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Gaming A Crisis


It was thirteen months ago that I predicted that President Trump would be impeached or resign.  My Democratic friends applauded, while my Republican friends condemned.  It was not a prediction that was made with any joy.  Make no mistake:  Any constitutional crisis is bad for the country, which therefore also makes it bad for the stock market.

When I made the original prediction, my confidence level was about 60% that Trump would be impeached, but that confidence level has now risen to about 90%.  I still think there is no chance he would be convicted by the dysfunctional Senate, even with a Democratic majority.  (It would be the ultimate existential crisis for our Constitution, if he was convicted and refused to vacate the White House.)

I have reviewed the behavior of the stock market during the impeachments of Andrew Johnson, Richard Nixon, and Bill Clinton but found no useful pattern, except this:  Stocks dropped significantly but always recovered nicely.  Clinton’s experience was the easiest to understand – stocks dropped when impeached but soared when the Senate trial began.  Nixon’s was much more volatile — stocks swinging wildly on every rumor or press release.  Johnson’s experience was not helpful, due to the lack of stock market data 150 years ago.  My assumption is that the market will drop when impeachment becomes obvious but quickly recover when the market realizes the impotence of the Senate.

But, what about the timing of this constitutional crisis?  Assuming the Democrats retake the House in November/January, they could not get a bill of impeachment through the House immediately, as a good number of Democrats also abhor impeachment as much as I do.  Plus, many fear the social conservatism of the Vice President more than they fear the President’s “unpredictability.”

For now, I will not be selling stocks until the November election.  If the Democrats merely retake the House, I will take no action.  If there is a huge “Blue Wave,” I will start increasing cash.

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