Paving the Shoulders of the Road to Impeachment

Because of its relevance to this week’s political maneuvering in the U.S., we are reprinting {with updates in bold} our commentary from July 22, 2017.

The Donald, because he doesn’t read much (any) history, seems to be totally clueless about Watergate. But, you say, he has staff to inform him of his ignorance. Unfortunately, the advisors that he might listen to — his son, son-in-law, and daughter — are just as clueless as he is when it comes to political history, and the advisors that might know something, he tends to ignore {at this point, he has fired most of them}. He does not seem to know, for example, that Nixon fired special prosecutor Archibald Cox on a weekend — which came to be known as the ‘Saturday Night Massacre’ — because Cox had subpoenaed Nixon’s tape-recordings. {Trump has fired the head of the FBI at the start of this weekend, and just two days before a pensionable retirement. Trump’s secret business dealings with the Russian (Putin) mafia are analogous to Nixon’s recordings}. And he also seems unaware that immediately following the firing, the attorney General, Elliot Richardson, and Deputy Attorney General, William Ruckelshaus both resigned in protest, and that Nixon himself had to resigned ten months later.

We doubt he knows any of this, because if he did, he would not be looking for an excuse to fire special investigator Robert Mueller, nor would he be bad-mouthing his Attorney General Jeff Sessions directly to the New York Times. {Trump may have, in fact, been informed of this history and has started firing everyone but the special prosecutor, although, he continues to make insulting “Mr. Magoo” jokes about Sessions}. If Mueller subpoenas the Donald’s taxes {Mueller hasn’t subpoenaed his taxes directly, but he has subpoenaed Trump’s businesses}, the Donald will see no other option, but to scream you’re fired! The Russian involvement in the Donald’s finances and political campaign are now beyond doubt, only the sordid details need to be revealed. If Trump gets rid of Mueller, he will be paving the road to his own impeachment {Not having fired Mueller yet, the Donald is now just paving the shoulders of his road to impeachment}. Slippery Teflon-Don is getting old and sticky {add panicked and unhinged}, and the egg is not coming off like it used to {Mueller is circling ever-closer to Trump’s “funny business”}. You’re fired! doesn’t work in the real world. A constitutional crisis seems unavoidable to us at this point {closer now than in July}, so we need to think about what might happen to the stock market as a result.

During the Watergate scandal, when Cox was fired and then-Attorney General Elliot Richardson resigned in protest — the S&P 500 fell 14% from October 1st through November, but it needs to be pointed out that Wall Street was already mired in one of the worst bear markets in history. From January 1973 through August 1974, the Watergate burglars were convicted, Nixon resigned, Middle East turmoil created a global oil shock, and inflation had a dramatic increase resulting in stocks losing 42% of their value. {That is still not the market condition of today}.

This time around, however, the economy is not in danger of slipping into a recession, the FED has been back-filling the hole left behind by the financial crisis, unemployment is low, inflation is low (but not deflationary), and the stock market is in the second-longest bull run in history. This makes today’s situation more like the impeachment of Clinton in the late 1990’s when the stock market and the economy were booming. At that time, the S&P 500 fell 20% in the lead-up to the special prosecutor’s report on Clinton but recovered quickly when it became apparent that a recession was not going to be triggered. Today, we see a possibility of a correction in response to the Donald’s increasingly likely impeachment, but the economy is too far-away from recession to cause a full-on bear collapse. {All of that still holds true today, except that we are closer to a recession than we were last July, although, not likely on the verge of one. Now that Trump has got rid of most people that question his insane ideas, the path is clear for him to go ahead and start a constitutional crisis by firing Mueller. If that happens, it is reasonable to expect a sharp correction in stocks. If this occurs when the market is topping-out, it could result in a full-blown bear market not just a correction}.