25.09.2019 – Special report. The democrats want to kick Donald Trump out of office. The president is said to have forced Ukraine to legally target the family of his sharpest adversary Joe Biden for corruption. If the Impeachment project succeeds, Wall Street will shake. Dollars, Treasuries and Gold will be included. Or else, Trump emerges victorious and the bull market continues. We shed light on the background.
Unexpected comes often
On the PredictIt betting website, the bets on a high volume impeachment of trumps just shot up sharply. And Wall Street fell a little after the Democrats’ announcement, which was also due to the issue of China. There is still some composure, because the matter could become an own goal for the Democrats. But unexpectedly often comes.
A look into history
By way of comparison, in the Watergate affair, which lasted almost two years until Richard Nixon’s resignation on August 9, 1974, with which he preceded an impeachment, Wall Street was in a severe slump, which continued after the exit. However, the Vietnam War, the Yom Kippur War and the oil shock had sent the USA into recession.
Before the impeachment proceedings against Bill Clinton, the stock market was largely unimpressed; after the failure in February 1999, the Dow Jones continued to rise before the dot-com bubble gradually blew up. However, Wall Street was also in a heightened Internet euphoria and the USA had drastically reduced government spending in the wake of the end of the Cold War.
Scenario 1): Trump topples
This time the US economy is booming as well – but the current democratic front runners are not considered business-friendly. So we suspect Wall Street will collapse if Trump falls. There could well be a minus of 3,000 points in the Dow Jones, for example. For one thing, this possibility is not yet priced in. On the other hand, if the Democrats win a new election – perhaps even by a representative of the left-wing radicals – higher corporate and income taxes are on the agenda. In addition, open borders for all, including full medical care; this with simultaneous restrictions on the possession of weapons by tax-paying citizens. Thus, weapons shares could also become a short.
Furthermore, the US oil industry in particular is likely to suffer because of the threat of a new, green energy policy. Shares of small oil producers and service companies should therefore also be eligible for a short. This could lead to a shortage of oil on the world market and would also be accompanied by weaker demand from the US economy, but would probably be offset by Iran being freed from sanctions and new oil exports from the failed socialist state of Venezuela. For victorious democrats would presumably not be following a hard foreign policy course. Oil would therefore probably be neutral. On the other hand, American eco-shares would be a long trade in second-line stocks: solar, water treatment, electric cars.
The usual safe havens in turbulent times such as gold, silver and US Treasuries should gain ground. In addition, the Japanese yen should also be in demand. This, in turn, should put pressure on the Nikkei in particular, as exports from Nippon are suffering. And since China would probably receive a weaker US counterparty in a customs deal that would, as always, give in, Chinese equities would be more of a long-side investment.
Conclusion: You should price in price fluctuations in all assets of 15 to 25 percent until the situation has calmed down in a new election.
scenario 2): Victory for Trump
Trump could survive the attack – either because the Democrats are afraid of the voters, or because they are afraid of the voters. Especially since most people in the US have other worries than the intrigues in the Washington D.C. swamp anyway. According to a survey by Politico/Morning Consult last week, only 37 percent want an impeachment. Let’s wait and see how the mood develops. Or the republican defense front will hold. And Trump turns the tables and the Democrats become the real bad guys in the eyes of the voters because of their own misdemeanours – more about that. What The Donald will turn into a glorious election victory in 2020 in the coming months.
In this case, Wall Street is likely to continue its upward trajectory as further business-friendly policies and pressure on the Federal Reserve can be expected. Should a republican-dominated Congress emerge from the January 2020 election and the Federal Reserve cut interest rates further, a plus of 10 percent or more in the Dow is quite possible. Then a strengthened trump card against China should enforce a hard and for the USA good tariff deal. Bonds and gold should also increase, but far less than in scenario 1, due to the policy of cheap money. We also consider construction stocks to be an interesting investment, as the country’s infrastructure will have to be renewed in the long term, but this will hardly be possible to push forward during this term of office. Trump will presumably also continue to promote the US oil industry in order to ensure a good supply of oil in cooperation with the Saudis – because cheap energy makes voters happy. In this case, oil is more likely to be a short investment.
However, it is important for you to know the background if you are trading CFD or online stocks – this is the only way you can filter out the important facts from your regular real-time updates and position yourself correctly on the stock market.
Caution on Thursday
Important for all those who trade CFD and online stocks will now be tomorrow’s Thursday, it could bring some volatility in stocks, bonds and the dollar: Because the House Intelligence Committee has summoned Joseph Maguire, the Acting Director of National Intelligence. He is supposed to solve the Ukraine affair.
Trump is said to have called on the new Ukrainian President Volodymyr Selenskyj to investigate corruption against Hunter Biden, the son of leading democratic politician Joe Biden. Before the meeting, Trump is said to have frozen promised military aid to Ukraine. According to the New York Times, the amount involved was 391 million US dollars. A secret service employee reported this to an internal control authority. The whistleblower now wants to testify before the congress. This raises suspicions that Trump abused his power. Trump twittered that he would publish a “complete and unedited” transcript of the phone call that would exonerate him. According to “The Federalist”, the tipster is said to have hired a lawyer who worked for both Hillary Clinton and Chuck Schumer, the Democratic faction leader in the Senate. Which looks like a party political witch hunt.
Double standards and hypocrisy
The whole thing has a bad taste in other things too. In his time as vice-president, democrat Joe Biden succeeded in getting Ukraine to close its Attorney General Viktor Shokin. He once investigated corruption at a Ukrainian gas company called Burisma Holdings – and Hunter Biden, in turn, employed him for a whopping 50,000 dollars a month. By the way, his son had no experience with natural gas or Ukraine. Shokin told ABC that there was no doubt that Biden Senior had him dumped for the investigation.
In fact, Joe Biden confirmed the case last year before the Council on Foreign Relations, which is a foreign policy think tank. Biden boasted that he was pushing Ukraine into a corner with the threat of either firing Shokin or waiving U.S. $1 billion in loans, the publication The Hill reported. The then President Petro Poroshenko then fired Shokin. According to Biden, President Barack Obama knew about the blackmail that had driven Ukraine into bankruptcy.
How corrupt are the democrats?
Moreover, Trump’s lawyer Rudy Giuliani is currently firing from all pipes: Hunter Biden washed around 3 million dollars on the Ukraine-Latvia-Cyprus route. This accusation is also hushed up by the “Swamp Media”, he twittered. Just like the fact that the Biden family had taken bribes of 1.5 billion dollars from China through a network of companies. In fact, the New York Post reported a historic deal by the Bank of China, which set up an investment fund called Bohai Harvest RST, which cooperated with a company called Rosemont Seneca Partners. Two of Rosemont’s three owners were Hunter Biden and Chris Heinz – son-in-law of former Democratic Foreign Minister John Kerry.
It all depends on the Republicans
And so the matter could go on: An impeachment launched by the House of Representatives with a simple majority must be approved by the Senate with a two-thirds majority. Since the Republicans hold 53 of the 100 seats there, 20 Republicans would have to be revoted. Perhaps the front will hold. But some opportunists can change sides. In fact, Republican Senator Mitt Romney has raised concerns about possible pressure on Ukraine – presumably he will vote to remove himself from office to run for president.
Whatever the outcome, it is clear that the stock market does not like uncertainty – and we will see increased volatility. Which could make the VIX a possible long trade. So keep an eye on things and keep your trading platform open. Bernstein Bank wishes you successful trades!
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