If Lisa Cook Won’t Leave…

If Lisa Cook Won’t Leave…

Imagine reading the following news story sometime this fall…

WASHINGTON — Global markets were thrown into turmoil Thursday when the U.S. Supreme Court ruled that President Donald Trump had the authority to fire Federal Reserve Governor Lisa Cook.

The ruling came one day after a contentious vote by the Fed’s Open Market Committee that ended in a 6-6 tie. Under FOMC rules, Fed Chair Jerome Powell served as the tiebreaker, resulting in a decision to lower the fed funds rate by a quarter percentage point.

The court did not address the validity of Cook’s actions in office since Trump ordered her firing on Aug. 25, leaving many market participants to question the vote’s outcome. Cook also voted to lower the fed funds rate. In the absence of her vote, however, the result would have been a 6-5 decision to leave the rate at its previous level.

The uncertainty surrounding the Fed’s decision shook confidence in the dollar and U.S. Treasury debt. The U.S. dollar index fell to fresh lows for the year while longer-term interest rates soared, the 10-year Treasury yield reaching its highest level since 2007. The Dow industrials registered their first daily loss of more than 1,000 points since April. Gold rallied to a record $3,766 an ounce.

Admittedly this scenario is an extreme outlier. But it spotlights the stakes — and the potential for market volatility in the final months of 2025.

When we left you yesterday, Trump had informed Cook he was firing her on the grounds there’s evidence she committed mortgage fraud when buying two properties in 2021. Cook had lawyered up and said she’s going nowhere.

During a cabinet meeting yesterday, Trump boasted that soon he’ll have appointed a majority of the Fed’s seven-member Board of Governors — all of whom have a vote on the 12-member panel that sets short-term interest rates.

(The other five are drawn from the 12 presidents of regional Fed banks. Now you know.)

“Cook refusing to leave puts the Fed in a difficult position,” observes Jim Bianco of the institutional research firm Bianco Research.

Bianco spins a somewhat different scenario from the one above. Assume the courts side with the president and rule that Cook’s firing is justified. Assume further that the courts make it plain that Cook’s actions in office since yesterday are null and void.

Under those circumstances, “the Fed could be held responsible for allowing a non-employee to continue to act like an employee,” Bianco tweets.

What’s more, “if the Fed allows her to stay and continue to be a governor, and the court rules that Trump can fire her (again, even if it is later in an appeal), then [Fed chair] Jay Powell has potentially committed a ‘for cause’ offense for which he could be fired (allowing a non-Fed employee to make decisions and policy on behalf of the Federal Reserve.)”

Hmmm… Maybe that’s the plan?

None of this would matter were it not for the fact that Wall Street and the media are fixated on Trump’s effort “to take control of the independent central bank and its vast authority over interest rates.”

(That was on the front page of today’s Wall Street Journal.)

We can’t say it often enough: Fed independence is a myth. As we related yesterday, President Lyndon Johnson once shoved Fed chair William McChesney Martin into a wall to reinforce his wishes for lower interest rates.

Martin’s successor, Arthur Burns, caved to pressure from President Richard Nixon to open the monetary spigots and ensure Nixon’s reelection in 1972. (The result was the near-runaway inflation of the Jimmy Carter years.)

More recently, Joe Biden made it clear that he expected Powell’s Fed to get inflation back under control: “A critical job in making sure that the elevated prices don't become entrenched rests with the Federal Reserve."

So a central bank directly under the president’s thumb wouldn’t be a radical departure as much as an honest admission of how the system really works.

A better system altogether would be to abolish the Fed and let the free market set interest rates. (Your editor would also like a pony.)

But no, this transformation won’t be good for confidence in the dollar or in U.S. Treasury debt.

Got gold? Got silver? Got mining stocks?

Those will be your shelter as the ongoing failures of the Fed become manifest to all — and as Trump seeks not to dismantle the Fed but only to remake it in his image.

Waiting on NVDA

We’re hours away from the most-hyped market event of the summer: Nvidia reports its earnings after the closing bell.

“Nvidia has become the heartbeat of the AI trade,” writes Davis Wilson of our sister e-letter The Million Mission. “It makes up about 7.5% of the S&P 500, and every hyperscaler (Microsoft, Amazon, Google, Meta) is leaning on Nvidia’s chips to power their AI ambitions.”

Wall Street’s expectations are high — but even if NVDA misses those expectations, Davis is unfazed.

“There’s still a line out the door and around the block for Nvidia’s products,” Davis says. “Wedbush estimates demand to supply is running at 10-to-1 right now. That’s an unbelievable statistic for a product of this scale.

“Yes, Nvidia’s stock is expensive,” he allows. “But expensive stocks can stay expensive when they have a monopoly-like position in a trillion-dollar trend.

“My prediction is simple: this AI buildout continues steadily for at least the next year or more.”

➢ For a different view of NVDA, we invite you to review our Aug. 14 edition. As a reminder, we don’t expect our editors to toe a “company line.” We do expect them to have strong convictions with the facts to back them up. When those convictions come into conflict, we respect your intelligence enough to reach your own conclusions.

Going into NVDA’s earnings — which will likely set the tone for the rest of the market tomorrow — the major U.S. averages are meandering.

At last check the S&P 500 is up a tenth of a percent at 6,473. The Dow’s gain is a little stronger; the Nasdaq is flat.

Not much movement in precious metals, either — gold at $3,389 and silver at $38.48. Crude is up over 1% and back within reach of $64.

Bitcoin languishes under $112,000. Ethereum continues to recover from a Monday beatdown, back over $4,600.

“Secondary Tariffs,” Now in Effect

As Trump continues to entangle himself in the Russia-Ukraine war, his 50% tariffs on imports from India took effect today.

From the Financial Times: “The Global Trade Research Initiative, a New Delhi-based think tank, said textiles, gems, jewellery, shrimp and carpets would be worst affected. Semiconductors, consumer electronics and pharmaceuticals will be covered by separate, sector-specific U.S. tariffs.”

Half of this 50% import tax was already in effect — part of Trump’s “reciprocal tariff” regime. The other half aims to punish India specifically for its purchases of Russian oil.

The Trump administration is also displeased with China’s purchases of Russian oil — and the threat of similar “secondary tariffs” remains.

But none of it will give Washington leverage, says Paradigm’s macroeconomics maven Jim Rickards.

Fifty percent tariffs on India? “India shrugged them off, kept buying Russian oil and made plans to find new customers and adopt import substitution policies to make itself less dependent on trade with the U.S.”

As for China… “China can’t do without the oil and has plans to put tariffs on U.S. goods (including soybeans) in retaliation,” Jim wrote to his Strategic Intelligence readers on Monday.

Meanwhile, “Trump pushed his deadline for a trade deal with China out to early November. No trade deal can be achieved with secondary sanctions hanging over the discussion, so the secondary sanctions are effectively pushed out to November also.

“The early November date is meaningful because it comes after the Chinese shipments of Christmas goods for the U.S. will have arrived in the Port of Los Angeles. This shows that Trump does not really want the confrontation with China that he claims.”

At the same time, “Trump has also pushed India and China closer together because both are on the threatened secondary sanctions list. That makes the BRICS (including Russia) even stronger.”

And for what?

Jim continues to believe Trump is getting bad advice about Russia-Ukraine in the same way Lyndon Johnson got bad advice about Vietnam. “Trump’s presidency may be destroyed by Ukraine if he does not end U.S. involvement quickly.”

Comic Relief

Everyone’s on a budget these days…

Mailbag: The (Other) F Word

After yesterday’s Bullet No. 1 about the federal government taking stakes in publicly traded companies, a reader writes…

“According to the American Heritage Dictionary, fascism is ‘a system of government marked by centralization of authority under a dictator, a capitalist economy subject to stringent governmental controls, violent suppression of the opposition and typically a policy of belligerent nationalism and racism.” Economically, private ownership of production with government control of business decisions.

“How is the current situation different than that? I’m honestly asking. No, Trump is not technically a dictator. No ‘violent’ suppression. Nationalism? Check. Racism? I don’t honestly believe that’s the case.

“However, it seems we’re heading in that direction. Your thoughts?”

Dave responds: Today isn’t the day to unpack similarities and differences with Mussolini. For now, let’s keep the focus on Uncle Sam taking a stake in public companies.

"So Intel has raised some money from the U.S. government, in exchange for equity, and discovered that previous money sent to them by the government should have been reciprocated with equity all along," writes Byrne Hobart at a site called The Diff.

"It's actually an incredibly tempting approach to couple corporate subsidies with equity ownership. If the government is making a company better off, it seems only fair to give the government a stake in the upside, perhaps at a valuation that still makes it an obviously good deal for the company.

“The problem is that the long-term incentive is for the company to arrange itself around needing constant infusions of capital. The more Intel raises this way, the more attractive further subsidies are, since they help bail out the previous investment.”

Or ponder the feds taking a stake in a military contractor like Lockheed Martin.

As William Hartung of the Quincy Institute tells the Reuters newswire, such a move might “incentivize the government to put financial success for Lockheed Martin ahead of more important strategic considerations... We need some healthy distance between the government and the companies it is supposed to regulate."

As Charlie Munger — Warren Buffett’s late business partner — was fond of saying, “Show me the incentive and I’ll show you the outcome.”

Best regards,

Dave Gonigam
Managing editor, Paradigm Pressroom's 5 Bullets