Look, it’s not so much that Citi’s Tina Fordham thinks the tumultuous atmosphere in Washington is a good thing for markets, it’s just that she doesn’t think it’s very likely that this miserable son of a bitch will be impeached before the 2018 midterm elections.
To be sure, some folks disagree. Here’s the latest read from Predictit:
Of course, Trump could simply say “to hell with this” and resign.
And as more than a few analysts pointed out on Thursday, the market reaction notwithstanding, it’s not generally a good thing for the administration that special counsel was appointed to oversee the investigation into Trump’s ties to Moscow. In fact, it’s a really bad thing assuming the White House doesn’t figure out a way to flip former FBI Director Robert Mueller to the dark side.
Trump himself voiced extreme displeasure with the decision to bring in Mueller not once but twice on Thursday. First in a tweet that misspelled “counsel” and then again later in a disjointed ramble to the press.
Meanwhile, some folks tried to point to a clip of former FBI Director James Comey talking about obstruction of justice earlier this month as evidence that no such obstruction took place. That is of course absurd because pointing to that and saying “see, this is over before it started!” assumes that i) Comey somehow didn’t remember saying it when he leaked a memo to the NY Times, and ii) Deputy Attorney General Rod Rosenstein hadn’t seen that clip when he appointed Mueller.
Well anyway, below find Citi’s take which is actually pretty useful as these things go.
US Political Risks on the Rise: Recent developments in Washington, including the impending public testimony of sacked FBI director James Comey, the appointment of a Special Prosecutor, and controversy over revelations that President Trump shared classified intelligence information with Russia have increased the pressure on the Trump Administration and prompted calls from some corners of Washington D.C. for his impeachment. These moves have sparked investor concerns, as well as those of international observers, highlighting the extent to which party control of the levers of government does not necessarily equal party cohesion or the rapid advancement of a policy agenda.
We Continue to Regard Impeachment before 2018 Midterm Elections as Unlikely: Although his nationwide approval ratings have fallen, President Trump continues to be popular with his voter base. Although some prominent figures from within the Republican party establishment have voiced concerns about Trump’s leadership as well as called for changes in staffing of the White House, the Republican party establishment continues to remain broadly loyal to the president. For Republicans, control of the White House and both houses of Congress represents a once-in-a-generation opportunity to pass key items on the party’s agenda, most notably Obamacare repeal, tax reform and de-regulation. The party is unlikely to want to jeoparidize this opportunity unless there is no alternative in our view. Even if the party were under some scenario to agree to impeachment proceedings, and Vice-President Pence were eventually to take over as President, much momentum and credibility would likely be lost in the process.
We note that many modern US presidents have seen the appointment of special prosecutors, investigations or the initiation of impeachment proceedings (the IranContra scandal under President Ronald Reagan, Whitewater under President Bill Clinton and more) during their tenure, and continued to govern and see out their terms. Impeachment procedures as drafted by the US Founding Fathers are rather vague, but crucially, impeachment of a President requires the approval of both houses of Congress. Further investigations or revelations could potentially result in hard evidence of “treason…high crimes or misdemeanours” as stipulated in the US Constitution, so eventual impeachment cannot be ruled out completely. But to date no US President has been impeached by his own party, and given the highly charged partisan environment, we think that evidence of a breach deemed sufficient to trigger impeachment proceedings would have to be very robust. However, if there is a change in the composition of control in Congress post-Midterms and Democrats pick up significant seats, the political calculus could change.
Instead, our Base Case is that investors should be prepared for continued headline risks and delays in Trump’s policy agenda, with some policies ultimately de-railed: We have previously cautioned that the failure in the first instance to pass ACHA legislation (healthcare reform) and the distractions caused by the ongoing allegations of Russian interference in the US elections were likely to result in delays to aspects of President Trump’s policy agenda, a call which we maintain. Efforts to reform healthcare are likely to resume in earnest this summer, and passage would boost Republican party morale as well as investor sentiment, especially given the potential savings to be applied toward tax cuts. Progress on deregulation remains a bright spot in the administration’s efforts to date, with another key policy objective of NAFTA re-negotiation expected to be triggered soon.
Meanwhile, immigration reform via Executive Order and infrastructure spending have the potential in our view to be an agenda item that could be delayed indefinitely, or derailed. Although Republicans have emphasized optimism about pursuing tax reform this year, we continue to flag the potential that the timetable for tax reform will be pushed out into 2018 as a consequence of the political oxygen for the administration being occupied by other items, as well as due to divides from within the Republican party. Like the path toward achieving Middle East peace, the parameters of reform to the arcane US tax code have been broadly understood for some time, but the devil is in the details, and losers from the reforms will be the most aggressive to lobby against changes to the status quo.
US International Standing, Negotiations Could Also Suffer Unless the White House Regains Control: We also highlight foreign and security policy risks as a result of the perceived disarray in the White House. International observers; US allies, foes, and everything in between, will likely be puzzled by the speed of events, policy flip flops, absence of key personnel in place, and worries about potential shifts in US priorities. Part of this divergence from the past is what Trump promised on the campaign trail–as a president he would change the rules of the game. But the risks stemming from perceived governance challenges and questions about US leadership also threaten to undermine aspects of the US foreign and security policy agenda. With this in mind, Trump’s trip starting on Friday May 19th to Saudi Arabia, Israel, the Vatican and Italy for the G7 summit will likely attract considerable scrutiny about US commitment to countering global threats, as well as offering an opportunity to reassure US allies and reinforce consistency in US policy.