything to prevent it. If there’s any good news, it’s that gas prices aren’t heading toward $5. Under current conditions, energy-market workarounds have left prices elevated but not stratospheric.

[How Trump is missing his own economic targets]

People hate Flock surveillance cameras and have been destroying them. Flock makes a suite of surveillance products, powered by artificial intelligence, that can read license plates and gather other data on people’s cars, where they go, and what the occupants do in them. Municipalities have installed 120,000 Flock cameras systems, which alarms civil libertarians and pisses a lot of people off. The Washington Post documented at least 50 instances in which cops used Flock data to harass their exes or conduct other illicit activity. People have vandalized or stolen the devices in Detroit and other cities. There are online videos showing how to dismantle a Flock system. We don’t condone violence but the backlash seems appropriate.

Justice for Tupac? The trial is finally underway in the case involving the 1996 murder of rapper Tupac Shakur in Las Vegas. Prosecutors charged Duane Davis with the murder in 2023, after the Compton, Los Angeles gang leader bragged about ordering the drive-by shooting in documentaries and a memoir. Davis now says those boasts were a fictional effort to gain notoriety. We don’t have an opinion on whether he’s guilty, but any effort to solve a salacious 30-year-old celebrity murder gets our attention.

SAFELY IGNORE 🚫

Rising interest rates won’t affect most people today, but they signal stress in certain corners of the financial market and a reckoning, at last, for vast amounts of irresponsible government borrowing. Long-term interest rates recently hit the highest level since 2007, forcing a very unusual intervention on the bond market by the Treasury Dept. to bring rates back down. For now, this only affects consumers and businesses in the market for a loan, since they have to pay more. But if rates rise further, which is plausible, it could force stock prices down and generate recessionary pressure.

[The myth of the prosperous worker]

Trump threatened to bomb Oman, another runty overreaction to a nation unwilling to board the sinking ship that is Trump’s Iran strategy. Trump is not going to bomb Oman, because he can’t afford to make his Middle East quagmire even worse. But he’s unhappy that Oman, situated on the south side of the Strait of Hormuz, opposite Iran, is pursuing its own deal with Iran to manage ship traffic through the strait. It’s yet another ugly consequence of the war that Trump and his incompetent Defense Secretary, Pete Hegseth, failed to anticipate.

Jackson Hole yawner. Federal Reserve Chair Kevin Warsh will give a big speech in Wyoming on August 28, which financial news networks are sure to overhype. There’s a big financial conference in Jackson Hole every August and the Fed chair customarily gives an address. Once or twice, it has moved markets, which is why the media fixates on it. And Warsh, new to the job, still has to prove himself up to the task of getting inflation down.

[The double-haters’ guide to the midterm elections]

But it’s unlikely Warsh will make any actual news. Everybody knows the Fed is split on whether to raise interest rates. That decision won’t come until the Fed’s next policy meeting in mid September. Warsh is more likely to talk about arcane ways he wants to change the way the Fed does business. It might matter for some economists and traders, but not so much for the rest of us.

Harping on Natalie. Trump assistant Natalie Harp is suddenly one of the hottest topics on the internet. Harp is the 35-year-old blond woman who always seems to be by Trump’s side. She reportedly carries a portable printer so she can give Trump hard copies of any news story or social media post he wants to see. Harp was one of the three people who accompanied Trump when he snuck off Air Force One in the catering truck in Turkey on July 8. So Trump must consider her pretty important.

Democratic Sen. Jon Ossoff of Georgia said at a recent rally that Trump “doesn’t want to do the job [of President]. He wants to build his ballroom and travel with Natalie.” The insinuation was that Trump is having an affair with his aide. In response, Trump called Ossoff “Pee-Wee Herman.” That means Ossoff got under his skin.

We kinda doubt Trump is having an affair with Harp right under the glare of the White House press pool and the rest of the presidential entourage. But he might not mind if people think that. As for his wife Melania, she ought to know better than anybody about Trump’s ability to have a fling at the age of 80. And she hasn’t voiced any concern.

The art illustrating the follow-up story depicts a lumpy Subaru hatchback with a Bernie Sanders bumper sticker plowing through the mud. I guess that means the urban elite view Subaru owners as politically clueless hicks struggling to make it in the real world.

I’m a Subaru Capitalist. And I’m here to say the “Subaru Socialist” construct is silly. Aside from the fact that Subaru and socialist both start with S—providing that crucial literary device, alliteration—the pairing is discordant. Kang would have done better if he wrote about Starbucks Socialists or Snapchat Socialists.

Let’s talk about cars for a moment—because Kang doesn’t. Not once in two articles does he bother to say what it is about Subaru that connotes socialism.

[The Democratic Socialists’ awful branding problem]

I own a 2018 Subaru Impreza Sport with a manual transmission. I had to wait a couple of months to get a manual back in 2018 because there were so few of them. I love my Subaru and know others who own and love Subarus, too. You’ll notice that many Subarus have racks attached to them, because their owners are always hanging recreational gear off their cars to go out and do stuff.

Most Subarus come standard with all-wheel drive, which makes them very popular with people who have to drive in snow. They’re all over the northern states. Subarus are also relentlessly pragmatic. They can do mild off-roading, but they’re not built to navigate boulders the way some SUVs are. That’s because Subaru knows that almost nobody who buys an off-road-capable vehicle ever leaves the pavement. Subaru provides what you need and not a lot more. The company’s cars are popular because they’re a great value.

Kang describes Subaru Socialists as disaffected 30- and 40-somethings who have been battered by a series of unfortunate events: The Great Recession in 2008, the Covid pandemic in 2020, overpriced college tuition, a tough job market, unaffordable housing. There’s the familiar youthful assumption that every prior generation had it easier.

[The myth of the prosperous worker]

There’s a sense of victimology in the Kang perspective. Note that he laments this beleaguered cohort earning “less than they expected.” He also bemoans “the contrast between what they were promised … and their current circumstances.”

What they expected. What somebody promised them. It sounds as if the real problem is unrealistic expectations—and a lack of initiative to take control of your own life when things aren’t working out the way you want.

I’m not going to wage generational warfare with a naive young writer. I’ll just explain how a capitalist mindset led me to be a proud Subaru owner at the age of 60.

I graduated from college in 1988 with student debt on a 15-year payment plan. I paid it off on schedule in 2003.

[Most Americans are missing out on an epic stock-market boom]

I got married in 1990, worked three jobs while trying to get started as a journalist, and began building a decent career. I got divorced in 2001 and, suddenly responsible for child support, had to take on extra work once again to pay my bills.

The marital house went away and I had to rent for 13 years. I thought I’d never be able to own a home again, until the housing bust brought prices down and I was finally able to muster a down payment.

My field, journalism, became a turbulent business once the internet disrupted everything, starting around 1995. Over the years, hundreds of my colleagues got laid off or left the business, unable to adapt. I finally got laid off in 2025, in a corporate reorg that swept out many of the older, more experienced, and more expensive staffers. I was ready for it, because I always figured my turn would come.

Despite many bumps, I’m happy with my career, so far, and I realize that just about every challenge has been a crucial learning experience. I probably expected everything to be easy when I finished college in 1988, because it seemed like success had come naturally to my parents. But it wasn’t easy. Nobody told me to expect a miserable divorce that sent me backward financially. Circumstances forced me to move when I really didn’t want to. I was renting sad-divorced-guy pads when better-off friends were buying second homes.

[How baby boomers locked up the housing market]

What you learn from overcoming setbacks is that youthful expectations are irrelevant. There’s always something that will go wrong, and if it hasn’t happened to you yet, just wait. Success requires determination, innovation, and tirelessness—the very virtues of capitalism.

Kang’s essays, at heart, are a way of justifying his and his generation’s support for Bernie Sanders-style redistributionism. Tax the rich, socialize industry, give everybody a job.

But the fatal flaw of the Starbucks Socialists is they assume the wealth is just there to be redistributed. The reality is that somebody has to create that wealth. This is what capitalism excels at. Without the profit motive, there is precious little wealth to spread around and nearly everybody ends up worse off.

I am a Subaru Capitalist because Subarus are for doers. We are people who go out in the world and hike, camp, bike, and surf. Nobody told us to do this. Our inner spirits told us to do this. It’s the same sort of spirit that animates capitalism and compels some people to start businesses and chase dreams.

I personally love my Subaru because it takes me skiing in New England, where I have to drive through snow sometimes to enjoy a powder day. Skiing is expensive. You have to work hard to afford it. I’m quite willing to pay for it. Skiing might be cheaper if Bernie Sanders nationalized the slopes, but then the ski lifts would probably break down and everything would go dark during the next government shutdown.

Capitalism also entails the careful management of money—thrift—because you worked hard to get it. Many headlines highlight Bezos-style excess, the crass part of capitalism. But anybody who ever built a business will tell you about pinching pennies and cutting corners. I appreciate my Subaru because it respects my money. It does what I need with no extravagant features, leaving more money to spend on other stuff than if I ponied up for a luxury car or an overstuffed SUV.

I suppose there are some Subaru owners who identify as socialist. Maybe I’ll meet them skiing or hiking. We’ll probably have a great time chatting about our adventures and what we plan to do next.

Yes, a bank. The man who has declared business bankruptcy six times, repeatedly stiffed creditors, and drawn suspicion of money laundering is on track to open a federally chartered trust bank approved by one of his own appointees. The Trump bank won’t be a retail bank taking customer deposits. It will deal mostly with institutions—and that’s where the grift opportunities reside.

I discussed the merits of this suspicious presidential side gig with MS Now’s Steph Ruhle and journalist John Harwood. Here’s the clip, with bullet points to follow:

• The Trump entity already exists. It’s World Liberty Financial, the crypto firm Trump and some of his family members started in 2024, right before the presidential election. Setting up the Trump crypto firm was a direct bet by Trump and some of his fellow insiders on how to cash in if Trump won the election that year. A Trump crypto business would have no inherent value if Trump lost and remained a private citizen. But as president, it could have tremendous value as a way for Trump supporters and people seeking influence with Trump to patronize Trump’s firm and gain favor with him.

[Trump is badly missing his own economic targets]

• That’s exactly what has happened. Trump and his family have cleared at least $1.4 billion through their stake in World Liberty Financial, by selling tokens and other forms of cryptocurrency. It hasn’t been such a great deal for buyers, however. Trump crypto products have suffered massive losses since being introduced, with buyers losing nearly $4 billion.

• Some buyers don’t mind the losses. A few high-flyers facing legal trouble with the federal government bought Trump crypto products or invested in WLF—and their problems suddenly vanished. Some critics call this outright bribery and say it’s illegal for Trump, as president, to do business with people under federal scrutiny.

• WLF has now applied for a federal bank charter, and gained preliminary approval. The agency granting the approval is the Comptroller of the Currency, run by Trump appointee Jonathan Gould. WLF has to check a few more boxes to get full approval, but it seems certain to happen.

• As a bank, WLF will be able to manage money belonging to hedge funds, sovereign wealth funds and other institutional investors. It will be able to charge fees for banking services and many other things, in addition to just selling crypto products. Wealthy people needing favors from Trump can simply direct some of their banking business to his firm, putting money directly into Trump’s pocket.

[The myth of the prosperous worker]

• There’s never been a US president with a major financial stake in a bank. It’s a blatant conflict of interest given that anybody having a problem with the federal government—and enough money—can do business with Trump’s bank as a way of paying for favors.

• Can anybody do anything? Good-government groups could sue to halt the arrangement, but it’s not clear they would win. If Democrats win one or both houses of Congress in this year’s midterm elections, they’ll be able to investigate and hold splashy public hearings. That probably won’t cow Trump, but it might persuade some people who don’t want bad publicity from taking their business to Trump’s bank.

• Unprecedented corruption is taking place during Trump’s second presidency, practically out in public for everybody to see.

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When Trump took office in 2025, his Treasury Secretary, Scott Bessent, laid out a “3-3-3 plan” for rejuvenating the economy. The three threes stood for:

• Pushing real GDP growth to 3%

• Cutting the annual federal deficit to 3% of GDP

• Pumping an additional 3 million barrels of oil per day

Those were stretch goals nobody expected Trump and Bessent to hit any time soon. But progress toward those goals would be an accomplishment in itself. Stronger growth would make more Americans better off and bring in more tax revenue to help lower the annual deficits in the federal budget. More oil production would mean lower energy prices and a stronger hand for the United States in global energy markets.

[Check out our archive of cartoons, courtsey of CartoonStock]

A year and a half into Trump’s term, those targets seem further out of reach than ever. And Trump’s own policies are partly to blame. Let’s take them one at a time.

GDP growth. During Joe Biden’s last year in office, 2024, real GDP growth adjusted for inflation was 2.4%. GDP growth fell to 2% in 2025 and the latest data shows the economy growing at just 1.5% on an annualized basis. Growth has gotten weaker under Trump, not stronger.

Deficits. Bad news here, too. In Biden’s last year, the annual deficit was 6.2% of GDP. That dropped to 5.8% of GDP in Trump’s first year, but the Congressional Budget Office estimates it will be back to 6.2% in 2026. CBO expects that number to drift higher, indefinitely.

Read more

Bank of America got some attention recently with research suggesting the gap between economy’s upper K—the shareholder class— and the lower K—working-class Americans—is narrowing. BofA cites credit card data showing that spending during the last few months has been rising faster among lower-income Americans than among higher-income shoppers. Larger refunds from last year’s tax-cut law might be one reason. People who change jobs are also getting bigger pay raises than they typically do.

The bank calls this “the great convergence,” a theme the media, always looking for a fresh storyline, is dutifully picking up. Axios, for instance, recently announced the “closing” of the K-shaped gap. Treasury Secretary Scott Bessent, eager for any good news that might offset the dreary and never-ending Iran war, went a step further, declaring that the K-shaped economy is “over.”

Sorry. Not buying it.

Read more

Breaking the military, Pt. 1. Something seems wrong in the US Navy, where ships are deploying for longer than usual and sailors are demonstrating acute signs of stress. Several sailors aboard the Abraham Lincoln aircraft carrier have reportedly tried to commit suicide by jumping overboard, according to Navy Times. Dozens of family members have met with Navy officials to vent concerns about poor working conditions, lack of downtime, and low morale aboard the ship. There were reports of similar problems aboard the carrier Gerald R. Ford earlier this year, including a laundry fire that crewmembers may have set deliberately.

A normal Navy ship deployment is six to eight months. The Ford returned to port in Virginia in May after 11 months, the longest carrier deployment since the Vietnam War. The Lincoln has been at sea for nearly nine months, much of that in the Middle East in support of the Iran war President Trump started in February. Amid the latest uproar, another carrier is now rushing to replace it.

Troops know they can face long deployments during wars and upheavals. But it’s also the job of the Pentagon and the military services to manage their workforces competently and humanely. And Trump’s national-security team is a group of loyalist hacks who earn zero trust.

Pentagon boss Pete Hegseth is the worst Defense Secretary in history, as responsible as anybody for the Iran war debacle. The acting secretary of the Navy is Hung Cao, famous for a 2024 debate in which he criticized the Pentagon’s recruiting tactics and said, “What we need is alpha males and alpha females who are going to rip out their own guts, eat them and ask for seconds."

[Why Hegseth must go]

Trump and his lackeys are bringing down the once-vaunted US military. Democratic members of Congress are raising a stink, but they can’t force Trump to install competent people to run the world’s most complex bureaucracy. Expect this to get worse.

Breaking the military, Pt. 2. Trump isn’t just mismanaging the troops. He’s trashing the Pentagon’s hardware, as well.

On August 13, Trump ordered the Navy to revert to an old and outmoded means of launching jets from carriers on several ships under construction. Armchair Admiral Trump prefers steam catapults like those used on carriers after World War II. But the Navy replaced those years ago with electromagnetic catapults that are more efficient and require less upkeep. Going back to the old technology in the middle of production will add cost, delay deliveries, and degrade effectiveness.

Trump likes old, outdated things. He’s also badgering Congress for billions of dollars to build a new fleet of battleships named after himself. Virtually all of the world’s navies retired battleships in the 20th century because missiles and other long-range weapons made them obsolete. Trump wants billions of your taxpayer dollars to sate his own nostalgia. We are at Peak Farce, people.

[Hey Trump: Fire Hegseth]

ICE torture gloves. The Bad Idea Task Force at the Dept. of Homeland Security is working overtime. The department had the brilliant idea to equip immigration agents with electrified gloves that can deliver a non-lethal shock to targets of their cruelty. These gloves are already in use at some police departments and prisons, and the idea is to use them as a way to subdue a rowdy captive without a gun, taser, club, or other weapon that could be fatal. The gloves supposedly deliver an electric pulse to the skin that tweaks out the nerves in a matter of seconds and subdues the target. If you’ve ever used an electrostatic gizmo to treat a damaged muscle, imagine three or four times the maximum dose of juice from that.

This might make sense at a well-trained law enforcement agency that practices full transparency with maximum civilian oversight. The immigration agency isn’t that. ICE is the most retrograde agency in the federal government, responsible, under Trump, for numerous needless deaths, including the murders of Alex Pretti and Renee Good. Anybody who saw the videos of those crimes knows that ICE is a kind of Gestapo. They’ll find a way to abuse the shock gloves, as they’ve abused their authority in numerous other ways. These goons should be carrying plastic swords, not weapons.

Is that Melania? Since Trump’s first term, there have been suspicions that somebody resembling Melania Trump stands in for her at various times, when a wifely presence seems appropriate but she’s just not interested. The intrigue deepened recently when a White House aide named Margo Martin exited Air Force One with Trump (not via the catering truck🤣) and photographers mistook her for Melania. See for yourself:

Martin is just 31, while Melania Trump is 56. But Melania has probably de-aged herself, narrowing the gap. Martin’s hair and build also resemble Melania’s. So from a distance, behind sunglasses, yes, Martin could pass for Melania.

I’m not sure why this matters, but the gossip rags think it’s important. Use this knowledge to demonstrate your shrewd grasp of current events at your next cocktail party or barbecue.

[Check out the Weekly Matterboard to find out what news is worth your time]

More air-travel angst. Flight-tracking service FlightAware had a temporary legal showdown with prediction market Kalshi over flight cancellations. The litigation seems to be over, but it has highlighted something regular fliers ought to know about.

Kalshi offers bets on flight cancellations😦. For now, those bets are limited to systemwide stats, such as how many flights will get canceled in a given week or at a certain airport. There are no bets on the odds of any individual flight getting canceled. Kalshi originally listed FlightAware as the source it uses to verify the data and settle the bets.

FlightAware sued Kalshi on August 10, asking for unspecified damages and a ban on Kalshi’s use of its data. It withdrew the suit a day later. So there was some private agreement between the two companies.

Kalshi now says it settles the cancellation bets using data from “primary source agency”—but a link goes to FlightAware’s web site. So Kalshi is still using FlightAware’s data, just without saying so explicitly on its own site.

FlightAware may simply want its name to be stripped from the betting site, for the obvious reason that there’s something weird about people betting on canceled airline flights. There have been plenty of examples of insiders making bets on markets they can influence, and profiting from the outcome.

Could some aviation insider make a big bet on canceled flights, then gum up the air-traffic software or create an security scare that generates a winning bet? Probably, yeah. If or when it happens, FlightAware wants to make sure it’s not the target of traveler rage. Kalshi seems less concerned.

Burrito Wars. How much should a burrito cost? Be careful before you answer. Are you including the DoorDash delivery fee? Or making your own at home?

Political America has been arguing about burrito prices since a pro-Trump activist argued on social media recently that young people shouldn’t have to pay $20 for a burrito. The activist blamed outlandish burrito prices on—all together now—Joe Biden.

[The double-haters’ guide to the midterm elections]

A kerfuffle erupted. Some aghast responders argued that a burrito only costs $20 if you order some bougie version that DoorDash delivers. Kids these days! 🙄

Oldsters started kvetching about bratty Gen Zers who don’t know the value of a buck, recalling the ancient times when hard-working youth slept on couches and subsisted on ramen until they finally made it as arrogant pundits.

The media picked up on the urgent story, trying to divine a deeper meaning. It’s not about burritos. It’s really about entitlement affordability communism. Hold on … it’s really about … housing! Young people will never be able to afford a home and they know it, you see, so they have no incentive to save money and they don’t mind blowing whatever they have on extravagances.

But nobody answered the basic question, so I will. A burrito should cost $4 at a taco truck. That’s the best place to get one. At a sit-down restaurant, $12 is the ceiling, and that includes sides, chips and salsa. And yeah, DoorDash is for weenies.

Enjoy a cartoon.

You can order this cartoon👆 and play cartoon-themed puzzles and word games at CartoonStock.com.

~ ~ ~ ~ ~ ~ ~ ~ ~

Here’s what’s new on The Matterboard:

PAY ATTENTION ⚠️

The Iran war could last until 2029. Not kidding. A top Iranian official said recently, “Trump will not reach an agreement with us. We will accompany him until his term ends.” Analysts interpret that to mean Iran plans to string Trump along until he leaves office in 2029. That would mean continued harassment of Gulf energy shipments, and elevated energy prices, for another two-and-a-half years, unless Trump can find a way out.

If the war does simmer that long, however, energy markets will adapt and Iran’s leverage will decline. One expert at the Atlantic Council argues that Trump should calm down, maintain the oil blockade of Iran, and wait it out. Americans aren’t happy with $4 gasoline, but it’s not killing the economy, either. We’re already learning to live with the Iran situationship.

The Democratic Socialists rose from RESULTS MAY VARY to the PAY ATTENTION quadrant this week, mainly due to Abdul El-Sayed’s win in the Michigan Democratic Senate primary. El-Sayed says he’s not a socialist. But he’s in the Bernie Sanders camp, backing policies such as government-run health care.

We care less about El-Sayed’s policy views than his role as a GOP bogeyman and the odds that a few high-profile lefties will leave the Democrats’ brand more damaged than ever. President Trump calls El-Sayed a communist. El-Sayed is Muslim, and the Internet is filled with false claims that he wants to enact Sharia law in the United States. (Emphasis: false.)

A huge question in the 2026 elections is whether the growing slate of far-left Democrats on the ballot, socialist or otherwise, will energize young voters and create momentum for Democrats, or horrify centrists who flee to the other side. You can read more here about the Democratic Socialists’ awful branding problem.

MIGHT GET SPICY 🤔

Trump hiding in the catering truck. The memes are delightful (“Operation Iran Away”)😄. And we still don’t know some of the most important details. Is there a specialized presidential catering truck built to military specs? Or does the president of the United States have to ride in an off-the-shelf catering truck? Were there chairs? Or did Trump sit on the floor?

But still: The story of Trump sneaking off Air Force One on July 8 to secretly board another plane is pretty stunning. The Secret Service ordered the switcheroo because of reports that Iran might try to shoot down Air Force One as it left the NATO summit in Turkey, bound for home. There have already been at least two assassination attempts against Trump. The Iranians might not have gotten very far, but they’ve tried before and they’ll keep trying. Crazy times could get crazier.

[“The lousy, stinking politicians”]

Vaccine lunacy. If you don’t trust the government, good. Trump signed an executive order on August 10 reducing the list of recommended childhood vaccines from 18 to 11. He did that based on nothing except prodding by the kook Robert F. Kennedy, Jr., the laughably unqualified Secretary of Health and Human Services. If you take health advice from Trump and RFK Jr., god help you. Don’t listen to them! Just do what your doctor recommends.

RESULTS MAY VARY 🤷‍♂️

Trump’s approval rating keeps sinking. It hit 33% in the latest YouGov poll, with his net approval rating (approve minus disapprove) at -29. Both are record lows for Trump. The worst Joe Biden net approval was -23, and that was after Biden’s disastrous debate performance in June 2024. Trump is doing worse than Biden was at his most feeble.

Biden hurting. Hunter Biden says his father Joe’s prostate cancer is worsening and has spread to other parts of his body, most likely the bones. It’s not necessarily terminal, and Joe Biden continues to make public appearances. We put this on The Matterboard because it’s the first Biden health update in a while and we sincerely wish Biden well. For all his foibles as president, he was mostly decent and normal.

SAFELY IGNORE 🚫

Chipflation is something you’re likely to encounter eventually. The cost of DRAM memory components is expected to soar by 400% from the start of 2024 to the end of 2026, according to JP Morgan. That’s already raising the cost of flash drives and memory chips. It will probably start to push up the cost of smartphones, computers and other things that require chips, such as cars. We expect chipflation to rise higher on The Matterboard as it becomes more noticeable.

[The AI boom is just getting started]

You need to know about “The Zapper.” She’s a young White House staffer with a Barbie-style blank stare seen standing next to Trump at his White House desk, possibly for the sole purpose of zapping him back to life when he falls asleep. The theory is, she wears some kind of gizmo beneath her clothes and pushes a button when a nearby aide nods or gives her a signal. It then pings a vibrating device somewhere on Trump’s person, reviving him. Check it out here.

Look, it’s obviously probably not true, but The Zapper made The Matterboard because of the bizarre spectacle of Trump repeatedly nodding off with the cameras rolling. Any other president would do something, like take stimulants before boring TV events or just stop doing them. Trump is such a publicity-hog that he can’t say no to the cameras, even when he’s sleeping. Americans voted for this farce.

Leavitt Leaving. White House press secretary Karoline Leavitt is leaving the job at the end of August to spend more time with her family. That excuse is a classic cover story when somebody screws up and needs to go, but Leavitt had a baby in May, so this may be one instance when it’s actually true. Another Trump loyalist will replace her and end up with the thankless job of covering for Trump’s mistakes and explaining his many inanities. Press secretaries come and go, and Leavitt’s departure would only be especially notable if it turns out she knows some huge controversy is brewing and wants to get out before the storm hits. Meanwhile, she’ll doubtless turn up as a talking head, probably on Fox.

AOC’s pregnancy plans. Why does Alexandria Ocasio-Cortez want everybody to know she’s freezing her eggs so she can still have a baby later in life? This is normally a private decision and we don’t need to know. But something’s going on with AOC, who is 36.

Around the time she posted a series of egg-freezing videos, it became public (deliberately leaked?) that she broke up with her fiancé a couple of years ago. Put them together, and the message is, she doesn’t have a family that might get in the way of her job, but she’s family-minded and hopes to have kids someday.

AOC also made news on Aug. 9 when she said on an ABC news show, “Woke 1.0 was crazy,” referring to the peak political correctness mania that occurrred around 2020.

AOC has senatorial and maybe presidential ambitions, and she’s disowning some of her most fiery leftist positions, such as defunding the police and bashing moderate Democrats. In a way, it’s a public version of how a passionate, radical-minded young person learns how the world works and becomes more rational. Is it AOK? We’ll find out if she ever needs the votes of people beyond her deep-blue Congressional district in New York City.

Enjoy a real cartoon.

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Trump has said outright that he plans to take over Cuba. He has imposed an oil blockade of the island nation that has nearly paralyzed its permanently botched socialist economy. Secretary of State Marco Rubio, a lifelong advocate of regime change in Cuba, has said “they have to get new people in charge.” CIA Director John Ratcliffe has traveled to Cuba at least once, perhaps to suss out possible US-friendly successors to the tottering Castro regime.

So what might happen? Here’s some handicapping based on discussions with people informed about Trump administration planning.

Trump is desperate for a foreign-policy win to offset his Iran war fiasco, which has constricted energy flows through the Strait of Hormuz and caused a global energy crisis, with no end in sight. The January raid to snatch Venezuelan President Nicolás Maduro demonstrated Trump’s willingness to invade a hostile country. It was successful. The Cubans got the message: American forces killed more than 30 Cuban troopers serving as Maduro bodyguards during the raid.

A Cuba operation probably won’t happen before the midterm elections in November. A successful takeover of Cuba wouldn’t necessarily win votes from Americans fed up with high gas, food and rent prices. And if something went wrong, it could clinch a Democratic sweep in November. Once the election is over, however, there’s less political risk for Trump.

[The Democratic Socialists’ awful branding problem]

The ultimate coup would be a bloodless takeover of Cuba during the lame-duck Congressional session at the end of the year, or more likely, at some time in early 2027. Many elements of the Cuban government would probably roll over in exchange for amnesty and modest payouts. Some senior officials might get heftier compensation to align with the Americans.

A key question: How determined and numerous are the Cuban hard-liners willing to fight to the death? As a template, think of Iran’s Islamic Revolutionary Guard Corps, or IRGC, the large militant faction that favors ongoing war with the United States over a ceasefire—and seems to be getting its way.

If there’s a similar faction in the Cuban regime, it’s probably small and not nearly as influential as the IRGC. Iran’s staunchest hardliners are religious zealots aligned with a theocracy that promises martyrdom for loyalists. Cuba doesn’t have that. Cuba’s remaining communists might be Castro enthusiasts, but that doesn’t mean they’re willing to die for the cause.

Even if there’s some kind of negotiated handover, there will most likely be US boots on the ground in Cuba at some point, as a show of force and a deterrent to any resistance. If there is a fight, Cuba is no Iran—there’s probably no way it can withstand a US assault. Most members of the Cuban government know that.

[The gigantic national debt is starting to matter]

The Pentagon and State Dept. will probably be much better prepared for a Cuba operation than they were for the Iran war, which Trump has run largely on his own instinct, with disastrous results he obviously failed to anticipate. The Trump administration has been preparing for a Cuba operation since at least January, when US forces grabbed Maduro. They’ll have a year’s worth of planning under their belt, at a minimum. That means they’ll know who’s likely to cooperate and who isn’t. They’ll have backup plans if something goes awry and assets close by, with Cuba just 90 miles from US territory.

Cuba will need a Delcy Rodriguez. She was Venezuela’s vice president under Maduro, and she took over when Maduro departed. She’s basically a Trump quisling who gets to keep her job and the kickbacks that come with it, as long as she does Trump’s bidding.

Who might be Cuba’s Delcy Rodriguez? The current president is Miguel Díaz-Canel, largely viewed as a weak leader taking orders from former President Raúl Castro, who’s 95. As a caretaker of the Castro legacy, Díaz-Canel is an unappealing viceroy for the Trump administration.

Raúl Castro has a grandson called Raúl Guillermo Rodríguez Castro, who’s getting a lot of attention. The grandson is a senior Cuban internal-security official who could pave the way for a US takeover. He’s had a lot of contact with Trump administration officials. The younger Castro has been accused of smuggling and other violations of US sanctions, but that wouldn’t matter to Trump.

[The double-haters’ guide to the midterm election]

Rosa María Payá Acevedo is a prominent Cuban human rights defender and democracy activist. She’s the daughter of a prominent dissident murdered by Cuban operatives inside Cuba in 2012. Payá runs Cuba Decide, a Miami group that works for democracy in Cuba, and is well-connected with US government officials.

Carlos Fernández de Cossío is Cuba’s deputy foreign minister, charged with handling issues involving the United States. He’s considered pragmatic, relatively friendly toward the United States, and smart enough to get on the winning side.

Trump wanted control of Venezuela because of its oil. What does he want with Cuba? Real-estate development, obviously, which is Trump’s stock-in-trade. Trump would also win huge props with Cuban-Americans in south Florida. He doesn’t need their support to flip the state, which is already red. But he loves to be revered and they would oblige.

American businesses would laud Trump, as well. US business groups want to open the Cuban economy so American companies can sell Cubans chicken, rice, electronics, and services, assuming the wrecked economy could get off the mat. Some American travel companies might want to jump right in and offer travelers the chance to see old-timey rural regions where horses and donkeys are still the primary means of transportation.

[America is going bankrupt slowly—for now]

Trump benefits financially from many of his own policies and his companies might seek a cut of the action. That would be illegal or unethical, but it’s the Trump way and nobody has been able to stop his profiteering, so far. It might even motivate Trump to Americanize Cuba, if he can gain personally.

One complex barrier to normalizing trade with Cuba is a 1996 law that allows US nationals who lost property when Fidel Castro nationalized Cuban assets in 1959 to sue anybody who “traffics” in those assets. One prominent example is a successful lawsuit against cruise lines that used confiscated port facilities in Havana when bringing tourists there from 2016 to 2019.

Any US business operating in Cuba would have to steer around that restriction. The law gives the US president the authority to suspend it, but the threat of future legal action would remain because a future president could reinstate it. Congress would probably have to address the issue.

If Trump surmounts these obstacles, a US takeover of Cuba might differ from the Venezuela and Iranian operations in one crucial way: it could bring life-changing benefits to ordinary Cubans. The mismanaged socialist economy relied on Soviet support from the time Castro seized power in 1959 until the USSR collapsed in 1991. Venezuela provided oil, which Trump cut off earlier this year. Cuba has no useful friends left. Meanwhile, US sanctions in place since 1960 have made everything harder. Cuba is now in desperate shape.

An American takeover would presumably allow Cuban exiles in the United States to return, either to visit family members or stay for good and start businesses. The lifting of US sanctions would allow open trade and, crucially, normal banking. Hundreds of political prisoners could go free.

Almost nothing could be worse than what Cubans endure today. The country is in such dire shape that even a Trump botch job might be an improvement.

The national debt will hit $40 trillion sometime in September, and many economists think it is finally starting to force interest rates higher. That would be one of the first manifestations of a debt crisis. Here’s the video with Jim’s take. Bullet points follow.

Slowly, then suddenly. Jim describes the US debt situation by paraphrasing Hemingway: “How does one go bankrupt? Slowly, then suddenly. We are in the slowly camp.”

Why slow? Markets are absorbing all the debt the Treasury issues these days without much trouble. That’s happening as artificial-intelligence “hyperscalers” are also issuing tons of debt to help finance the AI buildout. That debt competes with government securities for buyers. “The bond market is more concerned about borrowing from hyperscalers,” Jim said during a separate panel at the Kotok event. That hyperscaler borrowing will total at least $1.2 trillion during the next couple of years.

[The gigantic national debt is starting to matter]

What could speed up a debt crisis? “It could be the next recession,” Jim said during the panel. “The bond market might say, fine, you need to do more borrowing, you’re going to have to do it at sky-high interest rates.” The government typically borrows more during recessions to enact fiscal stimulus as a means of combating the downturn. But if that triggers substantially higher rates on business and consumer loans, it could make a recession worse.

The Liz Truss moment. There’s a template for upshifting from a slow to a sudden crisis: The 2022 UK bond crisis. In September of that year, Prime Minister Liz Truss’s government announced a set of tax cuts that would have pushed government debt substantially higher. Long-term interest rates spiked to unacceptable levels, forcing Truss to abandon the plan. It was a fiasco and Truss resigned after just 49 days in the job, the shortest tenure of any British PM.

What other major event happened in the UK around that time? Jim quizzed me. I didn’t know the answer. Watch the video to see if you can get it right.

Here’s my full interview with Jim:

But maybe it’s not that surprising. When the July report hit I was at Camp Kotok in eastern Maine, an annual gathering of financiers, economists and other interesting people. One of the regular attendees is Jim Bianco, president of Bianco Research in Chicago. Jim is a keen market observer and he spent some time talking with me on camera about the jobs report and a few other trendy topics in finance.

Jim explained how the labor market is changing, and how we need to change our own expectations as a result. The upshot is that job growth is probably slowing permanently—and it may not be as bad as it sounds. Jim’s remarks on the job market follow, with some bullet points below. You can see my full interview with Jim at the bottom.

Population growth is the underlying issue. The US birth rate has been slowing for years. We’ve maintained population growth through immigration—until Trump put a stop to that. Lower population growth means we can keep the unemployment rate low with fewer jobs. That’s what seems to be happening.

[David Kotok vents: “The lousy, stinking politicians”]

Lower for longer. Until recently, economists thought we needed about 100,000 new jobs per month to keep the unemployment rate steady. But now, it might take 35,000 jobs or fewer. We’ve been meeting that lower target on average, even with the loss of jobs in July.

The July job losses kinda make sense. “If you look at why it went down, there was 50,000 jobs subtracted from government and from leisure and hospitality,” Jim explains. “That is, restated: Summer school ended, and a bunch of teachers stopped working, and the World Cup ended, and a bunch of hospitality workers, their jobs ended.”

There were positive signs, too. The construction, manufacturing, and tech sectors added jobs in July. Part of that is the artificial-intelligence buildout, including data-center construction. “Remember we were all going to lose our jobs to AI,” Jim says. “That actually had very good gains for the month.”

Unemployment went down. It dropped from 4.2% to 4.1%, the lowest level in 14 months. The U-rate measures unemployed workers as a portion of the labor force, and with the labor force contracting, the U-rate can go down even if there’s a loss of jobs. Jim thinks that’s more or less okay. “If we weren’t producing enough jobs, the unemployment rate would be going up,” he says.

Feel better? 🤔

Here’s my full interview with Jim, conducted August 9 on the deck at Leen’s Lodge, on the shores of West Grand Lake.

If you don’t know David, the video will give you a sense of the passion and humor that make him a people magnet. If you do know David, you’ve probably heard all this before, but you’ll enjoy hearing it again, anyway. 😊

Hummingbird alert: Just before I started recording, Scott Weeks, proprietor of Leen’s Lodge, where the event takes place every year, cleaned and refilled two hummingbird feeders at the railing of the deck at the back of the lodge. Several hummingbirds showed up right away. You’ll see them flitting in the background starting around the 2:20 mark. As I was filming, I wasn’t sure the hummingbirds would appear in the video, so I cut away for a moment to see if I could capture them more clearly. But they show up just fine, buzzing and darting right behind David as he talks. Maine is pretty cool.

Here’s the video, which I conducted on August 9. A few bullet points follow.

Washington stinks. There seems to be near-consensus on that among Camp Kotok attendees. “These are money people, they’re in the investment class,” David says. “They are harsh on the budgetary, fiscal policy to the point where three-quarters of the people now are talking about how the creditworthiness of the United States is deteriorating because of policy. And the finger-pointing at the lousy, stinking politicians is repeated and repeated by Democrats, Republicans, Independents.”

Hegseth is awful. I already wrote about the disdain for Defense Secretary Pete Hegseth. David piled on. “Hegseth is like the plague,” he says.

The biggest AI concern. At the financial level, the unanswered question is where the return on a gigantic amount of investment will come from. “Nobody can answer the financial question,” David says. “Where do you get the revenue for a long stream to amortize trillions of capital investment? That stumped the group on AI.”

[Notes from Camp Kotok: 10 ways to exploit AI]

Trump’s deportations are business-negative. “We have the shock of losing a million originally legal working people who now are not here,” David says. “What happens to those jobs? This has an impact on both business and finance. That’s a subject we may discuss next year.”

“He’s a farce,” I said. “Is there some way to withhold this money until there’s somebody better in the job?”

“Hegseth is one of the least effective secretaries of defense I’ve seen,” defense analyst Byron Callan of Capital Alpha Partners, one of the panelists, concurred. “His interactions with Congress tend to be toxic. His inability or unwillingness to communicate information to Congress is a detriment to getting things done.”

As Callan was answering, another Camp Kotok attendee texted to say thanks for asking the question the way I did. Then after the panel, David Kotok, patron saint of Camp Kotok, reminded me of a survey of camp attendees, asking their views of certain Trump Cabinet members.

[Notes from Camp Kotok: 10 ways to exploit AI]

The question listed five Cabinet secretaries with three possible answers. Should the Cabinet official should stay or be replaced? “Not sure” was also a choice.

Here are the stay/replace results (with “not sure” omitted):

Pete Hegseth:

Stay: 3

Replace: 26

Health Secretary Robert F. Kennedy, Jr.:

Stay: 6

Replace: 23

Commerce Secretary Howard Lutnick:

Stay: 5

Replace: 26

Treasury Secretary Scott Bessent:

Stay: 21

Replace: 10

Secretary of State Marco Rubio:

Stay: 24

Replace: 7

Since these shareholder-class people sound so anti-Trump, they must be bleeding heart lefties, right?

I asked David to clarify. “Does this group lean left?” he said. “Decidedly not. Politically, this group is center right. This is not an AOC crowd. It’s a fiscally conservative group and only three people would have Hegseth stay.”

[Notes from Camp Kotok: Why the AI boom is just getting started]

Jim Bianco of Bianco Research, another panelist leading the national security discussion, told me afterward that Deputy Defense Secretary Stephen Feinberg would probably be a much better steward of a trillion-dollar budget and the careful decision-making needed to transform the US military for the drone era. As the former CEO of private-equity firm Cerberus, Feinberg is deeply experienced at running large organizations. “Plus he’s a billionaire,” Bianco pointed out. “Trump obviously loves billionaires.”

But Hegseth and Feinberg seem to be feuding. Recent reporting suggests Hegseth blames his deputy for a shortage of missiles and other weapons that has become an embarrassment for the Trump administration. “Hegseth is a political animal,” Callan told me. “He’d probably win a scorpion shootout with Feinberg. And losing Feinberg would be very detrimental.”

So instead of better management of the Pentagon’s massive budget, it’s possible Hegseth may vanquish the one competent person at the top of his organization and become even more unfettered. 😠

After the national-security panel ended, we all started chatting and a couple of other attendees argued that Hegseth might be bad, but at least one other Trump Cabinet official was worse: RFK Jr. We debated which job entailed greater responsibility—overseeing defense or health policy—and whether a worst-Trumper rating should be weighted to account for the gravity of the job.

Then we debated whether we should expand the Trump worst list to incompetents who have already left, such as Intelligence Director Tulsi Gabbard, former Attorney General Pam Bondi, and of course, ICE Barbie, Homeland Secretary Kristi Noem.

Conclusion: There are too many stinkers in the Trump cabinet, past, present and undoubtedly future, to single out just one as the worst.

Enjoy a cartoon.

You can order this cartoon👆 and play cartoon-themed puzzles and word games at CartoonStock.com.

Prior to the gathering, Eric Hale of Trader Oasis organized an informal survey on AI, including one open-ended question about innovative ways people use AI. Eric condensed the attendees’ responses into a top 10 list, focused on how AI can improve workflows. I particularly like numbers 4, 5, and 10. Here’s the list:

1. Help AI get to know you. Keep a file of information about yourself and what you want from AI. Run it through the agent at the start of each session. Much better than starting from zero each time.

[Eric Hale shares some AI insights👇. Short and worth your time.]

2. Make it interview you. Tell the agent to ask you questions about what you’re looking for, until you feel it has gathered enough information.

3. Confirm your request. Before submitting a query, ask the AI to restate what it thinks you’re asking for. This can clear up misunderstandings and save wasted time.

[The AI boom is just beginning]

4. Tell the AI it can disagree with you. That’s a great way to stress-test your ideas. And much better than the pointless flattery AI often delivers.

5. Red-team your thesis. Related to No. 4. If you’re submitting some kind of analysis, ask it to identify holes in your logic and make a counterargument. If you seek criticism in the privacy of your AI, it might prevent some surprises when you go public.

6. Wall the garden. You don’t always have to let AI draw information from everything on the Internet, which can produce messy results. Sometimes you might want to limit the results to sources you’ve vetted or volumes you know you can trust.

7. Triage the reading pile. If your inbox features dozens of reports every week (or day), ask AI to read them first and guide you to what might be most interesting. One differentiator might be: Tell me what is actionable.

8. Ask again, in a different way. If you get a weak answer to a query, ask again using different language. If you get wildly different answers, you might have found a weakness in the reasoning. Triple check the info or keep it out of your final work.

9. Create a morning brief. Establish a daily task such as, “tell me what happened in overnight markets.” Refine the task with details and limitations until you get the info you need.

10. Take AI on the road. While driving, ask the mobile AI agent on your phone to tell you about the town you’re passing through, nearby landmarks, or anything else that might make your trip more interesting.

BONUS

11. Know your agent. Free versions of AI agents are more likely than paid versions to use the information you provide to train other AIs, which means your information is more likely to get around. Be careful with personal info and know what the AI might do with it.

Enjoy a cartoon.

You can order this cartoon👆 and play cartoon-themed puzzles and word games at CartoonStock.com.

This is an informal gathering where discussion is off-the-record unless stipulated otherwise. I’m able to share observations.

Artificial intelligence is a main topic of conversation. We’re discussing the obvious questions: Is the remarkable AI-driven stock-market rally sustainable? What could slow it down? Where are we in the AI buildout? What could go wrong?

There seems to be a broad view that this revolution is just getting started. One person who likens it to a baseball game says we’re at the singing of the national anthem—not even in the first inning yet. Another points out that the global semiconductor industry is still relatively small, valued at less than $1 trillion. The global new vehicle market, as a comparison, is about $2.5 trillion, and the auto industry as a whole is a $4.5 trillion market if you include parts and service.

[Check out The Weekly Matterboard, where we rate the importance of the latest news]

Somebody pointed out that former Federal Reserve Chair Alan Greenspan uttered his famous remark about “irrational exuberance” in 1996. He was talking about a stock market that seemed overinflated. During the next three-and-a-half years, the S&P 500 rose another 105%. Don’t take that literally to mean we’re at the “irrational exuberance” moment of the AI boom and we’ve got another three years to party. It’s just context.

Nobody knows if the hyperscalers such as Amazon, Microsoft and Alphabet, which are spending hundreds of billions of dollars to build AI data centers and all other types of infrastructure, are going to recoup their investments. It could be years before clues emerge.

Is there an analog to the dot-com boom, which became the dot-com bust in 2000 and took 49% off the S&P 500 during a 31-month period? One difference is that many of the companies spending billions today are hugely profitable, rather than speculative startups. But the manic data-center buildout could be similar to the massive overbuild of fiber-optic networks in the late 1990s.

[See why the gigantic national debt is finally starting to matter]

At some point, data-center construction will slow, which will be a headwind for physical-infrastructure stocks such as Caterpillar, which has soared 102% during the last year. The construction aspect of AI probably will turn out to be cyclical, with slower periods when the buildout takes a breather. People refer to this as a possible “tools downturn.”

It’s an open question whether we’ll end up with a glut of data centers, with some going unused. The demand for computing power, or “compute,” in AI-speak, is so strong that there’s no sign of overcapacity, for now.

What will happen is new data centers with leading-edge chips will continually replace older data centers with lagging-edge chips. That doesn’t mean older data centers will become obsolete. There’s a lot of demand for lagging-edge chips that can handle routine tasks, or tasks that will become routine. Old chips don’t become obsolete just because new chips are better. There’s still important work they can do.

The chip industry is beginning to focus a lot more on cooling and energy efficiency, to address the problem of all the power needed to run data centers and the water needed to cool them. This brings us to Elon Musk’s bold idea to run data centers in space, where they could be powered by the sun and cooled by frigid ambient temperatures.

There is profound skepticism toward this idea. Like, it’s a non-starter. One expert says it would be easier to operate data centers at the bottom of the ocean. There are a lot of technical barriers to running data centers in space, such as radiation that could fry chips unless they’re hardened and latency lags that could make the centers unreliable.

It seems far more plausible that technological advances and possibly game-changing breakthroughs will improve the efficiency of terrestrial data centers, leaving space to the satellites. The big companies powering the AI boom have thought about all this and developed elaborate long-term strategies that are unfolding gradually. Don’t underestimate them.

~ ~ ~ ~ ~ ~ ~ ~ ~

Economists have been warning for years about a debt crisis caused by too much federal borrowing. It’s finally arriving.

But it’s not a rapid cataclysm, as some may have expected. Instead, the debt crisis is unfolding slowly and almost deliberately, in plain view for everybody to see.

The first manifestation of the debt crisis is rising interest rates. There are two types of interest rates. The Federal Reserve sets very short-term interest rates, which mostly affect banks. The last time the Fed changed those rates was last December, when it lowered them slightly. That’s not where the debt crisis is showing up.

Long-term rates on mortgages, car loans, and most other consumer and business loans are set by the market. And those rates have been rising since March. That’s the warning sign.

Rates are not in a danger zone. If they were, stocks would be falling and economic worries spreading. But economists think they’re higher than they would be if the US government weren’t borrowing roughly $2 trillion every year.

[Check out The Weekly Matterboard, “Nudification” Edition]

“The government is running these large deficits, and debt is so high that investors are demanding higher interest rates,” Natasha Sarin, president of Yale University’s Budget Lab, said recently. “That trickles down to the rest of the economy.”

The debt crisis is generating some weird developments. The Treasury Dept. recently helped Japan stabilize its currency, the yen, which has been falling in value against other currencies. The Treasury got involved because one way Japan could have stabilized the yen would have involved selling large amounts of Treasury securities. More supply hitting the market would have forced interest rates up.

Treasury—led by former currency trader Scott Bessent—helped Japan accomplish the maneuver using euros rather than dollars, which prevented a rise in US rates. The unusual move worked, for now. But it was an extraordinary intervention revealing deep concern in the Trump administration about rising rates and their effect on the economy.

[What to know about Trump’s new insider-trading scheme]

As everybody knows, the national debt is humongous, and due to hit $40 trillion near the end of September. Federal debt now competes for investor money with hundreds of billions of dollars worth of corporate bonds being issued by tech firms to finance the artificial-intelligence buildout. There’s always a mix of government and corporate debt in the market, but investors don’t automatically scoop up infinite amounts of it. If there’s more supply of debt than there is demand, rates have to rise to juice the return to investors and persuade them to buy.

Another complicating factor is the Iran war, because soaring energy prices have reignited inflation. When investors think future inflation is likely to be higher, they demand higher rates to lock in their money with bonds, to compensate for the eroding value of money.

So several factors are forcing rates up, not just runaway government borrowing. But rates might not be rising if there weren’t so much government debt.

Treasury has been subtly managing the problem for at least three years. Since 2023, Treasury has been issuing more short-term debt than usual to meet the government’s borrowing needs. Short-term debt is less likely than 10- and 30-year bonds to push up the interest rates consumers and businesses pay.

[Why markets are manic right now]

In 2024, when Bessent was an advisor to presidential candidate Donald Trump, he criticized the Biden Treasury Dept. for relying too heavily on short-term debt. But Treasury has continued the practice under Trump and Bessent. Excessive short-term funding becomes risky if short-term rates suddenly rise, because the debt rolls over quickly and the government has to pay more to borrow, on short notice.

While Bessent is busy swatting rates down, nobody in Washington is dealing with the core problem, which is too much government borrowing. Everybody is responsible for the $40 trillion debt. Republicans have cut taxes without cutting spending to match. Democrats have raised social spending without raising taxes to match. Wars added several trillion dollars to the tally. Voters getting more than they’re paying for punish any elected official who dares propose benefit cuts or tax hikes.

America doesn’t need to pay off its entire $40 trillion debt. What it does need to do is reduce annual borrowing enough to stabilize the debt relative to the size of the economy. That is going to require a painful combination of benefit cuts and tax hikes, and it will entail brutal political combat.

Yet it’s doable. Budget analyst Jessica Riedl of the Tax Policy Center has drawn up a plan with “something for everyone to hate,” because it would require sacrifices by liberals and conservatives and everybody in between. There are many other such plans. Where there’s brainpower, however, there’s no political will.

So we will continue to bear the cost of too much debt. First it will be marginally higher interest rates that punish borrowers. At some point, higher rates will ding stocks, slow the economy, and maybe cause a recession. The process has begun, and it’s now up to us to decide how long to watch the water rise before we start bailing.

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PAY ATTENTION ⚠️

The Iran war could last for months. Iranian officials told Reuters recently that they believe they can put the United States in a “strategic stranglehold” by continuing to threaten oil shipments through the Strait of Hormuz. That will ultimately force President Trump to make a deal granting many Iranian demands, which will likely include some sort of prolonged control over the strait. The Iranian strategy is “calculated escalation” meant to increase economic and political costs for the United States and its allies. It already seems to be working.

Interest rates are rising because of inflation fears and loads of debt hitting the market, including ongoing massive borrowing by the US government. Mortgage rates have risen from 6% before the Iran war to 6.7%, the highest level in a year. The US Treasury recently engaged in an unusual effort with Japan meant to strengthen the yen without raising US interest rates even more. Trump wants low interest rates and they’re going in the opposite direction, in part because his own policies—tariffs and the Iran war—are exacerbating inflation. He expects new Federal Reserve chair Kevin Warsh to get rates lower. But Warsh may not be able to do it. Fireworks seem inevitable.

MIGHT GET SPICY 🤔

Iran is apparently trying to sabotage American infrastructure, to bring the US-Iran war home to ordinary Americans. Officials in Michigan, Minnesota and several other states have reported cyberattacks on water systems. There’s no evidence the attacks caused serious damage, but Iran is pretty good at cyberwarfare and national-security experts have long warned that US infrastructure could be vulnerable. China, Russia, and North Korea probably have similar capabilities.

US Central Command, responsible for military operations in the Middle East, is looking for better ways to deal with Iran. An unnamed CentCom officer sent an email to military analysts recently saying the military was looking for “creative and unconventional ways to pressure and punish Iran,” according to CNN. We have an idea: Get rid of Defense Secretary Pete Hegseth, the most senior civilian advising Trump on this debacle. Firing Hegseth would let Trump blame the whole fiasco on him and push the reset button. But only Trump can fire Hegseth, and alas, there’s no sign he’s leaning that way.

[Why markets are manic right now]

Four million Americans have lost food aid because of cutbacks in the tax law Trump signed last year. Some of them are kids. And further cutbacks are probably coming. The president of the Children’s Defense Fund told NPR some families are facing “desperation.” Republicans who structured the cutbacks added work requirements and other conditions, knowing it would reduce the amount of aid going out and free some money to help finance the tax cuts. The tax cuts benefit the wealthy more than anybody else. Something seems wrong here.

Todd Blanche is set to become attorney general, after he revoked the May order setting up a $1.8 billion slush fund Trump wanted to pay off allies. That was a condition some Republican senators set in order to vote for Blanche’s confirmation. So they’ve now cleared the way for him to become attorney general. But Trump didn’t sign the new Blanche order and there’s a good chance the slush fund isn’t dead. The Justice Dept. has become a politicized arm of Trump’s machine and Blanche seems unlikely to change that.

[What you should know about Trump’s new insider-trading scheme]

Trump blames ExxonMobil and Chevron for $4 gas. He said they’ve made “too much money” since the Iran war sent oil prices surging, and should “give some of that back to the public.” Joe Biden would be proud. Energy companies always earn more when oil prices rise. They earn less when oil prices fall, but nobody notices that. Politicians looking for scapegoats have tried to browbeat Big Oil into cutting prices many times, but it never works because private-sector companies answer to shareholders, not politicians. Oil and gas prices would fall if Trump resolved the Iran war.

RESULTS MAY VARY 🤷‍♂️

Trump’s approval rating has hit record lows, according to several polls. His approval rating ranges from 32% to 34% in surveys by CNN, the Associated Press, and Quinnipiac. Trump’s Iran war is deeply unpopular and he keeps doing things voters don’t want, such as raising tariffs on imports and making everybody pay more for stuff. Trump’s terrible ratings are the best hope Democrats have of winning one or both houses of Congress in the upcoming midterm elections.

Contaminated food is marring the summer of 2026. Two people in Michigan died from the cyclospora parasite that has poisoned lettuce and other vegetables and caused an epidemic of explosive diarrhea. And a salmonella outbreak linked to eggs has sickened a bunch of people in 17 states. Food illnesses affect relatively few Americans but do tend to freak some people out.

SAFELY IGNORE 🚫

Mitch McConnell is still missing, and he may even be too frail to sign his name, according to a Daily Beast report. The odd silence of his staff and family amid a long hospitalization makes it seem like the Kentucky Republican senator is gravely ill. We’ve pointed out before that if McConnell dies, Kentucky’s Democratic governor may try to appoint a member of his own party to temporarily replace McConnell.

[Why Trump’s approval rating is cratering]

A “nudification” ban took effect in Minnesota on August 1. The law prohibits the use of technology to “nudify” an image of somebody. One of Elon Musk’s companies sued to block the law, claiming it went too far. A judge shot that down. We live in interesting times.

Two skeevy Congressmen face uncertain futures. The House Ethics Committee rebuked Rep. Chuck Edwards, a North Carolina Republican, for what sounds like sexual harassment of young women on his staff. In Ohio, Rep. Max Miller, also a Republican, is facing calls to resign because of what sounds like abusive behavior toward his ex-wife, who is the daughter of Ohio Sen. Bernie Moreno. The two youngs had a contentious divorce, finalized last year, with the woman accusing Miller of abusing her and the two-year-old daughter they share. Moreno kept silent on the matter until August 2, when he said on social media that Miller is “erratic and dangerous” and should resign. Both of these guys are running for reelection in November.

The reflecting pool is back in the headlines, and we are delighted! Justice Dept. prosecutor Jeanine Pirro dropped the case against a 67-year-old Maryland man for “vandalizing” the pool because there was no evidence he did. Trump flipped out, because he’s clinging to the lie that vandals wrecked the pool rather than his no-bid contractors. Now, he might fire Pirro. The falsely accused Marylander might sue the government. Meanwhile, the pool is empty because the new lining didn’t work. This is one of the dumbest stories of all time and it perfectly encapsulates the folly of the Trump presidency.

FIFA flap. There’s a big controversy at soccer’s governing body, which everybody can ignore because Americans only care about soccer when their kids play or the World Cup comes to town.

Enjoy a cartoon.

You can order this cartoon👆 and play cartoon-themed puzzles and word games at CartoonStock.com.

• Trump’s plan is to sell early access to posts on his Truth Social network for a fee of $100,000 per month. Trump’s company, Trump Media & Technology Group, owns Truth Social.

• Other social networks charge a fee for early access, which can amount to just seconds or even a fraction of a second before a post goes public. Investing firms use high-speed computers to track all sorts of data, including the social media posts of prominent people who might be able to move markets. If computers spot a trading opportunity, they can place the trade before others without early access get the info.

• The difference with Truth Social is that the president of the United States owns it! And he regularly makes social media statements that move markets. The Wall Street Journal, for instance, recently analyzed several instances of Trump post affecting the stock price of companies such as US Steel, Intel, and Raytheon. Oil prices often rise or fall based on Trump posts about the status of peace negotiations in the war with Iran.

[See why markets are manic right now]

• Is selling early access to presidential statements legal? Unclear, as with many of Trump’s profit-making schemes. There are laws that prohibit the use of insider information to make a profit. But Trump might argue that his social media company has the same right to offer an upgraded pricing tier as any other platform. Courts will probably decide.

• Will any investing firms give this a shot? A few probably will. Hedge funds and other types of trading shops spend a lot of time and effort seeking any edge that might help them make money. Some probably won’t be bothered by the potential illegality. But most will probably take a pass. One problem is the question of what might happen if courts ban Trump from selling early access to his posts. Would that make any firm that profited from early access guilty of insider trading? And if Democrats win control of either house of Congress in the midterm elections, they could hold hearings exposing firms making money off Trump’s posts.

• One fun aspect of the whole controversy is that Trump Media & Technology Group is a public company—which means it has to disclose important sources of revenue in its quarterly reports. The names of any companies paying for info might remain confidential, but if Trump’s company makes meaningful money by selling early access, we’ll know—unless the company illegally suppresses the information.

• Bottom line: Nobody ever imagined a politician who would monetize the presidency as Trump has.

Enjoy a cartoon.

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Is that a good thing? Probably not. Huge swings in stock prices are a mark of volatility, and certain corners of the stock market are pretty manic right now, as investors try to identify the winners and losers of the artificial-intelligence revolution.

[Pop quiz: What the biggest one-day loss of market value? Answer at the bottom.]

That narrative keeps changing, with some stocks and sectors going in and out of favor. Microsoft is a good case study in investor fickleness.

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