After several weeks of riveting testimony, it is fairly clear now that the House of Representatives will vote to impeach President Trump. The timing of this vote is less clear, but a prediction centering on year-end 2019 seems reasonable.
When the House of Representatives finally votes for impeachment, a Senate trial would then be scheduled to decide whether President Trump should be removed from office. While anything could happen between now and then, the odds strongly favor a prediction which indicates that less than 67 Senators will vote to convict the President of "treason, bribery, or high crimes and misdemeanors". This means that President Trump could then serve out his first term and could be potentially reelected for a second term following the November 2020 National elections.
The above two paragraphs state the obvious to me. What may be less obvious is the strong possibility that Trump's impeachment has deeply hurt him politically and that Trump now faces LONG ODDS and an uphill battle for his reelection. If National polls continue to show Trump's approval rating in the high 30's to low 40's, Trump may decide NOT to risk losing in the next election, but may instead resign from office with PRESIDENT PENCE'S pardon for himself and his family. I strongly believe that if Trump stays in the race and loses the Presidential election next November, he may very well be arrested on the day after he leaves office (in January 2021) to face multiple felony charges already in the queue (i.e. "Individual One" in the Cohen case). In my view, Trump desperately needs a pardon from ALL potential Federal criminal charges or potentially face the rest of his life in prison.
How does all this political speculation impact financial asset prices?
Unfortunately for stock investors, no matter how the next 12 months plays out, the results will be the same in the U.S. financial markets. As a direct result of Trump's early resignation from office or his eventual certain loss in the actual November 2020 election, the U.S. stock market will decline sharply which will then trigger the beginning of a significant economic recession which will then trigger a sharp rise in Treasury securities prices (the best safe haven). As a direct result of Trump's massive corporate income tax cut (from 35% to just 21%) ahead of the 2018 tax year, revenue to the U.S. Treasury from U.S. corporations was down 31% in 2018 as compared to the previous year. One of the first actions from the newly elected Democratic President early in 2021 will be to roll back Trump's tax cut and raise the corporate income tax rate to AT LEAST 30% (or higher).
Timing of course is everything for traders and investors in the securities markets. Most major U.S. stock indexes appear impervious to any negative news right now. Not even the lack of progress on U.S./China trade negotiations hurts stock prices for very long. Third quarter corporate profits results looked unspectacular, which means that there must be other forces are at work keeping share prices near record levels. Ongoing corporate share buybacks are certainly a major factor supporting stocks right now, and discreet purchases of U.S. stocks by foreign central banks is probably also a key variable contributing to higher share prices (the Swiss National (central) Bank bought $10 billion worth of U.S. stocks in Q-3 and now owns $100 billion worth of U.S. stocks on its bloated balance sheet).
What will be the catalyst that triggers a downside reversal in U.S. share prices and then sustained selling in the inevitable bear market that follows?
As bad as the news is for Trump almost every day now with respect to impeachment hearings in the House of Representatives, I think there is even worse news to come. John Bolton hasn't testified yet, and I believe that HE WANTS TO TESTIFY and that his testimony will be devastating for Trump. U.S. stock market investors will finally cave into the reality that the Democrats will win back the office of the President and they will also win back a key majority in the Senate. Please keep in mind that if the Democrats win the Presidential election next November, all they need to do is win back three (3) Republican seats in the Senate to gain an effective majority (at 50 Democrats vs 50 Republicans; a Democratic Vice President would then break all ties on potential legislation). Of course, Democrats in the House of Representatives will certainly maintain their current majority following the November 2020 elections.
Bottom line: There is almost no scenario where the bull market in U.S. stock prices continues in 2020. The odds are probably near 100% that at least a 20% correction will unfold in 2020, and traders and investors should not be surprised to witness a 33% correction (or more)! In the early stage of this expected correction, there will be almost nowhere to hide. Only Treasury securities look safe to me right now. Gold, silver, and precious metals stock prices may actually decline during the early stages of this next bear market before finally representing excellent value ahead of the final washout of the overall stock market late next year.
No comments:
Post a Comment