The DOW fell over 372 points, the VIX volatility index jumped 46%, gold was up $23, the dollar fell, and treasury yields sank across the board.
The media attributed this to Trump. Speculations regarding possible impeachment hearings soared.
Realistically speaking, however, impeachment odds are near zero. So what spooked the market?
Just a few days ago the market hit a fresh high. Today we see the following (Note: nearly all of these have autoplay videos, a pet peeve. I recommend clicking on none of them).
Blame Trump?
There are at least a dozen articles all blaming Trump for today’s decline. No mainstream article discussed the possibility that stocks are insanely valued and deserved to drop substantially.
Some articles mentioned impeachment. However, the odds of impeachment anytime soon, if ever, are close to zero percent.
CNN gets that aspect correct in its Impeachment Guide.
Take a step back from the whack-a-mole and unending barrage of scandals and missteps that have beset Trump’s young presidency, however, and the idea of impeachment, despite growing calls from Democrats (CNN’s KFile has counted 18 Democrats using the “I” word), seems a long, long way off. [Mish note: that link contains another autoplay video.]
Republicans Control the House and Senate
Both Nixon, who wasn’t actually impeached, and Clinton, who was impeached by the House but acquitted by the Senate, were facing off against a hostile Congress controlled by the opposing party. So was Andrew Johnson, the Democratic vice president who succeeded Abraham Lincoln as president after his assassination and was impeached by the hostile Republicans who controlled Capitol Hill. He was acquitted too. Got that? the Senate is 0-for-2 on convicting presidents from the other political party.
Republicans — Trump is a Republican, remember — have a 238-193 majority in the House. That means 20 or more Republicans, depending on who is voting, would have to break ranks to impeach their Republican President.
And that would be the easy part.
Republicans currently have 52 senators, so 19 of them would have to break ranks and vote to convict a Republican president, assuming all Democrats voted to do so.
Nixon, by the way, resigned before impeachment went to a vote in the full House of Representatives. In that case, most of the Republicans on the judiciary committee opposed the articles.
Republicans Have Not Turned on Trump
There is not even a critical mass of Republicans who think there should be a special prosecutor to investigate the Trump campaign’s ties to Russia. Exactly zero Republicans have said anything close to supportive of impeachment.
67 Senate Votes Needed
Assuming the House voted for impeachment (it wouldn’t), it would take 67 votes out of 100 Senators to remove Trump from office.
Obstruction of justice? Please. Even if you believe the obstruction story, where the heck is that charge going given the above impeachment math?
What’s the Goal?
There are likely a number of nutcases with a genuine belief Trump can and should be impeached.
More realistically, demagogues hopped on the impeachment bandwagon simply to make life more difficult for Trump.
Market Reaction
Obamacare reform was likely dead on the vine anyway. A tax reform package will not see the light of day this year but some tax cuts are possible.
The market expected Trump reflation was a breeze. It wasn’t, even before the latest allegations.
Real Reason for Today’s Decline
The market can plunge 40% from here or it can make new highs. If it does plunge 40% don’t blame Trump. It will take a 40% correction just to get stock backs to average valuations.
But don’t expect the market to be rational. It hasn’t been for years. Unlike others, I do not even envision a crash. A decline of 15%, then a rise of 8%, then a decline of 12%, then a rise of 2%, then another decline of 15% would take stocks down 30% without any year feeling like a crash.
My preferred scenario would be extremely painful to pension plans.
Nikkei Comparison
On December 29, 1989, the Japanese Nikkei index hit 38,916. Today, the Nikkei is at 19,814. Over the course of 27 years, the Nikkei had numerous 100% rallies but it is about 50% lower than it was in 1989.
Yikes!
I do not expect that kind of disaster here. My favored scenario is 35-50% decline over 7-10 years, without a “crash”. I define “crash” as a greater than 25% decline in a single year, or greater than a 35% decline over two consecutive years.
Please don’t tell me such a decline cannot happen here.
If central banks could prevent wipeouts, the US would not have had two of them in a 10-year timeframe, Fed-induced I would add.
Mike “Mish” Shedlock
