Mueller Reports, Barr Decides, Wall Street Watches
As a reminder, we try to connect Washington to Wall Street, and not go over the same political information you can get a hundred other places. But we have to start with the 800-pound gorilla. President Trump (the 239 pound-ish president) got some good news over the weekend when Attorney General William Barr declared that the Mueller report (said gorilla) did not find a conspiracy involving the Trump campaign to influence the 2016 president election. Barr said the report stopped short of exonerating the president regarding obstruction of justice, but said the evidence did not warrant his office bringing charges against the president (assuming it could).
No doubt the next phase will be the drive to release the full Mueller report to the public, especially from Democrats who don’t believe a political appointee like Barr should be reaching legal conclusions based on secret information. When it is – and it’ll either come out in one fell swoop from the AG or piece by piece through leaks, investigative reporting and/or the courts – it will give fodder for both political sides to talk on cable networks for weeks or months to come. And it will help frame at least part of the coming 2020 general election campaign. All right, done.
Now, how will Wall Street react in the coming weeks? If history is any guide, the financial markets won’t ignore it, but in the long run it always comes down to fundamentals. Are we going into recession, or just a slower growth period? Last Friday might be remembered more for the inverted yield curve (where short term rates go higher than long term rates), which often signals an impending recession, rather than the delivery of the Mueller report to AG William Barr.
• There’s no question that the Watergate era stock market was ugly. From top to bottom, the DOW Industrials fell more than 40%. But aside from the psychological pain of the drip, drip, drip of cover up evidence being revealed involving President Richard Nixon, there were economic issues at work as well. Inflation was starting to take hold, pushed in part by the burgeoning Middle East oil crisis, and wage and price controls were imposed by a Republican president. Yes, there were many ways to be miserable back in the mid-70s.
“Our long national nightmare is over,” Gerald Ford said after taking the oath of office in 1974. But Watergate was followed by rising unemployment, rampant inflation, and zooming interest rates. That was followed by the rise of disco music, which may or may have contradicted Ford’s statement. In fact, the bull market of 1982 might actually have been the end of the national nightmare, because it was then that the economy and stock market started moving in a sustained positive direction.
• Compare that with the market during Bill Clinton impeachment saga, and you get the tale of two economies. The best of times and the worst of times. The worst being the 70s dynamics, and the best being the dot.com boom that drove some stock market prices at dizzying rates for several years before their eventual bust in 2000.
But there was a clear lull in the financial markets in the second half of 1988. That coincided with the release of the Starr report in September and impeachment proceedings initiated by a Republican Congress.
The drive to capitalize on Bill Clinton’s impeachment backfired on the GOP in the midterms as they lost 5 seats in the House. (Nancy Pelosi is fully aware of that history as she announces that the Dems don’t plan any impeachment proceedings.) It might have been a coincidence that the stock market started back on track shortly after that, but probably not. It was only the “new paradigm” fundamentals of the new-fangled dot.com stocks – revenue doesn’t matter; earnings don’t matter– that brought them back to earth in 2000.
So while we at WBP look forward to seeing what will be revealed further from the Mueller report, the financial markets will be probably move on from the possibility of impeachment and try to figure out whether a recession could be coming. The answer to that, of course, is yes. But question is, when?
Investing in US, the U.S.
• It's worth reminding you that we strive for insightful analysis, and leave the partisan sniping to others. That being said, sometimes the data and facts we convey might not please those with one point of view or another. But please remember, it is never our intention to inflame - only inform.With that guiding philosophy in mind, we pass along the following observation:
• Until 2017, the United States was a magnet for foreign capital. For example, in 2015, foreigners invested $482 billion here. In 2016: $486 billion. But in 2017 that plunged 40 percent to $292 billion, and preliminary data show this number fell even more last year.
There are several reasons for this, acknowledges the Organization for International Investment, a Washington-based trade group that represents U.S. subsidiaries of overseas corporations. Yet one of them is undeniable: It is, the report says, “a response to import tariffs and other trade actions from the Trump administration as international companies hit the pause button on potential investments.”
Maybe you don't care what foreigners think, but money talks. Nearly seven million Americans work for a foreign employer. When the rest of the world loses confidence in America, and takes its money elsewhere, watch out. The economic and security ramifications could be significant.
And the next President will be…
• Folks should not read too much into polling data showing that former Vice President Joe Biden - who is expected to enter the 2020 race shortly - will be the frontrunner.
Being the frontrunner this early doesn't mean much. Just ask President Rudy Giuliani, President Herman ("999") Cain, President Howard Dean, President Jerry Brown, President Gary Hart, and President Edmund Muskie, to name just a few people off the top of our head.
• Biden knows that he cannot count on former President Obama to help him during the tough fight for the Democratic nomination; Obama has made it clear he will let the process play out - and will then campaign for whoever emerges as the nominee
• Biden’s age will absolutely be an issue. Born in 1942, he is four years older than Trump. If he were to win, he would enter office at age 78; at the end of his SECOND term, Ronald Reagan was 77
• Millennials - who this year pass Baby Boomers to become the biggest voting bloc - have expressed a strong desire, polls say, for someone younger than Biden, and Vermont Senator Sanders (who is even older).
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