Analysis | The Finance 202: Trump’s economic message is buried under impeachment news. It’s endangering his 2020 strategy. – The Washington Post

THE TICKER

There’s little chance that impeachment will remove President Trump from office. But one Wall Street strategist notes that it could complicate his reelection path.

Economic forecasters have predicted that Trump should cruise to a second term next year given the strength of the economy. But a new analysis from JPMorgan Asset Management suggests that the onslaught of coverage of impeachment and Trump’s efforts to pressure Ukraine to investigate his political rivals is drowning out the positive economic news he needs to win. 

The dynamic highlights the challenge facing the White House as it pursues a split-screen strategy depicting Trump as focused on his agenda while congressional Democrats press ahead with impeachment. 

Michael Cembalest, JPMorgan Asset Management’s chairman of market and investment strategy, lays out the quandary facing Trump in a pair of charts. First, Cembalest crunched a raft of data to conclude Trump is heading into the 2020 campaign with the strongest economic tail winds going back to 1896. 

The measures blended more than a century of readings on consumer price inflation, the jobless rate, the change in that rate, per capita economic growth, how that growth compares to that of other leading economies, stock market returns, and home price appreciation, among others:

But viewers tuning into primetime CNN and MSNBC from 8 to 10 p.m. over a year-long period ending in September saw barely a blip about positive economic developments. Instead, the Mueller investigation and Russian interference in the 2016 election overwhelmingly dominated those airwaves, followed by coverage of Trump’s personal conduct in office, then immigration issues, then administration corruption:

Trump critics will contend the president has earned that coverage through his behavior, while he merely inherited an economic expansion that has mostly continued apace. Cembalest mostly agrees: “Trump deserves the coverage he’s getting from those news outlets,” he tells me.

But he wrote the note to illustrate something he observed in his own home: His wife, a devoted MSNBC watcher, hears a version of the news that bears little resemblance to what he sees all day studying market and economic indicators. The divide both fuels and is fueled by a broader Balkanization of the electorate that suggests the traditional relationship between the economy’s performance and the president’s political fortunes may be breaking down.

By matching historical economic data to presidential election outcomes, economists at Moody’s Analytics, Oxford Economics and Trend Macrolytics have all projected Trump will secure reelection more easily than his first win, barring a serious economic downturn. But the more relevant point of comparison may be 2018. An analysis Cembalest conducted after the election found that measured against the strength of the economy, Republicans suffered the worst midterm losses by a president’s party in at least a century.

The finding could reframe Trump’s political incentives in waging his trade war. Conventional wisdom has held the president keeps up the fight at his own peril, since it remains arguably the greatest menace to continued economic growth.

But if he can galvanize his base by stoking confrontation with the Chinese — and that outweighs whatever economic costs it brings — it may be in Trump’s interest to keep putting off a deal. “I think that’s true up to a point,” Cembalest says, arguing if the president goes forward with December 15 tariffs heavily targeting consumer goods, “I think he’d lose them, because the global recession that could result would offset the benefits from the base. He has to figure out how to conduct the trade war” with lower stakes.

Some support for the theory comes from across the Atlantic. “Italo Colantone and Piero Stanig, both of Bocconi University in Milan, study election results in 15 European countries,” per The Economist. “They find that areas facing greater competition from Chinese imports were more likely to vote for nationalist parties.”

More from that piece, titled “Does the economy affect elections anymore?”: “The old straightforward relationship between the economic cycle and elections could yet return. But the implication of the new research is that support for populism is a deeper-rooted feature of Western economies… Voters care less than they used to about the economy’s immediate impact on their wallets. But they care more than ever about how the economy shapes their identity–their sense of security, and their freedom.”

MARKET MOVERS

— Growth stumbles for services sector, private payrolls. Reuters’s Lucia Mutikani: “U.S. services sector activity slowed in November as lingering concerns about trade tensions and worker shortages pushed production to its lowest level in a decade, which could heighten fears about the economy’s health. Other data on Wednesday showed private employers hired the fewest workers in six months in November. The reports came on the heels of data on Monday showing manufacturing activity contracted for the fourth straight month in November and a decline in construction spending in October.

“The continued manufacturing slump and second straight monthly drop in construction outlays tempered growth expectations for the fourth quarter, which had been boosted by a rush of upbeat reports on the trade deficit, housing and business investment. Still, the economy appears to be growing at a moderate pace rather than stalling.”

— Stocks snap losing streak. MarketWatch’s Andrea Riquier: “U.S. stocks closed higher for the first time in four sessions following a report that a phase-one trade U.S.-China trade deal was still in the works, helping to offset fears of a delay sparked a day earlier by [Trump’s] remarks. The Dow Jones Industrial Average rose 146.97 points, 0.5%, to 27,649.78. The S&P 500 index added 19.56 points, or 0.6%, to close at 3,112.76. The Nasdaq Composite Index advanced 46.03 points, or 0.5%, to end the session at 8,566.67.

“U.S. stock-index benchmarks recovered some of the week’s lost ground after Bloomberg News, citing sources familiar, reported that Beijing and Washington were making progress toward a phase-one trade pact. The comments also helped to provide a lift to European equities.”

— More S&P 500 companies face an earnings squeeze. WSJ’s Akane Otani: “Investors who have shrugged off tepid earnings growth this year have leaned on the argument that the majority of S&P 500 companies have wound up beating analysts’ expectations. Morgan Stanley’s wealth-management unit isn’t sold on that argument.

“The money manager found in an analysis of earnings that more than a third of S&P 500 companies have posted a year-over-year decline in earnings in 2019. The last times the share of companies posting contracting earnings was that high: 2009, 2008 and 2002, all periods when the broader economy, plus the stock market, were in decline. Will stocks buck the trend this time around? Morgan Stanley Wealth Management isn’t betting on it.”

TRUMP TRACKER

TRADE FLY-AROUND:

— Mnuchin warns of issues with global tax rewrite: “The U.S. has ‘serious concerns’ with proposals being discussed in the global rewrite of corporate tax rules, Treasury Secretary Steven Mnuchin said, as he introduced a new idea that could complicate a deal over adapting the tax system for the digital economy,” the Wall Street Journal’s Richard Rubin and Paul Hannon report.

“In a letter to the Organization for Economic Cooperation and Development, Mr. Mnuchin cited concerns raised by U.S. businesses. He said that changing the mandatory rules for when countries have the right to tax companies could affect ‘longstanding pillars of the international tax system upon which U.S. taxpayers rely’ … Nevertheless, Mr. Mnuchin’s reservations come as a surprise given that the broad outlines of new rules agreed to in October were based on ideas advanced by the U.S., which has long pushed for measures that cover all companies, not just those whose businesses are highly digital.”

— Dems see USMCA deal on horizon: “‘We are on the 2 1/2-yard line,’ Ways and Means Chairman Richard Neal said about efforts to wrap up negotiations on the replacement for Nafta and clear the way for approval in Congress,” Bloomberg News’s Erik Wasson and Eric Martin report.

“Mexico’s top trade negotiator, Jesus Seade, was meeting … with his Trump administration counterpart Robert Lighthizer in Washington in an attempt to resolve final issues. Neal said rank-and-file Democrats would be briefed on the details of the talks later in the day. California Representative Jimmy Gomez, a member of the U.S. House Democrats negotiating team, said that House Speaker Nancy Pelosi and Lighthizer have offered Mexico a compromise on labor enforcement that ‘respects Mexico’s sovereignty.’ ”

— China slams Pompeo over Huawei: “China’s envoy to the European Union hit back at what he called politically motivated U.S. warnings that Chinese telecom equipment makers should be kept out of European 5G networks,” Politico’s Laurens Cerulus reports.

“In response to an op-ed in Politico by Secretary of State Mike Pompeo, the head of the Chinese Mission to the EU said that claims about Huawei were ‘a far cry from the truth …’ “While Pompeo attacks the Chinese Communist Party and proudly claims the moral high ground, he forgets about the NSA’s notorious PRISM surveillance program and the wiretapping of America’s closest allies,” the Chinese diplomat added … Zhang was responding to the opinion article published Monday in which Pompeo wrote that ‘it’s critical that European countries not give control of their critical infrastructure to Chinese tech giants like Huawei, or ZTE.’ ”

IMPEACHMENT MINUTE: A speed read on the latest from the congressional impeachment inquiry.

“White House gears up for aggressive effort to defend Trump in Senate as House moves toward impeachment vote.” By The Post’s Seung Min Kim, Mike DeBonis, Rachael Bade and Karoun Demirjian 

“5 takeaways from the Judiciary Committee’s first impeachment hearing.” By The Post’s Aaron Blake 

“Giuliani, Facing Scrutiny, Travels to Europe to Interview Ukrainians.” By the New York Times’s Kenneth P. Vogel and Benjamin Novak

POCKET CHANGE

— Amazon cloud boss chides Pentagon: “‘It’s fairly obvious that we feel pretty strongly that it was not adjudicated fairly,’ Amazon Web Services chief executive Andy Jassy said during a news conference at the company’s annual conference [in Las Vegas]. ‘If you do a truly objective, detailed, apples-to-apples comparison with the platforms, you don’t end up in a spot where the decision was made,’” my colleague Jay Greene reports.

“The contract, valued at up to $10 billion over 10 years, was awarded to Microsoft in October, and Amazon has formally challenged the Pentagon’s decision, filing a protest with the Court of Federal Claims last month that cites comments by President Trump as indicating bias against Amazon. Trump has repeatedly criticized Amazon, whose founder and chief executive, Jeff Bezos, owns The Washington Post.”

— Under Pichai, Alphabet could face more scrutiny: “Alphabet’s leadership change has some investors hoping that the owner of Google will take a hard look at the cash-burning ventures championed by its founders,” Reuters’s Caroline Valetkevitch and Noel Randewich report.

“Shares of Alphabet rose 2% … with some investors saying Pichai’s pragmatic approach and his background at Alphabet’s core business may make him less patient about money-losing projects fostered in recent years by [Google co-founders Larry Page and Sergey Brin]. One of the biggest changes for Pichai will be taking responsibility for those so-called ‘moonshots,’ which are aimed at diversifying Alphabet’s business.”

• What those “moonshots” include: “Alphabet has plowed billions of dollars into ventures Wall Street has never been completely sold on, including self-driving cars, atmospheric balloons to deliver internet service, delivery drones and smart contact lenses.”
• Just how much is a Google worth?: Page and Brin “just got a $2.3 billion retirement gift from investors,” Bloomberg News’s Tom Metcalf reports. “They each own about 6% of the internet giant and still control Alphabet through special voting shares.”

— Expedia’s CEO, CFO ousted: “Expedia Group Inc.’s chief executive and finance chief were both forced to resign after clashing with Chairman Barry Diller and the board over the direction of the travel company,” the WSJ’s Patrick Thomas reports.

“The website that helps users find hotel rooms and flights said Wednesday that CEO Mark Okerstrom and financial chief Alan Pickerill would step down immediately from their roles, at the behest of the board. Expedia’s brands include Hotels.com, Orbitz, Travelocity, Hotwire and CarRentals.com.”

— Italy claims Fiat massively undervalued Chrysler: “Italian tax authorities have claimed Fiat Chrysler Automobiles NV underestimated the value of its American business by 5.1 billion euros ($5.6 billion) following its phased acquisition several years ago, presenting the carmaker with a potentially hefty bill as it prepares to merge with French rival PSA Group,” Bloomberg’s Daniele Lepido,Tommaso Ebhardt and Ania Nussbaum report.

“The dispute relates to the October 2014 restructuring that took place after the former Fiat SpA purchased the final part of its Chrysler unit, according to company filings and an Oct. 22 audit report seen by Bloomberg. The purchases stretched over five years and culminated in the full takeover of the once-bankrupt owner of brands such as Dodge, Ram and Jeep.”

— Billionaire, in need of cash: “Elon Musk says he doesn’t have a lot of cash. Musk’s wealth came up in the second day of his testimony before a federal jury in Los Angeles where the Tesla Inc. and SpaceX chief executive is on trial over a tweet in which he referred to a British cave expert as a ‘pedo guy,’” Bloomberg’s Dana Hull, Edvard Pettersson, and Tom Metcalf report.

“After an unsuccessful objection from his lawyer, Musk told the jury he has Tesla stock, and SpaceX stock, with debt against those holdings, and his net worth is about $20 billion. But contrary to public opinion, he said, he didn’t have much cash. Musk finished testifying after a total of about six hours on the stand over two days.”

— Walmart talks about how it collects data: “Walmart Inc for the first time … revealed the breadth of customer information it collects as it came out in favor of consumers having ‘reasonable controls’ with regard to collection, use and sharing of personal data,” Reuters’s Nandita Bose reports.

“The world’s largest retailer said shoppers should have an opportunity to ‘reasonably access, correct or delete their data while limiting the sale of their data to third parties and its use in digital advertising,’ as it testified at a hearing by the U.S. Senate Committee on Commerce, Science and Transportation. The hearing, which was also attended by companies like Microsoft, was convened to examine various legislative proposals to protect consumer data privacy.”

MONEY ON THE HILL

— Biden releases $3.2 trillion tax plan: “Former vice president Joe Biden released a plan to raise $3.2 trillion in taxes over 10 years to pay for his domestic spending proposals, including on health care and climate, as he seeks to cast himself as the fiscal moderate in the Democratic presidential primary amid pressure from his liberal rivals,” my colleague Jeff Stein reports.

“Biden’s plan calls for raising the tax rate paid by corporations from 21 percent to 28 percent, still below the 35 percent level in place before the 2017 GOP tax cut law. He also plans to raise $800 billion from new taxes on capital gains primarily paid by investors, as well as $400 billion from imposing a new 15 percent corporate minimum tax that aims to ensure big firms pay at least some taxes, among other measures … The federal government is projected to bring in $3.8 trillion in revenue in 2021, so Biden’s plan would aim to boost tax revenue by less than 10 percent in the first year.”

• How it compares: “The plan, first reported by Bloomberg News, highlights the fissures in the Democratic primary by stopping short of many more-aggressive tax measures pitched by Sens. Elizabeth Warren (Mass.) and Bernie Sanders (I-Vt.). For example, Warren and Sanders have proposed more than $20 trillion in new taxes over 10 years, at least six times as much as Biden’s. Biden, for instance, rejects the liberals’ calls for levying new wealth taxes on multimillionaires and billionaires that would vastly reduce their fortunes and clout.”
• Less aggressive than it could have been: “Biden also opts not to adopt more-aggressive measures that had been under consideration by some advisers to his campaign, including a new tax on Wall Street transactions … Similarly, Biden proposes increasing the top income tax rate from 37 percent to 39.6 percent, where it was before the 2017 GOP tax law. Rep. Alexandria Ocasio-Cortez (D-N.Y.), who has endorsed Sanders, made waves this year by calling for a 70 percent tax rate on top earners.”

The fight over Harris’s donors has begun: Sen. Kamala Harris’s “most affluent fundraisers, spanning from Wall Street to Silicon Valley, have been receiving calls and emails from people close to top-tier candidates like former Vice President Joe Biden, South Bend, Indiana, Mayor Pete Buttigieg, and Sens. Amy Klobuchar and Cory Booker. These people are hoping to snag the support of the bundlers and their donor networks,” CNBC’s Brian Schwartz reports.

Warren trolls Bloomberg on Bloomberg: “Elizabeth Warren accused former New York Mayor Michael Bloomberg of trying to buy the 2020 election with millions of dollars in advertising to fuel his late entry into the Democratic race,” Bloomberg’s Misyrlena Egkolfopoulou and Joe Weisenthal report.

“Warren delivered her message in an interview on Bloomberg Television from the company’s headquarters in New York City. ‘I don’t believe that elections ought to be for sale,’ Warren said. ‘And I don’t think as a Democratic Party that we should say that the only way you’re going to get elected, the only way you’re going to be our nominee, is either if you are a billionaire or if you’re sucking up to billionaires.’”

• That wasn’t all: Before the interview, Warren bought an ad to air on the network that directly attacked its owner-turned-candidate:

Warren proposes crackdown on bank mergers. NYT’s Jeanna Smialek: “Warren plans to introduce a bill in coming weeks that would intensify the scrutiny of bank mergers, a signal less of legislative action to come than of her intentions for the finance industry if she is elected president.

“The bill, a companion of which will be introduced Wednesday in the House by Representative Jesús ‘Chuy’ García, Democrat of Illinois, will almost certainly go nowhere in the Republican-controlled Senate. But its argument that the ‘review process for bank mergers is fundamentally broken’ indicates that Ms. Warren, Democrat of Massachusetts, still has the financial industry in her sights.”

New Georgia senator is ready to cut a big check to her campaign: “Soon-to-be Republican Sen. Kelly Loeffler plans to spend $20 million of her own money on her 2020 Senate campaign in Georgia — a massive sum that could give potential rivals pause about trying to unseat her,” Politico’s Alex Isenstadt reports.

“Loeffler, a wealthy financial executive and co-owner of Atlanta’s WNBA team, was tapped Wednesday morning to replace Sen. Johnny Isakson, who is resigning later this month due to health problems, on an interim basis. She has told advisers in recent days of her intentions to tap her vast fortune to win next year’s special election to complete Isakson’s term, according to a person with direct knowledge of the decision.”

• Loeffler is heavily connected to Bitcoin: “Loeffler has been the chief executive of Bakkt, the Intercontinental Exchange’s bitcoin-focused subsidiary, since the entity’s announcement in August 2018,” Coindesk’s Nikhilesh De reports. “Under her tenure, the company rolled out its physically-settled bitcoin futures contracts earlier this year. 
• She also used to be directly connected to the NYSE: Loeffler was “the chief communications and marketing officer and head of investor relations for the Atlanta-based Intercontinental Exchange, a financial trading platform that owns the New York Stock Exchange,” the Atlanta Journal Constitution’s Jim Denery writes. “Intercontinental Exchange was founded by Loeffler’s husband, Jeff Sprecher.”

THE REGULATORS

Via Adam Tooze:

DAYBOOK

Today:

• The Senate Banking Committee holds a hearing on the oversight of financial regulators, Fed Bank supervisor Randal K. Quarles and  FDIC chairman Jelena McWilliams are among those expected to testify.
• Dollar General, Tiffany & Co. Kroger, Express, Michaels, Ulta Beauty and American Outdoor Brands are among the notable companies reporting their earnings.
• The Financial Services Committee holds a hearing on the Trump administration’s “deregulatory approach to financial stability.”
• A Financial Services Subcommittee holds a hearing on the FHA and its impact on home ownership.
• The Brookings Institute holds an event titled “The repo market disruption: What happened, why, and should something be done about it?”

Friday:

• The Labor Department publishes the latest jobs report
• The Financial Services Committee’s task force on artificial intelligence holds a hearing on “the impact of AI on Capital Markets and Jobs in the Financial Services Industry.”
• Big Lots is among the notable companies reporting their earnings.
• Brookings holds an event titled “The great reversal: How America gave up on free markets.”

THE FUNNIES

From The Post’s Ann Telnaes:

BULL SESSION