Tariff Case Goes 'Supreme', Dalio Speaks, Beige Book Clues
Could the U.S. be at risk of a 'debt-induced economic heart attack'? Let's check that, the latest in the tariff legal battle and some wonky economic indicators.
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Late last Friday night, a federal appeals court ruled that Pres. Trump had exceeded his powers as the nation's chief executive in using emergency authority to change U.S. trade policy. The size and scope of the president's tariffs were what the appeals court had an issue with. However, the court permitted those tariffs to remain in effect through mid-October to avoid disrupting U.S. policy in anticipation of the likelihood that the administration would take the case to a higher court. By Tuesday, Pres. Trump confirmed exactly that. The president said that he would go to the nation's highest court with this case and do it quickly.
On Wednesday evening, the Trump administration asked the U.S. Supreme Court to quickly hear their appeal of the Friday night ruling. Solicitor General John Saur not only asked the Justices of the Supreme Court to grant review, but to also expedite the case "to the maximum extent feasible, given the enormous importance of quickly confirming the full legal standing of the president's tariffs."
Treasury Sec. Scott Bessent commented within the Solicitor General's submission, adding that Friday night's ruling was "already adversely affecting ongoing negotiations. World leaders are questioning the president's authority to impose tariffs, walking away from or delaying negotiations, and / or imposing a different calculus on their negotiating positions."
Bessent also expressed concern that should the Court not expedite the case and wait until June (nine months away, and end of the current term) that the federal government would have already collected up to $1 trillion in tariffs. Unwinding that revenue at that point would be far more chaotic than it already would be.
So, How is the Economy?
We already know that second quarter gross domestic product, after its first revision printed at growth of 3.3% (q/q, SAAR), which was somewhat misleading. I have discussed here in this column that a huge drop in imports contributed far more to that result than anything else and the number that matters most in my opinion, "Final Sales to Domestic Purchasers" landed at q/q, SAAR growth of 1.9%.
That's probably a more accurate take on Q2 U.S. economic activity than almost anything else. Gross domestic income printed at Q2 growth of 4.8%, so merely averaging GDP and GDI would not accurately measure economic activity when one category so severely skews the results as was the case during the second quarter.
On Wednesday afternoon, as the central bank always does two weeks ahead of a policy decision, the Federal Reserve released its latest edition of the "Beige Book." The "Beige Book" is a nickname. The release is formally known as the "Summary of Commentary on Current Economic Conditions" and is an anecdotal collection of information from each of the Fed's twelve regional districts. Each release is collected by a different regional branch on a rotational basis. Oh, and yes, the cover of the physical release is indeed beige.
Anecdotally Speaking...
Quotes from the Beige Book...
On Overall Economic Activity: "Most of the twelve Federal Reserve Districts reported little or no change in economic activity since the prior Beige Book period - the four Districts that differed reported modest growth. Across Districts, contacts reported flat to declining consumer spending because, for many households, wages were failing to keep up with rising prices."
On Labor Markets: "Eleven Districts described little or no net change in overall employment levels, while one District described a modest decline. Seven Districts noted that firms were hesitant to hire workers because of weaker demand or uncertainty."
On Inflation: "Ten Districts characterized price growth as moderate or modest. The other two Districts described strong input price growth that outpaced moderate or modest selling price growth."
Districts describing expanding economic activity included Boston, Philadelphia, Cleveland, Richmond, Chicago and Dallas. Districts describing contracting economic activity were New York, Atlanta, Minneapolis, and San Francisco. Both St. Louis and Kansas City described economic activity in those regions as flat or unchanged from the period prior.
Off to a Weak Start
The "Jobs Week" schedule is a little wonky this week due to the holiday this past Monday. Usually, markets focus on the ADP Employment Report on private sector job creation for the prior month on the Wednesday of Jobs Week. Instead, we'll see that release this (Thursday) morning. Instead, the JOLTS report for the month of July, which is published by the beleaguered Bureau of Labor Statistics, led off the barrage of labor market focused data for the week.
According to the JOLTs report, job openings dropped to 7.181 million in July, down from 7.36 million in June and well below the 7.38 million that economists had expected. That makes July 2025 the weakest month for job openings since September of 2024 and the second weakest since the pandemic impacted month of January of 2021. Job quits, often seen as a measure of employee confidence, dropped to their lowest level of 2025, but still remain well above 2024 levels.
Dalio Speaks
Now, I often listen to Ray Dalio, the retired founder of Bridgewater Associates, when he speaks or writes. I don't always agree with him, and I sometimes think him mistaken, but he is always thoughtful and for that reason merits attention in my opinion. I try to listen to both sides of the political argument in order to better inform myself.
I also often listen to economists and strategists that I don't often agree with because I do acknowledge that these are smart people and if I am unwilling to hear and potentially learn from other smart people, then what would that make me? Ignorant is the word that comes to mind. For our own conclusions are built upon our own ideas as well as the ideas of others.
Some of you will recall Ben Willis, former NYSE floor trader and an executive at several firms over the course of his career. Ben and I used to work together, while we both appeared frequently on CNBC, Fox Business, Bloomberg TV and Radio as well as many internet-based and foreign outlets. Ben and I disagreed all the time, but I'll tell you this. He made me smarter, and I hope that I did the same for him.
Well, Ray Dalio posted an article of his on the X social media platform on Tuesday after he felt that his interview with the Financial Times had been mischaracterized. Two quotes from that rather lengthy piece struck home, I think.
"We are late in the big debt cycle, and if those who shape policies don't change policies, there will be a debt-service problem coupled with a debt supply-demand problem that will cause a debt-induced economic heart attack."
Dalio later added...
"International holders of dollar-denominated bonds are reducing their holdings of US bonds and increasing their holdings of gold due to geopolitical worries."
The Dalio Interview Kind of Reminds Me...
... of two older books I would recommend to those who think about such things.
1) "Endgame: The End of the Debt Supercycle and How it Changes Everything" by John Mauldin, 2011
2) "Currency Wars: The Making of the Next Global Crisis" by James Rickards (a personal friend), 2011
Financial Markets
Treasury debt securities rallied on Wednesday. Equities did not tell us much, though some of my favorite stock got beat up. Was Wednesday a "pause day?" I don't think so because I don't think Tuesday was a "Day One" bearish reversal. Sure, of this, I am not.
I thought it very interesting that on Wednesday, the Technology sector SPDR ETF XLK was up 0.6% despite the fact that the Dow Jones U.S. Software Index was up just 0.05% and the Philadelphia Semiconductor Index was down 0.23%. What gives? The not so often noticed Dow Jones U.S. Computer Hardware Index gained 3.64% on the session, supported by that 3.81% run made by Apple AAPL in response to the Alphabet GOOGL ruling that I wrote about yesterday.
Anyone Else Notice...
... That C3.ai Inc AI is catching an overnight beat-down after reporting fiscal Q1 results that missed by a country mile at both the top and bottom lines while reporting sales that contracted 10.4% on a year over year basis. The firm has replaced CEO Thomas Siebel with Trump ally Stephen Ehikian effective this past Monday. Siebel will stick around as Executive Chairman.
Economics
(All Times Eastern)
08:15 - ADP Employment Report (Aug): Expecting 69K, Last 104K.
08:30 - Balance of Trade (Jul): Last $-60.2B.
08:30 - Initial Jobless Claims (Weekly): Expecting 231K, Last 229K.
08:30 - Continuing Claims (Weekly): Last 1.954M.
08:30 - Non-Farm Productivity (Q2-F): Flashed 2.4% q/q SAAR.
08:30 - Unit Labor Costs (Q2-F): Flashed 1.6% q/q SAAR.
09:45 - S&P Global Services PMI (Aug-F): Flashed 54.4.
10:00 - ISM Non-Manufacturing Index (Aug): Expecting 50.5, Last 50.1.
10:30 - Natural Gas Inventories (Weekly): Last +18B cf.
12 p.m. - Oil Inventories (Weekly): Last -2.392M.
12 - Gasoline Stocks (Weekly): Last -1.236M.
The Fed
(All Times Eastern)
12:05 p.m. - Speaker: New York Fed Pres. John Williams.
7:00 - Speaker: Chicago Fed Pres. Austan Goolsbee.
Today's Earnings Highlights
(Consensus EPS Expectations)
Before the Open: CIEN (.53), TTC (1.22)
After the Close: AVGO (1.66), DOCU (.85), LULU (2.87)
At the time of publication, Guilfoyle was long GOOGL equity
