Doesn't anyone want to talk about impeachment??
Only two U.S. presidents have ever been impeached by Congress—Andrew Johnson and Bill Clinton—while only two others, Richard Nixon and now Donald Trump, have faced formal impeachment inquiries in the House. Shocking, historic times! And do you know how many advisors or their clients have asked me about impeachment since the first hearings took place on Sept. 17? Zero!! No one cares about it in Vancouver, British Columbia, where I traveled this week. Warm 50 degree days (but when can I visit without being rained on?) and the people couldn’t have been more gracious. The advisors and their clients didn’t take it out on us that the USMCA—the new Nafta—has yet to become law. And no one I met in Vancouver spoke out against Trump— most just wanted to know if I thought he could win re-election. Politics was the favored topic at a client event—America’s, not Canada’s, that is. “I like his (Trumps’) policies; if only he could zip it up.” Even the cab driver to the airport hopes he can win re-election. On the other hand, these Canadians had strong feelings about the tight results of their late October election. I met no one who openly supports Prime Minister Justin Trudeau. “We are as polarized in Canada as you are in the States.”
With the market setting new highs, might some consolidation be in order? After languishing in bearish territory for much of the year, the latest American Association of Individual Investment (AAII) sentiment survey jumped above average for the first time since July and to its highest level in more than six months (although its 13-week average remained depressed). Also, the put/call ratio on stocks is near a 2-year low, more than $10 billion flowed into U.S. equities last week (the biggest inflow in seven weeks), and about a quarter of S&P 500 issues are trading at 2 or more standard deviations above their respective 65-day averages. Still, when trends are as broadly positive as they are now—the rally shows little technical evidence that the trend is at risk for a material downside reversal—overbought markets ultimately tend to resume higher if there is a pause or pullback. A favorable seasonal tailwind also is supportive. The bigger question is what happens next year. A UBS Global Wealth Management survey of more than 3,400 global respondents finds that wealthy people around the world are hunkering down for a potentially turbulent 2020—a quarter of their average assets currently are in cash—as a majority anticipate a significant drop in markets before the end of next year. The U.S.-China trade conflict is their top geopolitical concern, with the U.S. presidential election viewed as another significant threat.
Maybe it’s all a coincidence, but the status of trade negotiations this year has aligned with trends in the Democratic primary. China pulled back after months of negotiations and a supposed near agreement after Biden surged and the Mueller report was issued. It stayed away from the negotiating table until after Biden sank, Warren surged and it was clear the Mueller report was not going to remove Trump from office. Warren is now sinking in the betting odds and the House appears set to impeach Trump by mid-December. Some are debating this as buyer’s remorse as the first so-called bombshell day didn’t give anything really new to those who watched Wednesday (an estimated 13 million, well below the 20 million who tuned in to last year’s Brett Kavanaugh confirmation hearing and former FBI Director James Comey’s testimony in 2017.) The Canadians I met this week believe Trump’s policies are good for their country, and they are far more concerned about the prospects of a Warren win. No one talked about impeachment, but rather, the “Donald Trump of Hockey.” Canada’s Sportsnet, akin to ESPN here in the U.S., fired Don Cherry on Monday, after he sparked widespread condemnation for referring to immigrants as “you people” and criticizing them for not wearing poppies to honor military veterans ahead of the Remembrance Day holiday. (I saw so many poppies there!) Cherry hosted the “Coach’s Corner” segment on Sportsnet’s “Hockey Night in Canada,” one of the highest-rated segments on Canadian television. The flamboyant 85-year old longtime commentator whose “jackets may be the one thing louder than his mouth” had a long career riddled with politically incorrect comments. His fame is “next to Gretzky’s,” I was told by his obvious fans. Where will he turn up next in his outlandish sports coats? “He will run for Prime Minister.”
- Recession nowhere in sight An increase in future capital expenditures led eight of 10 advancing components in the National Federation of Independent Business (NFIB) monthly survey of small business optimism, which rose again and remains elevated. A separate Wells Fargo gauge of small business attitudes increased a third straight quarter to its highest level since data started in 2003.
- A friendly Fed Headline consumer and producer prices came in a little hotter than expected, but core year-over-year (y/y) rates remained subdued. The reports support the Fed’s decision to cut its benchmark funds rate a third time this year in October. In his testimony before Congress, Chair Powell suggested the Fed’s just fine with where it is right now.
- Consumers in a fine mood The Mortgage Bankers Association said purchase applications rebounded strongly last week, rising the most in two months, and refinancing applications jumped more than 12%. Y/y, both purchases and refis are rising at stellar rates, reflecting positive housing demand.
- The U.S. economy is not yet out of the woods The OECD U.S. Composite Leading Indicator fell a tenth straight month in September to near a 10-year low and, on a y/y basis, suffered one of its biggest declines since August 2009. Also, October industrial production plunged the most in 17 months (although the GM strike was partially responsible), while two-thirds of CFOs responding to the latest quarterly Duke University business outlook survey believe the U.S. will endure a recession by the end of 2020.
- The global economy is not yet out of the woods While German and eurozone GDP surprised on the upside (albeit vs. very low expectations; with 0.1% growth in Q3, Germany just skirted a technical recession), China’s October activity was disappointing across the board. Retail sales, industrial production and fixed-asset investment all came in below expectations.
- The labor market is tight One negative in the monthly NFIB survey was a decline in current job openings, largely because more than half of those surveyed reported difficulty in finding qualified applicants. Labor quality remain respondents’ No. 1 concern.
So will he get re-elected? Going back to LBJ, there has been a high correlation between growth in real per capita disposable income in an election year leading up to Election Day and whether an incumbent president got re-elected, with a line of demarcation of 1.4% growth. If Election Day were today, based on August’s 2.4% y/y increase in real disposable income, Trump would easily have four more years.
Partisanship extends beyond politics Not only do Republicans and Democrats live in two separate political worlds, it appears they live in totally different economic worlds, as well. A CNBC survey found two-thirds of the country believe the economy will slow going into the New Year; what was revealing was only 46% of Republicans believe a recession is on the horizon, while a whopping 84% of Democrats believe a recession is imminent. Younger people, 18 to 34, were also the most worried about a recession in 2020.
I’m telling you, no one is talking about impeachment Trump is unique compared to past presidents in that his approval rating, while historically low, has remained remarkably steady in the mid-to-low 40s. House Democrats have held numerous investigations and, so far, have not been able to dent those ratings. One of the reasons has been the lack of bombshell moments. The risk for House Democrats is voter fatigue from all the investigations and hearings.