Washington Macro Commentaries

Ahead of the Curve ™

Trump Presidency in Historical Context

Aug 16 2017

Report by Chris Krueger.

 

10 data sets, 4 time-stamps, 6 Presidencies = historical context for current environment. Historical framework for investing in a Trump Administration outside hyper-partisan news cycle, crisis de jour, and Fall fiscal cliffs. Do not lose sight of policy forest for “failed” legislative trees; mosaic shows bigly change with skeleton crew and Judiciary component longest of policy tails.


Historical Benchmarks To Find Signals In The Noise


Four Key Takeaways from Data Sets:

  1. Regulation Rollback is Real. Federal Register data show an ~80% drop in economically significant regulations (defined as impact of over $100M) between 2016 and 2017 and an ~60% drop in the number of pages published in the Federal Register, which supports the “Animal Spirits” thesis. “Animal Spirits” was popularized by Keynes and is used in this post-election context to explain the consumer confidence boost from a new, pro-business, pro-growth, de-regulatory White House. The fact that the regulatory rollback has been done with a skeleton crew (down 56% from previous three Administrations’ average as of August Recess) suggests that this could continue to drop in meaningful fashion.
  2. Not Repeal-And-Replace, But More Legislation Than Perception. Expanding the Pew Research Index differential between substantive and ceremonial legislation in the first year of a Congressional session, the current Congress is behind schedule – but not as much as one might think given the hourly focus on the failures of ObamaCare repeal-and-replace. The data show that 44 “substantive” pieces of legislation have passed, which is 55% off of the yearly average since 1995 (98 substantive bills). That is obviously not strong, but it also does not account for September and all of Q4. If you compare the Obama Years, the yearly average was 73, which is achievable (40% decrease – not including remainder of year).
  3. Political Dysfunction Literally Off The Charts. Philadelphia Federal Reserve Partisan Conflict Index (PCI) data suggest PCI super spike this October and next fall around midterms. PCI has shown increased levels corresponding with uncertainty among households, slower economic activity, delayed business investment and consumer spending – which could well be triggered this October and next. Obama entered office (height of Hope and Change) at near-record low of 78.77 only to top-tick at 252 during October 2013 shutdown. Trump entered office at 239.87 – three times the Obama Inauguration PCI.
  4. Trump’s Judicial Vacancies Also Off The Charts. The judicial appointment vacancies inherited by Trump are remarkable. Keep in mind that Trump will be the first modern President to start office without a 60-vote threshold for judges – who have a lifetime appointment. Trump has been President for less than 250 days and already has the opportunity to nominate nearly as many judges as George H.W. Bush had in four years. This is a multi-generational legacy with judges who will decide the fate of many regulations and actions.


Three Conclusions:

  1. Lots of Noise, But Clear Signals. Fitting with the current political environment, contradictions in the data abound. There are some signals in the noise and the key guideposts include Presidential Job Approval and the PCI. Since nothing points in one direction and the signals are crossing, we have laid out what to watch within a historical context.
  2. 36% Could Be New 56%. We found the Philadelphia Federal Reserve’s PCI data – and very existence – fascinating. It says a lot that an institution responsible for analyzing quantitative data to set monetary policy is mining media and news sources for societal inputs. Their entire job is to figure out who much money should be in the system and they track political disagreement as reported in the media as a benchmark. Given the near-record low Trump approval and PCI data, the new ceilings could be the old floors: we are in a political Brave New World. Recall that Trump won the Presidency with a greater than 60% disapproval.
  3. Trump Approval Real Threat To House GOP Majority. The Presidential Job Approval data going back to Harry Truman is an extremely negative, flashing warning sign for the House GOP majority in midterms. What is particularly striking is that economic indicators (S&P, Unemployment, Treasury 10-Year) are in rarefied air, which suggests Trump Job Approval could take another leg down with any negative economic impact/news. IF the House flips, dust off the impeachment playbook (included) and say goodbye to any pro-growth legislation for 2019 and the duration of the impeachment process


The Signals

Ten data sets with four benchmark dates on overlay for six Administrations: Ronald Reagan, George H.W. Bush, Bill Clinton, George W. Bush, Barack Obama, and Donald Trump.

Benchmark Dates: 1) Election Day; 2) Inauguration Day; 3) August 1, and; 4) Midterm Election.

Data sets: 1) Partisan Conflict Index (Philadelphia Federal Reserve); 2) Presidential Approval Number; 3) Midterm Election Outcome; 4) Substantive Legislation Passed (Pew Research Index Expansion); 5) Regulation Enacted/Rollback; 6) Cabinet & Agency Approval/Confirmation; 7) S&P 500 Index; 8) Unemployment Number; 9) Treasury 10-Year Yield, and; 10) Special Prosecutor Time Frame.


Legislation: Focus Has Been on Failures, But More Getting Done Than Perceived

The calendar is not the Administration’s friend in September and October and a shutdown seems probable – though numerous “must pass” bills will eventually clear this year that will only increase these productivity numbers. The expectations game was lost long ago, though the data shows meaningful legislation has passed.


November Rain: Trump Job Approval & Midterm Effect

As the saying went in the GOP Primaries and the 2016 general election relative to approval ratings, Donald Trump had the highest floor and the lowest ceiling. If the 2017 PCI par is two-times – or even three-times – the “normal”, maybe a 36% presidential job approval is the new 55%. The House GOP better hope that 36% is at least the new 47%, because the the correlation of a Presidential approval number below 47% and the House flipping control is strong, to quite strong. The political question for the next 15 months is whether the Democrats can net at least 24 seats in the midterms and take control of the House of Representatives. Every historic metric from our data sets suggests that the House GOP majority is nearing a political dumpster fire next November given Trump’s approval rating. The Democrats need to net 24 House seats; there are 80 House Republicans in districts Trump received less than 55% – and 23 of those 80 are in districts Clinton won. So the Democrats have to figure out a way to win in Trump country to have any shot in a House that could well be too-gerrymandered-to-fail. Of the 435 districts, only 35 voted for a Congressman and President of different parties (~8% of the Congressional districts).

The Senate is the decided under-card as the Democrats have arguably the worst map since the direct elections of Senators over one-hundred years ago. A 52-48 GOP Senate with 10 Democrats running in states won by Trump with only two Republican Senators running for re-election in any electoral jeopardy – so the likely worst-case scenario for the GOP is a 50-50 majority with VP Mike Pence breaking the tie.

The Presidential Job Approval data strongly suggests a GOP House blowout next November, but the GOP has not lost a contested House race in the Trump era. Full stop.

The midterms are just shy of 450 days away.


Hard Market Data Points Hovering Below Prosecutorial Sword of Damocles

The market data sets over the past thirty years were not nearly the midterm, political predictor, or proof point we anticipated, though do serve as a historical goal post.

The opposite of hard market data is the prosecutorial sword of Damocles, which has impacted four of the past five Administrations.

Two things stand out when looking at the history of Special Prosecutors in our index: 1) time, and; 2) mission creep. Neither of these would seem to be positive for the Trump Administration.

Once a Special Prosecutor unsheathes the investigative sword it has never been placed back in the scabbard without blood. They also never seem to end anywhere near their starting point.

 

SHOT…

“Twice a day since the beginning of the Trump administration, a special folder is prepared for the president. The first document is prepared around 9:30 a.m. and the follow-up, around 4:30 p.m. Former Chief of Staff Reince Priebus and former Press Secretary Sean Spicer both wanted the privilege of delivering the 20-to-25-page packet to President Trump personally, White House sources say.  These sensitive papers, described to VICE News by three current and former White House officials, don’t contain top-secret intelligence or updates on legislative initiatives. Instead, the folders are filled with screenshots of positive cable news chyrons (those lower-third headlines and crawls), admiring tweets, transcripts of fawning TV interviews, praise-filled news stories, and sometimes just pictures of Trump on TV looking powerful.”

–VICE article “Trump Gets A Folder Full Of Positive News About Himself Twice a Day: It’s Known as the ‘Propaganda Document'” from August 8, 2017

 

…CHASER

“These are the new leads. These are the Glengarry leads. And to you they’re gold, and you don’t get them. Why? Because to give them to you is just throwing them away. They’re for closers. I’d wish you good luck but you wouldn’t know what to do with it if you got it. And to answer your question, pal, why am I here? I came here because Mitch and Murray asked me to. They asked me for a favor. I said the real favor, follow my advice and fire you…because a loser is a loser.”

–Blake, as played by Alec Baldwin, in Glengarry Glen Ross

 

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