The Dividend Cafe - Impeachment Odds Fly, Markets Swoon: What It All Means

Starting point is 00:00:00 Welcome to the Dividend Cafe, financial food for thought. Hello and welcome to this week's Dividend Cafe podcast. This is David Bonson, Chief Investment Officer at the Bonson Group of Hightower Advisors. And we're coming to you this week from the SALT Conference in Las Vegas, one of the world's largest hedge fund events. It's been an incredible last couple of days. Still organizing thoughts. It's certainly been an enlightening event and look forward to sharing more of the takeaways in the days to come.

Starting point is 00:00:35 But for now, let's talk about the market. This week, I finally saw some big downside volatility. We have plenty to say about that and the political world and more. So let's get into it. Is the market afraid of impeachment? The leaked story on Tuesday that allegedly President Trump had exerted some pressure on FBI Director Comey sometime before firing him to soften the investigation into former aide Mike Flynn caused markets to swoon on Wednesday, dropping 370 points on the Dow as the futures market priced in a 33% chance of impeachment.

Starting point is 00:01:18 It had been 14% the day before, so the impeachment odds more than doubled. These things are categorically unknowable and to our knowledge, unpricable. But the selling pressure was intense as markets more than anything else hate uncertainty. But let's ask these questions. Were the markets actually assuming that this new allegation would lead to a real action? Were they assuming that some part of the current tax reform conversation was dead now? Were they assuming that a President Mike Pence would be bad for markets?

Starting point is 00:01:51 Were they assuming that the Republican majority in the House and Senate was about to change? Was there any real material, economically coherent sense in all of the uncertainty, rumor, leaks, allegations of the political circus that stock prices would lose value, the answer is no. And the answer is that Mr. Market doesn't care about any of the above stuff. Mr. Market doesn't like uncertainty. And for the time being, on Wednesday in particular, the markets were awash in uncertainty

Starting point is 00:02:25 and experienced a long, long overdue down day. So this is what volatility feels like. No, it isn't. It usually feels a lot, lot worse. We haven't seen a 5% pullback since July of last year. This is the longest period without a 5% correction since 1996, over 21 years. And we still haven't hit it, by the way. 370 points is a lot to drop in one day, but it skews the reality of what we've been dealing with. Non-existent volatility was not going to last whether all of this Trumpian drama took place or not. Normal volatility is, well, normal. The most misunderstood rally since the last rally. There really is little we can say about the 2017 market action we believe is more important than this.

Starting point is 00:03:17 People surprised that the markets had not been correcting as the Trump administration ran into continued public relations issues, political roadblocks, self-induced challenges, real or perceived, and policy headwinds have essentially all been making the same mistake. They're misdiagnosing the basis for the post-November market rally to begin with. It actually makes a lot of sense if one believes that all of the market rallies since November was purely related to expectations for improvements out of the Trumpian economic agenda to now believe markets ought to correct in the context of what has been a very challenging 125 days for the Trump

Starting point is 00:03:57 administration. However, the data is abundantly clear to us. This has been an earnings driven rally and as earnings go my friends so goes the market. Well where does that leave President Trump in this market? The irony of this is that energy and financials are the two sectors we think will benefit most from the elements of the Trumpian agenda we're quite confident he will get through. And those are the two sectors which have most lagged in recent months. What is so special about a special counsel?

Starting point is 00:04:33 The news Wednesday afternoon after the market closed that the Department of Justice was appointing a special counsel to investigate the Russia election matter after all the drama about President Trump's alleged interference with FBI Director Comey and the big market drop that resulted from such drama has led to a mixed bag of reactions. No one I have seen has disputed the integrity and reputation of Robert Mueller, the longtime FBI Director appointed to lead this special counsel. And in a sense, this may prove

Starting point is 00:05:03 to be the effort needed to bring closure to the whole matter it also of course could create additional uncertainty and open-endedness we know not how long this investigation will last nor would it will turn up and yet we strongly suspect from the vantage point of the markets that it's more likely to create closure clarity and certainty than not having the special counsel would. Now oh by the way call it coincidence call it the GOP accelerating plans based on new political complexity but all indications are that the Trump administration is

Starting point is 00:05:35 planning to release their 1 trillion dollar infrastructure plan within a couple of weeks. Secretary Chao said this week they anticipate 200 billion dollars of public money levered with $800 billion of private capital to create significant spending package around airports, roads, and even broadband. There's more this week at DividendCafe.com about the state of the hedge fund industry, the biotech sector, emerging markets. So we do encourage you to check out DividendCafe.com. We're going to leave our podcast there for the week and look forward to picking it up next week with even more insights from the SALT Conference. But thank you for listening to The Dividend Cafe, financial food for thought.

Starting point is 00:06:39 The Bonson Group is registered with Hightower Securities LLC, member FINRA, MSRB, and SIPC, and with Hightower Advisors LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities LLC. Advisory services are offered through Hightower Advisors LLC. This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee.

Starting point is 00:07:08 The investment opportunities referenced herein may not be suitable for all investors. All data and information referenced herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary. It does not constitute investment advice. The team in Hightower shall not in any way be liable for claims and make no express or implied representation or warranties as the accuracy or completeness of the data and other information or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date reference. Such data and information are subject to change without notice.

Starting point is 00:07:46 This document was created for informational purposes only. The opinions expressed are solely those of the team and do not represent those of Hightower Advisors LLC or any of its affiliates.

The Dividend Cafe - Impeachment Odds Fly, Markets Swoon: What It All Means

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