Why it’s still hard to hit the sell button on America, despite Trump’s trouble
Like much of the rest of the Western World, I was “busy” Thursday watching James Comey testify before the U.S. Senate intelligence committee about his interactions with Donald Trump. What I should have been doing was working, of course, and I tried. (Really, boss, I did.) But something compelled me to watch the former FBI director’s star turn in yet another scene from the Trump/Michael Flynn/Russia/Who-KnowsWhat’s-Next disaster unfolding in Washington.
And let’s face it: that’s what it is. Whether you like, despise or are indifferent to Donald Trump and his agenda, it’s no longer open to legitimate dispute that, in its handling of the Russia issue, his administration has so far come out looking like a gang of stumblebums, and none more so than the commander-in-chief.
The most salient part of Comey’s testimony wasn’t the bit about Trump lying (allegedly), or about the president’s weird entreaties to get the FBI director to pledge loyalty to him (allegedly). It wasn’t even the realization that Comey might well have the distinction of taking down two presidencies. (All right, one was just potential, but you know what I mean.)
No, it was the part where Comey recounted how Trump (allegedly) asked him to drop the Flynn investigation because the White House was under a “cloud” that was stopping it from getting things done. I can just imagine Comey sitting there and thinking to himself, “Your problem, not mine.”
But what was Trump thinking? How could a 70-year-old man (71, as of June 14), who has, you know, been around, not understand that by (allegedly) asking Comey to help him dispel the “cloud,” he would only make the cloud darker? Isn’t he old enough to remember Watergate? Doesn’t Trump know the coverup is usually worse than the deed?
As I was sitting there, I thought to myself: if Trump were the CEO of a company I owned, I’d sell my stock.
In a way, Trump is the CEO of a much larger enterprise, the U.S. economy. That’s not exactly a comforting thought, given his disastrous performance at the helm of Trump Hotels & Casino Resorts, a publicly traded corporation that lost money every single year he ran it.
That raises the question: if you’re exposed to, say, the U.S. in a broad way, like through an S&P 500 index fund, is now the time to sell?
I don’t think so, though one might be sorely tempted. That’s not to say you couldn’t find good reasons to sell America. One would be based on precedent. There was no smoking gun in Comey’s testimony, but it seems clear that impeachment or even criminal charges are not exactly off the table at this point. Some might remember what happened in markets at the height of the Watergate scandal nearly 45 years ago, or during the Bill Clinton impeachment proceedings in the late ’90s: They tanked.
The other argument for being down on the U.S. holds that Trump’s promises of tax cuts, deregulation and infrastructure were the catalysts for the gains made in the S&P 500, Dow and Nasdaq over the past few months. He hasn’t really accomplished much towards any of those promises so far, and the “cloud” that has stopped him from doing so is only getting murkier. Some analysts are suggesting that we’re not going to see real fiscal stimulus out of Washington until next year, or the year after. Or maybe never. To the extent the post-November bump in markets is down to Trump’s policies, it should be running out of steam.
Those are good arguments, but there are at least equally valid arguments that the president’s troubles will have little slowing effect on the U.S. bull.
One is that even without the Trump fiscal stimulus, the U.S. economy is doing very well, thank you. The unemployment rate is at post-recession lows. Lacklustre GDP growth in Q1 is likely to turn around in Q2, while global economic growth is picking up — which should benefit U.S. multinationals more than others. Who needs stimulus?
Certainly not Wall Street, which, for the record, is not Washington. Corporate America is in fantastic shape. Company earnings in the first quarter exceeded expectations; the “profit recession” looks like it’s over. Corporations are also sitting on huge piles of cash, and the cost of debt is still cheap — they are, in other words, eminently solvent.
Finally, there’s the challenge in bonds: yields have remained low even as the Fed has launched itself on a hiking path. With meagre returns and rates rising, there’s just no reason to be bullish on bonds these days. Money has to go somewhere, and right now its prime destination looks like equities. In short, the bull will probably continue to be fed.
No doubt, Comey’s testimony probably had more than a few fingers hovering over the sell button last week. But the balance of valid arguments still comes down on the side of not panicking. At least not yet.
In the meantime, I’ll keep watching.