Height Securities: Investors Should Start Considering "Drama Free President Mike Pence"

Even before the Comey memo news broke after the close on Tuesday, Height Securities' Peter Cohn was already ahead of the curve, warning what key catalysts to look for should the push for Trump impeachment accelerate. Specifically, he said that while Democrats were guaranteed to push for impeachment, they are mostly noise as any credible move to impeach the president would have to start within the Republican party. As such Trump's conduct "raises questions for investors about whether senior Republicans will abandon ship."

Cohn also said that the bigest question was who, if anyone, would be the first Republican to push for removing the president, with the name cited name being that of John McCain:

Cutting to the chase, Cohn writes that ending Trump’s viability as president "depends on Republicans turning against him", as impeachment proceedings can only begin with the majority party, and the 25th Amendment (allowing for president’s removal when unable to discharge powers/duties of his office) can only be invoked by Congress and/or vice president, majority of Cabinet.


What will Height be closely watching to see if the Trump drama enters a potentially terminal phase: the main catalyst is whether Sen. John McCain, chairman of Armed Services Committee, begins calling for Trump’s resignation, as U.S. national security issues may increase concern among Republican voters.


Cohn also says to closely watch other senators for even a faint trace of statements and speeches that can be parsed for any signs of throwing Trump "under the bus" as these will be a trial balloon for group sentiment toward Trump.

One day later, things are moving fast, with not only Democrats now openly calling for impeachment, but even GOP Rep. Justin Amash stating that if the Comey memo report is true, it would merit impeachment.

So what does Height's Cohn thing today? In a note released this morning, the political analyst notes that "investors seem to be initially reacting poorly to the prospect of Trump’s ouster from the Oval Office", however he takes the "impeachment thought experiment" to its logical conclusion and says that investors "should consider that drama-free Vice President Mike Pence would assume position with strong working relationships on Capitol Hill, knowledge of political process from years in House and as Indiana Governor."

He adds that "having a president with more political capital to spend, higher approval ratings may mean more gets done legislatively" and concludes that "investors may question whether White House’s 'constant atmosphere of craziness' is worth taking a few extra months to get tax reform done."

In other words, at least one analyst has already moved on beyong president Trump, and now envisions (a much more market friendly) president Pence. There is, of course,  the social element: how will US society, and especially Trump's voters react to an impeachment. Cohn did not go into that much detail as the answer may be too troubling to contemplate.

And while Height Securities appears to have thrown in the towel on president Pence, here is how some other political analysts have reacted to events over the past 24 hours, courtesy of Bloomberg.

COMPASS POINT (Isaac Boltansky)

  • Trump Trade optimism was already tempering as market became reacquainted with "painfully slow" legislative process, but now market is forced to consider what valuations should look like if agenda doesn’t materialize
  • Client questions have shifted since last night to considerations of special prosecutors, impacts on nominations, even impeachment; too early to fully contour issue’s legal/political impact
  • Also too early to throw in the towel on tax cuts before the midterms, but Compass Point is concerned there may be meaningful market reaction if headlines persist, House Ways & Means Committee fails to show "some semblance of policy cohesion" during upcoming hearings


  • Any talk of impeachment will remain "just talk" as long as GOP keeps control of House, adding that even if Democrats gained control in 2018, Senate would still need to convict president by at least two-thirds majority
  • Real focus for investors should not be on whether the president will survive, but to what extent his agenda will survive
  • Still optimistic congressional Republicans will deliver healthcare and tax reform legislation, though the more internal chaos West Wing faces, the more difficult it will be for Trump administration to execute on agenda items and fill still-vacant agency positions


  • If this throws a wrench into implementation of reflationary, pro-growth policies like infrastructure spending, tax reform, and financial deregulation -- how is it then, that reflation narrative (which was based on swift implementation of such policies), isn’t being rebuffed?
  • Notes 5-year, 10-year break evens show how quickly inflation has stalled
  • Inflation in 2H 2016, early 2017 was synchronized and global, and it came largely from supply curtailments in oil and industrial commodities; now that supply has largely normalized for demand environment, prices are unlikely to rise further

FTN (Jim Vogel)

  • Financial markets sit in "squirming mode" rather than anything resembling real concern when it comes to daily DC news bulletins
  • Just like Trump trade’s first leg, economic scenarios hinge on series of future political decisions that traders can speculate about, but only with limited conviction; for example, implications of sacking FBI director are akin to current tax reform plan: ideas on a single sheet of paper
  • Washington is impacting global price levels -- just not driving them in a particular direction yet; lack of a driver is particularly important to interest rates this month, because bonds and currencies have been most sensitive to potential for federal policy shifts toward gridlock; that sensitivity has been in only one direction, a "vulnerable trend," while Fed can always decide to go "uber-hawk" to prevent greater danger

KBW (Brian Gardner)

  • So far, financial markets had seemed to dismiss drama in Washington as just political noise; that may be ending as post- election rally had been supported by faith in Trump’s tax- cutting, deregulating agenda -- which is now in "mortal danger"
  • Latest crisis further decreases chances of passing financial regulation legislation that makes changes with bipartisan support, like raising bank $50b SIFI threshold; tax reform likely to be more limited than earlier proposals


  • The market has been priced under the assumption Trump will get his proposals enacted and it might just take a bit longer than first thought, so if it appears that policy changes might be delayed significantly or not happen at all, that would need to be factored in

Source: Bloomberg