source: http://rall.com/comic/trump-controversy

Summer has officially drawn to a close putting a lid on one of the most bizarre three months in U.S. history. With so much activity in D.C., I am highlighting the key events though I am sure to have excluded others just as bizarre or galling.

Domestically, Congress has failed to pass any major legislation despite Republican control of both chambers and the White House. Republicans did pull together to present several bills to replace Obamacare but none provided a feasible solution, just options that, if passed, would strip healthcare coverage from tens of millions of Americans. The final round played out with John McCain, after undergoing blood clot surgery (the clot being discovered during routine care covered by his health insurance), flying back to Washington to vote in favor of moving a Senate bill forward and then, just a day later, casting the decisive vote to kill that same legislation. Trump’s response has been to strip out the insurance payments under Obamacare, threatening the viability of the exchanges while presumably hoping that the public blames someone else for the carnage.

Internationally, the White House has accelerated ten years of global decline into a single season. Key trade agreements are being dismantled, stripped or threatened in every economic zone creating uncertainty amongst our key trade partners who have responded by aggressively forming alternative trade arrangements with China and others. Trump’s conduct during his European tour continues to make the United States government look incompetent, exemplified by Trump’s holding private one-on-one meetings with Putin without, at minimum, a U.S. translator present.

If trade loss was not enough, we have somehow entered nuclear brinksmanship with one of the world’s poorest nations and no viable way to counter their aggression without the massive loss of life. From a broader perspective, China has 90% of North Korea’s trade and full ability to put a stop to the Hermit Kingdom’s aggression. While I am not a policy expert in the region, it appears that China might be using North Korea to test how far one can push the Trump administration in anticipation of the trade war that he threatened to start with China.

Inside Washington, the White House staff are ineffective and struggling from eight months of disarray. Firings have been aplenty and the the few adults left in charge are ready to walk away. With such turnover in the executive branch, Trump’s varied responses to the incident in Charlottesville highlight the biggest risk to the markets. His Economic Advisor Gary Cohn, a Jew and strong supporter of Jewish causes, was deeply offended by Trump’s comments and nearly resigned. If Mr. Cohn does resign, the markets will view it as the loss of the last bit of hope for market friendly and timely policies. In short, the loss of Mr. Cohn would be the final straw for stocks.

Finally, lest we forgot, the Meuller investigation went into full swing this summer. The home of Trump’s former campaign manager, Paul Manafort, was raided in July and Meuller has now teamed up with the New York Attorney General to pursue allegations of money laundering against Manafort. Keep in mind that Presidential pardons only work at the federal level, opening the possibility that Manafort might testify against the Trump campaign in a plea deal. The phrase that best sums up the White House’s preparations against Meuller’s all-star team of prosecutors came from Nicholas Allard, Dean of the Brooklyn Law School, “is like going to a knife fight with a stick of butter in your hand.” [Bloomberg, August 10, 2017]

In stark contrast to what is happening at the seat of our government, the market’s response to this summer was almost blissful: a small rise of 2.6% in U.S. equities with continued low volatility. We had a couple of spikes in the volatility coupled with market dips, but nothing materialized to keep the markets down. One theory to explain the market’s stability is that as long as there is substantial quantitative easing somewhere in the globe stocks will go up (European Central Bank is the current source of money printing). But with September being a historically volatile month and the potential for surprise events from all corners of the White House and the world, that theory will be strongly tested in the coming weeks.