“Brexit as last” will trigger a relief rally even if there is a hung Parliament

Outlook:

Today could be a game-changer for the beleaguered dollar if price moves validate the reversal. First,

Trump and trade advisors are going to meet to consider the Dec 15 tariffs. A postponement is as good as a deal (and more likely) in terms of reducing anxiety. All this chitter-chatter is unTrumpian so it's perhaps tactics.

Second, the UK is holding the general election, with Boris the likely winner but whether he gets a hung Parliament not known. Conventional wisdom has it we get a sterling rally if he wins and gets a ruling majority, while getting a hung Parliament means a drop in the pound. A clever WSJ headline writer recently noted that whoever wins, the state will become a big spender. So, sterling should fall on either "sell the news" or "bad news" (election) and in expectation of giant fiscal deficits either way.

We don't buy the vulnerability of sterling to the election outcome, except for the immediate response. That's because "Brexit as last" will trigger a relief rally even if there is a hung Parliament. Brexit has been torturing the world since June 2016 and dragged the pound down too far. Just getting it over with, on any terms, is a Good Thing. Polls close at 11 pm UK time, or about 6 pm on the US east coast, with finals in the middle of the night. The BBC reports it will hold exit polls (with ITV and Sky) with results starting at midnight GMT. The poll is conducted at 144 polling stations and in recent years has been accurate in predicting outcomes, including the 2017 hung Parliament election that sealed May's fate.

And new ECB chief Lagarde holds her first formal policy meeting. Aside from the inevitable misogyny. Lagarde should emerge victorious. She knows how to run a meeting of fractious men and she has excellent speaking skills. Still, we will miss the charming Draghi and his charming accent and deft management of the press conference, but you can bet many eyes will be glued to the TV today to watch Lagarde speak and deal with the press. The consensus is that Lagarde will start slow and we will not get any new policy ideas today. We are not so sure. She will likely be cautious, but may well express support for Draghi's parting advice—get on the fiscal bandwagon, monetary policy has done all it can. This is not what is driving the euro up right now, but has potential.

Bottom line, we can't figure out the yen but sterling and the euro seem poised for an authentic reversal, following along in the wake of some others, especially the AUD but also a couple of the emerging markets.

Tidbit: A Reader sent us this splendid table with the notation "This will be the first decade in modern economic history (since 1850) that the US won't experience a single recession." Watch the Orange Menace try to take credit for it. We have no idea what the table means, but one thing it may imply is that the heavily criticized Fed is not as cack-handed as it stands accused of. Or maybe that the economy is so robust the Fed can't hurt it. Or how about "it's different this time"? Some say it only means the crash, when it comes, will be that much worse. What you think about this little statistic may reveal something about your psyche, not to get too ‘60's about it.

US Politics: First, the House will vote on the articles of impeachment today. Trump is only the third US president to be impeached—Nixon resigned before the vote—so it's a historic moment.

Second, the Attorney General is coming under withering fire for saying the Inspector General's report on the proper conduct of the FBI is not right, or complete, or something. He backs the Trump claim of a "deep state conspiracy" against him, even to the point of saying the FBI is part of the deep state and politically biased. In a hearing, the Inspector General agreed happily to a new law that would allow him to investigate the Attorney General. This would be funny if it were not so screwed up.

Amid the impeachment and Justice Dept squabbles, a court ruling. Trump is enjoined from violating the separation of powers clause in the Constitution by diverting Defense Dept money to the Wall. A federal judge in Texas issued an injunction saying Trump cannot use $3.6 billion Congress passed for 127 military construction projects for the Wall instead, but rather only the $1.375 billion approved by Congress for the wall during the 2019 budget year. The Justice Dept plans to appeal, but it seems clear to Constitutionalists that when Congress earmarks money, it should be used for the named purpose.

Alas, the Supreme Court has already ruled that Trump can indeed move the military money to the wall project, so this ruling might not survive, either. The older ruling found it was the Secy of Defense who overstepped, not the president with his "emergency" powers.

We care about stuff like this because Trump refusing to release documents or allow anyone to testify is the basis of one impeachment charge, contempt of Congress. Granted, many members of Congress are dolts and fools, as is and always has been the case, but they were elected by the people and supposedly have the power of the purse—specifically, deliberately, because the founders knew presidents could be selfish jackasses. The real question is whether the Senators, now ignoring evidence and supporting Trump no matter what, can stomach his usurping their one decent power. For impeachment to succeed and lead to removal, twenty senators have to switch sides and go with the Dems. There are, at most, nine who might jump but nobody is forecasting than any will. None.

Brewing on the back burner is yet another adjacent story. The Uki-Ami Lev Parnas arrested at the Washington airport with a one-way ticket to Vienna has now been deemed a flight risk and the NY federal prosecutor wants to revoke parole—after finding out the guy had received a $1 wire transfer million from Russia plus several hundreds of thousands of dollars from a Russia-associated Ukrainian oligarch. Remember, Parnas says he works for Guiliani, Trump's personal attorney. Trump is not paying Guiliani, who is working pro bono, but maybe this Russian money is where he is getting airfare and living expenses for his investigation and documentary movie in Ukraine. It's hard to imagine a second Trump lawyer going to jail for following Trump's orders while Trump himself escapes.

Finally, a court request has gone out seeking the transcripts of other Trump phone calls to other world leaders. We don't really think Ukraine's Zelinsky is the only foreign leader pressured in a phone call, do we? We already have a clue from a UK journalist that Trump asked Putin how to deal with Kim Jong Un. Yikes! What is the content of Trump's phone calls to and from Putin? Alas, if the transcripts get released someday, it will be long after the current impeachment process is done, but it might come in time to discredit him before the Nov 2020 election.

 

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