For the second time in twenty years, talk of impeachment is in the air. Like last time, impeachment probably will happen, likely followed quickly by acquittal. The whole show could be over by the end of the year, according to the Speaker of the House. The markets have greeted this news with a giant yawn. Why isn’t impeachment more of an event for markets? What are markets saying about the current political narrative?
Why impeachment deserves some attention
The United States is a story of struggle, a never-ending struggle for security, power, progress, and wealth. Ultimately ours is a story of a nation at odds with itself. I’ve enjoyed exploring this idea through These Truths, the 1000 page history of the United States written by Jill Lepore. As she describes, we’ve experienced interminable conflict over fairness, power, wealth and influence. Today this conflict is playing out in committee hearings, on Twitter, over the airwaves and across the dinner table.
No matter how unsavory it may become, impeachment is an important part of our democratic process, one of the essential checks and balances that help to shape our imperfect union. In practice, it has very little to do with actually removing the president from office. This current impeachment process is an overtly political process and Trump is likely to stay in office. If he goes, Pence becomes President and he’ll choose his replacement as Vice President, to be confirmed by both houses of Congress. Through all this drama, the Democrats have to be careful they don’t topple their leader, Pelosi, which is another reason for Trump to be acquitted.
All this third and fourth-degree political maneuvering is interesting to observe, but it has little impact on the underlying direct fundamentals that move the markets. It doesn’t change consumer spending, corporate tax rates, availability of credit or profit margins. In fact, the impeachment chatter could even be a welcome distraction from the drag of the tariff talks.
Fundamentals are driven by people
It can make investors uneasy, but unless there is a dollar sign directly attached, the majority of political chatter doesn’t change the fundamentals of an investment market – cash flow, dividends, and capital structure. The market is balanced on top of the businesses that operate below. There are real people and products behind every business, like two guys delivering furniture in South Central Ohio, or the largest and most efficient investment firm located on the outskirts of Philadelphia.
I am thinking of Kirk’s Furniture in New Holland, Ohio and Vanguard Investments in Valley Forge, Pennsylvania. Brothers Bruce and Randy Kirk are fourth-generation owners. Kirk’s has eight employees and has been in business since 1913, except for a timeout during WWII. The markets pay attention to how businesses are doing at the microeconomic level, if they are expanding, or if there is profitability through all economic conditions. Investors may watch political developments, but ultimately they want to know how businesses like Kirk’s and Vanguard are doing. According to the broadest indicators, investment conditions in the United States look positive for the next year or two. The economic outlook for consumers is bright, too, with record low unemployment in all categories in all states.
An impeachment and follow-up acquittal has no direct impact on people’s day-to-day participation in the economy. We only have a sample size of one, 1998’s impeachment, but we don’t believe the fundamental drivers of the market would be impacted if that sample size doubled to two.
For those who are really interested in the news cycle and how truth and opinion change, I highly recommend Wait But Why. WBY echoes Lepore’s message that the United States is founded on, and practices, free speech (three billion people in the world lack this basic right).
Free speech is quite different from truth. Free speech guarantees a market for public information. The Founding Fathers believed all opinions had to be heard and that truth would eventually win. The keyword here is eventually. Eventually, we progress in this country. Sometimes it takes decades or even centuries, but we do progress.
The wise investor
With news alerts buzzing on our phones 20+ times per day and cable news on 24/7 in restaurants and offices, it may seem that the drama-du-jour permeates all facets of life. But the wise investor is patient, experienced, skeptical and fact-based. The wise investor keeps politics in perspective and emotions in check. We can help provide a buffer between the front page news and the fundamentals that really make a difference. If you would like to see how we manage money, we would be happy to share our process with you.
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