The full Mueller Report was released hours before the holiday weekend. The findings in the report have the potential to drastically alter the political landscape. That, in turn, can have a major impact on the direction of the economy. Over the long weekend, I completed reading the unredacted report in order to have a better understanding of how the markets may react.
For the majority of people, the focus of the report will center on the behavior of the President of the United States. There will obviously be different conclusions reached given the political divide. That is to be expected. As with the report, this article may be seen through the lens of your own political beliefs. Our inherit biases often impact how we approach our decision making processes. When it comes to our financial security, these biases can often be detrimental.
The lens in which I read the Mueller Report reflected the fact that I have spent many years working within the regulatory and compliance landscape. While this may provide some advantages in terms of interpreting the report, I found the vast majority of the work was presented in a way that my expertise was not needed. The only area that required more familiarity with the law appears near the end Volume 2(V2). That section appears to have been written primarily for lawmakers who wish to peruse an impeachment case against the President.
If you are not inclined to read the entire report, reading through the short Introduction sections (V1 – P 1-10, V2 P 1 – 8) will provide a concise overview of the findings. The full report is impartial, devoid of speculation or commentary, and professionally presented throughout. There is no indication that political bias made it into the report.
Volume 1 (V1) of the report focuses on the Russian Military’s cyber-attacks and psychological warfare against America. This volume also looked into coordination efforts between members of the Trump Campaign, Wikileaks, and the Russian government. The Introduction concludes with the following: “Accordingly, while this report embodies factual and legal determinations the Office believes to be accurate and complete to the greatest extent possible, given these identified gaps, the Office cannot rule out the possibility that the unavailable information would shed additional light on (or cast in a new light) the events described in the report.”
The first volume offers an idea of what the motivation behind the President Trump’s alleged decision to obstruct justice. The second volume of the report starts shortly after the 2016 Presidential election. It outlines a long list of potential obstruction of justice charges. Of the examples cited, only one was conclusively determined not to be a case of obstruction.
The report is careful to state that it is unfair to accuse any party of a crime in which they are precluded from defending against in a court of law. For the President to defend his actions, the report concludes that an Impeachment process would serve as a trial. The introduction to V2 (p 1.) states that “[t]he OLC (Office of Legal Counsel) concludes that a sitting President may not be prosecuted, it recognizes that a criminal investigation during the President’s term is permissible. The OLC opinion also recognizes that a President does not have immunity after he leaves office.”
Mueller Report: Impact on Investments
The Mueller Report may be of most interest to the political class. Reading through the report also highlights several areas that investors should be concerned with. The most pressing concern for many is how the market could react over the coming months. I will speculate on that point shortly.
While most readers are likely to only be concerned with that aspect of the report, financial advisors like myself need to heed the warnings about information security. Additionally, there needs to be renewed focus on the vetting of information and research. Fake news and careless safeguarding of online activity is at the heart of the report.
Will President Trump be impeached? That is the question most are asking. While no one can predict the future, a large part of a financial advisor’s role is to determine probabilities. We often inform clients that we prefer to be vaguely right instead of precisely wrong. In the end, probabilities are best guess… but often they are educated ones.
When determining a probability, the randomness of the future can be accounted for by applying knowns from the past. As Mark Twain once said, history doesn’t repeat itself, but it rhymes. If I were to only be able to offer a binary probability for Impeachment, I would state that the most likely outcome moving forward is that the President will be impeached. If my options were again limited to a yes/no answer regarding the question of Trump being removed from office, my answer would be that it is most likely he would.
Both the Clinton and Nixon Impeachment proceedings serve as a model for understanding the chances of President Trump being removed from office. President Clinton, much like President Trump, faces a House of Representatives controlled by the opposition party. This makes impeachment likely. As with other Presidents, President Trump is protected from removal by the fact that his political party controls the Senate.
After President Clinton was impeached, support for him remaining in office was at 65%. At the time of Nixon’s impeachment, only a slight majority (44% for vs. 43% against) favored moving forward with the process. President Trump’s approval rating fell to 37% following the release of the Mueller Report.
In my previous research, I can find no evidence the suggests the current political divide is any greater than it has been historically. The same partisan behavior can be found during the tenures of President Adams, Johnson, Nixon and Clinton. All of them were impeached, yet none were removed from office by the Senate. Only Nixon resigned, and only the allegations against him are as severe as the ones alleged against President Trump.
Historically, Republican support for Nixon fell during the impeachment process. That ultimately lead to his resignation. Polling put support for Nixon around 24% at the time he finally left office. There was consistent decline in support for him during the Watergate hearings. If there is not a similar decrease in support for President Trump, a likely conclusion would be that the Senate will not turn against him.
Stepping away from a binary probability of impeachment or removal, I would estimate that the chance of either happening are a toss-up. Democratic leadership is worried that impeachment could be detrimental to their 2020 election odds. The Republican controlled Senate is also unlikely to remove Trump from office as Republican approval of the President remains high. I would estimate the chance of impeachment proceedings moving forward sits around 65%, while the odds of removal being only around 51%.
The most likely impact on investment portfolios would be high volatility along with a potential market correction. Last year ended with two major indices in bear market territory, though the markets quickly rebounded. Concerns over consumer sentiment and the inversion of the yield curve are already weighing on investors’ minds. Moving forward with impeachment could potentially put a chill on the markets as some opt to wait on the sidelines for clarity.
I came to that conclusion shortly after FBI Director James Comey was fired. The article that I wrote, “Presidential Impeachment: Impact on the Stock Market”, details the research I uncovered at the time. The primary finding is that stock markets indices often decline during impeachment proceedings due to the uncertainty the process creates. I would expect a similar decline but, given that the Trump Presidency already produces volumes of uncertainty, losses may be tempered.
I am more concerned with the chances that investors, already weary about a recession, turn impeachment into a self-fulfilling prophecy. I plan on continued caution when it comes to investment choices. Like many others, I have felt it prudent to hold cash reserves as well. Doing so reduces volatility while offering the chance to purchase lower cost shares in the event of a decline.
The first volume of the report delves into Russian Military cyber and psychologic warfare techniques. The findings in the report show just cheap and easy it was to sway the opinion of Americans. More difficult was the hacking into the Democratic National Committee (DNC). The report shares some insight on how this was done.
For starters, the hacking of the DNC computers took place from here in Arizona. The intrusion began with simple phishing emails that provided access to email addresses linked to political operatives in the party. From there, the Russian Military acquired 25 unpublished email addresses of top DNC staffers. By the time DNC cyber security uncovered the intrusion, it was too late to take action.
As someone who has worked with campaign finance activities, I can attest to the fact that most political operations are simple affairs. Local campaigns do not have the resources to needed to prevent these kinds of attacks. This makes them a likely entrance point for cyber criminals. Opening any politically connected email is a risk to your online security.
I would encourage people to review the security of both their internet provider as well as the email account that are used. Email accounts should be segregated by purpose. As an example, my business email address is primarily used for client and financial industry communications. My personal one is for family, volunteer communication, and other assorted needs. Finally, my ‘spam’ email is used for all other purposes, including mass emails that come from political campaigns.
If you haven’t set something like this up already, do so now. Aside from segregating email accounts, you should also look at encryption software that can protect your email and stored data. My clients can always send private information securely by typing [encrypt] at the start of the email subject line. Industry regulations require that I store all online documents using approved encryption software.
While there is no assurance that these steps will completely protect you, the report does show that these tools are effective. In the first volume of the report, the Special Counsel Office notes that encryption techniques like this prevented them from obtaining evidence needed to prove conspiracy beyond a reasonable doubt. If the FBI cannot access secured online data like this, hackers will have a hard time gaining access to your private information as well.
The final topic that the Mueller Report shed light on is the importance of using accurate data in order to make investment decisions. As I first stated, we all have inherent biases that guide us. For most folks, it is far easier to accept information that fits with our preconceived beliefs than it is to accept information at odds with them. When assessing any news source, make sure to keep in mind that all media outlets are for-profit entities. One must always be vigilant to the fact that some sources put self interest ahead of the truth.
The report sheds light on how easy it is to produce false information. In one example, the Russian Military spent an hour Googling hot button issues. From there, they created a WordPress site around the message they wanted to plant. Anonymously, the Russian’s then forwarded the website to the Trump Campaign. The campaign unknowingly presented ‘fake news’ like this as fact. The report stated that over 126 million American’s were affected by false Russian narratives during the campaign.
Neither left nor right leaning voters were spared from the Russian’s fake news. Making matters worse is the fact that many major news sources often passed these stories on as fact. Having fake news impact an election is damaging enough, but for investors, it could spell disaster. Stock values are based on the assumption that all known (and some unknown) information has led to a consensus that a company is appropriately valuated. Fake news skews that assumption.
After reading the Mueller Report, it was apparent that only the mainstream news media was exonerated. As an investor, it is imperative that financial decisions be based on accurate, verifiable, unbiased information. Sources such as the New York Times, the Washington Post, Politico and C-Span were often cited as source information for the investigation. In general, most established mainstream outlets were proven to provide reliable reporting.
If the Mueller Report succeeds in just one thing, my hope is that it moves us to a place where we can once again agree on the facts. I also hope that facts will once again matter.