Well, I hope you weren’t enjoying Donald Trump’s presidency too much. The double-whammy of bad news that hit the wires over the last couple of days makes it look as though his days in office are numbered.
First off, you don’t share sensitive intelligence from another country (presumably Israel) with Russia. That’s just really bad judgment. Especially when that intelligence includes the fact that Israel (again, presumably) has managed to get an agent embedded into the most dangerous terrorist organization in the world today, ISIS. I mean, this is Russia we’re talking about. Putin & Co. are not our friends.
Russia is friends with Iran, however. And Iran is no friend of Israel.
Worse still, it sounds like Trump was bragging to the Russian foreign minister and ambassador when he reportedly said, “I get great intel. I have people brief me on great intel every day.”
Yeah, of course you get great intel — you’re the PRESIDENT OF THE UNITED STATES!
Now, Trump’s decision to share this information is apparently not illegal. Ill-advised, yes. Potentially dangerous to the agent who has infiltrated ISIS, sure. But not technically illegal.
But the request to the former FBI director to back off the investigation of Mike Flynn’s connections to Russia might be considered obstruction of justice. Bloomberg’s Noah Feldman says this is an example of a “high crime.”
High crimes and misdemeanors, to use the Constitution’s phrase, aren’t the same as ordinary crimes. What makes them “high” is their political character. High crimes and misdemeanors are corruption, abuse of power, and undermining the rule of law and democracy. They don’t have to satisfy all the technical aspects of an ordinary crime…
Using the presidential office to try to shut down the investigation of a senior executive official who was also a major player in the president’s campaign is an obvious and egregious abuse of power. It’s also a gross example of undermining the rule of law.
Now, Feldman goes on to say that President Trump is likely not facing impeachment. But the simple fact that we’re even talking about it within Trump’s first six months is, well, sad.
Where There’s Smoke…
So, why is it Russia again? First, it’s accusations that Russia influenced the election, then the Mike Flynn thing, then Comey fired ostensibly because he wouldn’t back off the Russia investigation, and now Trump apparently bragging to Russian officials and sharing sensitive intelligence?
I don’t think this Russia thing is over, not by a long shot. It just can’t be a coincidence that Russia continues to figure prominently in all of Trump’s worst moments.
But I’m not writing this to talk about Trump, exactly. I’m more concerned with how all this controversy will affect the financial markets….
At 9:20 this morning, Dow Industrials futures were suggesting the index would start the trading day in negative territory, down over 160 points. Bank of America (NYSE: BAC) was set to open 2.3% lower, at $23.44. Gold was trading back over the magical $250 mark. The U.S. dollar was down against the euro, and the 10-year yield was down 3.4%.
Now, allow me to translate that.
Bank of America is a decent proxy for Trump’s policy plans: lowering corporate taxes and easing regulations. Each of these just got a whole lot harder. So Bank of America shares are getting hit pretty hard.
Gold and, more importantly, Treasury bonds are safe havens. And don’t forget — bond yields move inversely to price. In other words, when bond prices rise from buyers, it pushes yields lower. Treasuries and the U.S. dollar usually move in tandem, at least when investors are trying to take advantage of economic strength. But today’s scenario is about uncertainty, so a move out of U.S. dollars is also reasonable. Plus, the EU economy has been getting a bit better lately…
Then there are stocks like Amazon, Netflix, Apple, and Facebook. Amazon and Netflix were down about 0.8%. Apple and Facebook were off about 1%. In other words, they are stronger than the overall market. And they should be. Because these businesses are not affected by Trump’s problems. If anything, they might help.
I can imagine millions of people logging into to Facebook to vent their opinions and thoughts. Netflix is probably already working on a new series (or maybe House of Cards covers the bases).
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Is it Really Uncertain?
People always like to say the markets hate uncertainty. Investors want to have a good handle on economic growth, inflation, and earnings. So when things happen that threaten to change any of these, well, investors sell stock. Or at least if they don’t sell, they certainly don’t run out and buy.
So the question is: does Trump affect economic growth? Inflation? Corporate earnings?
Well, not really.
Sure, all this Trump drama is getting everybody a little agitated. But for the most part, it’s all sound and fury. The president really doesn’t have all that much power, as we’ve seen. Trump’s already tried to do a lot that’s been thwarted by the checks and balances system.
The main threat is that we won’t get the tax cuts and other stimulus that the market was hoping for. But even on this point, I think the market has accounted for that. When the GOP went back to the drawing board on health care, it was a clear sign that taxes were being put on the back burner. And the market was fine with that.
The S&P 500 is within a stone’s throw of all-time highs for one reason: earnings. First-quarter earnings were very good, and both companies and analysts agree that trend should continue. And there’s very little Trump can do about that.
Now, one more thing: Just because I say all this Trump drama doesn’t really have a big effect on stock prices doesn’t mean you should just run out and buy. Of course, if you’re trading short term, then by all means, use dips to make some money. But for longer-term investing, some caution is warranted.
Yes, earnings were very good, but valuations are also relatively high. And the market feels as though it’s lost some momentum. Just look at how many times the S&P 500 tried and failed to push above 2,400. Sometime in the next few months, you will get a nice opportunity to buy quality stocks on the cheap.
Until next time,
Briton Ryle
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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.
