How the Impeachment Inquiry is Dangerous for the Market

Impeachment is on every trader’s mind these days after the House of Representatives last week began investigating President Trump’s actions related to a phone call with Ukraine’s President, during which he stands accused of pressuring the Ukranian President to investigate his political rival, former Vice President Joe Biden.

Now, my mission here in 10-Minute Millionaire is to show you how to be a successful trader, so you can live your life freely and securely. Politics are only useful to me if news from that arena has potential impact on the markets.

Other than that, it’s a distraction from our mission.

But the impeachment process now starting is not just a political issue. Traders need to pay attention as well, as the implications for markets could be substantial.

And that means it could have serious implications for your investments…

First, Let’s Cover the Basics…

 
Federal impeachment is a rare process here in the United States, with only 19 federal officials having been impeached since 1789. So it’s no wonder that many people are unclear on what exactly impeachment is, and how it works. Indeed, I’ve seen some mistaken claims flying around about when exactly someone counts as being “impeached.”

So before we proceed, let’s get clear on what exactly “impeachment” means, and how it works.

Impeachment in the United States is the process by which Congress removes a sitting President, Vice President, or other high federal officials from their position. The process is outlined in the Constitution, and is meant to be undertaken in response to “Treason, Bribery, or other high Crimes and Misdemeanors.”

The process that must be followed is quite simple. It roughly follows the three steps of a criminal trial that we’re all familiar with from crime shows on TV or in books: a suspect is first investigated, then charged with one or more crimes, and then tried in court.

The first step, investigation, is what is happening right now in Congress. Either the House of Representatives or the Senate can do this. In some cases, as with Kenneth Starr, who lead the investigation against then-President Bill Clinton, most of this investigation happens outside Congress.

For the impeachment process to move forward, the House of Representatives must pass “articles of impeachment” in response to the investigation. These articles are a list of allegations against a specific federal official, somewhat akin to a list of charges in a criminal court – although impeachment is neither a judicial or criminal process.

Articles of impeachment require a simple majority vote to pass the House. If they pass, the official is said to have been impeached. Only two sitting presidents have been impeached – Presidents Bill Clinton and Andrew Johnson.

As I’m writing this, several House committees are preparing articles of impeachment against President Trump, but the House has not yet passed them. So President Trump has not “been impeached.”

President Richard Nixon is a useful example to consider here, as we’re close to the stage of the impeachment process where he resigned from office. In the last three days of July, 1974, the House Judiciary Committee voted to send three articles of impeachment to the House, recommending they be passed. Before the House could vote to impeach him, Nixon resigned.

The impeachment process was ended, as he was no longer in federal office.

Now, just as articles of impeachment are similar to a list of charges, being impeached is a bit like being charged with a crime. It’s only the beginning of the story. The matter must then be settled in court.

In the impeachment process, that court is the Senate.

And in the Senate, the rules are a bit different…

How an Impeachment Would Play Out

 
When a federal official is impeached by the House, the Constitution requires the Senate to convene under oath to try the charges. The Senate is the only body that gets to decide whether an impeached person is to be cleared or convicted. It also gets to set the rules for exactly how this trial is to be held itself, with two exceptions.

First, the Constitution requires that the Chief Justice of the Supreme Court preside over the Senate’s trial if a President has been impeached.

For all other impeachment proceedings, the Senate decides who presides. Usually, it is the President of the Senate, a position held by the sitting Vice President of the United States.

Second, the Constitution also says that to convict someone, the two-third of Senators must vote to do so. Any less than that, and the person is acquitted.

During the impeachment of President Clinton. The House passed two articles of impeachment, for perjury and for obstruction of justice, against him on December 19, 1998. Two other charges did not get a majority of the vote, and so did not pass on to the Senate.

The Senate began its trial soon after, on January 7, 1999. Then-Chief Justice William Rehnquist presided. After a month of testimony, the Senate voted to deliberate behind closed doors, and after less than a week, announced its verdict.

On the charge of perjury, 45 Senators voted to convict, 55 to acquit. On the charge of obstruction of justice, the vote was split 50/50.

Because neither vote reached the two-thirds majority the Constitution requires when the Senate tries an impeached official, President Clinton was acquitted.

Something similar happened to President Andrew Johnson. He was also impeached, meaning the House passed articles of impeachment against him, but the Senate vote to convict him was short by just one vote.

Now, it’s also important to note that the only “punishment” that comes from being convicted by the Senate during an impeachment trial is removal from office. The Senate cannot sentence people to prison time, fines, and so on.

The Senate can, however, hold another vote to see whether the person they just convicted should be barred from holding federal office ever again. This vote requires a simple majority of votes, not two-thirds like the conviction does.

As you can see, the rules governing the process are quite simple. But it’s a time-consuming process, and whenever it happens, it quickly captures the attention of the nation.

That’s why it’s so important to markets…

Distraction and Uncertainty Could Derail the Market

 
There are two main ways in which President Donald Trump being impeached could impact the markets. First, the months-long process of impeachment – from investigation through a House-vote to impeach, potentially ending at a Senate trial – would distract the White House and the President from trade negotiations.

As we’ve seen all year, the trade dispute with China continues to be the largest storm cloud looming over the markets. With an impeachment pending, progress would be slower or even grind to a halt.

But more importantly, it could change the narrative. I’ve talked about the importance of market narratives here in 10-Minute Millionaire before.

And for almost three years, the market has been rising on what I call the “Trump growth” narrative. This is the belief that Trump, his policies, and his actions are good for the economy and for U.S. companies, which, overall, keeps traders optimistic.

This optimism has been driving stock market gains since the president’s election.

But a months-long impeachment process would distract from that, and introduce the market’s least favorite thing – uncertainty.

Uncertainty about whether Trump will be in office or not, uncertainty about what trade negotiations and economic policy will look like, uncertainty about what’s next.

That could cause a stagnant market, or one that drops precipitously if the China negotiating team decides to take a “wait and see” approach and withdraws from or minimizes negotiating activtives in the hope of getting someone less severe with whom to negotiate a trade deal.

Recognizing the shift in narrative and adjusting our trading strategy will be key in that scenario – and I’ll be right here doing that for you and with you.

Great trading and God bless you,

 

D.R. Barton, Jr.

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