OK, Let’s Talk About Impeachment

Thursday, August 23, 2018
By Paul Martin

by Nicholas Colas via DataTrekResearch.com,
Thu, 08/23/2018

Impeachment was clearly the word of the day, so let’s talk about it.

It is freighted with anxious connotations for many Americans, who remember the tumultuous end of the Nixon administration in August 1974 and the national mood at the time. From a capital markets perspective, it was also a grim period. The S&P 500 fell 26% in 1974, tagging on to a 14% drop the prior year. That memory casts a long enough shadow that S&P futures dropped +10 handles yesterday afternoon after the Cohen/Manafort convictions on fears the US is doing a slow motion tumble into a political crisis.

That US stocks recovered yesterday is a good reminder that 2018 is not 1974. Recall that the country entered a deep recession in 1973 on the back of much higher oil prices (caused by a shooting war in the Middle East and Saudi embargo) and a weaker dollar (which ended a global system of fixed exchange rates). Now, we have 20% earnings growth in 2018, a good economy, low/stable interest rates and a rising dollar. From a macroeconomic standpoint, things are very different indeed.

Still, we have little doubt that a political event on the scale of a presidential impeachment would roil markets until the issue was resolved. Consumer confidence would likely take a hit as Americans engaged in a spirited national debate on the topic. Business investment might slow as managers took a wait-and-see approach to political developments. Whether this would cause a 5% pullback in US stocks or more is as unknowable as the exact timeline of how all this might unfold.

So how likely is such an event, or a permutation (President Trump resigns) thereof? From online prediction market PredictIt.Org, which allows users to place small wagers on political events, a few relevant data points:

90%: the current odds for “Will Trump be president at the end of 2018?”

67%: “Will Trump be president at the end of 2019?”

45%: “Will Trump be impeached in his first term?”

A few words about that last one:

Impeachment doesn’t mean President Trump is out of a job. The House, which PredictIt users believe Democrats will control in 2019 (66% odds), could technically impeach the president but the Senate (76% odds Republicans hold) could still acquit him.

That 45% is an all-time high, likely in response to yesterday’s news. At a few points during the day it was actually over 50%.

While interesting, we take the PredictIt platform predictions with a grain of salt. Less that $7,000 of wagers pushed that mean impeachment trade over 50/50 and there are only $84,000 worth of bets outstanding.

The Rest…HERE

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