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Trump impeachment odds are climbing, JPMorgan hedging recommendations



Trump NYSEAP/Kathy

  • President Donald Trump’s odds for impeachment climbed
    after he was implicated in federal crimes by his former
    personal attorney Michael Cohen, according to
  • While JPMorgan thinks an outright impeachment scenario
    is unlikely, it says the process surrounding it could impact
    Trump’s actions, and have a major impact on markets.
  • The firm offers hedging recommendations for investors
    looking to protect their portfolios.

As President Donald Trump finds himself implicated in federal
crimes by his former lawyer Michael Cohen, his chances of
impeachment have surged — at least according to one source.

The odds that Trump will get impeached during his first term
climbed to 45% on Wednesday, the highest in three
months, according to data from PredictIt, the “stock market for politics
that allows users to bet on various goings-on in Washington.

Screen Shot 2018 08 23 at 8.00.02 AM

In an appearance on Fox News on
Wednesday, Trump was quick to dismiss the possibility of
impeachment, which could increase further if the 2018 midterm
elections see control of Congress returned to the Democrats.

He even went as far as to offer a stern warning — one
that should have investors everywhere feeling unsettled.

“If I ever got impeached, I think the market would crash,” he
told Ainsley Earhardt of Fox News. “I think everybody would be
very poor. Because without this thinking [points to head] you
would see, you would see numbers that you wouldn’t believe in

If it’s any consolation, JPMorgan is skeptical of an impeachment,
noting that Trump’s approval rating has remained largely
unchanged amid the increased pressure.

Further, the firm says it would be impossible to reverse the
fiscal stimulus — such as the unprecedented GOP tax law — that’s already been
implemented. And considering that’s been the biggest driver of
corporate earnings growth and, by extension, share gains this
year, US stocks should still hang tough.

However, JPMorgan thinks some areas of the global marketplace
could be thrown out of whack by the mere possibility of
impeachment — and the long, drawn-out process that’s historically
accompanied it.

The firm is watching Trump’s trade agenda particularly closely,
referring to it as the “main wildcard” in any impeachment

The way they see it, things could unfold in one of two ways:

  1. Trump relents on tariffs, which would spur a
    reversal rally in cheap, under-owned emerging-market (EM)
    assets that have gotten crushed in recent months
  2. Trump doubles down on tariffs, perhaps in
    an attempt to distract from domestic politics

The lingering possibility of the second outcome prevents JPMorgan
from recommending a broad overweight position on EM. The firm
says that, unfortunately, it’s not the “low-worry hedge to a
tortuous impeachment process.”

JPMorgan also notes that, in the unlikely event that Trump is
ousted, it’s unclear whether Vice President Mike Pence would
continue along the same confrontational path deeper into a trade

So what’s the ultimate hedge for a market maligned by so much
uncertainty? JPMorgan says “tactical insurance” can be best
achieved by owning reserve currencies like the Japanese yen and the euro.

The firm says you can’t go wrong with this approach, considering
“how consistently these perform during various types of US
political stress, and Japan/Europe’s low priority on President
Trump’s trade agenda,” John Normand, JPMorgan’s head of
cross-asset fundamental strategy, wrote in a client note.

“Although our FX strategists have been long JPY for several weeks
as a hedge on US-China trade conflict, reserve currency exposure
seems one worth considering even as the Fed cues up a September
rate hike, as US politics will probably become the dominant
market preoccupation after Labor Day,” Normand continued.

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