2017/02/01 Commentary: Kool-Aid Derails ‘Trump Bump’?
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COMMENTARY: Wednesday, February 1, 2017
Kool-Aid Derails ‘Trump Bump’?
The US equities that we had designated a “Roadrunner” market (i.e. near-term runaway) just last Thursday look like they have hit the wall for now instead of Wile E. Coyote (see our previous post if that metaphor is lost on you.) Last week’s reacceleration of the previously tenacious ‘Trump Bump’ ran into trouble over the weekend. A combination of the negative reaction to the Trump administration selective immigration ban along with Iran launching an ostensibly proscribed (under their nuclear program agreement) ballistic missile test has weighed on the US equities since the top of the week. And in the current circumstances it is no surprise that this has also weighed on the US dollar while bringing just a bit of strength back to the govvies (the operative term on the latter being “just a bit.”)
However, just how vexing the US equities (and the other equities they are influencing) will find the current issues across time is more problematic, and should even clarify over the next several days at most. That is because while the more troubling front may be the Iranian action, without a full cabinet in place it is unlikely the Trump administration will do anything in the near term. More interesting from a market standpoint is that the overall US Congressional response to the immigration executive order has been to attack on another front that has been resolved fairly quickly. That is due to their ire being directed into ever faster quaffing from the Left Kool-Aid dispenser on Trump cabinet nominees.
There have been more expressions of the horror of the President issuing an executive order Democrats have compared to the US closing its borders to the refugees fleeing the Nazis in the 1920’s and 1930’s, damnation of trashing the compassionate US ethos to firing the acting Attorney General of the United States in a “Saturday Night Massacre” (referring back to Nixon’s firing of officials who would not support his attempt to defy a subpoena from Congress during the far more serious Watergate scandal investigation.)
Yet current Democratic Party attempts to hold up Trump cabinet appointments are ultimately futile… and will only further intensify ‘America’s Kool-Aid Crisis.’
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NOTE: Given the likelihood the US economy will now get the structural reform that we (along with Mario Draghi and others) have been loudly complaining was not forthcoming since our dual It’s Lack of Reform, Stupid posts in January 2015, we need to adjust our view that a potential economic and equity market failure is coming. We previously referred you back to our December 8, 2015 post for our major Extended Perspective Commentary. That reviewed a broad array of factors to consider Will 2016 be 2007 Redux? While a continued regime of higher taxes and more regulation (i.e. under Clinton) might have fomented a continued weak or even weaker US economy, the tax and regulation changes proposed by a Trump administration that will likely be approved by the heavily Republican Congress now diminish the similar fears we had to what transpired in 2007-2008.
▪ The problem for the Dems is that Republican control of the Senate means any cabinet nominee who gets approved by the appropriate committee will assuredly be approved by the full Senate. The problem for the Republicans was back to one of those arcane Senate committee rules, and that is very possibly what derailed the more upbeat US equities psychology early this week… not just the totally antagonistic response to the sloppy rollout of the immigration ban.
The Republicans have controlled the Senate since the 2014 election, meaning that they also have the leadership and majority on key committees. That should point to a simple process for committee approval of cabinet nominees for votes on the full Senate floor. Yet there is a twist. While the majority of each relevant committee would certainly vote to clear each nominee for full floor vote after any reasonable testimony, there was a rule that a member of the opposition (Democrat) had to be in attendance to hold a bona fide vote.
That Democrat did not need to vote for the nominee; they just needed to be in the room. That’s right, even if that only applied at present to the nominees Price for Health and Human Services and Mnuchin for Treasury Secretary. The Democrats’ reasons are moot. That is especially as Mnuchin will definitely need to be in place prior to any of the tax reform which is so critical to the upbeat forward psychology of the US equities being reinforced in practice. Yet the Republicans were going to find a way to get Mr. Trump’s nominees approved, and this morning they voted through a rule change eliminating the opposition party attendance for a bona fide vote. Ahhh, the joys of majority.
Welcome to the Wild West (i.e. America), where the Kool-Aid flows like nowhere else in the political world and nothing is guaranteed. In early 2011 the entire Republican contingent of the Wisconsin state Senate decamped to the Clock Tower Resort and Conference Center in Rockford, Illinois to deny the Republicans a minimum attendance for an anti-union legislation vote. Yes, it’s like a gangster movie. And it is far from the first time such shenanigans have occurred in US state legislative battles.
However, in that Wisconsin case Republicans removed certain fiscal items that allowed them to vote the legislation through without needing a 3/5 quorum of the total Senate that had allowed de facto filibuster. While there was no such option on the Trump nominees, the Democrats set a bad example when Democratic Senate Majority Leader Harry Reid implemented the ‘nuclear option’ of simple majority approval (instead of a 2/3 majority) back in 2013. He did this even though he was given a good faith warning by Republican colleagues that Democrats might regret this in the future… even the very near future.
And sure enough, a year later the Republicans took control of the Senate, gaining the ability now to push through their own partisan choices for all of the cabinet appointments and judicial nominees below the Supreme Court level. There you are… another big production boost in both parties’ cabinet and judicial nomination process for the Great American Kool-Aid Machine. Drink Up.
Trump’s Supreme Court Nominee
Neil McGill Gorsuch, a relatively conservative Judge on the 10th Circuit Court in Denver, was just nominated by President Trump to fill the position of deceased Judge Antonin Scalia on the US Supreme Court. His resume sparkles with top-caliber schools (Columbia, Harvard and Oxford.) His work includes time as a partner with the Washington law firm Kellogg Huber Hansen Todd Evans & Figel, a stint with the US Department of Justice and clerkships with Supreme Justices Byron White and Anthony Kennedy.
Gorsuch is best known nationally for taking the side of religious organizations that opposed parts of the Affordable Care Act that compelled coverage of contraceptives. In one of those cases, Burwell vs. Hobby Lobby Stores, he wrote of the need for US courts to give broad latitude to religious beliefs. The Supreme Court later ruled in favor of Hobby Lobby, which now is not required to subsidize birth control that it finds objectionable.
Gorsuch’s published works show conservative leanings. In a 2005 article in the National Review, Gorsuch argued that “American liberals have become addicted to the courtroom, relying on judges and lawyers rather than elected leaders and the ballot box, as the primary means of effecting their social agenda.” As such, his Ivy League educational pedigree (that Columbia, Harvard, Oxford tour) will probably not help him much in winning support from Senate Democrats.
Renewed Dissension Weighs on Equities
Added to the renewed disruption of the implementation of the Trump agenda from the Democrats delay of key cabinet appointments is ex-President Obama weighing in with a negative view of the Trump immigration action as 'unsocial' (implied in the opening graphic at the top of this post that is so large in order to make the text readable.) Most ex-Presidents wait a long time (or demure completely, like both of the Bush family members) until commenting on any of the policies of their successor. Yet as he warned he would be commenting on any policies he felt contradicted core American values, it is not surprising that Barack Obama spoke up.
The only shock was that it happened so quickly. The ex-President managed to hold his tongue for a whole… 10 days. Even those who took an aggressive view on his inability to withhold any comment on Trump policies saw the over-under as 30 days. So coming into this week the combined factors of the renewed Kool-Aid vending by the ex-President (who is now also the de facto emotional leader of a Democratic Party split between moderates and the extremely Progressive Warren-Sanders wing) along with the seeming return of gridlock on Trump’s nominees and some weaker economic data all worked against the ‘Roadrunner equities’ dashing further to the upside.
The Market Impact
And so in the context of our long-held view that markets always operate in a state of Dynamic Disequilibrium, the equities had to react to the downside once any immediate upside potential diminished. Yet as noted in our emailed note Tuesday morning, the slippage back below the old all-time high was only into the key secondary (and still aggressive) up trend support. The real question is whether that was going to see further weakness below that early week test, or a return to more bullish sentiment if the US equities could get back above the old highs they had slipped beneath (more below.)
On current form renewed strength in the economic data (especially US ADP Employment and the ISM Manufacturing Index and its subsets this morning) and the prospect that Republicans will find a way to get the rest of Trump’s cabinet nominees approved in short order are working in favor of the bulls. In other words, a feared return of the impossibility of getting anything done in Washington DC that weighed on the equities since the top of this week is abating once again.
With that we suspect the equities are ready to resume their overall rally, with the attendant implications for the other asset classes. That is all still noted in the Market Observations in the lower section of last Thursday evening’s Commentary: Roadrunner Equities & More Kool-Aid post that were updated after Friday’s US Close.
Extended Trend Assessment is available below.
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