Each year, I like to go on the record with my top 10 predictions for what some of the big stories will be in the new year. You can click here to go back and read what predictions I made twelve months ago for 2018. 

1. “Avengers: Endgame” out-duels “Star Wars: Episode IX” as the top grossing movie at the box office.

Only once has a “Star Wars” saga episode not finished as the highest-grossing film of the year (“Star Wars Episode II: Attack of the Clones” in 2002). But I think a combination of three factors is why it will happen again: 1) A segment of the Star Wars fan base grows increasingly disillusioned with Disney’s handling of the franchise; 2) Next year’s holiday release schedule is packed with powerhouses; 3) The uniqueness of Avengers: Endgame, culminating the much-celebrated Marvel Cinematic Universe.

2. John Kasich will announce a primary challenge to President Trump.

This will be the best political news Trump gets all year. While it’s been true since the advent of the two-party system that sitting presidents who are primaried always lose re-election, this is the first time one will be primaried from the opposite direction of his base. In all the other cases, Republican or Democrat, the sitting president was primaried for abandoning his base. In this case, Kasich is primarying Trump because he represents the GOP base. Kasich’s challenge will force Trump to stay loyal to that base.

3. In a rematch of the regular season’s most epic game, the Kansas City Chiefs will beat the Los Angeles Rams in the Super Bowl.

Last November’s Monday night game between these two was perhaps the greatest regular-season spectacle in recent memory. The sequel in the Super Bowl will be memorable, too, except this time the Chiefs win and come away with their first title in 48 years.

4. The only major piece of bipartisan legislation passed will be regulation of social media platforms.

Both political parties have different aims here, obviously, but coinciding motivations: mainly, the desire to rein in what is and isn’t permitted/banned on social media platforms prior to what promises to be a contentious and divisive 2020 election. Democrats will want to set the precedent that government can control content on the internet for future use. Republicans will seek to stop the increasing progressive censorship of the social media giants.

5. Relations with China will grow frostier; the nation will forge an unprecedented pact with North Korea and Russia, as well as announce that it intends to beat us to a manned mission to Mars.

The prediction itself pretty much says it all. This will be part of an overall attempt by China to further assert itself geopolitically, at a time when there will be high domestic turmoil tearing us further apart here.

Regardless of who is president, in recent years we’ve had a quasi-socialist economy manipulated by market distortions, debt, regulations, the Federal Reserve, and government and health care spending, despite low taxes. Those taxes just got even lower, which clearly added to short-term GDP growth. But can a manipulated economy with low taxes produce consistent annualized growth of 4 percent or even 3-3.5 percent? I doubt it, but time will tell.

Partisans on both sides tend to exaggerate the consequences of a single-quarter GDP report and make it all about the current president, as compared to a previous president. But as a conservative, I feel no need to overstate the utility of this positive GDP report, because, although the tax cuts had a positive effect, we still have many countervailing weights on our economy that undermine a free and efficient market system.

The fact that we’ve attained 4.1 percent annualized growth for one quarter doesn’t yet negate the sluggish trend of going 18 years without a full year of 4 percent growth or even the trend of 13 years without 3 percent GDP growth. Quarterly GDP reached 3 percent on eight separate occasions under Obama’s tenure, and five of those were over 3.9 percent. He even hit 5 percent during Q3 of 2014. Nonetheless, we rightfully pointed out at the time that because every other quarter languished, we never even hit 3 percent annualized growth for a single calendar year. That point has not changed in 2018. At least not yet.

In the jobs numbers, on the other hand, we already have a year’s worth of data showing this to be the best job market since the ’60s by some measures. But the jury is still out on the GDP numbers. And in fact, because the job market is off the charts, one would expect the GDP numbers to be off the charts.

A breakdown of the GDP report

Let’s peek behind the topline number of 4.1 percent GDP growth during Q2 of 2018.

GDP comprises personal consumption expenditures, gross private domestic investment, government spending, and net exports.

Personal consumption

Personal consumption, which accounts for two-thirds of the economic pie, rose by 4 percent after rising just 0.5 percent last quarter. Also, final sales of U.S. goods and services rose by 5.1 percent, a number we have not seen in years. That is clearly related to the low unemployment and the personal and corporate tax cuts placing more money in the pockets of consumers. It works every time.

Investments

Gross private domestic investments actually declined 0.5 percent, but that was almost exclusively due to a weakening domestic housing market thanks to higher mortgage rates. Non-residential investments rose by 7.3 percent, and when coupled with last quarter’s increase of 11.5 percent, this has been the best six-month increase in eight years. Again, clearly the tax cuts at work, especially because the sub-category of “sales to private domestic purchasers” rose by 4.3 percent.

However, it is bizarre that the investments in equipment and intellectual property were actually much higher in Q1 when the tax cuts were not even fully factored in. One would expect that to grow. This is another example of the need to wait for Q3 for a better assessment.

Net exports

One of the factors making the topline growth exceptional for this quarter was exports, but that came almost exclusively from soybean exports. The problem? The very measure that juiced up this quarter’s GDP might hurt us in the future. Exports rose because foreign markets, particularly the Chinese market, purchased extra soybeans in advance of the expected retaliatory tariffs on our agriculture products from the impending trade war.

This is why we must view fiscal policy and economic conditions over an entire year, because often the factors driving the inflation of numbers for an isolated quarter are responsible for a rubber-band effect in several subsequent quarters. We saw this throughout Obama’s tenure. Whether Trump’s policies help or hurt the economy will ultimately hinge upon whether these tariffs are permanent or just a negotiation tactic to force foreign countries to lower their tariffs, as he successfully did with the European Union.

Government expenditures

The same principle of the double-edged sword applies to the final measure of GDP. Yes, some of the measure of GDP (currently 17.5 percent), as always, comes not from the private sector but from government, which, as conservatives, we believe is not only bad policy, but in the long run hurts our economic growth because of the accumulating debt and misallocation of capital investments. Government expenditures/consumption rose by 2.1 percent, but the federal share was 3.5 percent, buoyed by the massive omnibus. If our thesis on debt and long-term GDP growth is correct, this will ensure that year over year, even during a good job market, we will not see 4 percent GDP growth the same way we failed to actualize such annual growth under Obama, even though the Keynesian spending juiced up the numbers for a quarter.

Other long-term mitigating factors

The 800-pound gorilla in the room is the Federal Reserve. The better our economy gets, the more the Fed is inclined to raise interest rates, which will cap the growth of the economy. Trump rightfully complains about Fed policies, but the answer is not to keep interest rates at zero forever; the answer is not to manipulate the economy through the Federal Reserve to begin with. There is no reason why we should allow the Fed to use monetary stimulus in such an officious manner that the entire market would collapse without the monetary morphine, even during robust economic growth. The Fed is the opioid crisis of our stock market and economy. This is why it will be hard to sustain anything above 3.5 percent growth for a long time.

Then there is the crushing debt. Even with the dollar-GDP surging past $20 trillion for the first time, our debt stands even higher – at $21.3 trillion. It is set to explode with trillion-dollar deficits every year as far the eye can see, thanks to recent policies. Think about all those domestic and foreign investments going toward purchasing Treasury bonds to service Democrat votes and dependency rather than investing in our private economy and growing wages. And with the Federal Reserve raising interest rates, even more investors will be attracted to the Treasury bonds, which further makes interest on the debt even more expensive, constantly reinforcing each other in a vicious cycle of debt and higher rates crowding out private investment.

Then, once the job market cools off and the tax cuts grow old, we will only be facing the countervailing weight on the economy without the humming engine of the current job market.

Finally, a big question mark on the current report from the Bureau of Economic Analysis is that much of this growth is likely built of some massive revisions the BEA made to important economic measures from last year. They suddenly discovered an extra $400 billion in personal income last year. For last quarter alone, the saving rate was doubled, from 3.3 percent to 7.2 percent in the revised estimate. The BEA also revised an entire decade’s worth of data on household savings. In total, the revision alone added a whopping trillion dollars to our dollar-GDP. This is really bizarre. Either it’s built upon BS assumptions and we’ll see a massive revision downward, or our economy is a lot stronger than we thought and has been for quite some time. Again, we need to see a longer window of data to draw more conclusions.

The proper outlook and course of action 

Thus, conservatives were right to criticize our managed and centrally planned economy under Obama for never producing a year of 3 percent growth and we are right to point out the turnaround from tax cuts. But we have not gotten rid of the socialism, especially in health care.  And with the debt skyrocketing, interest rates soaring, and our equities markets getting ensnared in the catch-22 of the Federal Reserve’s monetary manipulation, it would be very surprising if we kept this rate of growth for a full year. And the jury is still out on the tariffs.

This is not a knock against Trump, although he has continued some of these policies, particularly growing the debt. This is an indictment of market distortions, regulations, dependency, debt, and the Federal Reserve that we all complained about under Obama. Those factors haven’t changed, and we shouldn’t ignore them just because a Republican is in the White House.

It is simply dishonest, at this point, to compare annual growth rates under Obama to quarterly rates under Trump. The same mitigating factors working against us then still apply now, with the exception of the tax climate. What we really need to do is build upon the tax cuts by making them permanent, repeal Obamacare and all the other third-party interference in health care, and finally relegate the Federal Reserve to the job of keeping a stable currency rather than manipulating our economy.

Time will tell, but tax cuts alone are unlikely to sustain a broader manipulated economy for too much longer. And if I’m wrong, and somehow we sustain 4 percent growth for the next three quarters, just remember that without the crushing debt driving so many investments into Treasury bonds rather than private investment and wages, we’d see 6 percent growth in this robust job market, and wages would be much higher.

Republicans have always been good on taxes. It’s finally time to tackle the other albatrosses around our economy and see what real growth looks like.

The day is finally here. At around 9:00 p.m. Eastern time, President Trump and North Korean dictator Kim Jong Un will meet face to face to discuss the pressing matters that have divided the United States and North Korea for decades.

As I explained in The Dossier Monday, in a traditional administration, negotiations are completed behind the scenes and well before the president’s scheduled meeting. But President Trump is in a unique situation, given that his background, expertise, and personal reputation are in being the lead negotiator. It remains unclear what has been accomplished behind the scenes, but surely, much clarity on the major points of contention between the U.S. and North Korea will be delivered in the hours ahead.

There are many agenda items to hash out between Washington and Pyongyang.

The Trump administration will seek first and foremost to see if North Korea is serious about the prospect of denuclearization. While human rights concerns are important, priority one for the administration is to protect the American people from the North Korean nuclear threat. Secretary of State Mike Pompeo and national security adviser John Bolton have repeatedly stressed that a transparent, verifiable denuclearization process is the top item on the American agenda.

A distant second objective for the American team is finding a way to change Pyongyang’s outlook, including its threatening posture towards the Western world and America’s allies in East Asia. North Korea views the United States as its primary enemy, so it will undoubtedly be difficult to change the mindset of a regime that is legitimized through hostile actions and behavior against the U.S. and its allies.

The United States has not called for regime change and does not plan on addressing the regime’s human rights abuses. Policymakers reportedly fear that doing so would destabilize the nuclear talks and could have the reverse effect of making the Kim regime even more hostile to America and its allies.

As for Pyongyang, the North Korean regime’s primary goal is to receive economic and diplomatic relief. United States sanctions, through a “maximum pressure” strategy against Pyongyang, have crippled North Korea’s ability to access global markets. The country’s economy has been in tatters for years, and Pyongyang has very few reliable trading partners. The U.S. has pledged to continue maximum pressure until North Korea commits to — and then acts upon — a verifiable denuclearization process.

On top of sanctions relief, Kim Jong Un wants his status as “supreme leader” of North Korea clearly recognized by the U.S. and the international community. Worldwide recognition of his supposed right to rule North Korea would allow Kim to secure his command over the country from internal and external threats.

North Korea also seeks the removal of 30,000 American troops from the Korean Peninsula. South Korea, however, wants U.S. troops to stay.

The White House has released the schedule for the Singapore summit:

The president will depart Singapore Tuesday and make a couple of stops on his way home. According to the Associated Press, he plans to visit U.S. military bases in Guam and Hawaii before returning to the White House Wednesday.