In case you haven't noticed, the market has a very hard time incorporating the impeachment of a sitting president. I know many of you are probably astonished at what you may think is the cavalier way the averages plow higher despite the horrific headlines and a level of discord and rancor seemingly rivaled only by the lead up to the Civil War, or the War Between the States, depending upon your geographic orientation back then.
So why doesn't it matter more?
Let's count the ways.
First, impeaching a sitting president isn't as novel as it would seem. Twenty years ago the Republicans impeached President Clinton. I remember that to be a much scarier time than this one because it came not that long after President Nixon was impeached and resigned, and two, because you could not be sure that the Democrats who controlled the Senate would all, in unison, find the president innocent of crimes that it sure seemed like he had committed.
As it turns out the Democrats didn't break ranks and the president was found innocent.
One thing that I find quite helpful in explaining why we could have such a strong rally right into the proceedings is that president will most likely be found innocent in the Senate given that you need a supermajority of two-thirds of the Senate to convict and right now you have 53 Republicans who seem prepared to vote innocent.
We know it's not a nothing burger, it's an impeachment proceeding for heaven's sake and those don't grow on trees.
But when you compare this to the Clinton debacle this seems tame when it comes to drama, lame when it comes to outcome. The crimes Clinton was charged with were obvious and criminal. He was accused of "lying about sex under oath and obstructing a sexual harassment lawsuit," to quote the New York Times. There were plenty of Democrats who blasted the president and 31 House Democrats voted with the Republican majority to impeach. There were some scary headcounts. Again, according to the New York Times, at one point the House Democratic leadership identified 100 Dems who could vote to impeach and there were thought to be as many as a dozen senators who could vote to convict. In other words some of the proceedings were political but there were plenty of Democrats who were appalled by the president's behavior.
That's why I believe the averages did get hit during the trial of a popular president who presided over an economic boom. The Dow Jones average lost 2.7%, the S&P dropped 3% and the Nasdaq only dropped .18%. Still it was a bountiful period. The averages actually gained from the date of the House vote to the conclusion of the Senate trial with the Dow rallying 3.18%, the S&P 500 plus 2.2% and the Nasdaq zooming 8.5%.
Now consider this: despite the genuine concern that Clinton would be found guilty of lying about the sex crime - something that pretty much everyone accepted to be the case - the averages rolled on right through the whole process with the Dow jumping 21%, the S& P bolting 26% and the Nasdaq soaring 56% from the opening of the impeachment inquiry to the conclusion of the Senate Trial.
So let's just say you have history on your side. In fact the trial itself, which began January 7, 1999, lasted just over a month. The averages rocked higher the rest of the year, ultimately finishing up 25% for the Dow, 19% for the S&P 500 and 85% for the Nasdaq. Buy, buy, buy.
A second reason why it doesn't matter? Because while the headlines dominate the front page, they don't even make it to the business pages. Why should they? I have an old dictum that I used to always say at my old hedge fund. When someone would bring up something that sounded daunting, ripped from the headlines, but had nothing to do with business I would say, "what the heck does that matter to price to earnings ratio of Bristol-Myers."
Now if you read my book "Confessions of a Street Addict", you will know what a contemptuous autocrat I really was. I can't use the real words I would use to describe myself.
But the dictum rings true now as it did then. The stock of Bristol-Myers (BMY) , which is a quintessential blue chip, is determined by what you will pay for its future earnings stream. Whatever sex Clinton had with Monica Lewinsky, whatever lies he told about it, whatever votes were taken in the House and Senate had nothing to do with what you would pay - the price to earnings multiple - for that future stream of profits.
Now the difficulty for you is that there is always some yapper, some gasbag, who tries to say that it should play a role, like it can be something akin to inflation, or GDP growth, or federal funds. But the simple fact is that it doesn't.
I would say that this is a case where it is harder this time than it was with Clinton because the Democrats are so vociferous in their hatred of Trump, and the mainstream media wants him out so bad, that there is a shroud of gloom emanating from Washington that is far worse than it was back then. But we have a more robust economy and interest rates that are about half of what they were back then so it's a real bad analogy.
So forgive me if I emphasize it again, but the impeachment and trial of President Trump has nothing to do with the price to earnings ratio of Bristol-Myers or any other stock for that matter.
Finally, you have the argument I have continually come back to for ages: what the heck else are you supposed to do with your money? Are you going to call your broker and say you want to switch out of stocks into something that yields almost nothing because President Trump is not going to be convicted in the Senate? Do you want to incur capital gains taxes because of something that doesn't happen in the Capitol ?
Now if you keep reading later on I will contrast what roared back then versus what could rock right now because my mantra is there is always a bull market somewhere and there were a ton of them then and there are a bunch now.