Global risk markets have sold off in recent weeks in light of the deepening political troubles facing US President Donald Trump. Event risk surrounding the President is likely to remain high for the next few weeks, but his near-term demise seems unlikely. Either way, longer-term the fundamentals favouring further gains in equities, the US dollar and bond yields remain in place for the time being.
How to remove a US President by impeachment
Impeachment of a US President takes place when impeachment articles (or charges) are proposed and passed through a relevant judiciary Committee of the House of Representatives. For “impeachment” this charge is then required to pass the House of Representatives by a simple majority. But a President impeached in this way is not automatically ousted from office. Indeed, both President Bill Clinton (1998) and Andrew Johnson (1868) were impeached in this way and lived to tell the tale. To be removed from office, the Senate is then required to conduct an impeachment trial, and the President must be judged guilty by a two thirds majority. Incidentally, contrary to popular belief, President Richard Nixon was never formally impeached – he resigned from office before even the House of Representatives had a chance to vote on the matter.
It, therefore, remains the fact that no US President in history has ever been removed from office as a result of impeachment.
Can or will Trump be impeached?
What about Trump? Perhaps reflecting his political inexperience and/or unwillingness to heed advice, US President Donald Trump has waded into a sea of political trouble in recent weeks. Irrespective of whether Trump – or at least members of this election team – are implicated in dealings with Russia during last year’s election, his apparent desire for former FBI head James Comey to drop investigations is a serious matter in its own right. If proven, Trump’s intimations toward Comey could be construed as obstruction of justice, which itself is an impeachable offence.
Of course, we’ll learn more when Comey testifies before the Senate at a date yet to be confirmed after next Monday’s (May 29) Memorial Day holiday. If Comey’s evidence supports an obstruction of justice charge, the pressure will be on the Congress to act. Whether it does remains to be seen.
One the one hand, Trump has never been warmly embraced by the Republican Party, and his removal in favour a “more establishment” type figure such as Vice-President Mike Pence might seem attractive. Were Pence to become President, it’s likely many of the deregulatory and fiscal stimulus measures advocated by Trump – and supported by Republicans – would still move forward. As for Trump, it could be the Washington establishment’s ultimate revenge.
Countering this, however, is the reality that Trump remains very popular among rank and file Republican voters. And unlike Nixon, he seems very unlikely to resign and go quietly. There’s even some risk of a serious civil uprising if Trump mounts a campaign claiming he’s been unjustly treated and a victim of ‘fake news’.
Given these risks, it’s a big ask to expect 25 Republicans (out of 238) among the 431 member House of Representative to cross the floor and vote for impeachment – even if a bill to that effect made it into and through a Committee, and all 193 Democrats voted in its favour. It’s even less likely that 19 Republican Senators (our of 52) would join with 46 Democrats and 2 Independents to garner the 67 (two-thirds) vote needed in the 100 member Senate to convict (and oust) the President.
Party make-up of current US Congress
Source: US Congress
All up, it seems unlikely Trump would be formally impeached by the House of Representatives, and even if he were, much less likely to be forced from office by the Senate. That said, this also obviously depends on the weight of evidence that comes to light as concerns Russia dealings and/or any obstruction of justice allegation. Unless there is a clear “smoking gun”, however, it seems unlikely the Congress will follow through.
Investment implications: the Trump Trades should live on
Clearly, were Washington to become bogged down in a lengthy impeachment process, the prospect of added fiscal US stimulus anytime soon would go out the window. There’s also a risk that such political uncertainty could dent business confidence and send the share market into a more serious correction. Associated with this would be likely further weakness in the $US and declines in global bond yields, as “risk-off” sentiment seen in recent weeks continued to take hold.
Under such a scenario, gold and gold related stocks could be a potential winner. For investors interested in such a theme, either as an outright trade or at least a hedge, they might consider the BetaShares Gold Bullion ETF -Currency Hedged (ASX Code: QAU) or the BetaShares Global Gold Miners ETF – Currency Hedged (ASX Code: MNRS).
That said, it’s also worth noting that so far, at least, the US economy has continued to tick along well of late. After a weaker than expected 0.7% annualised Q1 GDP result – which partly reflected reduced demand for heating due to a milder than usual winter – the economy appears to have rebounded to a 2 to 3% annualised pace this quarter. Recent Fed commentary – and market pricing – also suggests a Fed rate hike in June remains more likely than not. The latest US corporate earnings season was also better than expected.
The economy has been growing so well that even Fed chairperson Janet Yellen has remarked in recent times that added fiscal stimulus may not be necessary, as it could unduly add to inflation given the tightness in the labour market.
Up all, with or without added US fiscal stimulus, it seems likely that the Fed will hike rates further this year and Wall Street will continue to be underpinned by solid corporate earnings – all of which would also bode well for higher bond yields and a higher $US. Adding to this expectation is the fact the Opec is likely to agree to a deal this week which will extend its oil production cuts, which would be music to the ears of America’s shale oil sector as it ramps up investment and production further.
All this suggests the Trump trades should live on, with or without Donald Trump. Indeed, the recent bout of political uncertainty could present an opportunity for those who favour Trump trades we’ve discussed in the past, such as currency-hedged Japanese equities (ASX Code: HJPN), the US dollar (ASX Codes: USD or YANK), and the Nasdaq-100 Index (ASX Code:NDQ).