…which may be a warning sign for the health of the domestic economy.

the rationale

As I’ve written maybe too many times already, I began my investment career at Value Line, where I got a job more or less by accident. Wall Street was raiding VL for seasoned securities analysts as it was recovering from the twin shocks of the deep recession of the early 1970s and the SEC banning the practice of (very high) fixed commissions for investment services. VL, in response, began to tap the expanding pool of would-be academics like me, unable to find university teaching work as the tide of Baby Boomers entering college began to recede.

I started with the odd mix of oils, oilfield services, semiconductors and public utilities. Soon, however, I was able to trade in utilities for casinos.

An important thing to note about VL is that although it wasn’t glamorous, (Gemini tells me) my reports were read by 100,000+ active individual investors. Many company chairmen and boards of directors looked at them as well. So my company contacts were at great pains ot make sure I had complete and accurate information.

I knew that US casino profits were split pretty evenly between gambling, on one hand, and hotels, restaurants, entertainment… on the other. Over time, it became clear that on the gambling side, operating profit growth is a straightforward function of the size of a given casino’s floor space and nominal GDP growth. Given constant space, you didn’t need to know how many table games, which kinds, the number of slot machines and their payouts… Yes, it might be fun to learn all that and build an elaborate profit model, which I tried to do –and that’s also how I learned you didn’t really need to. One key assumption, though–the casino management can’t be total idiots. They have to have enough skill to choose an appropriate market segment and to ensure the layout appeals to the casino’s target clientele.

the point

In its just-released report, The Nevada Gaming Commission indicates that gambling revenue on the Las Vegas strip over the past six months has only risen by 0.77% yoy. Statewide, the figure is +2.0%, which I read as saying locals feel better off than visitors. This statewide figure, though, shows current growth at only about half the rate of the prior two July-ending fiscal years.

Maybe there are other causes, like people spending too much time in the Sphere or at sports venues. Still, this is a pretty notable falloff.

From a purely stock market point of view, the worst aspect of ICE is that the violence it so casually seems to use will shrink the domestic workforce, undermining GDP growth prospects. Not exactly the welcome mat for tourists, either. It thereby introduces an extra element of risk in holding any US-centric security, in my view, and will cause the overall market PE to slowly contract. Arguably, it’s not as harmful to the overall domestic economy and to the shares of publicly traded companies as administration plans to create inflation that will devalue the dollar. But it will, it seems to me, give the US a much greater reputational black eye. And that will ultimately cause further multiple contraction, I think. It’s already apparently causing a brain drain, by reducing the number of smart young scientists coming here to study and to start careers in research.

At the nuts-and-bolts level:-

Back in the dim past of 1968, my first job was as a platoon leader with the 5th Mechanized Infantry at Fort Carson, Colorado, a unit that had, among its other duties, primary responsibility for domestic riot control west of the Mississippi. We trained for this regularly.

After I’d been in Colorado about a month, we were packed up and sent to the Great Lakes Naval Training Center, just outside Chicago, in the hope that our presence would deter at least some protesters from showing up at the Democratic Convention there in late August. Our M-16 rifles came separately, all locked up where we had no access. The same for ammunition, which was in a different area and doubly secured. We all did get little cards outlining the rules of engagement, though. The words were bureaucratic, but the gist was that if we injured a protester, we’d be court-martialed and thrown for a long time into the deepest, darkest prison the Army could find.

Many of the men in my platoon were Vietnam veterans, some recovering from combat wounds, serving out the last few months of their enlistment commitment. They were particularly frightened, less by the protesters than by the little cards, thinking that they had survived a war only to be reinjured, killed or thrown in jail in Chicago (TV coverage in Colorado showed protest groups practicing martial arts and their leaders vowing to throw lye into the eyes of police or soldiers to blind them).

We were cut off from communication with the outside world as we waited, so I have no idea what did or didn’t actually happen in subsequent fighting between the Chicago police and protestors.

How times have changed. When I read about or view video of ICE in action, I ask myself:

–don’t ICE people get any training on the use of force, or is the out-of-proportion violence we’re seeing the result of their training?

–why do they have real bullets? –why are they so heavily armed? After all, they’re deploying operatives in large numbers, which itself lowers risk to them, and they are interacting in large measure with non-violent, unarmed fellow Americans.

–where are the little cards that detail the rules of engagement? are there any? can it actually be that you can shoot anyone you feel like? do you really need ten shots from a couple of feet away to subdue someone?

–how could anyone in a position of authority decide the best course would be to cover up what appear from bystander videos to be the murders of innocent citizens in Minnesota? couldn’t you get a better story than to say that a professional healer holding a cellphone and coming to the aid of a pepper-sprayed woman was actually a bloodthirsty terrorist aiming to kill ICE operatives with the pistol secured in his lower-back holster (presumably unloaded and with the safety on, since ICE isn’t saying otherwise), so it was ok to shoot him to death after ICE took his gun away.

I remember from back then the two iconic photographs that ended up defining the war in Vietnam for many Americans. One pictured a South Vietnamese police officer in the middle of a Saigon street, casually killing with his pistol a Viet Cong captain who had been captured and who appears to have his hands tied behind his back. The other is a picture of terrified young children fleeing from a napalm strike on their village.

Stills from videos of the ICE killing of Alex Pretti in Minnesota may well end up being today’s equivalent. One that I’ve seen is particularly dismaying–it shows Pretti, cellphone in his right hand, the other empty, being knocked to the ground by a group of at least five ICE agents, one of whom has already drawn a pistol and pointed it at the back of Pretti’s head.

Conspiracy theorists seem to believe that this is all a smokescreen to deflect attention from the administration’s refusal to release the Epstein files as Congress has mandated, or from Trump’s apparent cognitive deterioration.

I occasionally chat with neighbors or friends about the stock market. I’ve been doing it a little more recently, because I’m curious about how people assess last year’s S&P and NASDAQ performance. Most people I see, who generally don’t pay much attention to stocks, say it was a great year.

The reality, though, is that the S&P 500 was the worst-performing major stock index in the developed world last year. And it’s starting off 2026 the same way–and that’s despite having (for now, anyway) the cream of the crop in technology. The main reason? The dollar has dropped through the floor, losing close to 15% of its value vs. other major currencies. That hasn’t been so horrible for tech, which has huge margins, but it has been a killer for any firm that has foreign currency costs and $US revenues. In addition, many companies serving the domestic market have been hit by tariffs, and have generally chosen not to pass on the entire cost to customers.

The figures over the past twelve months, in dollars, have been as follows:

EAFE (an index of major non-US markets) +28.9%

NASDAQ +23.1%

S&P +16.1%

The euro has gained 15% vs the $US, more or less accounting for all the difference.

Year to date, the results are similar, with EAFE +5.9% through today, NASDAQ +2.5% and the S&P +1.9%. The euro is +2.5% vs. the dollar.

A portfolio constructed to avoid net importers and favor heavy net exporters would likely have handily outpaced EAFE.

My guess is that the same will be true this year, as well, or at least until/unless Washington begins to work out what an economically threatening move ending Fed independence would be.

The reason, I think, is that the administration favors a weak currency and has depressed the value of the dollar by recreating the Federal Reserve of the 1970s, which was not an independent body back then but rather responded to the wishes of the Oval Office. The big currency trading firms are reading this as Washington’s desire to weaken the currency, enabling Washington to repay maturing Treasuries in future dollars that have the purchasing power of, say, $.80 today. So they are selling the dollar, as are foreign holders of Treasuries, who have such large Treasury positions they can’t offload them without taking a substantial loss.

This is also the thought behind the 86% rise in the price of gold over the past year.

Anglo-American common language philosophy developed in the UK after World War II as a result of the belief that Naziism had found its conceptual underpinnings in the philosophy of figures like Hegel and Nietzsche. Many of its early proponents had been intelligence officers or codebreakers, some combat soldiers as well.

Some of their work I find a little weird. Take J L Austin’s famous essay “How to do things with words,” which analyzes the sentence “There are cookies on the sideboard, if you want them.” Suppose, however, you don’t want them. Are they still there?

lying

Much more useful is the analysis of what a lie consists in.

The litmus test is not simply the factual correctness of what is said. After all, the speaker might be misinformed. Rather, the essence of a lie is the intention to mislead. If you say, for example, that a man with a gun advanced on the officers–and “forget” to mention that the gun was not in the man’s hand, but rather secured in a holster at the base of the man’s back and neither visible nor easily accessible–and possibly not loaded and with the safety on to prevent firing, that’s a lie. The sentence, in isolation, may be true as far is it goes, but it’s framed in a way to make it a key element in advancing a false narrative about what has occurred. Very Third Reich-ish.

Another element in lying is what one might call the misuse of ritual circumstances. If we’re in a comedy club and are listening to a performer telling jokes, for example, we all know that the entertainer’s purpose is to be funny. So we understand that what’s said may be an exaggeration of real events, or simply not true at all. But that’s ok. We know what comedy is about and we’re in a comedy club, after all.

In contrast, if we’re at a government briefing and listening to a high official from the Justice Department describe a potential crime, our expectation is that what we hear will be the truth, and nothing misleading. We should get all the important, relevant facts and nothing extraneous. So when that official says a man with a gun approached ICE officers, and “forgets” to mention that the gun was not in the man’s hand but rather in a holster behind his back, underneath his clothing and out of reach, that’s not really an accidental omission. It’s a lie. …a lie, because the intention is to trick the hearer into drawing a false conclusion. One might try to defend the officials in question by saying they’re bring tricked by ICE or that they figure lying is ok, but neither is a good look. And of course in this case there are videos that show the true state of affairs.

I’m taking off my hat as a human being and a concerned citizen and putting on my stock market cap.

This has been a bad week for Wall Street, as well as for the country. The stock market issue, I think, is not the trajectory of near-term earnings growth, but rather the PE multiple that investors will assign to the results of US companies whose stocks are traded on Wall Street.

Unusually in my experience, this is both about concept, rather than near-term results, and about politics:

–Canada says the Trump administration has broken the special relationship with it and it needs to turn to China as a trading partner, as a result

–after Trump’s appearance at Davos, the EU seems to be thinking the same thing

–the Renee Good autopsy shows she was killed by an ICE bullet fired into the left side of her head–meaning the shooter was off to the side of the car and not, as claimed, in its path, and showing that the government claim the shooter was defending himself against an attack with a lethal weapon (the car) is false

–James Comey reportedly made a powerful argument before Congress that he had proof beyond a reasonable doubt that Trump conspired to overthrow the presidential election results of 2020–and that Trump would have been convicted had the case been allowed to go to trial. Congress is refusing to release the transcript, suggesting Comey’s testimony is highly persuasive

–the administration also appears to be refusing to release the bulk of the Epstein files to Congress, despite a new law ordering it to do so, suggesting that the Trump-Epstein relationship was a lot deeper than the current public understanding

–Trump clearly wants to eliminate the independence of the Federal Reserve and to return to the Nixonian state of play, which ultimately created highly destrucdtive runaway inflation that took a decade or more of economic pain to reverse.

None of this, especially the last, is stuff to motivate PE multiple expansion. Maybe another way of putting this is that Trump’s actions are shifting the balance toward future negative surprises, both in the market PE and in earnings growth.

Arguably, I guess, the fact that the US has been pretty much the world’s worst stock market since the inauguration suggests some of this is already reflected in prices. It may well be that future market action will play out the same way, with losses reflected mostly in the loss of the dollar’s purchasing power. We’ll know more as Trump replaces the Fed chair.