– By Fred Dunlap –
The past two weeks have been tumultuous for the fledgling Administration. The intense focus and momentum associated with the President’s economic agenda over the initial 100 days have been derailed (at least for the moment) by the overhang of scandalous innuendos. Some innuendos have been replaced by, for instance, the naming of a Special Counsel for the Russia Investigation, which…is a bit…more…than innuendo…
Adding to this development, His Trumpness has been criticized for fraternizing with Russians in the Oval Office and for bestowing intelligence information on them which has been considered to be classified.
Never Trump zealots are giddy over these perceived missteps, while Republicans are edgy. And there is a growing murmur among both contingents over the question of the fitness of our Chief Executive for his position. Yes, the last two weeks have been challenging for Foggy. And his standing in Washington has become admittedly…foggy…
We now have a Special Counsel evaluating the Russia situation. But we also have a similar ongoing investigation within the Senate Intelligence Committee. And not to be left out, the House Intelligence Committee thinks they have the baton too. Three separate groups pursuing the same investigation. Boy, that’s thorough. And expensive. Can’t we get a volume discount? That would help our budgetary deficit, wouldn’t it?
The last two weeks have been challenging for our new President. So what does a guy do when he is in a pinch?
ROAD TRIP!!
That sage advice was first ushered before us by a visionary named John Blutarsky, who later became Senator Blutarsky. He studied at Faber College, where “Knowledge is Good.”
It came at a time when he and his college friends were under siege for their subterranean Grade Point Averages. One of them didn’t even have a GPA, but in that case, Daniel D. Day made his contributions in other creative ways.
Beyond their failing grades, their fraternal institution (the Delta house) was under attack for perceived conduct violations. They were facing unprecedented pressure in the form of “Double Secret Probation.”
Facing excruciating pressure from Dean Wormer, Bluto and the boys from the Delta house sought a solution in the form of a road trip. They piled into a car and left the campus of Faber College, escaping the rebuke from the Dean and exploring an answer to their problems at another institution. Yes, they were ambassadors…making a connection outside of the more contentious setting back at home. While abroad, they met and made friends with coeds who had survived kiln explosions. And they conducted diplomacy with Otis Day and the Nights, even allowing them to dance with their dates…
They were free from the close supervision at Faber College, and their approval rating abroad was much higher than the same from Dean Wormer. But in the end, they needed to return to Faber College to face their challenges. And, depending on your perspective, that reentry didn’t go so well. “Seven years of college down the drain…”
Foggy’s Road Trip
His Trumpness is enjoying a very positive response in the early days of his road trip. He has delivered some results too, in the form of a $400 billion defense contract sale to Saudi Arabia. Things also went well with Israel. And now he is on to Rome for a meeting with Pope Francis.
Amid his trip we saw the terrorist attack in London last night, underscoring the world’s collective need to understand better who lives among us. ISIS again took credit for the attack. Though tragic, this event likely gave some credence to Trump’s objective to coalesce the Free World into a force that will attack ISIS and deliver a safer world. We will see if that will be the follow through…
The remainder of his road trip will likely provide positive exposure, just as the first few days have done. But he still needs to return to Faber College next week and face Dean Schumer and the rest of his dissenters…
Analyzing the Market’s Reaction
Though it will be weeks or even months before Trump’s domestic troubles will play out, the market took a huge header last Wednesday. On the prior day, the stock market closed at all-time highs, with the S&P 500 closing above 2400. But on Wednesday, it was announced that former FBI Director Robert Mueller was appointed as Special Counsel for the Russia Investigation. The markets shot immediately lower. The Dow lost 370 points, while the S&P 500 shed more than 40 points.
The market selloff was less due to the news of the appointment, and more the result of investor speculation that, with the formality of the probe, will come a level of turmoil and distraction (in Washington) which will make it harder to capture the jewel.
We discussed in the last Newsletter that, more than any other parts of Trump’s economic agenda, Tax Reform (and the associated Repatriation) are the jewel which most investors believe will lead to a stronger economy and higher stock valuations.
On Wednesday, Wall Street became resigned to the possibility that the reckless driver had finally received enough citations to warrant stopping his car. And that the chances for achieving meaningful Tax Reform (and Repatriation) are now dashed or at least much more remote.
What’s happened since Wednesday?
After a thorough one-day thumping, stock indexes over the last four trading sessions have steadily recovered. Though mid-day at present, as of this moment, about 90% of last Wednesday’s index losses (Dow and S&P) have been recovered. But…below the index averages, a more dynamic development has taken place.
The recovery in the last four days has emerged in a bifurcated form. Stocks which are perceived NOT to be reliant on Trump’s economic agenda (the jewel) have recovered very well. In contrast, those stocks which would benefit greatly by Trump’s agenda have languished. In fact, many have retraced all gains made since the Presidential election.
What that tells us is that Wall Street isn’t confident that the Trump Administration (even if it weathers its domestic problems) will be capable of delivering Tax Reform/Repatriation any time soon.
How must the GOP deliver the goods?
In this “Hatfield and McCoy environment,” it’s not realistic that any bi-partisan voting will occur. The one exception perhaps being an Impeachment proceeding, if things get any more perverse.
So to deliver Tax Reform and the associated Repatriation, the only realistic avenue for the GOP is to pass it via Reconciliation. Reconciliation was an invention created by none other than former Senate Majority Leader Harry Reid. Back when he controlled the Senate, he changed the rules to require only 51 votes in the Senate to enact legislation. He thought that was a fine strategy, because he believed that, with the Obama Administration’s dramatic expansion of Entitlements, such handouts would then engender a strong and lasting voter loyalty to the Democratic party. He wagered that, with this loyalty, it would position the Democratic Party to enjoy majority control of Congress forever. Whoops!!
Thanks to Nevada Harry, the GOP can now utilize his creation for their own purposes. Reconciliation presents a narrow alley way for the GOP to pursue the jewel. But it’s complex…
At this time, Tax Reform can only be pursued via Reconciliation if Congress first passes the Fiscal 2018 Budget. The Trump Team rolled out their first salvo on that Budget this week. It landed like a wet cow pie.
But that’s OK, it was just a start. Just a dart board for Congressional leaders to aim their pointy, feathered weapons. Those darts being engineered to fly with a bias toward each Congressman’s parochial, myopic motivations. Those being initiatives which will allow them to stay popular with their constituencies, of course. After all, “It’s not for the sake of our Country,” they mutter. “It’s about keeping my seat…”
While the Market Waits…
What’s become abundantly clear in the last couple months is that the gains in the market are due to strong earnings in the first quarter of this year. Sure, those were mentioned as being uplifting before, but only as a contributor to other momentum generated from the prospects of fiscal reform.
With the latter now looking more remote or unlikely, what’s holding the stock markets near all-time highs?
Q117 earnings are providing the majority of the lift. The public company financials for Q117 have largely been reported at this point, with earnings up 15% and revenues up 8%. That’s robust.
The only other positive contributor to buoyant valuations is the allure of growth that will come from a systematic deregulation effort. Yep, that’s occurring daily and weekly. Pick your favorite acronym: EPA, FDA or SEC. Their overreach is getting shorter every day, like the sleeves of a silk shirt that got mistakenly mixed with cotton clothes in the dryer.
Though hard to quantify, lesser regulations will drive revenue and earnings growth into the future. It’s just a question of timing and extent.
Therapists for Stock Pickers
I talked to a buddy recently, who is an economist and an investment analyst. He’s a really smart guy, and his clients are professional investment managers who hire him for his analysis. His depiction of today’s market mood goes like this…
He describes professional investors as being in an emotional struggle with themselves. Nearly every one of them believes we could be near a sharp pullback, either due to earnings and growth levels being unsustainable OR due to more Presidential turmoil/problematic new discoveries.
At the same time, they fear NOT being invested, because of the potential for greater earnings growth OR the possibility that the GOP actually does deliver the jewel.
So they are trapped. Wavering between two diametrically different investment outlooks. And the S&P 500, therefore, hovers near 2400 as a result of this.
When I asked him what their view was of market risks if there is somehow an Impeachment proceeding, the overwhelming view is that the market could actually go up significantly. Why? Because there is a belief among investment pros that a President Pence might be more capable than President Trump in navigating Washington to deliver the jewel.
Meanwhile, Back at Faber College…
His Trumpness has just landed in Rome. It should be a good meeting with the Pope. And there should be some other positive meetings in other places over the next several days. His reception seems cooperative and supportive, everywhere he goes.
But he returns to Washington next week. Where Dean Schumer waits… Where his reception will be less welcome. Where his task list remains daunting.
There won’t be any Toga Parties when he returns. And Otter, Pinto, Flounder and Bluto won’t be able to help him if investigations go awry.
Enjoy the Road Trip, Mr. President. And, as an American, I hope the near future will be remembered, not for upheaval, but for a time when our Country made real strides.
Stay thirsty my friends.
Freddie Deeeeeeeeeee