Battle Lines Being Drawn; An Overall Slowdown
The current administration has a vision for how he believes the country should conduct itself domestically and internationally. Conversely, many Democrats believe that Mr. Trump is unfit for office and will do everything to impede actions of the current administration. The fight for Justice Kavanaugh’s Supreme Court appointment and the Border Wall fight are the latest examples. A major challenge for the Democratic party will be selecting a presidential candidate who has a chance of winning versus staying true to the cause. Complicating matters is the move left of many party influencers such as “AOC” (i.e., Alexandria Ocasio Cortez) who is pushing for a 70% marginal tax rate, Medicaid for all, and guaranteed incomes and possible independents such as Starbucks founder Howard Schultz. The major fear of leading Democrats is that a run by Mr. Schultz as an independent will split usual Democratic party voters and ensure another four years for Mr. Trump.
Our view is that it will take time for the conflicting views to be worked out and that in the meantime, the country will remain divided. For variety of reasons, we expect a more tepid period of growth over the next year. Listed below are some of the major items impacting credit quality.
Washington Freeze – the sub-freezing weather in Washington this past week is matched by the freeze in cooperation between the administration and Democratic leaders. It appears as though both parties are looking toward 2020 and attempting to gain an advantage. Even with the government reopened, it is likely to remain paralyzed as the House of Representatives is unlikely to pass any substantial legislation the White House wants, and the White House is unlikely to sign anything the House of Representatives passes. The Mueller investigation will continue but the report is unlikely to change much. Likewise, while some presidential hopefuls will talk of impeachment, given the disaster the Republicans faced post President Clinton’s impeachment, Nancy Pelosi is unlikely to allow it to happen. Hence, by default, the current administration is likely to focus on those areas where congressional support is not needed and gearing up for the 2020 campaign. The major item in 2019 and 2020 will be the extent to which the Democratic party will move to the left and like the Tea Party movement of the Republicans several years ago, whether it will undermine mainstream support. EJR’s Commentary – Inaction in Washington is not necessarily a bad thing. However, the power of Washington is immense and needs to be monitored. Democrats are searching for a lever to make Trump ineffective and Mr. Trump is continuing his pugilistic approach.
China Reset – unlike prior administrations, Mr. Trump is attempting to reset the US’s relationship with China and in the process is triggering major angst. The current administration