May 18, 2017

Situation’s Changed, Jules

My favorite Far Side cartoon of all time. I make frequent reference to it in my trading activities.

Just last week in The Daily Dirtnap, I was saying how tedious all the politics around Trump/Comey had become. I was trying to focus on market stuff, and it was clogging up my Twitter feed.

Little did I know that it would begin to drive the market stuff.

Two revelations changed everything:

1) Trump may have blurted out intelligence to Russian officials.

2) He may have tried to intervene in the FBI’s Russia investigation.

We went from Trump being Trump, to serious competence issues—and maybe even behavior that was illegal.

This is where things are going to get annoying, because the Internet is suddenly going to be full of constitutional experts, talking about how Trump could be impeached.

The mechanics of Trump being removed from office are a bit tricky, and frankly, it is not easy, especially with the Republicans having a majority. But it is possible. More importantly, Tuesday night was probably the first time people openly discussed the possibility of Trump not finishing out his first term.

So, I’ll reluctantly put on my constitutional expert hat for a moment. I got some clear thinking on the subject from my friend Tai Wong, metals trader at BMO. This is how it allegedly happened:

1) Trump tries to influence an investigation.

2) Comey refuses.

3) Trump fires Comey.

4) Trump isn’t forthcoming about why he’s fired.

Remember, it takes a majority of the House to impeach—which would require a huge number of Republicans to flip. Then, 67 Senators would need to convict.

I’m not sure we’ve reached the point where Trump has done something egregious enough for approximately 1/3 of his party to turn against him—but it is only month four.

How Would This Play Out?

When I turned on my Bloomberg yesterday morning, S&P 500 futures were down ten handles, about 40 basis points—the first indication that politics were starting to affect markets. The uncertainty of impeachment proceedings would be a major drag on stocks, as it would take months or even a year to play out.

And I’m guessing Trump could not be convinced to resign. So chaos would be the order of the day (as it usually is with Trump).

It would probably result in a bear market.

But what then?

Well, you would have President Pence, who, honestly, is a much more market-friendly Republican than Trump is. He was always a free trader (up until he met Trump), and his economics are much more classically liberal. Economically speaking, he did a lot for the state of Indiana as governor.

I think markets would love a Pence presidency—it’s just that the road to get there is very bumpy.

Having said all that, I’d place the probability of Trump being removed from office at about 20-30%. A bit of this is wishful thinking on my part. Taxes were never a priority under Trump. They will be a priority under Pence.

And you have to imagine Pence has better political instincts on how to work with Congress to get legislation passed. Because quite frankly, aside from one Supreme Court pick, the Republicans are four months in, and basically nowhere.

25th Amendment

I would be remiss if I did not mention this idea floated by Ross Douthat, conservative columnist at The New York Times.

The idea: Trump could be removed under the 25th Amendment to the Constitution. This amendment:

“…allows for the removal of the president if a majority of the cabinet informs the Congress that he is ‘unable to discharge the powers and duties of his office’ and (should the president contest his own removal) a two-thirds vote by Congress confirms the cabinet’s judgment.”

Douthat (I will take pains to point out again that he is a conservative) thinks Trump is unfit for office from a character/competence standpoint, not because he is willfully committing criminal acts.

Interesting idea to think about; also probably not too likely.

The overall point to be made here is that if you are loaded up on risk, you are probably in trouble.

I’ve spent the last few months telling people to lighten up. Sell when you can, not when you have to.

There are a lot of indicators that the markets are in late-cycle territory (I compiled a list of them in The Daily Dirtnap), and that risk is redlining. People have been ignoring them. Too bad.

I have hinted at this a few times in the last few weeks. If you are a global investor, and you have the ability to pick and choose asset classes around the world, then why on earth would you pick the same 500 overpriced US stocks that everyone is piling into?

Put a little thought into what it means when you send off that check to the S&P 500 index fund. Stocks are not expensive in Europe or Asia or in emerging-land. Go somewhere else.

Maybe somewhere that is not threatening to have a major constitutional crisis?

If that sounds like common sense to you (it should, or there’s not much I can do for you that I haven’t done already), then you’ll want to know that the offer I told you about in last week’s The 10th Man is still available.

You can take $100 off Street Freak, or $200 off Street Freak and The Daily Dirtnap.

So there’s still time to get in on a portfolio with plenty of international exposure—Street Freak.

And there’s still time to get The Daily Dirtnap, where you’ll get my commentary on all of this and more in real-time (well, around 225 mornings of the year)…

…but the offer expires midnight on Monday. Check it out here.

Remember, it is only month four. The fun is just getting started.

Jared Dillian
Editor, The 10th Man

Jared's premium investment service, Street Freak, is available now. Click here for our introductory offer. Jared Dillian, former head of ETF Trading at one of the biggest Wall Street firms and author of the highly acclaimed books, Street Freak: Money and Madness at Lehman Brothers , and All the Evil of This World , shows you how to pick and trad e trends, and master your inner instincts. Learn how to use “Angry Analytics” as a leading indicator of budding trends you can profit from… and how to view any market situation through the lens of a trader. Jared’s keen insight into market psychology combined with an edgy, provocative voice make Street Freak an investment advisory like no other. Follow Jared on Twitter at @dailydirtnap.

Share Your Thoughts on This Article

http://www.mauldineconomics.com/members

Use of this content, the Mauldin Economics website, and related sites and applications is provided under the Mauldin Economics Terms & Conditions of Use.

Unauthorized Disclosure Prohibited

The information provided in this publication is private, privileged, and confidential information, licensed for your sole individual use as a subscriber. Mauldin Economics reserves all rights to the content of this publication and related materials. Forwarding, copying, disseminating, or distributing this report in whole or in part, including substantial quotation of any portion the publication or any release of specific investment recommendations, is strictly prohibited.
Participation in such activity is grounds for immediate termination of all subscriptions of registered subscribers deemed to be involved at Mauldin Economics’ sole discretion, may violate the copyright laws of the United States, and may subject the violator to legal prosecution. Mauldin Economics reserves the right to monitor the use of this publication without disclosure by any electronic means it deems necessary and may change those means without notice at any time. If you have received this publication and are not the intended subscriber, please contact service@mauldineconomics.com.

Disclaimers

The Mauldin Economics website, Yield Shark, Thoughts from the Frontline, Patrick Cox’s Tech Digest, Outside the Box, Over My Shoulder, World Money Analyst, Street Freak, Just One Trade, Transformational Technology Alert, Rational Bear, The 10th Man, Connecting the Dots, This Week in Geopolitics, Stray Reflections, and Conversations are published by Mauldin Economics, LLC. Information contained in such publications is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. The information contained in such publications is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed in such publications are those of the publisher and are subject to change without notice. The information in such publications may become outdated and there is no obligation to update any such information. You are advised to discuss with your financi al advisers your investment options and whether any investment is suitable for your specific needs prior to making any investments.
John Mauldin, Mauldin Economics, LLC and other entities in which he has an interest, employees, officers, family, and associates may from time to time have positions in the securities or commodities covered in these publications or web site. Corporate policies are in effect that attempt to avoid potential conflicts of interest and resolve conflicts of interest that do arise in a timely fashion.
Mauldin Economics, LLC reserves the right to cancel any subscription at any time, and if it does so it will promptly refund to the subscriber the amount of the subscription payment previously received relating to the remaining subscription period. Cancellation of a subscription may result from any unauthorized use or reproduction or rebroadcast of any Mauldin Economics publication or website, any infringement or misappropriation of Mauldin Economics, LLC’s proprietary rights, or any other reason determined in the sole discretion of Mauldin Economics, LLC.

Affiliate Notice

© Copyright 2017 Mauldin Economics