Is It Time For The Market To Start Discounting A Hard Left Turn?

Is It Time For The Market To Start Discounting A Hard Left Turn?

Via Global Macro Monitor,

Last week was a very bad week for President Trump and may, in hindsight, be the tipping point of his presidency and the Republican Party.   We list and explain the four political bombshells that exploded, which we believe will work its way through the American political system and eventually adversely impact the risk markets.

Senate Republicans will soon have to choose between Mr. Trump or the rule of law and the Constitution.  Public opinion is quickly moving toward the later, where a majority of the country now supports the impeachment and removal of President Trump.

We suspect public opinion for impeachment and removal will continue to move north putting pressure on Senate Republicans, especially the 23 who are running for re-election next year.  They will be no longer be able to evade and obfuscate their support for Trump and will be forced to go on record for the history books during a Senate trial early next year.

We think resignation is more likely than removal but Trump won’t go quietly, increasing the political risk on the American street.  President Trump is becoming increasingly toxic to the Republican Party and we sense they know it.

The President consistently polls 20-30 points underwater with women and younger voters.

Mr. Market and President Warren

Our priors are that a huge 2020 Blue Tsunami swamps the White House, Senate, and House is a much higher probability than is currently priced.  The markets will soon have to discount the potential for a President Warren,  backed by a Democratic House and Senate, and we don’t believe it will be a bullish repricing.

Political Demographics

The math of the country’s political demographics just are not conducive anything close to a Red Tide in 2020 or beyond, and last week’s events reinforced it.   Far from it.

In fact, the math over the next few decades is going to be brutal for Republicans.

The younger generations, who are woke, are left of the salad fork, and now, for the first time, a larger voting block than the boomers.

A Democratic voter’s race, sex or education level doesn’t predict which candidate he or she is leaning toward, but age does.

In one early New Hampshire poll, Joe Biden won 39 percent of the vote of those over 55, but just 22 percent of those under 35, trailing Bernie Sanders. Similarly, in an early Iowa poll, Biden won 41 percent of the oldster vote, but just 17 percent of the young adult vote, placing third, behind Sanders and Elizabeth Warren.

As Ronald Brownstein pointed out in The Atlantic, older Democrats prefer a more moderate candidate who they think can win. Younger Democrats prefer a more progressive candidate who they think can bring systemic change.  – NY TImes

If the young, who traditionally to like stay home and play on their iPhones on election day, come out and vote en masse in 2020, as they did and almost doubled their turnout in the 2018 midterms,  you best start getting used to saying, President Warren,  Speaker Pelosi, and Majority Leader Schumer.

Mr. Market is going to have big trouble getting there.

Last Week’s Big Four Events And The Tipping Point

1. The Revenge Of The Four Stars

A retired four-star admiral, who led the raid and capture of Osama Bin Laden pens an Op/Ed piece that states the country is effectively under attack by the President of the United States.  Then the POTUS is openly mocked by his former Defense Secretary and a four-star General at Thursday’s annual Al Smith dinner.  Stunning and unprecedented.

These patriots aren’t exactly “deep state” bureaucrats and can’t be easily dismissed in a 6 AM Tweet.

We think President Trump really hurt himself by trashing his former defense secretary and retired four-star General James Mattis during the now-infamous “all roads with you lead to Putin” meeting with Congressional leaders that went way-off the rails at the White House on last Wednesday.   President Trump called Mattis “the world’s most overrated general.” 

The “Warrior Monk” is well respected and loved throughout the U.S. military and defense community.    

Mattis responded, albeit with humor, to Trump’s remarks at  the Al Smith dinner on Thursday night.

I earned my spurs on the battlefield,” he said at a charity gala in New York on Thursday night. “Donald Trump earned his spurs in a letter from a doctor.” – Washington Post

Ouch!

At least watch the first two minutes of the following video of his speech on Wednesday, then fast forward to minute 8:00, where the General cites President Lincon.  Better yet, watch the speech in its totality. 

Along with most of the country, we really admire  the Warrior Monk, especially after reading this story,

…Mattis has a compassionate side to him. The story goes that Mattis stood duty on Christmas back when he was a brigadier general so that a younger Marine could spend the holiday with his family.

…retired Marine Gen. Charles Krulak, who was commandant when the story took place. Every Christmas during his tenure, Krulak delivered cookies to every Marine duty post around Washington and Quantico, Va.

Back in 1998, he was making his final delivery to Marine Corps Combat Development Command headquarters at Quantico when he asked the Marine on duty who the officer of the day was.

“The young Marine said, ‘Sir, it’s Brigadier General Mattis.’”

Krulak thought the Marine had misunderstood him, so he asked again, but he got the same answer.

“I looked around the duty hut and in the back, there were two cots: One for the officer of the day and one for young Marine. I said, ‘OK, let me cut through all of this: Who was the officer who slept in that bed last night?’

“And the Marine said, ‘Sir, Brigadier General Mattis.’”

At that moment, Mattis walked around the corner.

“So I said to him, ‘Jim, what are you standing the duty for?’ “And he said, ‘Sir, I looked at the duty roster for today and there was a young major who had it who is married and had a family; and so I’m a bachelor, I thought why should the major miss out on the fun of having Christmas with his family, and so I took the duty for him.’ ”  — Stars & Stripes

What a good man and incredible warrior.

The Other Four Star

Go no further for more evidence the President is losing the confidence of the top military brass, at least, publicly, by retired admirals and generals, than Admiral McCraven’s Op/Ed in the NY Times.  McRaven, is a retired Navy Seal, and was charged with the raid that captured Osama Bin Laden.  I just finished his book, Sea Stories: My Life in Special Operationswhere he devotes a fascinating and gripping chapter to Operation Neptune Spear.

Here are the money quotes from his NY Times piece,

  • …beneath the outward sense of hope and duty that I witnessed at these two events, there was an underlying current of frustration, humiliation, anger and fear that echoed across the sidelines. The America that they believed in was under attack, not from without, but from within.

  • These men and women, of all political persuasions, have seen the assaults on our institutions: on the intelligence and law enforcement community, the State Department and the press. They have seen our leaders stand beside despots and strongmen, preferring their government narrative to our own. They have seen us abandon our allies and have heard the shouts of betrayal from the battlefield. As I stood on the parade field at Fort Bragg, one retired four-star general, grabbed my arm, shook me and shouted, “I don’t like the Democrats, but Trump is destroying the Republic!

  • ..We are not the most powerful nation in the world because of our aircraft carriers, our economy, or our seat at the United Nations Security Council. We are the most powerful nation in the world because we try to be the good guys. We are the most powerful nation in the world because our ideals of universal freedom and equality have been backed up by our belief that we were …champions of justice, the protectors of the less fortunate

  • If our promises are meaningless, how will our allies ever trust us? If we can’t have faith in our nation’s principles, why would the men and women of this nation join the military? And if they don’t join, who will protect us? If we are not the champions of the good and the right, then who will follow us? And if no one follows us — where will the world end up?

  • …if this president doesn’t understand their importance, if this president doesn’t demonstrate the leadership that America needs, both domestically and abroad, then it is time for a new person in the Oval Office — Republican, Democrat or independent — the sooner, the better. The fate of our Republic depends upon it. 

– Admiral McRaven former commander of the United States Special Operations Command

2. G7 At Trump National Doral — The Damage Is Done

Though President Trump almost immediately reversed himself on holding next year’s G7 Summit at one of his properties, caving to major pushback from the Republican Senate,  the political damage is done.  How many moderates do you think he lost by this blatant act of corruption?

One thing we have learned with and since the election of Donald Trump is the electorate doesn’t do swamp.  Ask Joe Biden, who is now plummeting in the polls as voters become aware of the jobs and money his son, Hunter, made, through the nepotism of his father.  It may have not been illegal but it sure as hell was swampy.

Nothing compares to the ultimate swampiness of Trump trying to hold the G7 at Trump National Doral, however.  It’s jaw-dropping swampiness and, more important, outright illegal.

We pecked out the following on Friday afternoon fully anticipating the G7 was never going to happen at Trump National Doral.   We weren’t expecting such a quick reversal, however,  but think you will find what we wrote informative, if not a  bit entertaining, nonetheless.

We thought, at least, at the very last resort (pun intended)  the Federal courts would step in never allow it under the “phony”, according to President Trump,  Emoluments Clause of the U.S Constitution, Article I, Section 9:

Clause 8, Titles of Nobility and Emoluments

“Clause 8: No Title of Nobility shall be granted by the United States: And no Person holding any Office of Profit or Trust under them, shall, without the Consent of the Congress, accept of any present, Emolument, Office, or Title, of any kind whatever, from any King, Prince, or foreign State.” – U.S. Constitution

We suspect President Trump lost the support of many, if not most of the remaining moderates just by the announcement the G7 Summit will be held at his Trump National.  That is about as swampy as it gets, folks.

Walking it back won’t bring the moderates back but may eventually add to one of his articles of impeachment.

Nonetheless, the choice of Doral was very apropos as it’s location is only 42 miles north of the Everglades National Park, one of the world’s most famous swamps.

Do the math, folks, that is less distance than 10 rounds of golf from the 7,510 yards Tips at Doral’s Blue Monster golf course.

3. Confessions Of An “Acting” Chief of Staff

President Trump’s acting Cheif of Staff, Mick Mulvaney’s quid pro quo and “get over it” presser on Thursday may go down as one of the most famous confessions since Saint Augustine’s classic book.

He walked it all back the next day in the Augustinian spirit of “Lord, make me chaste  – but not yet!”   We wait with great anticipation to see if walks back the walk back under oath or after he is thrown under the greyhound.

We are not going to comment on the news conference but will let you view it in full, right here.

4. Trump and Pence Rolled By Erdogan Like A Cheap Cigar

Donald Trump got “rolled” by Turkish President Recep Tayyip Erdogan, a National Security Council source with direct knowledge of the discussions told Newsweek.

In a scheduled phone call on Sunday afternoon between President Trump and President Erdogan, Trump said he would withdraw U.S. forces from northern Syria. The phone call was scheduled after Turkey announced it was planning to invade Syria, and hours after Erdogan reinforced his army units at the Syrian-Turkish border and issued his strongest threat to launch a military incursion, according to the National Security Council official to whom Newsweek spoke on condition of anonymity

…”President Trump was definitely out-negotiated and only endorsed the troop withdraw to make it look like we are getting something—but we are not getting something,” the National Security Council source told Newsweek. “The U.S. national security has entered a state of increased danger for decades to come because the president has no spine and that’s the bottom line.”  – Newsweek

We are all for bringing our troops home and ending the forever wars.  But these troops are not coming home and they were tantamount to the Dutch boy with his finger in the dike holding back the dam from breaking.   The dam is now broken and we will witness the consequences of the disastrous flood unfold during the next year of the presidential campaign.  Not Republican positive, in our opinion.

America Throws The Kurds Under The Bus, Again 

The poor Kurds.  I do remember how Bush #41 left them hanging out to dry after the first Gulf War for Sadaam to slaugter.

Nothing in this world is certain except death, taxes, and America betraying the Kurds.

The U.S. has now betrayed the Kurds a minimum of eight times over the past 100 years. The reasons for this are straightforward.

The Kurds are an ethnic group of about 40 million people centered at the intersection of Turkey, Syria, Iran, and Iraq. Many naturally want their own state. The four countries in which they live naturally do not want that to happen.  — The Intercept

Upshot

The world seems Fubared with little hope but we can’t stop fighting, folks.   Republican, Democrat, or Independent.

Should stocks be making new all-time highs?   We don’t think so, but they seem to want to, for now.

[ZH: Ironically Warren is sliding as Hillary picks up]

Source: Bloomberg

We believe the market is in a long topping process, are at historically high valuations, and on the eve of an ugly bear market.   Not much upside, lots of downside, and we just laid out another potential catalyst.

We don’t know the future and nobody else does.  We also, as always, recognize we could be wrong but not because we haven’t done our homework.

Stay frosty, folks.


Tyler Durden

Wed, 10/23/2019 – 09:35

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