Impeachment: Precursor and Aftermath

Introduction

In this discussion the potential market impact of the run-up to an impeachment proceeding and the impact of an impeachment trial and removal from office of president Trump, I will do my best to keep it apolitical and factual. I will be speculating about possible outcomes and their impact on the market and the economy. I write using the perspective of history, and I write this now to counter in advance the extreme and probably dire views that will surely surface during the upcoming deliberations. My conclusion in advance, including the election of a perceived far left Democratic candidate in in 2020, is that it will not necessarily be the end of the world or the secular bull market.

This time it’s different

I say it is different because even though there appeared to be a lot of smoke emanating from the Mueller investigation, there was no compelling evidence to link the president to proven Russian interference in the 2016 US general election. With regards to the ‘Whistle Blower Report,” although it is based on ‘hearsay’ (based on what someone has told a witness and not direct knowledge), the administration essentially corroborated the account in the provision of its own transcript of the conversation. Also, according to the whistleblower, there were multiple witnesses to the alleged conversation … all of whom are subject to Congressional subpoena. These are knowable facts.

Immediate Reaction

The view from the administration is that there is nothing to see here. The facts would belie this. For those who see the difference the reaction, as it pertains to market, appears to be ‘it’s not gonna be good.’ Here are a few of the negatives that are being raised and my responses:

1. The whole process injects uncertainty. The market hates uncertainty!                                                           When you consider the environment of uncertainty over the past few years of governance by tweet (North Korea, trade policy, monetary policy … every day a new surprise) the market has seemed to handle the uncertainty very well, including last week’s acceleration of a movement to impeach the president. We are within easy striking distance of a new all-time high on the S&P 500.

2. It will impede any legislative action. There would be some who who view this a Blessing.

3. The move to impeachment will cause a steep market rout, just as it did in 1974 leading up to and following the resignation of Richard Nixon. The economic fundamentals of high interest rates and inflation were totally different than those of today. We have a strong economy today, just as it was when Mr. Trump inherited it from Barrack Obama in 2017. Unemployment had dropped to 5% from 10% during the Obama administration and the S&P 500 had tripled. Mr. Trump added to that success by signing the “Tax Cuts and Jobs Act of 2017”     Unemployment now stands at 3.7% with the S&P 500 up another 41% (The level the day before his election victory … from his actual inauguration — the way we calculated Obama’s triple– it is up 30%).

4. This administration and Republican Party are  setting the table for a wave election that will see swing to liberal left in the United states that may last for decades. Who knows? This may be the case but I doubt the severity of said swing. We are a center right country. Regardless of a Democratic dominance, all Democrats are not Left Wing-nuts just as all Republicans are not Right Wing crazies. Remember, even though the Republicans controlled both houses of Congress they could not repeal the Affordable Care Act. Ergo, do not sell all your stocks even if this dominance comes to pass. History would say the market can do pretty well under Democratic administrations (Obama, Clinton, Kennedy-Johnson, even Jimmy Carter). Even if that fire-breathing dragon lady Elizabeth Warren were to become president, she would be held in check by the more conservative elements of her party. BTW, you are already seeing negative commentary REGARDING THE DISASTER A WARREN ADMINISTRATION WOULD BE FOR OUR COUNTRY. I MIGHT POINT OUT THAT CONTRARY TO COMMON BELIEF UNDER CONSERVATIVE, RONALD REAGAN, THE FEDERAL GOVERNMENT DEBT HELD BY THE PUBLIC ROSE FROM $738 BILLION TO $2.1 TRILLION. MEANWHILE, LIBERAL BILL CLINTON LEFT OFFICE RUNNING SURPLUSES. MY POINT IS THAT NONE OF THIS IS AS BLACK AND WHITE AS POLITICAL SHILLS ON BOTH SIDES WOULD HAVE YOU BELIEVE.

Diversions

There is one element of the current situation that is unpredictable, presidential attempts to divert attention from the problems or charges he faces. This has been a hallmark of the Trump administration. They usually arrive by early morning tweet and come completely out of left field … the war of words with Kim Jong-on followed by peace in our time on the Korean Peninsula, the publicly-aired trade war tweets on (China, Mexico, Canada and Europe) and last week’s call for investment restrictions on the ability of US citizens to invest in China. There is a potential for one of these to backfire and blow up into something more onerous. HISTORY WOULD SAY JUST AS WE ARE TEETERING ON THE BRINK, THERE IS USUALLY A WALK-BACK OF THE INCENDIARY TWEET OR POLICY CALL.

Of course all of the above (except in the factual, historical matter) is conjecture and speculation on my part but is based on more than fifty years of observation of our markets and the actual experience of investing during both the Nixon and Clinton administrations.  THIS POST IS AN ATTEMPT TO DEFLECT THE CURRENT MEDIA FEEDING FRENZY AND THE FEAR IT WILL INSPIRE.  I BELIEVE THIS TO BE PERSPECTIVE THAT WILL HELP YOU NAVIGATE THIS NEXT DRAMATIC EVENTS IN OUR HISTORY AND IN THE MARKET. HOPEFULLY, IT WILL HELP YOU STEADY YOUR INVESTMENT RESOLVE.

What’s your take?

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