August 2018 Commentary

  • Cohen and Manafort in Court: Trump’s former lawyer, Michael Cohen, admitted in court on August 21st that he had been directed by “a candidate for federal office” to arrange payments to two women during the 2016 campaign in order to dissuade them from speaking out about their affairs with the candidate. Moreover, Cohen pleaded guilty to a total of 8 criminal counts which included 5 counts of tax evasion, 1 count of making false statements to a financial institution, 1 count of willfully causing an unlawful corporate contribution, and 1 count of making an excessive campaign contribution at the request of a candidate. For background, Cohen worked for Trump between 2006 and 2017, and had even served as an executive of the Trump Organization in 2011. On that same day, Trump’s former Campaign Chairman, Paul Manafort, was convicted on 8 charges stemming directly from special counsel Robert Mueller’s investigation. The charges included five counts of tax fraud, two counts of bank fraud, and one count of failing to disclose a hidden foreign bank account. However, the jury could not come to an agreement on 10 additional counts of bank fraud and reporting violations, and U.S. District Judge T.S. Ellis declared a mistrial on those counts. For background, Manafort was an advisor to the presidential campaigns of Ford, Reagan, Bush, and Dole, and had joined the Trump campaign between March 2016 and August 2016. Furthermore, he co-founded the Washington D.C. based lobbying firm Black, Manafort & Stone (Stone is another point of interest in the Mueller investigation) and had lobbied for the former President of Ukraine Viktor Yanukovych, as well as the former dictator of the Philippines Ferdinand Marcos.

    • Our Takeaways: While news pundits, comedians, and amateur legal analysts on social media are quick to speculate on what all of this means for the president, it’s important to remember that, although the president has now been implicated in a federal crime, the Justice Department has taken the position that the president is not subject to indictment while in office and that no criminal charges can proceed against him unless the president has either been impeached or served out their term. If anything, what these cases and the latest plea deals point to is that Mueller’s team is conducting a thorough investigation of Russian interference in the 2016 presidential election, obstruction of justice, and fringe matters that are discovered during the investigative process. Once the special counsel has completed the investigation to the fullest extent possible and the report is released, it will be up to the House of Representatives and the Senate to decide if the president will be impeached. In order to avoid unnecessary controversy related to potentially influencing an election, we currently believe that Mueller and his team will wait until after the November midterm elections to release their report. With that said, we also believe that upon the release of Mueller’s report, markets will experience bouts of short-term volatility with the major indexes experiencing a decline.

  • The Kavanaugh Conundrum: As we had covered earlier this year, Trump personally interviewed and nominated Judge Brett Kavanaugh to fill Justice Anthony Kennedy’s Supreme Court seat. Kavanaugh was a United States Circuit Judge of the United States Court of Appeals for the District of Columbia Circuit, was the White House Staff Secretary under the Bush administration, worked as an Associate Counsel in the Office of the Independent Counsel under Kenneth Starr, and had even clerked for Justice Kennedy earlier in their careers. However, what is usually a quick, procedural process has now become a mini political melodrama. The Senate Judiciary Committee’s republican and democratic members are at odds since committee democrats are attempting to delay the committee’s vote on Kavanaugh’s nomination until they can access documents from his time in the Bush administration (withheld under executive privilege) and interview additional witnesses. This comes after Kavanugh has reportedly given 30 hours of testimony, addressed over 2,000 questions (publically and in confidential sessions), and had more than 60 meetings with senators from either party.

    • Our Takeaways: Given that this nomination and confirmation process has the ability to influence the Supreme Court’s ideology for decades, it is understandable that committee democrats want to be as through as possible during the vetting process. Meanwhile, it is also equally understandable that committee republicans want to push through to the vote and secure his confirmation since having another conservative in the Supreme Court could assist the party’s agenda for decades. To reiterate from previous coverage, Kavanaugh will likely be confirmed and become a key component in advancing the Trump administration’s push for loosened regulatory oversight among industries.

  • Trade Wars with Friends & Foes: Throughout August, the U.S. has found itself waging trade wars on three fronts: 1) the highly contentious North American Free Trade Agreement (NAFTA) negotiations, 2) the aggressive tariff threats against automakers and other manufacturers in the European Union, and 3) the ever evolving, multifaceted battle with Beijing.

    • Our Takeaways on NAFTA: Mexico has indicated that if Canada and the U.S. cannot come to terms, they will be ready to abandon the pursuit of a trilateral deal and would be willing to negotiate a bilateral deal with the U.S. instead. At the moment, the main points of contention include U.S. access to the Canadian dairy market (Canada has imposed tariffs on imported American milk), the removal of NAFTA’s Chapter 19 (a provision that establishes a method for companies to appeal trade disputes through an independent panel consisting of representatives from each country – Trump wants the provision removed), and the retention of cultural exemptions (these exemptions would allow Canadian media and arts to be treated differently from commercial goods – Trudeau wants to retain the exemptions).

    • Our Takeaways on the European Union: The economic pressure within the region is mounting as companies are beginning to experience higher prices, supply chain disruptions, and declining exports. Keep in mind that the EU is already facing a plethora of economic hurdles as Britain continues the withdrawal process for Brexit, Greek and Italian debt continues to pull against neighboring economies, countries along the Mediterranean continue to see an inflow of refugees from North Africa and the Middle East, and member states continue to experience side effects of the trade dispute between the U.S. and China. While American tariffs on European steel and aluminum imports remain in effect, Trump has been turning up the heat even more with threats of a potential 20% to 25% tariff on autos imported from the EU.

    • Our Takeaways on Beijing: Markets have been able to remain more resilient than anticipated and reach new highs as the two global superpowers go toe-to-toe. For many investors, it appears that any negative news stemming from Trump’s bare-knuckled approach to trade negotiations is seen as strategic cost of doing business while any slightly positive news is viewed as legitimate progress towards a trade deal. Adding to the approximately $50 billion in tariffs already in place, Trump has instructed aides to move forward with imposing tariffs on $200 billion worth of Chinese products (as he had threatened last month) and is now threatening to impose tariffs on another $267 billion worth of Chinese imports. Understandably, China is expected to again retaliate with an equal array of tariffs on American imports. In the long-term, what all of this means is that Beijing’s “Made in China 2025” program (an initiative to foster growth within biotechnology, artificial intelligence, and autonomous vehicle production) will be inhibited, U.S. businesses will struggle to gain access to Chinese markets, and prices for consumer goods within the two nations would likely rise.


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