By Rick Pitcairn, CFA®, Chief Investment Officer
May 23, 2017 – Much has been made of the unpredictability of Donald Trump’s Presidency and its potential impacts on the markets. Nothing that happened last week is likely to quell those conversations. I happened to be in Washington for a three-day conference last week as unexpected news seemed to be breaking by the hour. As I met with both Democrats and Republicans in Washington including Paul Ryan, John Delaney, Rand Paul, and Jeb Bush, I could sense the feelings of chaos, drama, exhaustion, and uncertainty that are permeating the capital at the moment.
First, there was the news of the possible conveyance of classified information to Russian diplomats by the President. Then came news that former FBI Director James Comey had potentially damaging notes regarding conversations he had with President Trump. Finally, the week was capped off by the appointment of former FBI Director Robert Mueller as a special counsel to investigate ties between Russia and Trump associates during the election.
As all of this news swirled around me in real-time, it became apparent that while uncertainty may become a hallmark of this administration, there is one thing about this Presidency that has become a bit more predictable. Mainly, that it will be very difficult to move substantive policy forward in the current environment. Daily drama pushes back progress as Congress is asked about their opinions on the happenings in the White House rather than a timetable for working on issues such as tax and healthcare reform.
While some feel this dysfunction is due to a concerted effort by the left and establishment Washington to undermine the administration and others feel it is solely due to the administration’s own inexperience and ineptness, there seems to be plenty of truth in both sides of that argument. But everyone seems to agree it will make an agenda more difficult to move forward.
Aside from the politics of the moment, the other significant topic of discussion amongst the investment types at the conference I was at was about the record low level of volatility in the capital markets against the backdrop of significant political and event risk. Some thinkers believed that this was a divergence that would certainly be rectified by an increase in volatility and saw that as a market opportunity. Others saw the phenomenon as more structural in nature pointing to the increases in ETF and indexation abnormally skewing the index downward. Either way the measure is unnaturally low right now. It jumped up the last day I was there proving the statement we have been making for some time that “Trump is not a low volatility President.”
The bottom line from meeting face-to-face with various congressmen is that while they are indeed thoughtful and competent, they are working in an unbelievably challenging environment. That’s why I would “bet the under” on significant legislative achievement this year. While the President came in promising to drain the swamp, he runs the risk of only being a drain on the swamp, not accomplishing much of anything if the current trends continue. As disheartening as that may sound, bear in mind that expectations for this congress and this administration to achieve anything are exceptionally low, so any progress at all may be taken well by the market.